ANNUAL ADDRESS BY GEORGE D. WOODS, PRESIDENT OF THE BANK AND ITS AFFILIATES R. CHAIRMAN, this is in many respects a notable and I want only to comment on a few highlights of M occasion. It is notable as the largest assem- the past year. blage of financial leaders ever to gather together any- First of all, I want to welcome the willingness of where in the world. I am happy to bid you all wel- the capital-exporting countries to continue and in- come-and particularly to associate myself with the crease their annual contributions in support of the greetings extended by the Chairman to the 20 new International Development Association. The pro- nations, most of them from Africa, which have joined posal which the Executive Directors have submitted our membership since we last met. to the Governors on this matter constitutes a hearten- This occasion is notable, too, for its absences. We ing endorsement of the multilateral approach as the miss Per J acobsson, in whose death the world lost a most effective means of providing development as- devoted and uniquely competent public servant. My sistance on an objective, non-political basis. Whereas friend, Mr. Pierre-Paul Schweitzer, has stepped into the $750 million of convertible funds in lOA's initial large shoes, but I am confident that they will fit him resources were payable by Part I countries over a comfortably. We have had several visits, and I look period of five years, this proposal calls for an addi- forward to the Fund and the Bank working together tional $750 million to be contributed in a period of in close collaboration at all levels. only three years. This is a significant acceleration in Absent, too, on this occasion is Eugene Black, contributions which I hope will permit IDA to main- who is engaged on one of the new assignments he tain its operations at the higher level they are now has undertaken. It was to a large extent his imagina- reaching. We are aware that the demand for IDA tive leadership which made the Bank what it is today. funds will in all probability exceed the supply, and The tributes paid to him last year need no gilding its policies should therefore be kept under constant from me. I want only to record that the Bank and its review. member countries are deeply in his debt. Let me also draw your attention to the variety of The Bank and the Fund, under Eugene Black and the operations of the International Finance Corpora- Per J acobsson, became strong and powerful instru- tion. The Corporation obtained wider private par- ments in the world's struggle against poverty, in- ticipation in its investments than in any previous stability and ignorance. But that battle has just year. It continued to make loans to private industrial begun. Indeed, what really makes this occasion enterprises, but in addition it used in several ways the notable is the urgency of the problems that still press new powers of equity investment you gave it two in on us and the readiness of our members, if I sense years ago. It made investments in the share capital their mood correctly, to explore new ways by which of industrial companies and entered into stand-by our institutions can more effectively meet those agreements in connection with the issue of shares and problems. of debentures as well. It also successfully liquidated In talking to you this morning, it is my intention its first underwriting commitment, made in the pre- to concentrate primarily on the future opportunities vious year, in respect of a share issue. for the Bank, as I see them, rather than on the Another significant development during the year record already made. That record is set out in detail has been the growing activity of the Bank group of in the Annual Reports of the Bank and its affiliates institutions, under the leadership of IFC, in the 8 establishment and support of local private industrial of progress remains discouragingly slow. And there finance companies. In this field, IFC's ability to ac- are many new nations taking up the reins of their quire equities has opened substantial new oppor- own affairs for the first time which are joining the tunities by making possible joint action by IFC and development race far in the rear. the Bank or IDA. Mr. Chairman, this is not the occasion for trying Finally, let me make an observation about the to analyze all the many factors which serve, in vary- volume of Bank lending. At $442 million it was con- ing degree in different countries, to put a brake on siderably lower for the fiscal year ended last June 30 economic progress. There are three problems, how- than it was in the previous fiscal year. However, in ever, which, because of their importance and the the three months since June 30, we have approved breadth of their impact, seem to me to warrant additional loans amounting to $350 million, and our special attention. The first of these is that in too pipeline is full. From where I sit, the prospect is not many cases the export structure is unbalanced and for a downward trend in the Bank's operations. export earnings are not increasing at a satisfactory Mr. Chairman, one advantage of a change of com- pace. I will call this the "commodity problem." The mand such as we have now had in the Bank and its second is that a number of governments are burdened affiliated organizations is that it provides an oppor- by heavy debt service obligations over the short and tunity to take stock of our position, to look afresh at medium term. This I will call the "debt problem." our organization and at our problems and policies. Finally, there is the difficulty confronting almost all And since our problems are to a large extent those of the developing countries of formulating and carrying the developing countries, we must look first at their out economic and financial policies which are effec- situation. tive in mobilizing and properly allocating the re- Despite the voices of pessimism, there is no doubt sources available to them for development. I will in my mind that a considerable advance