World Bank and Its Associates

THE ECONOMIC WEEKLY World Bank and Its Associates Review of Operations, 1961-62 September 22, 1962 The World Bank can took back on its performance in 1961-62 with considerable satisfaction, Developmentassistance extended by it during the year was the highest for any year since its inception. Its bonds commanded a firm and widening market. And the increase in sales of loans extended by it. gave proof of its ability to further reduce its own holding of the loans committed by it. The International Development Association's operations in the first full year of its working might not have been all that one might have desired, yet it appears likely that by the end of 1962-63 all Us initial resources would have been committed. This raises the problem of finding addditional resources which will riot be an easy one to solve. For, in view of the special terms on which it makes its loans, neither of the two methods adopted by the World Bank issue of bonds or sale of loans unit be available to the I D A to replenish its resources, One solution is for the industrialised member countries to raise their contribution to the I D A's capital. The countries of Western Europe particularly should increase their share of the Association's capital to a level more in keeping with their capacity, Strengthened by the amendment to its Articles of Agreement enabling it to invest in the share capital of companies and to underwrite capital issues, the International Finance Corporation substantially increased its assistance to private enterprise in 1961-62. However, the existence of unutilised resources indicates the Corporation's capacity to further expand its operations. THE year 1961-62, which was the sixteenth year of the World Bank's operations, saw the Bank's lending touch the highest figure for any year so far. Loans during the year amounted to $382 million (see Table 1) which was substantially higher than the previous highest total of $711 million in 1957-58. It has to be borne in mind, however, that the record achievement of 1961-62 followed a relatively poor performance in the previous year. In 1960-61 the Bank lent only $610 million compared with $669 million tn 1959-60 and $ 703 million in 1968-59. The Bank's Annual Report for 1960-61 explained that one of the reasons for the lower level of lending during the year was the postponement of a number of pending loans beyound the end of the fiscal year for purely procedural reasons. Thus a part, how large a part is not known, of the loans showed to have been made in 1981-62 was really made in 1960-61 and would have been included in the total of loans made in that year but for procedural delays. A comparison of the average 'or the two years 1960-62 with the average for the preceding two years is likely to give a better idea of the growth of the Bank's lending. The Bank's loans averaged $746 million during 1960-62 compared with $681 million in 1958-60 and $ 549 million in 1956-58, The loans made in 1961-62 brought the total of all assistance by the Bank from its inception to June 30, 1962 to $ 6,544 million. Of this, development assistance amounted to $ 6,047 million, the remaining $ 497 million being reconstruction assistance extended to Europe after the War, Table 2 gives the total assistance extended by the World Bank up to June 30, 1962. classified by purpose and area, Disbursements on loans amounted to $485 million in 1961-62 compared with $398 million in 1960-61. The cumulative total of disbursements at 1519 June 30, 1962 was $4,805 million or about 73 per cent of all loans made till that date compared with $4,320 million or 76 per cent tat June 30, 1961. More Imports from Europe The utilisation pattern of World Bank loans for imports from particular countries is interesting. Thus, of the total of 4,805 million dollars disbursed up to June 30, 1962, $1,752.2 million (36 per cent) had been used for imports from the

September 22, 1962 THE ECONOMIC WEEKLY United States, $550.6 million (11 per cent) from the U K, and $413 million (9 per cent) from West Germany. Imports from Europe against World Bank loans have increased markedly in recent years. Imports from Germany, France and Italy taken together ($111.5 million) exceeded imports from the United States ($102.6 million) in 1961-62. A striking feature of the Bank's lending in 1961-62 was that almost half the amount of total loans were made to South America. Of the total of $882 million, as much as $412 million, or 48 per cent, went to South America. This is in contrast to the previous year when only $148 million out of a total of $610 million went to South America. The largest single loan made during the year was to Mexico, amounting to $130 million. Mexico was also the largest beneficiary of World Bank loans in 1961-62, receiving. $160.5 million or 18 per cent of ail loans. New loans to Asia and the Middle-East totalled $253 million (28 per cent), to Australia $100 million (11 per cent), to Europe $32 million (4 per cent), and to Africa $85.3 million (10 per cent). The principal limitation on the Bank's rate of lending, it has often been pointed out, has been the limited number of projects or programmes presented to it which were ready for financing and execution. This may have been the reason for the low level of the Bank's assistance to Africa but for the almost threefold increase over the previous year in the Bank's assistance to South America, there is no explanation in the Bank's Annual