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The Bank Group Meeting: There was consensus on the need to ameliorate the deprivation of absolute poverty suffered by 800 million people in the developing world.

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 1973
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Martin Shivnan

There were two major features of the 1973 Annual Meetings of the Boards of Governors of the Bank, International Finance Corporation (IFC), and International Development Association (IDA) in Nairobi, Kenya. One was the announcement that, after prolonged negotiations, donor countries had agreed in principle to increase the resources of IDA by $4.5 billion. The other was a wide consensus on the need to ameliorate the degrading deprivation of “absolute poverty”—in which 800 million people of the developing world still lived.

The President of Kenya, H. E. Mzee Jomo Kenyatta, opening the Meetings, said that, although monetary matters would inevitably figure prominently in the joint discussions, a more fundamental crisis facing the international community was the economic and social development of the peoples of the Third World. “The world looks to you to find urgent solutions to the problems affecting their daily lives,” he said. “In your deliberations, I commend to you the Kenya motto of ‘Harambee,’ which means ‘pulling together in full cooperation.’”

The practical and moral imperatives to step up the flow of assistance to developing countries and to answer the need of their poorest people to share in the development process were stressed by the President of the Bank, Mr. Robert S. McNamara. He pointed out that the current flow of official development assistance was acutely inadequate, but that it could be doubled at a cost of less than 2 per cent of the massively increasing incremental incomes of the affluent nations. Some critics of increased assistance, Mr. McNamara said, cited the pressing needs of their own cities and countrysides. They failed to distinguish between relative poverty—meaning simply that some people or countries were less affluent than others—and absolute poverty.

“But absolute poverty is a condition of life so degraded by disease, illiteracy, malnutrition, and squalor as to deny its victims basic human necessities,” he said. “It is a condition of life suffered by relatively few in the developed nations but by hundreds of millions of the citizens of the developing countries.”

Its toll was evident in the hunger and malnutrition of one third to one half of the two billion people living in developing countries, in the 20 to 25 per cent of their children who died before their fifth birthdays, and in the millions who, although surviving, led impeded lives through nutritional deficiencies. It was evident in their reduced life expectancy (20 years less than in the affluent world) and in the absolute and growing number of illiterates.

“This is absolute poverty: a condition of life so limited as to prevent realization of the potential of the genes with which one is born; a condition of life so degrading as to insult human dignity—and yet a condition of life so common as to be the lot of some 40 per cent of the peoples of the developing countries. And are not we who tolerate such poverty, when it is within our power to reduce the number afflicted by it, failing to fulfill the fundamental obligations accepted by civilized men since the beginning of time?” he asked.

IDA replenishment

The Meetings opened while representatives of donor countries worked toward agreement on three-year replenishment of IDA resources. The negotiations, which had begun in December 1972, were several months behind schedule, but were completed before the close of the Meetings. The recommendations (to approve a replenishment at the rate of $1.5 billion annually for the fiscal years 1975 through 1977) were to be submitted to the Executive Directors of IDA for their approval and subsequent submission to the Board of Governors.

Representatives from 25 countries participated in the marathon negotiating sessions, which lasted nearly 20 hours, under the Chairmanship of Sir Denis Rickett, the Vice President of the Bank with special responsibilities for the Fourth Replenishment negotiations. They culminated a year of painstaking preparations, and throughout the meetings delegates were acutely conscious of the crucial discussions under way. Mr. McNamara warned, however, that the delay in reaching agreement might not leave sufficient time for legislatures to act on the recommendations before July 1974 when IDA would have committed all the funds at its disposal. Such a breakdown would be devastating for the nations that depended on IDA for the major support of their development programs—including particularly the least developed countries. Mr. McNamara thanked Japan and Germany for agreeing to increase their shares; he stressed, however, the very real difficulties ahead—there was no certainty about how long the consultative and legislative process would take, nor about its outcome.

Announcing the agreement, the Chairman of the Boards of Governors, Mr. George M. Chambers, urged the Governors to take back “the message of this assembly”—that nothing should stand in the way of its speedy final approval.

Governors from developing countries said the consequences of a termination in IDA activities next July would be “nothing short of calamitous.” Mr. McNamara said that he would remain in touch with the ministers of the contributing countries, and would not hesitate to ask them to take emergency action if that seemed necessary.

