FINANCING OF WORLD DEVELOPMENT
Barber Conable, President, World Bank
October 5, 1987
At a joint meeting of The Empire Club of Canada and The Canadian Club of Toronto
Co-Chairmen: Sonja Sinclair, President, The Canadian Club of Toronto; Ronald Goodall, President The Empire Club of Canada
Forty odd years ago, when the world's leaders decided to give birth to an agency dedicated to the assistance of underdeveloped or needy countries, the concept was so new that the United Nations didn't know what to call their brainchild.
In some ways, the new agency was going to function like a bank, yet in many other ways it was going to be quite different. But in the final analysis, they decided to call it a bank anyway because, said a committee way back in 1944, "No satisfactory name could be found in the dictionary for this unprecedented institution:"
Well, what's in a name? The important fact is that the World Bank has, in the past 40 years, helped dozens of countries and millions of people, by way of loans and technical assistance for a vast variety of economic and social projects.
Many of the countries to whom the World Bank loaned money in its early stages have since become self-sufficient. Indeed some of them, most notably Japan, have become major contributors to the Bank.
Unfortunately, the same cannot be said about a number of other countries, some of whom appear quite incapable to service, let alone reduce their multibillion-dollar loans. According to my admittedly rough calculations, Brazil alone owes the three banks represented at our head table more than $5 billion.
Persuading governments and financial institutions to help such countries dig themselves out of the hole is the World Bank's major challenge-which is undoubtedly why our guest speaker has chosen "Financing of World Development" as his topic for today.
A graduate of Cornell University and Cornell Law School, Barber Conable served for 20 years as a Republican member of the U.S. House of Representatives and as a member of several congressional committees. According to The Financial Post, he impressed observers as being "lowkey, independent and very smart. He made his name by mastering his field-taxes-and becoming a major force in tax legislation. Unlike most of his colleagues, he never took a campaign contribution of more than $50 because, he said, I don't want to be owned. "
Following his retirement from political life, Mr. Conable was appointed professor of government at the University of Rochester. He also served on the boards of four multinational corporations and on the board of the New York Stock Exchange and, in his spare time, he was active in foundation, museum and nonprofit work.
All in all, it is small wonder that when he was appointed last year President of the World Bank, commentators called him the right man for a crucial job.
Ladies and gentlemen, please welcome the President of the World Bank, Barber Conable.
It is a pleasure to be with you today, and an honour to be asked to address the combined forces of The Canadian Club of Toronto and The Empire Club of Canada. I understand our host, The Canadian Club, is not too many years from its centennial. I deplore my personal proximity to observing the same milestone, but I suppose with a club, it's a matter of congratulations. While I'm on a personal note, I want to mention a community that we in North America frequently overlook: my mother's family and my wife's father's family both came from Ontario. I'll bet some of you came from New York. As a New York resident, l know my home is less than half the distance to New York City, from Toronto. The point is, we're both kin and neighbours. I'm delighted about the new Canada-U.S. trade agreement, which recognizes this commonality. I personally think it's a great day for both countries.
The organization I now head is a new one compared to The Canadian Club. We have just held our 42nd Annual Meetings of the World Bank and our sister institution, the International
Monetary Fund. It was an exhilarating experience. When 150 nations are gathered together in the single cause of helping to raise economic and social conditions around the globe, and succeed in making some progress along that difficult path, one's spirits are bound to rise.
President Reagan noted in his address to the meeting that someone once defined an economist as the only professional who sees something working in practice and then seriously wonders if it works in theory.
You'll be heartened to know I'm neither an economist nor intent upon talking theory to you. Rather, I'd like to talk realities. In particular, I want to talk a little about some of the reali ties we face on the global economic scene, and about the opportunities we need to grasp if we are to change that scene for the better. We must change it because the prospects for improving the well-being of many hundreds of millions of people in the developing world will get worse, not better, if we don't.
The World Bank is a development institution. Like any institution, it has changed as the needs of those it serves have changed. For 40 years we have been helping governments to secure better and more productive lives for their people. That has not changed. What has changed is the economic environment in which we have to work toward those goals. Much of the kind of help our developing member countries need has changed accordingly.
If you followed the media reports of our meetings last week, you likely have concluded that the Latin American debt crisis is far from solved, and that sub-Saharan Africa's economic situation is still in crisis. Add to this list the less reported, but no less disturbing, fact that even in Asian countries that have growing economies there is still appalling poverty. What you have is a fair picture of the harsh realities we face.
The World Bank has to confront these realities daily because we are the central global institution supporting the development process. Our response has been to seek effective, innovative ways to put our financial and intellectual assets to work on alleviating these problems.