has been call this the "policy problem." made by the underdeveloped countries in the postwar Let me deal first with the "commodity problem." period. Over the last fifteen years their industrial Despite considerable industrial advance since the production has risen two-and-a-half times and agri- war, most underdeveloped countries have remained cultural production by almost forty percent. By his- dependent for their foreign exchange earnings on a torical standards, this is a notable achievement. Not limited range of primary products. Prices of these only do many underdeveloped countries have a sub- products suffer from severe fluctuations. In addition, stantial record of growth in production and invest- international demand for many of them increases ment, but equally important, an impressive fund of only moderately. In the postwar period--one of experience and skill has been created. The time is prosperity in the developed world-the export in- not too distant, I believe, when some countries which come of underdeveloped countries as a group has are now themselves struggling with the problems of increased at only three percent per year. All evidence development will be helping others less advanced. A suggests that this is less than the growth in the few such instances are indeed already emerging. This needs of these countries for imports to achieve a is the best proof, if proof were needed, that achieving satisfactory growth in income. Import substitution as sustained economic growth in the developing nations a means of saving foreign exchange expenditure is a is not a task without end or without hope. partial answer. If the national market is small, how- But the development problems still facing us are ever, the room for efficient import substitution is huge. If anything, the need to quicken the tempo of limited and growth is difficult unless new exports can economic growth is now more urgent than ever, be developed quickly. The alternatives facing these simply because aspirations for progress are now so countries are either to contain their imports and universal. In many underdeveloped nations the rate depress their income growth or to widen their 9 exchange gap and face future balance of payments one optimum pattern of investment. Nevertheless, difficulties. the large and glamorous prestige project which is not The past year has seen an upswing in commodity productive or the small feeder road which is not prices following a sharp downward movement from maintained are easily recognized instances of waste. 1957 to 1962. But it is not clear that this recovery Nor is it difficult to find instances where balance of will be lasting and, in any case, it does not touch the payments pressures can be traced to improper do- problem of those countries whose exports face com- mestic policies. Insufficient savings efforts or inade- petition from more efficient synthetics or from agri- quate fiscal and monetary policies can slow down cultural production in the importing regions. It export growth or be the main cause of external follows, therefore, that a far-reaching diversification financial difficulties. of the production and exports of the developing Mr. Chairman, as I have already indicated, the countries is a basic requisite for their sound economic three problems which I have touched upon are only progress. part of the background against which the Bank group Turning now to the "debt problem," it is common of institutions must now formulate their future poli- knowledge that the external obligations of the devel- cies. To the economic difficulties they present must oping countries have risen considerably over the past be added the fact that most of our new members lack several years. This fact by itself is not disturbing. As the administrative structure, and are inexperienced long as a country needs net capital inflow and can in the techniques, necessary to carry forward the de- use it productively, there is nothing inconsistent be- velopment process. To lend money to them wisely tween growing indebtedness and growing economic involves a much greater investment of human skills strength. Even the interest burden on the existing than in the case of countries with a longer experience debt is not excessive. The disturbing factor in the of development administration. In some countries, current situation is the unfavorable structure of the too, a number of the more obvious and more easily debt for many countries. All too frequently, too manageable investment projects, mostly of an infra- much of the debt has been contracted at short or structure nature-the large power plants, the high- medium term, so that there is an excessive concen- way, railroad and port expansion schemes, the big tration of repayment obligations in the early years. irrigation projects-have already been or are being In one geographic area, for example, half of the financed. These countries now have a growing need present debt has to be repaid during the next five for help in other sectors, in particular in agriculture, years. This is a matter which needs to be given industry and education, which often present much greater weight in the future in fixing the terms upon greater problems of appraisal, planning and manage- which development assistance is made available. ment. Finally, let me say a few words about the "policy All of these considerations suggest, I believe, that problem" within the developing countries themselves. the time has come when the Bank will have to add Efforts to mobilize national resources for economic new dimensions to both its lending and technical as- development have been handicapped by political and sistance activities. We will have to be prepared, on social factors, by runaway inflation and capital flight the one hand, to give more technical advice and as- and by other impediments to economic growth. Ide- sistance earlier in the development process and, on ological preconceptions in some underdeveloped the other, to follow development into its more