Mr. Anthony Barber, Governor of the Fund for the United Kingdom, said that it was inconceivable that ways would not be found to avoid a hiatus. Mr. George P. Shultz, Governor for the United States, noted that there was a consensus that the traditional share of the United States should be dropped from 40 per cent to one third and the shares of some other countries increased; he could not state with certainty how long the U. S. consultative and legislative processes would take, or certify their outcome. He added, however, that “we know there is a difficult problem and we know that we must find a solution to it.”

Bank Group lending

An increase in IDA activities was an essential part of the Bank Group’s plans for substantial increases, both absolute and qualitative, in its lending programs. Governors unanimously commended the Bank Group on achieving its targets of doubling and refashioning its lending programs in the fiscal years since 1969. Total financial commitments in 1969-73 were $13.4 billion, equivalent in real terms to an increase of 100 per cent over 1964-68 and exceeding the total of all operations undertaken by the Bank in the developing world in the 23 years from 1946 through 1968. The Bank Group’s future growth targets—$22 billion in loans and credits for almost 1,000 projects over the next five years—were widely supported. In addition to expanding traditional areas of lending to sponsor industry, power, transport, and similar projects, the program would further emphasize new areas such as rural development.

Absolute poverty

Commenting that the developing countries wished to pursue economic growth and social justice simultaneously, Mr. Ali Wardhana, Governor of the Fund for Indonesia, said the problem was how to do it. Growth without social justice was blind; on the other hand, social justice without growth was empty.

Mr. McNamara said that he sensed wide agreement with his judgment that the heart of the strategy must be the development of policies and project techniques to raise the productivity of small-scale, subsistence farmers. Stating that it was “indeed a stupendous undertaking,” he added, “clearly, neither the Bank alone, nor governments alone, can carry out the massive task of investment, technical assistance, education, reform, and reorientation of the attitudes and life styles of hundreds of millions of people. It is the people in the developing countries themselves who must make the ultimate commitments. But we can help; we can innovate; we can spread knowledge of what works and what does not; and we can persevere in the face of obstacles and even failures. And that is what I intend that the Bank should do.”

The Chairman said that in most developing countries, the great mass of the population was dependent on agriculture, and their improvement was the heart of meaningful development. The Bank’s endeavors were gratifying, said Mr. I. M. Garba-Jahumpa, Governor for The Gambia, citing particularly the emphasis in recent years on agriculture, education, and health. The focus on rural and urban development, population control, and nutrition was also well conceived, said Mr. Y. B. Chavan, Governor for India.

Several Governors, however, warned against overemphasizing social equity. Alhaji Shehu Shagari, Governor of the Fund for Nigeria, said that a fetish of income distribution at the expense of growth might lead only to redistributing poverty in many African countries. Infrastructure projects were just as essential as small-scale projects for the development of rural areas.

Small-scale farming

The Bank Group’s goal, said Mr. McNamara, was to help increase production on small farms so that by 1985 their output would be growing by 5 per cent each year. There were over 100 million farms of less than 5 hectares in Bank member countries, and half of these were less than one hectare. It was not true that productivity of small-scale farms was inherently low; given proper conditions they could be as productive as large farms. Japan in 1970 produced 6,720 kilograms of grain per hectare on very small farms, suggesting an enormous potential for Africa, Asia, and Latin America where average comparable yields ranged from 1,270 to 2,060 kilograms.

The need for increased productivity was reinforced, in the view of many Governors, by the world food situation. The Governor of the Fund for Pakistan, Mr. Ghulam Ishaq Khan, pointed out that the fall in food production and the unprecedented rise in food prices had, in many developing countries, forced further declines in per capita food supplies—normally barely sufficient for subsistence—and had led to widespread misery. Mr. W.K. Chagula, Governor for Tanzania, said the world food crisis stemmed in no small part from the discouragement of production in poor countries by artifically low prices and nontariff barriers in the developed countries. “Now, with a rising demand and natural disasters, rich and poor alike reap the whirlwind of rising food prices.”

More agricultural credit and extension services were necessary but not sufficient, said Mr. David H. Coore, Governor for Jamaica, speaking also on behalf of Trinidad and Tobago, Guyana, and the Bahamas. The development of even the smallest rural project required functional literacy and the acquisition of both financial and organizational disciplines; rural programs should address these needs and should aim to correct nutritional deficiencies and continually upgrade the human factor. The average level of human skills, both in the rural and urban sectors, constituted the decisive difference between developed and developing countries.

