The World Bank, Canada, and the Commonwealth

MR. GRIFFIN: Members and guests of The Empire Club of Canada: The International Bank for Reconstruction and Development, popularly known as the World Bank, is an organization operating under a Charter subscribed to by its 54 member Governments. The principal purposes of the Bank are to assist in the reconstruction and development of its member countries; to promote private foreign investment by guarantees of loans; and when private capital is not available on reasonable terms to make loans out of its own resources. Up to the middle of March of this year seventy-seven loans amounting to Fifteen Hundred Million dollars had been made to countries in every quarter of the Globe. The Bank does not lend its money, which is the money of the members themselves, to a member without a thorough investigation of all the factors involved. The principal factors are the economic and financial condition of the country concerned, the technical feasibility of the project for which the money is wanted, the ability of the borrower to complete, operate and manage the project and the value of the particular project in relation to the needs of the country concerned. The total subscribed capital of the Bank is over Nine Billion dollars of which twenty percent is paid in and the remaining eighty percent is available for the Bank to call on when necessary.

The leadership of this great international organization is in the hands of Mr. Eugene R. Black, our speaker of today. Born and educated in Atlanta, Georgia, Mr. Black comes of a banking family. Following service with the United States Navy during the first World War Mr. Black joined the Atlanta staff of a firm of New York investment bankers. He later became associated with Chase National Bank of New York City and at the time of his appointment as President of the World Bank in July, 1949 he was Senior Vice President of that famous bank.

MR. BLACK: I was very glad to receive the invitation which brings me here today to speak to the Empire Club of Canada. The relationships between the World Bank and Canada--its Government and members of its business community--have always been cordial, and have become increasingly close in the past two years. I would like, among other things; to tell you something of those relationships this afternoon.

It is a particularly welcome privilege, I may say, to talk to a group with sympathies and interests which reach to that international society of nations we now call the Commonwealth. Views of the Commonwealth differ, I know, even among its constituents. I remember the Prime Minister of New Zealand saying in that typically direct way of his, "They can talk all they want to about the Commonwealth of Nations--but as for me, I'm still an Empire man."

However that may be, the Commonwealth is certainly the most important example of international cooperation in existence. It is many things: a free association of free nations, a school in statehood for peoples progressing toward independence, and in any case, a source of strength and wisdom in the free world. The Bank's affairs and those of the Commonwealth are intertwined at many points; and this, too, I would like to talk with you about this afternoon. The Bank itself is an international society--a cooperative financial institution of 54 member countries. Our business is to make loans which will benefit our membership and which will be repaid.

Our funds come from our member countries, through their subscriptions to our capital stock and through the sale of our bonds in their capital markets. Our capital may be invested only in the territory of members, through loans either to governments or to other entities with governmental guarantees.

The first business of our Bank was to make loans for the reconstruction of Europe. That we did in 1947, at a time when Canada had already begun her extensive aid program, but in advance of the European Recovery Program itself. To France, the Netherlands, Denmark and Luxembourg, we made four loans which totaled half a billion dollars. (Let me remark parenthetically that nearly all the money amounts I am using are expressed in American dollars; they will be smaller in Canadian dollars, in view of the current Canadian premium.)

Since 1947, the Bank has been lending especially for projects which will help the less developed countries of the world to develop their physical resources. Our aim has been three-fold: to increase the production of useful goods; to promote better balanced world trade; and to raise the standard of living in our member countries. In this second phase of our activity, we have lent something over a billion dollars.

It will come as no surprise to Canadians, I think, to learn that wherever we have gone, we have found that basic utilities must be provided as the backbone for economic growth. Fully $400 million of our investment in development has been devoted to electric power. Two hundred million or so has gone to transportation: railways, roads and ports. The third major field of our lending has been agriculture; we have lent over $150 million for irrigation schemes, for projects to clear and rehabilitate land, and for farm equipment. Our investment in industry and mining has been nearly as much; and finally we have lent nearly $100 million for general programs of development embracing most or all of these different fields of activity.

Let me pause for a moment to emphasize two things. The first is that the Bank does not compete with private investment and private enterprise; its purpose is to encourage and supplement them whenever possible. Let me give you an example. As you know, the Brazilian Traction, Light and Power Company is a Canadian company. It is the largest supplier of electric power in Brazil, and the principal supplier for the rapidly growing industrial area around Sao Paulo and Rio de Janeiro.