Report. The increase in the share of South America is striking when compared not only to that in 1960-61 but also to that in all developmental assistance extended by the Bank up to June 30, 1962, Thus of total development loans up to the end of June 1961, amounting to $6,047.6 million, loans to South America amounted to $1,613.2 million (27 per cent) compared with $2,184.9 million (35 per cent) to Asia and Middle East, $946.7 million (16 per cent) to Europe, $885.1 million (15 per cent) to Africa and $417.7 million (7 per cent) to Australia. Over 80 Per Cent Assistance for Power and Transport Classified by purpose, loans for power development accounted for $493.5 million in 1961.62, well over half of the total lent, while loans for development of transport totalled $241 million. This is a reversal of the position in 1960-61 when loans for transport accounted for $311 million or more than half of all loans, while loans for power amounted to $125 million. However, taken together, power and transport remain the two principal spheres of World Bank assistance, accounting for about 83 per cent of loans by the Bank in 1961-62 and 71 per cent of all development assistance up to the end of 1961-62. Loans for industrial development amounted to $134.5 million in 1961-62 compared to $48 million in 1960-61. India received five loans totalling $ 145.5 million dollars or about 17 per cent of all Bank loans during the year compared to two loans amounting to $90 million or about 15 per cent of total assistance in 1960-61. Details of all loans made by the World Bank to India up to June 30, 1962 are given in Table 3, 1520 Broadening Sources of Funds The World Bank's sources of funds for Its operations are : payments by members of their capital subscriptions, loans raised in the capital markets, and net earnings. Sales to investors of loans made by the Bank and repayments of loans to the Bank, while they represent only a recovery of funds originally derived from one of the above sources, have the same effect as accrual of funds in that they reduce the volume of additional funds the Bank would have to obtain to sustain a given volume of fresh lending, A significant feature of the World Bank's operations in recent years has been the broadening of the sources from which the Bank draws funds for its operations. In the immediate post-war years the Bank had to depend on the United States for almost all its funds. Thus the U S capital subscription of $635 million was the first to be made freely available to the Bank for lending. Similarly, the Bank's first

THE ECONOMIC WEEKLY borrowing was the sale in 1947 of $ 250 million of bonds In the United States, But the economic recovery of other countries, particularly the counts of Western Europe, has led to the broadening of international support for the Bank's operations. Countries other than the U S have increasingly made their capital subscriptions available for lending, mostly on a convertible basis. By 1962 the capital contributions made available to the Punk for lending by members other than the United States had risen to $1,021 million, Non-U S Market for Bonds At the same time, the market for bonds issued by the Bank has also widened. In 1961-62 the Bank floated five new loans, all of them except one outside the United States. One loan for $24 million was floated in the Italian market and two for a total of $46.5 million in Switzerland. The fourth loan outside the United States was a $ 100 million Issue of U S dollar bonds placed with 53 Institutional investors in as many as 32 countries. The only loan floated in the United States was for $100 million in January this year. This was the first public Issue of World Bank bonds in the U S since January 1960. The total value of the five loans floated in 1961-62 was $270.5 million. In addition, the Bank received $ 130 million in dollars and the equivalent of $62.5 million in Deutsche marks from borrowings arranged in previous years. The gross increase in the Bank's funded debt during 1961-62 was $463 million. After taking into account redemptions, sinking fund purchases and other repayments of past borrowings, the net increase in the Bank's funded debt during 1961-62 amounted to $292.3 million, against $.155.5 million in 1960-61. At the end of June 1962 the Bank's total outstanding funded debt amounted to $ 2,521 million, of which about 56 per cent was held September 22, 1962 by non-u S investors. Compared with this, the outstanding debt at June 30, 1961 was $2,228 million, of which 53 per cent was held by non-u S investors. The proportion of Bank loans held by non-u S investors thus increased further in 1961-62. Sales of the World Bank's loans, all made without the Bank's guarantee, also showed a sizeable increase in 1961-62, totalling $319 million compared to $202 million in 1960-61. Of the cumulative total of Bank loans, net of cancellations and refundings, at the end of June 1962 amounting to $6,544 million; loans of the value of $ 1,325 million, or about 20 per cent, had been sold to other investors. At the end of June 1961 the total of Bank loans amounted to $5,669 million, of which $ 998 million, or about 18 per cent, had been sold to other investors. The proportion of Bank loans sold to other investors thus increased in 1960-61. The tonal of Bank 1521