World trade

The developing countries suffered from inadequate foreign exchange earnings, said Mr. McNamara. “The problem is compounded by the delay of the wealthy nations in dismantling discriminatory trade barriers against the poor countries,” he added. “Our studies indicate, for example, that if the affluent nations were gradually to reduce their present protectionist trade restrictions against agricultural imports from the developing world, the poorer nations could, by 1980, increase their annual earnings by at least $4 billion.”

The experience of developing countries over the previous year, during the revival of the international business cycle, had varied widely, according to Governors’ statements. Although uneven in their effects from country to country, recent higher prices for agricultural products and raw materials had been favorable for production and monetary reserves, said Governor Shultz. Excluding the main oil producers, developing countries had an overall surplus of $4.5 billion in 1972 and their surpluses appeared to have been well maintained in 1973. The Governor acknowledged, however, that a cyclical surge was no substitute for sustained development over a long period.

Other Governors pointed out that the least developed commodity producers had not drawn substantial gains from the growth in trade. Falling prices for their main export products and rising prices of manufactures crucial to their development programs had resulted in deficits. Governor Wardhana stated that the effect of higher prices for some commodities was likely to be temporary because developed countries were already damping down the growth of their economies. The devaluation of the dollar and sterling, to which many developing countries tied their currencies, had eroded the accretions to their reserves, said the Governor for Pakistan.

The problem of fluctuating commodity prices drew comments from several Governors. Mr. Valéry Giscard d’Estaing, Governor for France, said the stabilization of prices of primary products was considered by his Government as much an obligation toward the developing countries as the stabilization of currencies.

Mr. Tan Siew Sin, Governor of the Fund for Malaysia, stated that the biggest barrier to rapid economic development was the poor prices often received for primary products, and he urged producers to band together to sell their output through single marketing organizations. “A successful precedent has been set in this field [by] the Organization of Petroleum Exporting Countries…. The oil producing countries, by combining together, have managed to secure fair prices for their products. They have been able to speak from a position of strength, rather than merely pleading for aid. The developing world could learn a lesson from the strategy of the oil producing countries. I accept that for certain commodities this may not be possible, but there are other commodities for which this strategy is eminently suitable. It is now time for us to choose.”

External debt

Governors fully endorsed Mr. McNamara’s opinion that the increasingly severe burden of external debt was one of the major difficulties facing many developing countries.

It was one of the paradoxes of the modern world that developed countries lent to developing countries but maintained trade barriers which prevented them from acquiring the means to repay, said Mr. Frank D. Crean, Governor for Australia.

The effects of monetary realignment had added 5 per cent to the external debts of the developing countries, it was stated; in the case of the African countries, the total had been inflated by 6.5 per cent. The dominance in global aid policies of lending on commercial terms, together with the high cost of supplies under tied aid and the need to repay in convertible currencies, was mainly responsible for the emergence of serious debt difficulties in a number of countries. For 81 developing countries studied by the Bank, over 50 per cent of fresh disbursements was absorbed in servicing past debt.

Employment

Unemployment was another major problem facing many developing countries, said the Chairman. The global unemployment level, particularly in developing countries where it was already high, had increased further, said Mr. Fazal Haque Khaliqyar, Governor for Afghanistan.

Industrialization was needed, said Mr. Joseph Hicuburundi, Governor for Burundi, and he called upon the developed countries to reduce discriminatory measures against manufactured products from the developing countries. Development of the agricultural sector, which in many cases was the only means of absorbing the substantial rural unemployed, was also an essential step in the opinion of many Governors. However, Mr. Mwai Kibaki, Governor for Kenya, pointed out that, whatever the rate of growth of the rural sector, it should not be forgotten that the urban sector would grow faster. Urban problems and unemployment called for much greater concern in future.

Financing was urgently needed to support low and lower middle income housing, said Governor Coore, adding that housing was additionally important because of the construction industry’s capacity to generate direct and indirect employment.

Bank borrowing

The Bank’s success in increasing and diversifying its borrowing sources was widely commended. The success in tapping new markets, such as the oil producing countries, was noted by Mr. W. F. Duisenberg, Governor for the Netherlands, who advocated advance repayments by developed countries of loans outstanding from the days when they needed the Bank’s reconstruction assistance.

Mr. Hannes Androsch, Governor for Austria, who at the 1972 Annual Meetings had recommended that industrial nations use part of their dollar overhang for financing development aid, reported that his Government had since done so. It was pleasing to hear that other countries might follow suit.