In 1947, the Company began an expansion program which required more capital than it could obtain from the Canadian and American markets. In 1950 and 1951, the Bank made two loans, totaling $90 million, to Brazilian Traction. The expansion program is now well advanced, and the Bank is happy to have done something to help the continued progress of a company whose affairs not only concern its stockholders but are of first-rate importance for the whole economic future of Brazil. (I may add that the Chairman of the Company, Mr. Henry Borden, and I have confounded Shakespeare: while he is a borrower and I am a lender, we are the best of friends.)

The second thing I would like to stress is that the Bank itself is a business institution. I am not going to take your time to tell you about the careful procedures by which the Bank assesses loan proposals and follows through to completion the projects it is financing. Let me just say this: we have received all our payments of interest and principal as due, and we have accumulated reserves which now amount to over $100 million.

Among the 54 members of the Bank, Canada is geographically the biggest and, from an industrial and financial point of view, one of the most important. When the Bank's charter was written in 1944, it was clear that our members would have different sorts of interest in the activities of the Bank. Some members obviously expected to be borrowers. Others were willing to assume the position of creditors and, through this new institution, to provide the funds and capital goods necessary to achieve objectives in which they believed.

From the first, Canada was obviously in the creditor class, and from the first, was able to export capital goods for projects financed by Bank loans. Under our loans, some 70 million dollars' worth of Canadian products have been exported to 15 of the Bank's member countries. Let me mention major items only: $27 million worth of electric power equipment to Brazil; $19 million worth of railway equipment to India; $9 million worth of transport equipment and petroleum products to France; $4 million worth of locomotives and agricultural machinery to Australia; $3 million worth of lumber and wood products to the Netherlands; $3 million worth of power equipment to Mexico: and $1 million of railway stock to the Union of South Africa. While most of these exports were paid for by dollars obtained in the United States, a third of them were financed through the Bank, by Canada herself.

When Canada joined the Bank, she subscribed to stock with a par value of 325 million U.S. dollars. Under our charter, she was not required to pay in 80% of this amount, but assumed a liability for that 80%, should we ever need to call on it in order to pay off our bonds or meet obligations arising from our guarantees. She was required to pay in 2% of her subscription--some 6 1/2 million dollars--in gold or U.S. dollars. The remaining 18% of her subscription was payable in her own currency, and amounted to 58 1/2 million dollars. This amount was credited to our account, but under our charter, we were not entitled to lend it without the specific permission of the Canadian Government.

Canada was one of the first member countries to make a substantial amount of its currency available for Bank lending. Its first release, amounting to $8 million, was made in December 1948, and was devoted entirely to equipment for the Brazilian Traction Company. Later releases, in March 1950 and in May 1951, brought the total of releases to $18 million, and the entire balance of the original 18%, amounting to $401/2 million, was released to us last May.

In the meantime, as most of you know, the Bank had received permission from Ottawa to enter Canada's capital market. In February 1952, after more than a year of planning and discussion, a group of Canadian investment houses made a public offering of 15 million dollars of our bonds, carrying interest of 4% and maturing in 1962; and the issue was taken up quickly and completely.

In all, we have had from subscription or borrowing, over 73 million Canadian dollars; and aside from the United States, Canada is the only country to put the whole of her original domestic-currency subscription at the disposal of the Bank.

When the Bank began operations in 1946, it was apparent that in contrast to Canada most other Commonwealth countries, for the time being, would not be able to export capital and capital goods for the purpose of Bank loans. That position has been modified. The United Kingdom has let us have $101/2 million worth of pounds, and has now agreed, that as suitable projects arise in the Commonwealth, we may have the use of $168 million more from her sterling subscription over a period of six years or so. In May 1951, we were able to sell a $14 million issue of sterling bonds in the London market, and a part of that issue was taken up in Australia. More recently, the Union of South Africa has released to us $2.8 million worth of her currency for our loan to Southern Rhodesia.

Nevertheless, the fundamental position of most of the Commonwealth members of the Bank is that of borrowers. And as this audience well knows, one of the chronic problems of the sterling countries of the Commonwealth is how to obtain enough dollars, especially to pay for imports from Canada because of the large proportion of her exports that goes to the sterling area.

In its own lending, the Bank has provided dollars to the sterling area on a modest but useful scale. Our first loan to a Commonwealth country was made to India in August 1949. From that time forward we have lent $370 million in the Commonwealth. This constitutes more than one-third of all our lending for development, and averages out to slightly more than 100 million dollars a year.

For the most part, we have been directly financing imports from the dollar area. The Indian loan I have mentioned, for instance, was used to pay for railway equipment from Canada and the United States. For most of its borrowers in the Commonwealth, the Bank has been significant chiefly as a channel through which they have obtained dollar capital and dollar goods.