ad- countries have caused private foreign investment to vanced stages and to use new techniques for that hesitate or even turn away. Some of these obstacles- purpose. This will not involve any sharp or radical political expediency, inflation, ideologies-also pre- change in direction. The financing of basic services vent rational allocation of investible resources. Ad- which has been the bulk of our business in the past mittedly, no one can prescribe with assurance any will continue to be the bulk of our business in the 10 future. But I do suggest that, if the Bank in the next duction, our loans serve also to build up vigorous, decade is to make as large a net contribution toward efficient national agricultural development agencies, meeting the needs of its less developed member we shall have made a valuable contribution to long- countries as it has up to now-and certainly this range economic progress in the borrowing countries. should be a minimum target-we must be ready We must also make our assistance to industry a much more often than heretofore to leave this proven good deal more versatile than it has been so far. In ground and venture onto less familiar terrain. this way, we would contribute directly to the diversi- If we are going to intervene earlier in the develop- fication of our members' economies and thus to an ment process, for example, we are going to have to easing of what I have referred to as the "commodity do much more to help agriculture. In a great many problem." In some cases what would be involved of our less developed member countries, agriculture would be the financing of new industries, of a kind employs four-fifths of the population. It also pro- that had not existed before in the developing country. vides materials and generates the market demand Even though these industries might be slow to gain a which together are the basis for healthy industrial foothold and slow in paying out, it would often be growth. appropriate for us to give them assistance, I believe, The scale of our lending for agriculture has not, in both for their own sake and because they would form my view, been commensurate with the importance of the nucleus around which other development would this sector. Thus far most of it has been for large- take place. scale irrigation, flood control or land clearance proj- Another type of assistance to industry which we ects. I believe that we must now intensify our are investigating is the possibility of providing, in support of agricultural development on a broader appropriate cases, long-term financing for the import front-through such means as helping to finance of individual pieces of equipment, components and storage facilities and farm-to-market roads, and spare parts. Loans of this kind would be particularly through strengthening agricultural organizations that valuable in cases where full use cannot be made of extend credit and technical help to the farmer. Such existing industrial capacity because there is no foreign programs are unlikely to yield quick and dramatic exchange with which to buy such equipment from returns, and they will be expensive to support in abroad. Qualifications may have to be applied to this terms of both manpower and administrative costs. idea, but an investigation of the possibilities is, I But the need is clear and urgent. think, an important and timely task. One way, I think, in which the Bank could be Still another question we are exploring is the ex- especially useful is by helping to build up local agri- tent to which the Bank is impeded in its efforts to cultural credit and investment institutions, which help industry by the requirement of a governmental might progressively become important channels for guarantee for its loans to private borrowers. Private our financing to the agricultural sector and catalysts enterprises are often reluctant to seek a government for a wide range of measures to raise its productivity. guarantee, and governments often find it constitu- Such institutions, by associating technical advice and tionally or politically difficult to give one. It was supervision with the provision of investment funds, partly for this reason that the Bank first came to be can greatly enhance the effectiveness of both. There interested in industrial development finance com- is an obvious analogy with the role of the industrial panies; while Bank loans to them must be guaranteed, finance companies in many countries, with which we they themselves can make non-guaranteed loans to have developed such satisfactory relationships. The private enterprises. The creation of IFC itself was in problems of agricultural financing are different, and large part prompted by the desire to give the Bank inherently more difficult, in many ways. But if, in an instrument for investing without guarantee. But, addition to their direct impact upon agricultural pro- notwithstanding these initiatives, I think there is need 11 for assistance which neither IFC nor local financing come this as offering new opportunities for collabo- companies can today provide. I have in mind cases rating with other members of the United Nations where loan capital is required in large amounts, gen- family and for strengthening the already close rela- erally by established shareholder-owned enterprises. tionships we have established with them. We do not I am actively exploring with the Bank's Executive intend to trespass where other agencies are better Directors the extent of this unsatisfied need and what qualified than we. Nor do we intend to risk the dilu- may be the most desirable and effective means of tion of our own special skills by building an ever meeting it. larger bureaucracy. Cooperation, not competition, Agriculture and industry are not the only fields in will be our purpose, and to this end we shall, when- which I think we should expand our efforts. In par- ever feasible, join our sister agencies in the explora- ticular, I believe that we will have to do more to help tion and support