•• INTERNATIONAL BANK FOR RECONSTRUCTION AND: DEVELOPMENT Washington, 25, D. C. PRESS RELEASE-Third Annual Report CONFIDENTIAL HOLD FOR RELEASE Until 10:00 A.M. Washington Time, Wednesday Sept. 29, 1948 The following summary of the THIRD ANNUAL REPORT OF THE INTERNA- TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT is sent to you in advance of release to facilitate the preparation of .press material. It must be ~ld in strict c,onfidence and no portion, synopsis or reference may be published or given out until the report is presented in Washington, D. C., at the Third Annual Meeting of the Board of Governors, at 10 A. M. Washington time, Wednesday, September 29, 1948. CAUTION: The same release time applies to radio announcers and news commenta- tors. EXTREME · CARE MUST BE TAKEN TO A VOID PREMATURE PUBLI- CATION OR RADIO ANNOUNCEMENT. The complete report is being sent to you by regular mail. We would appreciate knowing if this advance release was of interest and use to you. We would be glad to receive any press clippings ·showing use: of this material. The Third Annual Report of the Interna- under th; guarantee, as to principal and ·in- tional Bank for Reconstruction and Develop-. terest, of the International Bank. • ment, as approved by its Executive Directors, The total loans made by the Bank are: $250 was presented to the Board of Governors at million to France and $195 million to the their annual meeting in Washington today by Netherlands, made during the period covered the _Bank's President, John J. McCloy. Its finan- by the Second Annual Report; and the follow- cial sections cover the fiscal year ended June 30, ing during the period covered by this report: 1948; other sections of the report deal with the $40 million to Denmark; $12 million to Lux- accomplishments of the Bank through August embourg; $16 million in two loans authorized 31, 1948. It also analyzes major economic to instrumentalities of the Chilean government, problems facing various areas of the world and which loans are to be guaranteed by the gov- suggests certain lines of action to meet these ernment of Chile; and, $12 million in six loans problems. to four Dutch shipping companies-a total of $525 million. ACTIVITIES OF THE BANK With regard to the uses to which loans have The report points out that the Bank em- been put, the report states that most of the barked on several new types of financing op- disbursements were made for the purpose of erations during the past year. It authorized the assisting in financing large general programs granting of its first credits for development of reconstruction by supplying essential capital purposes, in two loans to Chile. The pattern goods such as industrial an.d agricultural ma- set by this financing, the report states, is promis- chinery; equipment for transportation systems, ing. steel mills, etc.; as well as basic raw materials. The year also witnessed the Bank's first loans While most of the expenditures financed by to private enterprises and its first use of its the Bank's loans were made in the United guarantee powers, in loans to four leading States, s'ubstantial amounts werP ~pent in other Dutch shipping companies secured by mort- countries. As of June 30, 1948, out of the gages on ships, with the subsequent sale to a $470.1 million disbursed by the Bank, the • group of private United States 'banks of the areas of expenditure in round figures were as greater part of the notes evidencing the loans follows: $356.4 million in the United States; • $50 million in Latin America; $12.5 million ended June 30, 1948, show an excess of in- in Canada; $47.7 million in Europe; and, $3.5 come over expenses of t::pproximately $4 mil- million in Africa, the Near East and F'ar East. lion. This was sufficient to eliminate a deficit One of the significant developments of the of some $1 million existing on June 30, 1947, past year has been the ~tablishmertt of pro- and provide a net profit of approximately $3 cedures whereby the Bank carries out the man- million on June 30, 1948. date of its charter to ensure that the :proceeds In spite of its activity in these varied fields, of any loan are used only for the purposes for full realization of the Bank's potentialities can- which the loan was granted. As the first step not be expected, the report states, as long as · in this system of supervision, the Bank requires economic and financial stability in large areas that the proceeds of a loan are subject to with- of the world continues to be threatened by po- drawal by the borrower only upon satisfac- litical tensions and unrest. tory certification that expenditures have been "By developing its activities in different di- or will be made for the purchase of the spe- rections," the report says, "both with respect to cific goods or services authorized in the loan the size and character of its loans and with agreements. Subsequently the Bank conducts respect to the techniques it employs to chan- an investigation, generally carried out in the nel capital into productive international invest- borrowing country by the Bank's field repre- ment, the Bank has grown in flexibility, sentatives, of the end use to which the goods strength and stature. As it continues to acquire are put. experience and to gain the confidence of its In addition to loans already made, there has members, the Bank should gradually be able been an impressive increase in the number of to play an increasingly effective role in help- projects brought to the Bank for its considera- ing to raise production levels and living stand- tion. Covering a great variety of fields, these _ ards throughout the world." include such projects as power developments, • transportation and communication facilities, THE SITUATION IN EUROPE irrigation and other agricultural projects, mi- gration programs, mining development, ship- · Loans which the Bank has already made to building and industrial plants. The Bank has Europe, by permitting the borrowing countries sent missions of investigation to 13 countries to sustain for a time the necessary volume of in Latin America, Europe, the Middle and Far essential imports, according to the report, have East, and a number of similar missions are helped prevent a disastrous drop in production planned for the near future. Altogether, the and possible