In some cases, however, Bank lending has had the effect of supporting the United Kingdom in its traditional role as banker and a principal source of investment and imported goods for the rest of the Commonwealth. Since the war„ the London market has not always been able to provide sufficient investment to finance desirable development in the Commonwealth. The United Kingdom's support for that development, moreover, has involved a dollar cost. To provide the necessary goods, British industry has had to import and process raw materials from Canada and other countries of the dollar area. Also, British industry has had to forego other exports which might have earned dollars.

Under these circumstances, the Bank has found it possible to supplement the capital normally provided by the London market, and to do it with dollars. This we have done in our two loans to the Union of South Africa and our single loans to Southern and Northern Rhodesia. In each of these cases, we have lent dollars for purchases in the sterling area. We have thereby added to the Bank of England's holdings of dollars, and to the availability of that currency for imports into the sterling area from the dollar world.

In short, our lending in the Commonwealth has from the beginning done something to narrow the dollar gap, and has benefited countries situated on opposite sides of that gap.

If that were the only effect of our loans, they would be of some value. But the World Bank is in the business of long-term investment. We obviously have not been conducting our operations in the Commonwealth to furnish a mere palliative to dollar anemia. In our lending to the Commonwealth, we have from the first concerned ourselves with projects to aid production; and this production should accomplish durable improvement in the balance of payments of the sterling area.

Six Commonwealth countries have borrowed from the Bank--the independent nations of Australia, India, Pakistan and the Union of South Africa, the self-governing United Kingdom colony of Southern Rhodesia and the colony of Northern Rhodesia. I will, if I may, take the last three countries first, because there are certain similarities that make it convenient to discuss them together.

South Africa and the two Rhodesias have all, since the war, developed very rapidly. In all three, the rate of investment in some recent years has been as high or even higher than you are experiencing here in Canada--more than 20 percent of national income in South Africa, over 30 per cent in the Rhodesias. The needs of development, as I have indicated, have to some extent outrun the capacity of the United Kingdom to provide capital, and the Bank's loans have provided supplemental investment.

The demands of new industry and growing agriculture have also outrun basic facilities--especially electric power and transportation--and it is to these objects that the Bank has directed its lending. We have lent $30 million in the Union of South Africa for power development and $20 million to improve rail and other transportation. We have lent $28 million in Southern Rhodesia for a comprehensive program to increase the supply of electric power, and $14 million in Northern Rhodesia for the improvement and extension of railways serving both the Rhodesias.

Our primary purpose, in each of these countries, was to support a rising level of useful economic activity. But we also believed that more production in the Union and the Rhodesias would bring benefits to the sterling area as a whole; in some cases, through the production of things that otherwise would have to be imported into the sterling area for dollars, in others through increased exports to the dollar world. Southern Rhodesia, for instance, already has large supplies of chrome ore that cannot be exported, simply because the railways are unable to carry them. The improved transport of coal from Southern to Northern Rhodesia should measurably increase the smelting and export of copper. More adequate supplies of electric power in South Africa will aid gold production, and better transport should facilitate exports of other minerals such as manganese and chrome. And while the Union stands in a special relationship to the sterling area, part of her dollar earnings habitually go to London to cover her normal deficit in sterling.

In Australia, we have made two loans totaling $150 million. Like the countries I have just been talking about, Australia is developing rapidly, and she is already highly industrialized. The war years, however, brought serious dislocations in the Australian economy. The disruption of international trade during and after the war made it necessary to postpone basic capital improvements, and at the same time made it feasible for Australians to establish secondary industries to produce things that normally would have been imported. Given tariff protection, these industries not only survived but attracted an abnormal amount of investment and manpower.

The result was that basic production lagged badly. There was a great increase in the output of many consumer goods, but none or virtually none over pre-war levels in the production of wool, wheat, meat, coal, steel and minerals. At the same time, a program bringing tens of thousands of immigrants from the United Kingdom and other countries of Europe put an added strain on the economy. By 1950, the further development of basic Australian industries was hobbled by shortages of coal, electric power and transportation. The surplus of agricultural products which had helped Australia pay for her imports was being reduced under the weight of her rapidly growing population; and Australia's value as an asset in the economy of the sterling area was declining.