The link

As in previous years, the possibility of a link between SDR allocations and development finance drew widespread comment. Many Governors from developed and developing countries had urged that the link form part of the reformed monetary system, said the Chairman, although there was yet no unanimity on this important subject. It would continue to be studied by the Deputies of the Committee of 20 in cooperation with the Executive Board of the Fund.

Governor Chagula reasserted “the general agreement” reached at the earlier conference of the Commonwealth Finance Ministers in Dar es Salaam and also by the African Governors at the Annual Meetings, that the technical arguments against the link had been effectively refuted and that it was now up to the Committee of 20 and their Deputies to agree on the form and mechanism for its implementation. Governor Barber said that he would support such a scheme provided it did not weaken the major objectives of reform.

Several Governors, however, including Mr. W. E. Rowling, Governor of the Fund for New Zealand, and Governor Crean, believed it would be best to concentrate first on the monetary aspect of the SDR to ensure that a suitable and attractive asset was created, and only then to consider introducing the link in a manner consistent with a soundly based monetary system.

Private investment and IFC

Several Governors stressed the importance and future potential of private investment. Governor Duisenberg noted that foreign private investment could bring and had brought considerable knowledge, employment, and development of resources to the third world, and hoped to see the Bank Group, through IFC, play a growing role in this area.

The significant role of IFC in encouraging private investment was stressed by the Chairman, who pointed out that, as an international institution belonging to both developing and developed countries, it was uniquely able to promote mutual confidence between private investors and host governments. In its 17 years of existence, the projects in which it had been engaged totaled nearly $4.25 billion.

Mr. Antônio Delfim Netto, Governor for Brazil, speaking on behalf of the Latin American countries and the Philippines, commended IFC’s technical cooperation in stimulating internal capital markets of developing countries. Sayed El Sheikh Hassan Belail, Governor for the Sudan, said it was hoped that the newly established Office of Investment Promotion would allow IFC to intensify its activities. He noted that it would commence operations in three African countries and looked forward to still greater interest in Africa, which had so far accounted for only 7.24 per cent of IFC’s total investments.

Operational policies

Governors made a variety of proposals for changes in Bank Group operational policies. A call for more program aid was made by Mr. R. P. Stephens, Governor of the Fund for Swaziland, because this would reduce administrative and overhead costs, particularly in the developing countries, as well as quickening the tempo of disbursements. Mr. Duck Woo Nam, Governor for Korea, said that using program aid to finance imports of capital goods and raw materials to semi-industrialized and export-oriented countries would help the Bank to tailor its lending more closely to the different stages of development in various countries.

A plea to further strengthen local Bank offices was made by Governor Kibaki who pointed out that the problems of Africa, although similar in some ways to the problems of South America and Asia, also differed in important respects, notably because of the more acute shortages of skilled manpower in African countries.

Increased financing of local currency expenditures was urged by several speakers. Governor Delfim Netto, speaking on behalf of Latin America and the Philippines, said they felt that a bolder approach was needed when interpreting the Bank’s rules. He also called for urgent completion of studies which envisaged “a reasonable sharing of the exchange risk” among Bank borrowers. Borrowers assumed the exchange risks on Bank loans, and the problem had been accentuated by recent exchange rate adjustments. The emerging reformed monetary system would apparently lead to more rather than less exchange rate variability compared with the system of fixed parties.

Mr. Moshe Sanbar, Governor for Israel, urged the Bank Group to consider sympathetically the possibility of creating an export credit guarantee facility in regional development banks. This would facilitate the extension of medium-and long-term suppliers’ credits by developing countries, particularly for manufactured goods and services. The Bank, he pointed out, was currently engaged in an in-depth study of the question.

Representation of China

Mr. Ismail Mahroug, Governor for Algeria, noted that an official request had been received by both the Bank and Fund from the People’s Republic of China to “conform, in their respective spheres, to the letter and the spirit of the Resolution of the Twenty-Sixth General Assembly of the United Nations regarding the representation of China in international bodies.”

His Government welcomed and supported this initiative. “I am convinced that the competent Fund and Bank authorities will give prompt satisfaction to the legitimate request of the People’s Republic of China,” he said. Governor Chagula also urged that steps be taken to implement the UN Resolution.

Editor’s Note:

In 1971, the Twenty-Sixth General Assembly of the United Nations decided among other things “to restore all its rights to the People’s Republic of China and to recognize the representatives of its Government as the only legitimate representatives of China to the United Nations and to expel forthwith the representatives of Chiang-Kai-Shek from the place which they unlawfully occupy at the United Nations and in all organizations related to it.”

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