economic collapse. The Bank has report states, active discussions are now being been fully aware, however, that these loans, conducted concerning productive projects in vital as they were, provided only a partial solu- more than 20 of the Bank's member countries. tion to Europe's problems. It has been clear for During the past year there have been en- some time that United States financial assist- 1 couraging de1velopments also in connection ance to Europe, in the form of the European with the creation of a broader market for the Recovery Program, would greatly exceed for Bank's bonds. The Bank sold its first :non-dol- the time being any amounts which the Bank lar bonds-an issue of 2 Y2 % Swiss Franc might lend. Serial Bonds amounting to 17 million francs ERP funds are being used primarily to fur- ( approximately $4 million), which was pur- nish urgently-needed food, fuel and raw ma- chased in its entirety by the Bank for Inter- terials. The report points.out, however, that the national Settlements at Basie, Switzerland. fundamental need of Europe is for a far-reach- Although up to the present time the Bank has ing reorganization of its economy. It will not had ample funds for its loan operations, the suffice, the report says, to restore European pro- report states that from a long-range viewpoint duction and trade as they existed before the it is clearly desirable that the Bank should war. The magnitude of Europe's problems supplement its borrowing in the United States makes thinking in pre-war terms unrealistic. by tapping other sources of capital. New and bola concepts are required if Europe's The financial statements for the fiscal year, fundamental weaknesses are to be corrected (2) • and new sources of strength provided. The tries cannot become self-supporting by 1952 vnlwne 9£ production must be greatly in- unless they maintain the discipline necessary creased, the costs of production: substantially to carry it OUto reduced, and there must be a reorientation The report stresses the importance of free- of Europe's trade channels to conform to ing intra-European trade. Trade barriers in the fundamental changes which have taken whatever form, it says, tend to breed produc- place in world conditions. The basic objective tive inefficiency, and unless the markets for of ERP, the report says, is to enable Europe, European products can be broadened and by its own efforts, to achieve a fundamental greater freedom of intra-Europl::i.n trade at- readjustment in the structure of its economy. tained, the hope for ultitnate European recov- The report continues: "The effect of ERP ery will be dimmed and the opportunity af- cannot, therefore, be measured either by the forded by ERP will be lost. particular types of goods it enables Europe to It continues: "Unless the Western European import, or by the specific uses to which those countries can, by union or od1erwise, find the particular goods are put. The test is a much key to unlock the gates which now obstruct more fundamental one. It is whether the Eu- the free flow of goods, manpower and capital ropean countries participating in the program, among them, there is grave doubt whether they during the period while ERP funds are avail- can in the foreseeable future sustain their peo- able to help support their consumption stand- ples at a standard of living approachft;1g pre- ards, will be able to use rhe opportunity thus war levels." _afforded to expand, modernize and reorganize With regard to the problem of Germany, their productive mechanisms and to effect the the report says that the low level of produc- necessary changes in the pattern of their trade." tion in Bizonia-still only about 5 0 % of pre- Reduction of the balance of payments defi- war levels-has been due primarily to chaotic cits of ERP countries by 60% to 75 % by 1952 monetary conditions, the almost'complete dis- -which is the stated goal of ERP-.may well ruption of trade connections, and the over-an· appear d~fficult, the report says, but is a mini- political uncertainty. It says that the condition mum requirement. If by the .end of the ERP of Germany has direct and immediate reper- period these countries are to become inde- cussions on the economic situation in the rcrt pendent of extraordinary outside aid, the re- of Europe. port states, more must bp accomplished than The shift in world trade patterns is another has yet been faced up to. The measure of ac- factor which affects Europe. Before the war complishment must be what is necessary, rather Western Europe normally depended on its than what has been possible in the past. trade with the Far East, particularly South- A.r;nong difficulties facing Europe the re- east Asia, to provide it with dollars to finance port lists the (1 ,,, ,u:t1~tctn1,:.nt ERP, the European recovery has not prevented a definite ,~,~Jtt t41l. rt,, ~"Jtnt dt4t the Hauk·z ,e.. increase in its activities in other parts of the il;;,tH,'•,.~t 4~ Ut~ iditdtt ~ta,r..J:u:,g uf ltR,f ci1un .. \VOdd during the past year. In the long run, t:tl.t'i i~tauti ptw;w.iily by nJ1a~1ng. ptuJt<,;t.$. che report states, the problems of the Bank's )sthi1.J1 m,,oht' pt:timitltnt iltkmtAJO$ tf1 Eu. . underdeV'eloped member countries will un- il, JH:'~~~!Mtt: id~~ny1 ~.ati which wd! s.t.t.m~ doubr:ed.ly constitute its primary con(ern. :iifJ.t.c- F:tJ4Jn. ft 4l~1(J tn.ltMe that iuch ptoj.. ~l ;J;tt tiU(~l~~~t wtdt ~r {W(t·~U l;tlVt$tn1¢l'.l( Apart from the two loans to Chile for hy- r;,,r,~_..g,i;un foirnt•.1iattri by· dttta ()ty;:ttu,.am1n for dro-electric and agricultural development, sev·· r.u:1~,,~tifl l~tt-:nttmll~ t:,'0£"':ttt~n~,0, ft t.'J t:ttrt ~>,,. ernJ other development loans are in an ad- ~l' ~~tu~tt:41 ih~ t'tftnt, ut p it~ bt; { f~eattt:,! tft ~n ~1.Jtnt wbtdt report says. fr is necessary to secure help from ttiaN~ r~ tlo itmikr tiCQ~ud '.4tS.n:mi.nu: fore.ign technicians and also to institute pro- Ul ti~ d~~ftJfttltmt ~b' U;.(;h fHUttUi~:h wh.icb grams of technical training to build up an ade- ~-vtU t~ oi ,~t';\ft'ltt {tQ( ti:ntr in tbtttt b\U m fat~ quruc local supply of skilled personnel. Direct ,ru,~ fatetxtt~U1 iMe:ttmcnt by foreign business enterprises has "i'tt~f~ .w iii tl~;},f tt:lttt ,diptt~len~t1' tha;: repurt the spedal advantage of supplying technkal ~itt~ !'~~t«r:n 1111,tt:"lJWCz.ui ~ti:t¥t~·r;r ~n