Australian industries and Australian public authorities had already prepared or begun projects to remedy this situation. What was needed in nearly every sector of the Australian economy, however, were critical items of equipment that had to be purchased with dollars. Most of the tractors needed for farm production, for instance, could be obtained in the United Kingdom; but the Australians still needed certain tractors and other specialized agricultural equipment which was manufactured only in Canada or the United States.

The Bank's first loan, signed in 1950 and amounting to $100 million, was made to finance the import of critical dollar items necessary to complete projects in agriculture, mining, metallurgy, electric power, transportation and industry. A second loan made in 1951 and amounting to $50 million, is serving much the same purpose.

Some results of our lending, I may say, are already visible. Where there was a coal shortage two years ago, there is now an exportable surplus. In the state of Queensland, thanks in part to Canadian and American tractors, the production of wheat and grain sorghum has already reached levels which the Australians did not expect to attain for another 5 years. The present determination of Australians and their public authorities to emphasize basic production can only have good results, I think, for Australia and for the Commonwealth as a whole.

In Asia, the two Commonwealth countries which have borrowed from the Bank are Pakistan and India. Here we come to new and different problems. The population of all the countries I have mentioned up to now is less than 25 million, but in Pakistan it is 75 million and in India it is 400 million. Natural resources that in other countries might be considered bountiful are, in relation to the population, not over-generous. While Pakistan normally is able to feed herself, a bad growing season such as she has had in each of the past two years can quickly make her a food deficit country; and India is often in deficit. The means to develop resources is limited. The rate of internal investment is low and investment from abroad, since the war, has been meager.

In these circumstances, it has been particularly necessary for the Bank to select projects which might most quickly have the most beneficial result. Our first financing in India, as I have mentioned, was a $33 million loan for the improvement of railway transportation. It was made in August of 1949, and within a relatively few months Canadian and American locomotives had helped to shatter bottlenecks which were choking the flow of both internal and external trade. Our first loan to Pakistan, made in March of 1952, was for a similar purpose; that loan, incidentally, consisted of 15 million dollars and 12 million dollars' worth of French francs.

In both countries, we have given a hand in large-scale projects to increase agricultural production. A tractor loan of $2 1/2 million is helping to clear 600,000 acres of land for wheat and cash crops in Pakistan. A tractor loan of $7 1/2 million is helping to clear something over 2 million acres for growing wheat and other food crops in central India, ultimately on a scale of about a million tons a year.

Two other loans we have made in India, totaling $37.5 million, are helping to finance irrigation, flood control and power development in the Damodar Valley, west of Calcutta. One result should be to add another 400,000 tons of food to Indian production. Power projects we are helping to finance will support the further growth of the widely diversified industries that already have taken root there. Finally, the Bank has lent $31 1/2 million to the Indian Iron and Steel Company for a substantial expansion of iron and steel production in the Valley. Altogether, our lending should help India, through increased production of food, iron and steel, to accomplish direct import savings worth more than $100 million a year; and this, too, should benefit the sterling area Commonwealth as a whole.

While I would like to tell you about the operations of the Bank in other countries and other areas, I see that my time is growing short. Let me end by making some general observations about the Bank's work in the field of economic development and the significance of Canada's participation in it.

If the world consisted of 60 or 70 nations like Canada, there would be no necessity for a World Bank. You have an enormously productive economy here, a skill and a confidence that inspires you to invest in your own future, a way of doing things that has attracted large amounts of capital from outside. The way in which you have developed your country provides a model which the rest of the world might observe to its own benefit.

Unfortunately, however, we are living on a globe where poverty and ignorance are the rule rather than the exception, where perhaps two human beings out of every three are just beginning to glimpse modern methods of production, modern science and modern medicine. The condition of these people is not the only reason, but it is one important reason, why our world is so deeply disturbed today, and why it offers such a tempting target to aggressors.

It is one reason why Canada has joined other nations to erect international military systems for common defense. But if we are to get at root causes, there must also be international cooperation in the fields of economics and finance. Canada has already given this cooperation with her own loans in Europe, and with the fund she is wisely making available to the Commonwealth countries of south Asia under the Colombo Plan.

Canada is also a vigorous partner in the World Bank. The task in which the Bank is engaged is a formidable one. Improvements in standards of living and ways of life cannot be achieved overnight. Yet the possibilities and opportunities, opened up by modern technology in this century, are greater than they have ever been before. The Bank can do much to help its member nations realize these opportunities. It can do much to help them achieve a decency and dignity in the conditions of life which are requisites to a peaceful and stable world. That is the central objective of our work, and from their participation in it, I think Canadians can take pride.

THANKS OF THE MEETING were expressed by Mr. H. R. Jackman.