September 29, 1962 THE ECONOMIC WEEKLY loans repaid by the borrowers or sold to other investors at the end of June 1962 amounted to $1,867 million and the total of effective loans held by the Bank was $4,434 million. At the end of June 1961 against the cumulative total of Bank loans amounting to $5,669 million, the effective loans held by the Bank, after excluding repayments and sales of loans, amounted to $3,996 million. The percentage of effective loans held by the Bank to total loans committed declined to 69 per cent in 1963 62 from 71 per cent in 1960-61. The corresponding percentage was 72 in 1959-60 and 77 in 1958 59. Thus the Bank has been able to gradually reduce its own holding of the loans committed by It. Coordination of Aid Efforts The increase in the capital contributions made available to the Bank by members other than the United States, the expanding market for the Bank's bonds and the Bank's success in selling its loans to other investors all these reflect the growing number of countries who are today in a position to offer increasingly large amounts of development aid. At the same time, however, more and more under-developed countries are formulating national development plans, thereby crystallising the demand tor assistance. The situation calls for intensification of international effort to mobilise the potentially available resources and to direct it where it is most needed and can be used most productively for developmem. A number of techniques are being experimented with to achieve this end. There is, first, the informal exchange of information on the part of the aid-giving countries and institutions; the next sage is the co-ordination of external assistance by means of the so-called 'consultative groups"; and then there are, finally, the international aid consortia. The World Bank has played an active part in these efforts to mobilise and co-ordinate development finance, It assists the recipient countries in the preparation of their plans or development projects and advises the aid-giving countries on the quality of the development programmes and projects for which their assistance has been sought. "Consultative groups" were formed in 1960-61 for Nigeria and Tunisia. Under these arrangements, co-ordination of assistance to these countries was discussed by groups of interested aid-giving countries meeting under the chairmanship of the Bank. Iran, Columbia and China have also asked the Bank to organise "consultative groups" for them. The work of the consortia for aid to India and Pakistan is, of course, too well known to need description here. IDA'S First Year The year 1961-62 was the first full year of the International Development Association's operations. The IDA which came into existence in September 1960 is designed to finance economic development with credits bearing less heavily than conventional loans on the balance of payments of underdeveloped countries. Up to the end of June 1961 the IDA had extended credits totalling $ 101 million to four countries : India. $60 million; Honduras, $19 million; Sudan, $13 million; and Chile, $9 million. 1522 Compared to the total of loans made in the first nine months of its working, the IDA's performance in its first full year may appear somewhat disappointing. In 1961-62 the IDA extended 18 new loans totalling $ 154 million, bringing IDA's total commitments so far to $235 million. The rate of disbursement of IDA loans has so far been slow, disbursements amounting to no more than $ 12 million. It may be expected, however, that the rate of disbursement of loans will rise as projects financed by the IDA come under construction, All-IDA loans so far have been made on identical terms; repayable over 50 years, interest-free but bearing a service charge of 0.75 per cent per annum. India was once again the chief beneficiary of IDA assistance in 1961-62, getting six of the 18 loans and $ 60 million of the total of $ 134 million (See Table 4). Agriculture, surprisingly, received the bulk of IDA assistance in 1961-62. Thus a total of $66.2 million, or about 50 per cent of all loans, was for agricultural development, mainly in India and Pakistan. The long maturity of IDA loans and the nil interest on them make IDA assistance particularly attractive to the developing countries. Equally important from the point of view of these countries is the fact that unlike World Bank loans or assistance from the aid-giving countries, IDA assistance Is not necessarily limited to the foreign exchange component of the cost of the project financed. If, therefore, IDA aid is secured for projects with nil or very small foreign exchange components, the country's free foreign exchange resources are increased io the maximum amount of the loans. Thus it is estimated that of the first IDA credit of $ 60 million to India for highway development, over $55 million will become available

