MONEY World aid crisis
NICHOLAS DAVENPORT
Central bankers are no longer the ignorant stupid asses whom Keynes used to castigate; they are now highly sophisticated technicians capable of arguing the pros and cons of the money supply theory with Professor Fried- man or of the floating exchange proposition with Professor Kaldor. But they remain deeply boring and withal pompous and I am thankful that I have never been asked to at- tent and report on an annual meeting of the IMF. The one which has just closed in Copenhagen was typical of all the others. Nothing.was decided. If there is anything to decide it will be done behind the public scene in this or that Chancellery. Promises as usual were made to investigate the various pro- posals submitted during the conference. M. Pierre-Paul Schweitzer, the managing direc- tor of the IMF, undertook to analyse and report on the remedial measures suggested by both the developed and developing coun- tries to cope with the dangerous and universal wage-price inflation. It will mean more words and no action.
This ingenious Frenchman has developed the necessary conference technique of speak- ing solemnly with tongue in cheek. On ex- change rate flexibility he said that the debate had- demonstrated general recognition that the principles laid down at Bretton Woods remained valid and had to be maintained and strengthened ! (Our Mr Barber in his maiden speech had strongly opposed the case for floating rates, having taken seriously a recent rumour in the foreign exchange market that the Treasury was about to 'float'.) On the delicate question of the mounting American deficit on the balance of payments M. Schweitzer blandly declared that the -us Treasury should finance it to a greater extent from its gold reserves, know- ing well that it is customary for the Americans to persuade their special 'surplus' friends like Japan and Germany to continue to hold dollars. This incident passed with an expression of pained surprise by Mr David Kennedy, the Secretary of the us Treasury. Everyone knew that the continued issue of sons depended on a substantial reduction in the American deficit but it was not a subject for public debate. Realities must not be openly discussed at IMF meetings. The World Bank is another mattcr. The realities of human life, its food pro- duction and industry, its growth and hap- piness, are its business. The Bank was the finest creation of Bretton Woods and it has never ceased to do) good both for the developing and the developed parts of the world. Whether it does good in the right way is another question, which I will presently discuss, but let me first pay tribute to its achievements. In the year to June 1970 the Bank and its affiliates, namely the IDA (International Development Association) (for soft loans) and the IFC (International Finance Corporation) (for private industry loans in developing countries) exceeded for the first time $2000 million by way of loans, credits and investments. This was 22 per cent more than in the previous year. Its aim is to !end twice as much over the 1969-73 period as it did ever the previous five years and it is well on the way to reaching this ambitious
target under the dynamic direction of its present president, Robert McNamara, the former us Defence Secretary. (How happy it must be for him to turn from being a merchant of death to an angel of hope!) The main loans of the World Bank are for the economic infrastructure of developing nations—roads, railways, electric power, water supply and other public utilities. Lately it has been doubling its efforts in the agricultural field in order to guarantee more food for the expanding populations and pro- mote more exports of feeding stuffs. At the same time it has been broadening its geographical scope, taking in more small and very poor countries, and enlarging its help for educational projects designed, it says, 'to reduce the drag of functional illiteracy on development'. But two new projects are significant—tourism and family planning, especially the latter. The Bank's first family planning loan—$2 million—was made to Jamaica. So far the only evidence that population growth can be significantly reduced by family planning is to be found in Taiwan and Korea. The Bank speaks of 'the ominous implications of uncontrolled population growth', meaning that the economic growth per capita induced by their aid can be washed away by excessive pro- creation. Its aim is to reduce the average family size to two, which means averting or aborting 1,000 million births in the develop- ing countries alone over the next thirty years. Even so, said Robert McNamara, the world's population, which is now 3,500 million, would reach 15,000 million by 2020. At present only twenty-two countries in Asia, Africa and Latin America have official population programmes although there are about eight international agencies ready to help. The present family planning effort, as
the President said, is totally inadequate. The prospect of this teeming, stinking and polluted world is surely horrible enough to justify the rich countries devoting 1 per cent of their GNP to birth control clinics.
Whether the World Bank is always doing good in the right way is another question. Many times it has helped to set up industrial plant in a developing country of a sophisticated, capital-intensive and labour- saving type when unsophisticated and labour-wasting machinery would have been much more useful. Many times it has en- couraged industrial development when agricultural and educational projects would have been more desirable. The Bank is cer- tainly learning its lessons, as its greater con- centration on agricultural and educational projects now shows, but it is clear that it is still hidebound by its financial conventions. As it has to raise money in the world's capital markets at the prevailing market rate, its borrowing costs rose last year to 7.7 per cent against 6.46 per cent in the previous year—it has had to charge more for its loans to the developing countries—the charge ris- ing from 6+ per cent to 7 per cent and now 7+ per cent. This means that the debt service of the developing countries has been growing much faster than their GNP. In fact, over the past decade the rate of growth of their external debt and its service has been about twice the rate of growth of their export earnings and nearly three times that of their combined gross domestic pro- duct. This is plain silly. What is the good of the World Bank coming to the economic aid of a poor nation and then impoverishing it with bankers' charges? I suggest to Robert McNamara that he should shift more to 'soft' loans through the IDA, whose resources are at last being replenished, and consider a general moratorium in debt service payments for a period. We cannot allow the gap between the per capita incomes of the rich and the poor nations to go on widening, as it is now doing. The poverty, the malnutrition, the illiteracy in the southern half of the world present a frightful threat to all of us in the northern half and it is a threat which is growing, not diminishing in spite of the World Bank's aid.
ffolkes's investors' alphabet
J is for Joint holding
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