We have committed ourselves to a reinforced effort to combat the worst attack of endemic poverty in Asia and help eliminate it by the end of this century.
We have committed ourselves to help the heavily indebted middle-income countries return to steady noninflationary growth and, for many, a return to creditworthiness and access to capital markets within the next five to seven years.
In sub-Saharan Africa we have committed ourselves to help meet the current crisis by organizing major programs in the severely debt-distressed countries to rebuild their productive capacities. And in doing that, we are equally committed to ensure that the welfare and food security of Africa's millions of poor are protected during this process of adjustment and recovery.
These are no small undertakings, and we cannot undertake them alone. But we can provide the leadership.
We are neither a debt relief agency nor a welfare fund. We can, however, help governments design and finance the economic adjustment programs and reforms that can revive economic growth which in turn helps reduce the debt burden and alleviate poverty.
To this end, we have been providing increasing amounts of quick-disbursing funds to governments to assist them with the design and implementation of urgent programs of policy reform. Last year the Bank provided 80 per cent of the total net lending to the 15 heavily indebted middle-income (that is, largely Latin American) countries that are the focus of the debt strategy. Much of that lending was in support of policy reform programs. Unless developing countries undertake those policy changes, their development strategies will surely fail and the money they borrow will just add to their debt.
Our lending role has been crucial because the commercial banks have not been coming forward with new money on the scale needed.
I made it very clear at last week's meetings that it is entirely in the interest of the commercial banks that they play their part in the overall effort to restore growth through adjustment in these heavily indebted countries. The commercial banks, like all of us, want to see these countries return to creditworthiness. That is the only basis on which they can do profitable business with them. But if they won't help revive the growth that will restore the creditworthiness, they can hardly blame others for the loss of business and the reduced value of their share of the large outstanding Third World debt.
We want to work with private lenders and investors, just as we work with official export credit agencies, to assure an adequate flow of resources to these countries. But let there be no mistake. It is not our role to assume the risks or responsibilities of other creditors. Our lending is complementary to, not a substitute for, the participation of others.
If we ask much of others, we ask no less of ourselves. To summarize our role, our continuing effort to help will be threefold:
First, we will back up with substantial new lending the adjustment programs of countries implementing the kinds of reforms that are really needed.
Second, we will be looking at innovative market-based approaches to the resolution of debt problems, such as debt-equity conversions and other instruments which reduce outstanding debt and interest payments.
Third, the Bank and its private sector arm, the International Finance Corporation, will help countries strengthen their domestic financial sectors, especially their capital markets, and will provide financial technical assistance that can particularly help the heavily indebted countries.
This expansion of our lending and our increased catalytic role makes an increase in our capital base essential. Negotiations on a general capital increase for the Bank are expected to be concluded this year now that the United States has announced its readiness to participate in immediate negotiations. My hope is that this new capital will support our lending program for the next six years or so. Canada had earlier agreed readily to these negotiations, and we are grateful for your prompt and unwavering support.
You have been equally constant in your support for our concessionary financing arm, the International Development Association known as IDA, which is such a crucial source of development capital for the low-income nations, especially the poorest nations of sub-Saharan Africa.
The Bank has no higher priority than its long-term investment in Africa's sustained development. One measure, but not the best or the only index of our commitment, is the level of our lending. In the past year, Bank and IDA lending to subSaharan Africa totalled about $2.1 billion. Over the coming year, lending should reach a record level of about $3.5 billion. And over the next three years, we expect about half the resources from the new $12.4-billion replenishment of IDA's resources will go to sub-Saharan Africa-again, a record level. Africa is in crisis. Its recovery will come only over a long haul and with huge effort. In the meantime, the crisis must be managed. Adjustment programs must be implemented and sustained if the potential of Africa's 450 million people and its wealth of natural resources are to be realized. But Africa's courageous reform efforts are being hampered in many cases by a shortage of finance and by the burden of official, not commercial, bank debt.
We have therefore proposed an urgent international program of assistance to the most afflicted and most debtdistressed countries which are implementing significant adjustment programs. For them we are calling for:
• concessional debt relief in the Paris club of official creditors;
• increased flows from IDA, together with more co-financing and quicker disbursements;
• an enlargement of the IMF's structural adjustment facility, as urged by Managing Director Michel Camdessus. Canada has already announced that it is willing to contribute SDR 200 million, assuming a tripling of this facility and adequate burden sharing by others.
But Canada is doing still more. Your government recently decided to convert a substantial amount of Canadian loans to African countries into grants. This effectively cancels the outstanding bilateral debt totalling about $325 million to seven francophone countries and complements the write-off of debt which Canada accorded to other Sahelian countries in 1986. Once again, the international community finds itself in Canada's debt.