of promising new projects. create the facilities necessary to the spread of educa- The whole range of development problems as they tion. Education is of course a valued end in itself, are now evolving is extremely complex, and we are but it is also of central importance in the whole de- only beginning to find the answers to them. One thing velopment process. It imparts the skills that are I am sure of, however: as we move out to meet these needed at every level of activity, from the effective problems, we should take the fullest possible advan- use of planning techniques in government and busi- tage of the strong financial position in which the ness right down to proper employment of simple Bank now finds itself. We should not hoard our hand tools in workshops and on farms. Secondary strength, we should use it. and vocational schools, in particular, can have a To use but one example, I think the Bank now not fairly rapid impact on development by providing the only has ample reason, but ample strength and ample middle-level manpower as well as the specialists in experience to modify the terms of its lending, in ap- administration, agriculture and other subjects that are propriate cases, so that they will be more suitable for so important in economic growth. IDA, as you the new kinds of clients, and the new kinds of proj- know, already has made one credit for school con- ects that must begin to concern us. In particular in- struction in Tunisia, and is considering similar credits stances, the grace period may need to be lengthened, elsewhere. I believe it would now be appropriate for to allow the project financed to be brought into full the Bank, too, to lend for school facilities of high earning power, or to give a longer breathing spell to economic priority. a borrower whose repayment capacity may take some As Mr. Black told you last year, we have also been years to build up. And it would be equally reason- formulating our ideas on our proper role in providing able, in given instances, to lengthen the maturity of technical assistance to education. On the basis of the Bank loans which up to now have generally had a advice I have received, I have concluded that our maximum life of 25 years. help here is likely to be most effective if it is linked Because of our strong financial position, too, the closely with actual Bank or IDA lending for educa- tional facilities. On the whole, this attack, in which Executive Directors have concluded that it is no our technical assistance and our financing will rein- longer necessary automatically to allocate our net force each other, seems likely to bite deeper into the income, as it accrues, to the Bank's Supplemental problem than an independent program of grants. Reserve. They have decided that, instead, the alloca- If we broaden the scope of our interests in the tion of net income, whether to Supplemental Reserve ways I am suggesting, we shall inevitably be led into or otherwise, will be considered annually after the fields which are already the primary concern of other close of the fiscal year. I welcome the action of the international bodies, such as F AO, UNESCO and Governors this morning in noting that decision with the United Nations Industrialization Center. I wel- approval. 12 Mr. Chairman, I have emphasized the new direc- Mr. Chairman, I mentioned earlier the importance tions in which I believe the Bank must move because of proper resource utilization in the developing coun- that is the immediate business which concerns us tries, what I called the "policy problem." I want to here today. But we must frankly recognize that the revert to that subject, particularly in connection with Bank's efforts are only a small part of the picture. the difficulties of project preparation and execution. If the tempo of development is really to be quick- Although these are a common experience every- ened, if we are really to make progress in solving the where, I cannot refrain from expressing my concern problems which I sketched at the beginning of this at the length of time which is generally necessary for talk, it will call for increased determination and more our borrowers to prepare a project and make it ready effective action by national governments, both of the for financing. Even on projects already approved, industrialized and of the less developed nations. the rate of disbursement is often slow, and it seems So far as the capital-exporting countries are con- recently to have become even slower. cerned, each year a little more of their growing This is a serious matter and we intend to investi- strength is put at the disposal of the developing gate it thoroughly. The less developed countries world. The flow of development assistance now cannot afford project delays if they want to realize comes from more sources than ever before; it is rapid growth. If part of the trouble lies in our own better coordinated than in the past; and, over the last procedures, we shall seek to improve them. We in- five years, the amount of assistance has risen by more tend to explore, too, ways in which we may be able than fifty percent. to help our borrowers to remove bottlenecks. No as- This aid needs to be continued, and on an increas- sistance from outside can be effective, however, un- ing scale. Equally important, the terms on which it less the government is itself committed to speeding is provided, although now somewhat better than in up project work by simplifying administrative and the past, still need to be improved. The efforts of other practices and by giving to it appropriate priority the Bank and IDA to alleviate the problems posed in the allocation of scarce personnel resources. by the debt structure of our less developed members In some cases project delays are due to a shortage will be of little avail unless bilateral aid is more gen- of local funds needed to supplement the foreign- erally available on terms reflecting the recipients' financed component of investment. This raises a legitimate needs. much