91. Current Economic Developments1
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EXPANDED ROLES OF IBRD-IFC-IDA EVIDENT AT MEETING IN TOKYO
Discussions at the annual IBRD meeting in Tokyo reflected the expanding roles of the International Bank and its affiliated agencies, the IFC and the IDA.2 Together these agencies committed more than $1.1 billion during the past year, the highest level yet attained. Both IBRD President Woods and Secretary Dillon stressed that Bank group efforts to promote economic development would be successful to the extent that appropriate self-help measures were taken by developing countries and suitable bilateral assistance was provided by the developed member countries.3
Boards of Governors approved three innovations, two of which are designed to enlarge the lending resources of the IFC and IDA. The third clears the way for further progress toward establishment of Bank-sponsored facilities for arbitration and conciliation of investment disputes.
President Woods indicated that after an absence of several years, the IBRD will be back in the financial markets of the world to borrow substantial sums during the current fiscal year. Secretary Dillon has urged the Bank to intensify its efforts to assure that more effective facilities are developed for mobilizing private savings in the capital markets of industrialized countries that are accumulating international reserves. Unless such facilities are developed, Dillon said, the Bank will run the risk of having to limit its operations because of excessive reliance on the markets of the US.
The critical barrier, Dillon said, is the high cost of borrowing. It is important that more imagination and effort be devoted to mitigating the impact of these costs of money on the Bank’s operation. Enlarged borrowing [Page 254]facilities in other markets would not only ensure the Bank and the developing countries of a broader base on which to rely for financial support, Dillon said, but would be consistent with our common objective of promoting international balance and the effective functioning of the international monetary system, thus meshing with the efforts of the Fund.
In the past year, Bank lending reached nearly $810 million.
The Governors at Tokyo approved a recommendation under which the IBRD would be authorized to make, participate in, or guarantee loans to the IFC for use in its lending operations. The aggregate amount of debt incurred from any source and outstanding shall not exceed four times the IFC’s unimpaired subscribed capital and surplus. IFC resources presently total $120 million. The Articles of Agreement of the International Bank will have to be amended to permit the Bank to make loans to the IFC, within limits, for relending to private enterprise without government guarantee (is required for IBRD loans). The Articles of Agreement of the IFC will also have to be amended to permit the IFC to borrow from the IBRD.
In FY 1964 the IFC invested $21 million, its largest annual total thus far and thereby has committed an amount larger than its total subscribed capital. The activities of the IFC fall into three main categories: first, the making of selected direct investment, usually on a mixed loan and equity basis; second, the provision of equity capital to industrial finance companies; and third, assisting growth of capital markets by engaging in underwriting and standby transactions.
The Governors approved the recommendation of the Executive Directors that the Bank transfer $50 million of last year’s earnings to IDA, which was established to help meet the need for low cost, long-term credits. ($50 million is the balance of the Bank’s net income for 1963–64 remaining after the allocation of $47 million to the Supplemental Reserve.) With the action of the Executive Directors in removing the Bank’s one percent commission, the previous practice of automatically allocating these amounts to the Special Reserve will end. This will significantly increase the earnings available for future transfers to IDA.
In endorsing the transfer to IDA, Secretary Dillon noted the widespread interest among developed and developing countries in further increasing the resources which can be administered by the Bank family on IDA terms. Dillon expressed hope that the Bank’s continuing studies will provide useful guides as to the sources and magnitude of those funds.[Page 255]
The amount of new IDA credits approved during the past year was $283 million, bringing total IDA commitments on June 30, 1964 to $778 million. Disbursements during the year were $124 million as compared with $56 million in the preceding year.
Before the action for the replenishment of IDA resources became effective in June 1964, IDA had committed almost all of its available resources, which totaled $791 million. With the completion of replenishment through formal action by all IDA Part I countries, IDA will have $753 million available for new commitments over the period extending at least to June 30, 1966.
The IBRD Governors cleared the way for continued work by the Executive Directors looking toward the establishment of a center for the settlement of investment disputes arising between foreign investors and governments, despite the objections of the Latin American countries. The Executive Directors, assisted by a committee of legal experts designated by interested governments, will work out a final text of a Convention providing such a center for submission to government early in 1965.
The Convention would make facilities available to which foreign investors and governments could have access, on a voluntary basis, for the settlement of investment disputes through conciliation, arbitration, or conciliation followed by arbitration. The initiative for such proceedings might come either from a state or from an investor. But no state by the mere fact of accepting the Convention would be bound to resort to the facilities of the Conciliation and Arbitration Center, and no foreign investor could initiate proceedings against a signatory state unless both had previously agreed to have recourse to the Center. Once they had so agreed, however, both parties would be irrevocably bound to carry out their undertaking.
The US and other major nations have supported the proposal for the Arbitration Center. They agree with IBRD President Woods that establishment of the Center would remove fears among many private companies about investing abroad.
The Latin Americans, in rejecting the proposal, said that since the legal and constitutional systems of Latin American member countries offer foreign investors the same rights and protection, in regard to confiscation, discrimination, and expropriation, as their own nationals, the proposed center would contravene the legal and constitutional principles of those countries by, de facto, conferring a privilege on foreign investors, i.e. to sue a state outside its national territory and dispense with the courts of law, which is denied their own nationals.
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- Source: Washington National Records Center, RG 59, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments. Unclassified. The source text comprises pp. 5–7 of the issue.↩
- The annual meetings of the Boards of Governors of the International Bank for Reconstruction and Development, International Monetary Fund, International Development Association, and International Finance Corporation were held in Tokyo November 7–11. Secretary of the Treasury C. Douglas Dillon headed the U.S. delegation.↩
- For text of Dillon’s September 8 statement at the Tokyo meeting, see Department of State Bulletin, September 28, 1964, pp. 444–448.↩