i !~ ;~-, - .,_ c;;, () c.... ~1 :;;..1 Is-, - s-e; c:__ .. { w~ hM, ~d::.:.. ~ r~vl~) COMMON SENSE AND ECONOMIC AID Address by Eugene R. Black, President of the World Bank, to the National Farm .Institute Des Moines, Iowa February 18., 1956 Mr. Chairman: I am very grateful for this opportunity to appear before the National Farm Institute., and am glad to respond to the suggestion that I tell you something about the operations of the World Bank. • f, ... Beyond that, speaking as an American from the vantage point of experience in the Bank, I want to express some views on the subject of American economic aid to other countries. This is a subject about which there is already much confusion, and there is likely to be still more confusion about it as the re- sult of current offers of Soviet economic aid in Asia and the Middle East. Some of you may also expect me to say something about the High Dam project in Egypt; so I will say a few words about that as well. The business of the Bank is economic development. In nearly all of the world outside North America and Western Europe., the idea of economic develop- ·=» ment is new. About two persons out of every three in the free world have had little or no contact with 20th century technology., with modern methods ot pro- duction in industry and agriculture., or with aeything like the best that modern medicine and schooling can provide. Production is low, earnings are low., standards of living are low . In South Asia, for instance., the per capita intake of food a day is less than halt the calorie value consumed in the United Stat~s. And while statistics do not need .. - 2 always to be taken at face value, the fact that per capita income in Ceylon is calculated at $115 a year, in India at $65 a year, in Pakistan at $55 and in Burma at $50 - is nevertheless an indication that most of the 600 million people in these countries are living at the level of bare subsistence. · Now the developed countries do not owe the underdeveloped countries a living. But the idea is of long standing that an international flow of capital can be of mutual benefit to both investor and recipient. It was this idea that helped bring about a great expansion of prosperity in North America and Western Europe in the 19th century - an idea of which Americans, as recipients·, and the British, as investors, were among the chief beneficiaries. And it is this idea, of international investment as a means to economic expansion and mutual benefit, on which the iorld Bank is founded. The Bank has now been in operation for nearly 10 years, and has invested about 2-1/2 billion dollars in public and private projects in 40 different countries. Our first loans were made in advance of the Marshall Plan to help maintain a flaw of imports from the united States that were essential to recon- struction in Western Europe. Although we have continued to lend in Europe, most of our operations since 1947 have been carried out in underdeveloped countries. These countries are not poor because they lack natural resources, but because they have not yet done enough to develop the resources t!Jey have. To give you two extreme exampl es : Despite a hydroelectric power potential of some millions of kilowatts, ~est Pakistan today has less than 50 thousand kilowatts of electric generating capaci- ty based on water power. Honduras, a farm country which is one of the largest in Central America, has only 20 miles o! paved road. The fundamental task which the loans of the Bank are helping to carry out is to construct or enlarge the basic facilities essential to modern economies. .:. 3 - Since reconstruction., we have lent $660 million for the expansion of electric power services. We have lent another $600 million for transportation facilities - to buy equipment for the construction or operation of motor roads~ railroads., ports and inland waterways. We have lent a quarter of a billion dollars for industry, am . a litt~e less than that for the improvement or expansion of agriculture through land reclama- tion., irrigation and farm machinery. Finally., we have lent about $140 million ' for programs of development embracing projects in several or all of these basic fields . A few minutes ago, I referred to the Bank's "business"., and I used that ;term advisedly. Vie do not pay our bills from your taxes; we support our activi- lies out of our own earnings. Our loans are being repaid on schedule indeed~ we have received more than $110 million of repayments ahead of time~ Our net ) lncome is running at a rate of around $25 million a year., and our reserves out of earnings and commissions amount to more than $200 million. G.. >- . So far from competing with private capital., the Bank has worked actively :.... and successfully~ to encourage the participation of private capital in inter- tio.nal investment. While we began our lending operations nine years ago out ~f payments ?ilich our member governments made for shares of our stock., our most important source of new capital has been private funds. We have tapped that source most often by the sale of our bonds., of which $860 million worth are now outstanding. We have also sold some $225 million worth of our loans to other investors., who either buy them out of our portfolio ' or participate in the loans when they are made. Up to now., I have spoken in tenns of dollars., but only as a convenient way of describing sums that include other money as well. The Bank is an interna- tional organization., and its sources of finance are by no means confined to the -4- United States. V.e have lent 17 different currencies in all; and in recent years., half of our new loan funds -- from foreign government subscriptions to our capi- tal., from our sales of bonds to foreign investors., and from earnings - have come from outside the United States. The fact that the Bank is an international organization is of advantage to the governments of developed countries., including the United States., because it enables them to share out develo~ment costs with private investors and with each other. The Bank's international character also gives rise to another advantage of greatest importance - ard that is the opportunity to work effectively am close'!" 