wider issue of resource mobilization which In addition to finance on sounder terms the devel- time does not permit me to explore today. But oping world requires from the industrialized nations plainly there is little sense in borrowing external re- not only increasing aid, but also easier access to their sources if at the same time national capital is escap- markets. The primary products of many under- ing abroad. We can only guess at the size of this developed countries today encounter trade obstacles, outflow and it varies greatly from country to country, be they tariffs, quotas, or internal taxes. Trade re- but certainly considerable funds are involved. At the strictions are also a serious barrier to the efforts of initiative of one of our Executive Directors, we are the developing countries to industrialize and to diver- considering, in collaboration with the Fund, whether sify their export structures-tasks which would be there is anything that external agencies can usefully inherently difficult enough even with free access to do to encourage capital repatriation. markets. The forthcoming United Nations Confer- Mr. Chairman, financial and technical assistance ence on Trade and Development will provide a useful from the Bank and other public sources is never opportunity for the developed countries to re-examine going to be more than marginal to the requirements their trade policies vis-a.-vis those less developed. of the developing countries. While we can lubricate The outcome of that re-examination will be of the the machinery, the chief driving power must come greatest significance. from elsewhere-most of all from the developing 13 countries themselves. But there is one source in outdated past rather than on present facts. And I am particular of which much more use can be made; I am convinced that those of our members who adopt as speaking of the energies, the talents and the capital their national policy a welcome for international in- that exist in the private sectors of both the developed vestment-and that means, to mince no words about and underdeveloped countries. We have an obligation it, giving foreign investors a fair opportunity to make to do all we can to create the conditions which will attractive profits-will achieve their development unlock this resource. objectives more rapidly than those who do not. For One proposal which we have been actively explor- a country which is known to be hospitable to private ing with this objective in mind is the plan to establish investment will have access over the years to a much facilities, under the umbrella of the Bank, for the larger and more stable pool of capital than its neigh- conciliation and arbitration of international invest- bor which relies solely on government-to-government ment disputes. The Executive Directors, together aid. It will have access, too, to a much larger pool of with the staff, have had this matter under study fol- industrial personnel-managerial, administrative and lowing the request made of them by this Board of technical-and to a much larger mass of scientific Governors at last year's Annual Meeting. The pro- and technological information than it could possibly posal has now been given the form of a draft conven- acquire in any other way. Most important of all, its tion. Over the next six months or so, this draft will economy will be stimulated and invigorated by the be discussed at a series of conferences of legal experts many different contacts, at many different levels, of our member countries, to be held, through the which a hospitable investment climate will make pos- courtesy of the four regional Economic Commissions sible between enterprises and individuals within its of the United Nations, in Addis Ababa, Bangkok, own borders and those within the borders of the in- Geneva and Santiago. I have high hopes that in 1964 dustrialized countries. None of these advantages is the Executive Directors will be able to present to this likely to be fully available to any nation whose gov- Board concrete conclusions and recommendations on ernment, however well motivated and however well this matter. administered, decides to relegate the private sector to My enthusiasm for the proposal to establish a con- a subordinate role. ciliation and arbitration center is simply a reflection Mr. Chairman, I am proud of the quality of the of my interest in exploring all possible ways in which World Bank group and of the spirit and competence the Bank can help to widen and deepen the flow of of its personnel. It is my firm intention to guard the private capital to the developing countries. It is not good name and reputation of our organizations, and the business of the Bank, nor of its President, to tell at the same time to strive for an ever more expert the developing nations within the Bank's membership staff, for these are indeed the foundation pieces upon that they must accept private capital from abroad as which our future effectiveness will rest. This morning a partner in their development efforts or what kind I have deliberately sketched for you horizons for the of price it is reasonable for them to pay in order to Bank's future activities in the broadest terms. The achieve such a partnership. Those are issues which matters I have touched on are being thoroughly our members, as sovereign nations, must decide for studied, and it is not my intention to move with un- themselves. Whatever decisions they make, the due haste in implementing them. However, I do Bank, as a non-political international organization, assume your concurrence in the broad proposition must and does accept without reservation. For my that without departing from the high standards that part, however, I believe that, to a great extent, the have served so well in the past, the Bank and its attitudes of many of the less developed countries affiliates should and will advance to new plateaus of toward foreign private investment are based on the usefulness to the peoples of their member countries. 14