You have been among the first to recognize the critical nature of sub-Saharan Africa's indebtedness problems, and among the first to take bold and imaginative action to try to help overcome them. May other governments follow your generous and farsighted example.
Meanwhile, the work of policy reform in Africa must continue. It is fundamental to recovery in the region and fundamental to our assistance strategy. We must match Africa's courage to persevere with a strong commitment to assist.
Domestic economic reforms in the developing world will, however, avail them little, whether they be African, Asian, or Latin American nations, if the industrialized nations fail to sustain growth in their own economies. Without that growth, the developing nations cannot hope to grow themselves. That is the reality of an interdependent world. Equally there can be no global economic growth without trade liberalization.
When I came to work at the World Bank just over a year ago, I had barely unpacked my bags before I found myself on a plane to Uruguay, making a 16-hour round trip to deliver a 10-minute speech. The audience was composed of trade ministers gathered under the auspices of the GATT, the General Agreement on Tariffs and Trade.
I willingly undertook that trip to make one simple point: trade protectionism is against the economic self-interest of any nation, rich or poor. The growth of markets, anywhere in the world, depends on an open trading system. That's fact, not theory.
At our meeting in Washington last week, ministers of finance and central bank governors, one after another, called for greater efforts to secure trade liberalization. President
Reagan was particularly strong on that.
Your own Minister of State for Finance, Tom Hockin, reminded us that Canada's own economic strategy is based on trade liberalization. He said, and I quote: "We firmly believe that freer trade can benefit all countries. Freer trade encourages investment, provides new jobs and raises living standards. Expanding world trade is also the only long-term solution to the debt problem."
I could not agree with him more. In the struggle to create a stronger global economy with benefits for all, we are in danger of losing a contest to the self-defeating forces of protectionism. Elevated tariffs, defensive quotas, inefficient subsidies to farmers and to agricultural exports, and a maze of non-tariff barriers are depriving the world community of the gains to be had from greater global integration.
In these circumstances, the success of the GATT Uruguay Round is essential to the welfare of the global economy. The GATT nations should act urgently to assure a standstill and rollback of existing protectionist measures.
I know that when you host the 1988 Economic Summit here in Toronto, you will be placing the restoration of trade liberalization momentum front and centre in the discussions.
As the world's principal development agency, the Bank must constantly be asking when we can do more. When and how can we help people lead more productive, healthier, happier lives; when and how can we help the world better manage its natural resources and protect its environment; where and how can we help women realize their full potential in the development process. The questions are many, and the answers have to be found. That is a crucial part of our task.
In terms of the scale and urgency of the developing world's needs, the Bank's program is a modest one. In terms of the challenges of the current global economic climate, our strategy calls for boldness and imagination in the face of undoubted risks.
A development institution's work is always challenging, but never more so than in critical times. Helping alleviate poverty is always demanding, but never more so than under unfavourable conditions. And investing in long-term development is always urgent, but never more so than when past progress stands hostage to short-term pressures.
Canada, a proud pioneer nation, understands that. You have long been a leader in this cooperative endeavour. You have been generous in your support of those least able to help themselves. You have been in the forefront of the struggle to overcome what Julius Nyerere has called "the three enemies: poverty, ignorance and disease."
Finally, you have been particularly generous in your support for the World Bank, and we owe you a debt of gratitude. The rest of the world should thank you. And I thank you.
It seems to me, Mr. Conable, that the banker's career goes through several phases. In early years, the banker assesses the worth of the local business and lends $25,000. Head office has to be consulted on larger loans. In mid-years, the banker is perhaps at head office approving those larger loans. In later years, the banker assesses the worth of large corporations and lends several million dollars.
Having never seen the financial statements of a country to allow an estimate of worth, l can only marvel at your position administering multimillion-dollar loans to Third World countries; particularly so since decisions that you make, based upon the financial support that you manage to obtain, can have a significant impact on all of us, and all without reference to head office!
After your distinguished career in law and as a congressman, I can only describe your move to the World Bank as adventurous!
You have certainly enlightened us today on the activities of the World Bank in your discussion of lending policies, commitment to Third World financial reform and assistance. You have lauded Canada's role in meeting the debt crisis.
The World Bank appears to be in good hands.
However, as Charles Farrar Browne, one of your countrymen, wrote in Science and Natural History: "Let us all be happy and live within our means, even if we have to borrow the money to do it with."
On behalf of the Empire and Canadian clubs, may I thank you indeed for your address today. We wish you well in your work with the World Bank and, as I presume all good bankers wish each other, may your loan loss provisions continue to decline.