Financing World Development WORLD BANK CALLS UP NEW SUPPORT

Press, Volume XCIX, Issue 29301, 5 September 1960, Page 10

Financing World Development WORLD BANK CALLS UP NEW SUPPORT

IBv -LYNCKUS" of the “Economist") iFrom the ■Economist" IntaUipenca Unit)

London. August 26.—The annual meetings of the World Bank and the International Monetary Fund due to take place in Washington at the end of September are, fortunately, not expected to be dramatic. In many earlier postwar years these meetings have hung as a shadow over world exchange markets through the summer, on the speculation that major changes in currency values would be announced at the meetings. In the last year or two there has been no such currency speculation, and the finance ministers and bankers gathered together have been able to give their time to relaxed discussions of the underlying long-term problems. Foremost among these problems is the whole subject of _ world development. The first major objective of the post-war years, the restoration of Europe’s economy, has been broadly achieved: this has been made clear beyond doubt by the fact that some European currencies now stand in greater favour than the dollar, a situation that would hardly have been imaginable five years ago. But this in itself has emphasised Europe’s new responsibility to help in a task that the United States has hitherto carried very much on its own—providing aid for the poorer countries of Asia and Africa. Direct Loans from Bank

The World Bank itself has played a prominent part in fostering this effort. Its contribution is threefold. First, it pumps out large sums of money itself. For the third year running, it has been lending at an annual rate of about 700 million dollars. The loans are usually for major projects of a basic kind —building railways, roads, or harbours; irrigation works and power projects; construction of steel mills or other large industrial enterprises. AU loans are to governments or are guaranteed by governments; and because the World Bank has been careful to lend only to creditworthy borrowers, it has acquired a high reputation among world bankers. The result is that it is able to raise the bulk of its finance on private capital markets —which the governments that receive the money could very seldom do.

Secondly, the World Bank is able to use the immense prestige that it and its president. Mr Eugene Black, have built up all over the world to lend its good offices in all sorts of useful ways. It has all but patched up the long and bitter dispute between India and Pakistan over the use of the Indus waters; by arranging a scheme of common development it has achieved the equivalent of the Schuman plan between France and Germany, making war economically anachronistic. Again the World Bank was the mediator between Persia and the international oil companies after the Mussadiq disturbance, and more recently between Colonel Nasser and the British Government over a financial settlement of Suez.

Organising Self-Help .When the World Bank started business a few years ago, it was criticised for acting as a hardfaced banker with over-strict standards of scrutiny towards poor borrowing countries. Today there are few people who do not recognise that this policy has been justified; and Mr Black and his institution command a respect among all nations, regardless of colour, that finds few parallels. The bank has been able too to organise joint ventures by individual countries with their own money. The most important example so far is in India. Despite the large sums made available by the World Bank, by Britain, and by the United States, India faced a large uncovered deficit for the finance of its second fiveyear plan. There was a threat that it could not meet its bills. The World Bank successfully organised a conference of “creditor nations,” including Germany and Japan, which agreed on the amount to be put up by each country to fill the gap Work For New Group This exercise proved to be a precedent in international cooperation which many of the participants wanted to see repeated. Accordingly, again under the initiative of the World Bank, there was formed early this year the Development Assistance Group, consisting of the main creditor nations and designed to co-ordinate and stimulate aid for development projects. The group has met in Washington and Bonn. Unfortunately it has not made much progress, even, apparently, in the important task of establishing just how much each country is already doing in providing loans and grants to overseas countries. The future of the Development Assistance Group will come under discussion at Washington, and it is to be hoped that it will inspire more interest; some officials have lately commented that it is in danger of dying of boredom. Another institution in this sphere is sure to be in the lime-llght-—the International Development Association, which is due to come into being this autumn. This has been set up by the World Bank to supplement its operations.

The idea is that, as developing countries pile up more and more public debt, and especially external debt, it may become increasingly difficult to sustain the pace of development through loans arranged on commercial terms, simply because these would impose an excessive burden of debt repayment on the borrowing country. It is a striking fact that in the three years from 1956 to 1958 the public debt of the World Bank's member countries in Asia, the Middle East, and Africa almost doubled. Task for Creditor Nations Sensibly, the World Bank has no intention of departing from its own well-tested precept of keeping to commercial standards of lending; but it has felt that there is a need for a subsidiary agency to make loans on easier terms —for longer periods, at lower rates of interest, or repayable in local currencies. The International Development Association will do all these things. It will not. the World Bank has emphasised, be lax about proper appraisal and prudent domestic policies in the countries to which it lends. While it will make "soft" loans, it will not be a soft lender. The scale of its operations will not be large at first: its capital of 1000 million dollars is payable over five years and this total includes some amounts to be paid by poorer countries in their own

currencies. The new agency will be a useful addition to the World Bank stable; but it does not allow individual creditor countries to be complacent about the effort that is still required from them.