PART IN RECONSTRUCTION OF THE POST-WAR WORLD

Press, Volume XC, Issue 27370, 8 June 1954, Page 10

PART IN RECONSTRUCTION OF THE POST-WAR WORLD

WORLD BANK

[By “LYIVCrUS” of the “Economist”)

Mr Eugene Black, the President of the International Bank for Reconstruction and Development (usually known as the World Bank), was recently in London on a tour of inspection. He was visiting British ministers and central bankers, who represent one of the World Banks principal stockholders. He is a remarkable man, and he guides the destinies of a remarkable institution. The World Bank is one of the twins born at the Bretton Woods conference of 1944.- That was the conference at which representatives of the Allied powers began to draw up the plans for the economic reconstruction of the post-war world. One must look back with admiration at the faith and foresight which allowed some of the best brains on the Allied side to devote so much attention to the problems of the post-war world at a time when the battle was still raging, when victory was still* no more than a hope. Among those keen brains was that of Lord Keynes, who was then attached to the Treasury as adviser to the Chancellor of the Exchequer. He conceived the organisation of international institutions neded to replace and maintain economic order in the post-war world as a three-fold structure: first, there must be an institution to set a code of monetary conduct, more flexible than the old gold standard but none the less providing a discipline to which all important, countries of the world would bow; second, there' must be a similar institution setting forth the code of commercial behaviour, by which the trading nations of the world would abide; lastly, there must be an institution which would mobilise the capital resources of the richer nations and set them to work not only repairing the immense damage caused by the war, but creating a richer and more peaceful world by developing the natural resources of the less developed countries. It was a fine drcam and, unlike most dreams, a large part of it has come true. International Monetary Fund

The first concept was given shape in the International Monetary Fund, an institution of which a great deal more will be heard as the principal currencies of the world progress towards convertibility. It controls large reserves, which will be put at the disposal of countries that wish to stabilise their currencies. The code of commercial conduct was to be the responsibility of an International Trade Organisation. This was nearly born after an interminable conference held* at Havana in 1948; the conference was not wholly successful, but a very good, though smaller, substitute, the General Agreement on Tariffs and Trade, known to one and all as G.A.T.T., is doing most of the work that was expected of the organisation. Lastly, there is the World Bank, the third leg upholding this tripod of international economic co-op-eration. Most observers will say that of the three this one has, so far, been the most active and the most successful.

When the two Bretton Woods institutions, the Monetary Fund and the World Bank, were launched in 1946. some serious doubts arose about them, even among some of the experts who had taken an active part in bringing them to life. Those doubts were centred mainly on the suspicion that these institutions were too political m character, that too much power was being given to executive directors, who were and are the representatives of their governments, and too little to the permanent staffs who might be regarded as international ci'til servants owing allegiance .only to their institution. The fact that both the fund and the bank were established in Washington, a political capital, but by no stretch of imagination to be regarded as a financial centre, seemed to confirm these hesitations and suspicions.

It can be said that as for the World Bank those doubts have been satisfactorily cleared. Mr Eugene Black,

the President of the bank, may be an American, but he conceives himself to be the leader of an international team. So far he has kept the politicians on his board very much in their place. Essentiality of Bank Mr Black has no pretensions about the essentiality of his bank. He sees it as filling a void wh ; ch. in the present circumstances of political and financial instability in the world, can be filled only by a semi-official organisation of this kind. The bank lias at its disposal some 8,000,000.000 dollars, of resources, made up of a varied . array of its members' currencies. More than 3,000,000,000 dollars of those resources were subscribed in dollars and other hard currencies. Part of that capital has been used in making loans , to more than 25 of the bank's member countries. These loans have, in the main, been the kind of operation which would not at present interest the private investor. That is why the bank is regarded by its sponsors as an institution which, in happier,and more normal times, would have no work to do because all the work it stands ready to do would, in that event, be willingly done by private enterprise. As Mr Black put it during has London visit, “the best way the World Bank can make a success of its job is to go out of business." These loans total over 1.800.000.000 dollars, and they have been widely spread over the world. The largest single operation was a loan of 250,000,000 dollars to France. Money has been lent to India for building railways, developing electric power, helping to create a new steel industry. In Iraq more than 12,000,000 dollars has been lent to finance flood control and irrigation schemes. Latin America, Africa, and Australia have also borrowed substantial amounts from the World Bank. One very remarkable thing about the record of the World Bank so far is that it has not suffered a single loss. No interest payment on loans made is overdue. The only deviation from schedule is that in one or two cases capital repayments have been made ahead of time and loans have been repaid before their due date. Some might say that this should not. be a cause for congratulation but a condemnation of the bank for being over cautious. When Lord Keyes used to talk of the kind of management which the two Bretton Woods institutions should have, he was wont to say that the Monetary Fund should be guided by-hard-faced bankers, but that the World - Bank ought to be managed by a gang of adventurers. What he meant was that the fund, which engages in short- , term banking operations, should be conservative to a degree, hut that if the bank was to perform its role of making the desert bloom and bringing new industries to the poorer coun- ' tries of the world, certain •risks would have to be taken.

The risks have been taken but, with a commercial banker from Wall street at the helm—Mr Black won his banking spurs with the Chase Bank—this risk-taking has been combined with

commerical prudence and. so far, with complete success. .The advantages of prudence have been many. The most immediate has been that the bank has maintained its credit in the world’s markets and has been able to borrow in New York, Canada, and Britain on terms equal to the best available in these markets. Even more import-' ant is the fact that the greatest contribution to world progress will be made by careful lending and by helping the creation of industries that . will stand the test of time. If the bank had been reckessly adventurous it could certainly have done more business; but it would have offered the cause for which it was founded far less service than it can, in fact, claim to have done. ■ , :