THE ECONOMIC WEEKLY September 22, 1962 as free foreign exchange to the country. After agriculture, transport received the largest IDA assistance in 1961-62, $38 million. Of this, $31 million was for projects in Latin America. In most cases, these credits were also expected to directly benefit agriculture by opening up new areas for farming and by creating facilities for transport of agricultural produce to the markets. Of the remaining credits, one of $ 18.5 million was to India to assist in financing the expansion of the power generating capacity of the D V C by the addition of a 130 mw generating unit at the Durgapur thermal power station. The only IDA credit for industry was of $5 million to Taiwan. The IDA'.s Annual Report for 1961-62 points to the growing number of sound projects for which assistance is being sought by mem ber countries and to the fact that IDA's own preparatory processing work on a number of projects is nearing completion. As a result, it expects that the amount of IDA assistance will increase rapidly, posing the problem of finding fresh resources. By the end of June 1962 the $ 235 million, out of the $ 757 million of freely convertible resources available from subscriptions to capital had been already committed. Another $ 250 million of IDA funds would be needed by the end of the current financial year to meet the IDA's share of the commitments made by the aid Indira and Pakistan consortia. Requirements for operations in other countries are also expected to increase fast. Most or all of IDA's initial resources may then be committed by mid-1963. Raising additional resources for the IDA will not be easy since neither of the methods adopted by the World Bank to augment its resources issue of bonds and sale of loans made by it to other investors will be available to the IDA in view of the special terms governing its lending operations. One solution may be for the industrialised member countries of the IDA to make supplementary contributions to the IDA's capital in addition to their initial subscriptions. Sweden has already announced a supplementary contribution equivalent to $5.83 million. Other European countries like Germany, France and Italy, which have been playing an Increasingly important role in financing the operations of the World Bank, may be expected to follow Sweden's lead, particularly since the share of these countries in the IDA's initial capital is disproportionately small. The share of Germany and France Is no more than 5.77 per cent each and that of Italy only 1.98 per cent. This is to be compared with the large U S and British contributions which come to 34.92 per cent and 14.30 per cent, respectively. Wider Canvas for I F C In contrast to the pressure on the IDA's resources, the International Finance Corporation continues to have substantial uncommitted resources. In 1960-61 the I F C made nine investment commitments totalling $ 18.4 million and one underwriting commitment of $ 2.9 million to finance private enterprise in seven countries, This brings the cumulative total of investment commitments (net of cancellations! by the IFC, set up in July 1956 to assist private enterprise in the under-developed countries without any Government guarantee, to $ 62.5 million plus the $ 2.9 million underwriting commitment. Against this, IFC's total resources at the end of June 1962 amounted to $ 1207 million. An important development for IFC in 1961-62 was the amendment of its Articles of Agreement to enable it. for the first time, to invest in equity capital and to participate in underwriting of common shares. This amendment had a substantial impact on the IFC's operation as is reflected in the increase in the assistance extended by it from $ 6.2 million in 1960-61 to $1.3.4 million, besides the 2.9 million in underwriting commitment, in 1961-62. The IFC's assistance in 1961-62 went to private enterprises in Argentina, Colombia, Greece, Mexico. Pakistan, Peru and Spain. In Mexico the IFC formed a syndicate to underwrite an issue of capital shares in the country's leading private steel company and also purchased a block of shares in the company outright. The IFC's com. 1523 mitment for both came to about $4 million. In Colombia the IFC made two investments of $ 2 million each in two development finance corporations, parts of which were subsequently converted into capital stock. In Argentina, the IFC participated to the extent of $3 million in a new petrochemical project. In Peru a cement company received an IFC investment of $2.4 million to finance its expansion. In Pakistan the IFC invested $ 4 million in a new cement plant in association with the Pakistan Industrial Credit and Investment Corporation. The IFC made its first investment commitments in Spain and Greece in 1961-62. In Spain the IFC extended $ 3 million for the expansion of a private company manufacturing electrical components for automobiles, part of it as a loan and part as investment in the company's shares. In Greece the IFC made a loan of $600,000 to a new fertiliser company. Scope for Expanding Operations The IFC's role in international assistance is basically different from that of the World Bank or the IDA. The World Bank and the IDA have funds which are sufficient in themselves to make a substantial impact upon the economies of the countries where aided projects are located. By contrast, the IFC's role in promoting development is that of a catalyst using its funds in conjunction with private business and investment capital available from other sources to promote private industries. The quantum of assistance extended by the IFC is not, therefore, comparable with that extended by the World Bank or the IDA. Even so. the substantial unutilised resources available with the IFC indicates the scope that exists for expanding the Corporation's operations. Besides, since the IFC conducts its operations on conventional commercial tines. unlike the IDA, it should be possible for the Corporation, should the need arise, to expand its resources by raising loans in the capital markets or by selling its investments. So far, of course, the need has not arisen for the Corporation to float a loan but it has been able to sell $ 10.1 million of its investments up to June 30, 1962.