1y with borrowers and borrowing countries in ways., that for the most µtrt., are not equally open to individual governments in their dealings with other nations. Precisely because we are international., we cannot in truth be charged by our borrowers with operating from selfish motives of profit or economic exploita- tion., nor can we be charged with discriminating between different countries for reasons of politics., strategy or diplomacy. Another and shorter way of saying this is that we can., and do., apply business-like standards to our lending. The Bank lends., in the normal course 1 for specific projects. We do not finance the whole cost of those projects; the borrower himself must make a substantial investment., and is usually required to find all those funds needed for local expenditures on labor and materials. We estimate that our $2.5 billion of lending is being matched by well over $3 billion of other investment. We pick and test projects with a great deal of care. We visit the field and get our applicants to demonstrate how the project fits in with the rest of the economy am whether it promises to be sufficiently productive and important to justify the borrowing involved. Vie send engineers and other technical people .. 5 - to see whether the project will actually work, to chec~ specificati.ons, construc- tion plans, production costs, market prospects and any other matters that may affect the outcome. We follow projects carefully from the start. As the project progresses the borrower sends us reports on construction., arrival of goods, expmditures and other details. And at intervals., we send our people to see whether pl.ans are working out as expected, or whether some help is needed to iron out technical or organizational difficulties. Throughout the life of the loan, moreover, we periodically send out people to make a quick check-over of the economy of the borrow.i.ng country; and they report to us aey developn:ents that may have a bearing on the repayment of our loan ar on possibilities of future investment. Economic development., however., obviously does not come about through the execution of this or that particular project. '.lhe effects of even the best project may be lost in an economy that is going adrift; and the wiole process of development requires intelligent use of a country's resources as a whole. It calls for the wise budgeting and direction of public investment toward realistic goals., and it requires public economic and fiscal policies that will support private initiative and private investment. '.lhe Bank hammers very hard at this matter of encouraging private enterprise and private investment -within the underdeveloped countries themselves . 'We have worked for proper government. policies, and we have declined to support government ventures in fieJ,.ds of industry 'Which should be competitive and for which , under the right circumstances., private capital could be found. In short., the Bank is not only interested in projects., but in 'Nlether the underdeveloped countries are themselves making the most of their own opportuni- ties~ We discuss these considerations with prospective boITowers before we lend; we offer advice on these matters when we feel that it is useful to do so; and not -6 infrequently our decision to lerrl or not to lend depends upon the outcome of these discussions . In more than one case, we have decided that our most effec- tive contribution to development can be made by shelving loans until the prospec- tive borrower,.has begun to straighten out his awn affairs, and to do what it lies within his power to do with resources alrea~ at his disposal . In other words, the Bank has not tried to be popular . We have tried to be effective and to win respect . And it is generally recognized, I think, that in these things , we have succeeded. La.st Sunday morning , I returned from two weeks of discussions in Cairo with Colonel Nasser , the Prime Minister of Egypt, arrl with members of his government concerning the carrying out of the project to build a multi- purpose dam on the Ni.le River . I want to mention this briefly because it is a subject of current interest and because it may illustrate in particular some of the points I have already ma.de in general . As some of you are aware, the project consists of three elements . One is the construction of the High Dam itself. Another is the use of water stored by the dam to extend perennial irrigati. on to some two million acres of land ., or about a third more than are perennially irrigated at present, and including 1.3 million acres not now irrigated at all . '!he third element is the installation of a large hydroelectric power plant , along with the necessary distribution facilities, which will more than double the present supply of electricity arrl help the continuing growth of industry in Egypt . /~_: _ / ) ~ - ~