veloping countries and to establish a base from which further progress may be achieved. Through joint financing, the IDA has also attracted additional capital on long term for development purposes. Disbursements have kept pace with the rapid rate of IDA commitments. Through June 30, 1966, a total of approximately $682 million, or about one-half of total commitments, had been disbursed to borrowers in 32 countries. In his Foreign Aid Message of 1966, President Johnson indicated U.S. readiness to participate with others in a replenishment of IDA's resources, in ways consistent with U.S. balance-ofpayments policy. Shortly after the close of the period covered by this report, the President of the IBRD called for a substantial replenishment of IDA's available resources to be made by the capital-exporting countries. The position to be taken by the United States in international discussions of this subject will be coordinated through the mechanism of the National Advisory Council, and recommendations concerning legislative action will be made to the President and to the Congress at the appropriate time. The Council has no recommendations to make at this time regarding other aspects of U.S. participation in the International Development Association. Document II-68 Address by the Under Secretary of State (Ball) Before the Boards of Governors of the IBRD, IFC, and IDA, Washington, September 29, 1966 (Excerpt) ** 74 United States Offer of Additional Contributions to the International Development Association Contingent on the United States Balance of Payments Situation Last July the President of the Bank sent each of the Part I countries a memorandum outlining his proposal for the replenishment of IDA at a new and significantly higher level than in the first replenishment." These resources are needed for many reasons: the heavy burden of debt service in the developing countries, the pressure of population growth, the uncertainties in the growth of their export earnings, the leveling off of bilateral aid, and the hardening of aid terms as interest rates rise. Nor can there be any doubt regarding the effective use of this development capital. The same exacting standards of self-help and performance that have for 20 years governed Bank loans are applicable equally to IDA loans. The industrial countries, by virtue of the size and vigorous growth of their economies, have the capacity for a positive response to this need. What is required is the will. Yet I must say one word at this point concerning the balance of payments of donor countries and its effect on aid transfer arrangements. Certainly it would be unwise to add to the mounting debt burden of borrowing countries; but it could be equally unwise to increase the balance-of-payments drain on donor nations in external deficit. Such nations can be expected to transfer real resources-the industrial 75 Not printed here. For reports on a July 1966 proposal by IBRD President George D. Woods that 18 economically advanced IDA member countries contribute $1 billion a year for three years (including $400 million a year by the U.S.) toward replenishment of IDA funds beginning in fiscal year 1970, see The New York Times, July 18 and Dec. 10, 1966. In discussions with the IBRD on replenishment of IDA funds, the U.S. Treasury Department was reportedly concerned with protecting the U.S. balance of payments by an agreement allowing release from pledged contributions in the event of balance of payments difficulties or by requiring that aid funds be allocated for expenditure only in the donor country (Richard P. Stebbins, The United States in World Affairs, 1966 (New York, Harper and Row for the Council on Foreign Relations, 1967), p. 361). Mr. Woods announced on Jan. 18, 1968, a new proposal for replenishment of IDA's resources in the amount of $1,200 million, payable in three yearly installments of $400 million each beginning in fiscal year 1969. The proposal envisaged full international competition for procurement of goods and services financed by IDA. In view of U.S. balance of payments difficulties, provision was also made that, for the 3 years ending on June 30, 1971, IDA would call for payment of only that portion of the U.S. contribution needed to finance procurement within the United States. (International Financial News Survey, vol. XX, No. 3, Jan. 26, 1968, p. 21.) 73 Post doc. XII-2. Department of State Bulletin, Oct. 24, 1966, pp. 633–637. 77 concessionary or soft-term loan operations are concerned, the situation is now extremely critical. The end of IDA's resources uncommitted for specific projects in the pipeline is only weeks away. Discussions looking toward the IDA replenishment have been going on since I submitted a proposal to the 18 donor governments last July. Although a number of these governments have expressed a willingness to provide support for new IDA commitments on a sharply expanded scale, the over-all pace of the discussions has been and continues to be discouragingly slow. IDA depends primarily on the support of seven governments who have in the past provided 85% of its funds. Currently, a few of these are facing balance-ofpayments and budgetary problems. There is an understandable concern that contributions to IDA should not compound these difficulties; but, in fact, the proposal I made in July provided that funds for IDA's new replenishment would not start being paid over to IDA until three years from now, and that payments would be spread out over three annual installments. The immediate and vital IDA requirement is the ability to continue to make firm commitments to finance sound development. Disbursements against these commitments follow over periods of years. With the passage of months since the submission of my proposal, it is now certain that there will be some interruption in the continuity of the IDA operation. I hope it will not be a prolonged interruption; a modest one will not do irreparable damage. Unhappily, it is impossible to predict at the moment how soon this matter will be settled. INTERNATIONAL FINANCE CORPORATION Document II-70 Report of the National Advisory Council on International Monetary and Financial Policies, Submitted March 31, 1967 (Excerpt) 78 See footnote 75 to doc. II-68, supra. 7 H. Doc. 92, 90th Cong., 1st sess., Apr. 3, 1967, pp. 30-33. Operations of the International Finance Corporation During the Period July 1, 1965– June 30, 1966 PURPOSES AND FUNCTIONS The International Finance Corporation was established in 1956 with an authorized capital of $100 million. (In 1963, an increase to $110 million was authorized to allow for the initial subscriptions of new members.) Under its charter the Corporation is authorized to invest, without government guarantee, in productive private enterprises in association with private investors, to develop external sources of private capital, and to stimulate the growth of capital markets in its less developed member countries." Although it is a distinct legal entity, with funds entirely separate from those of the Bank, the Corporation is an affiliate of the Bank and its membership is open to all Bank members. It is primarily an investing agency, and its financing is limited to private enterprises which in the judgment of the Corporation can make an effective contribution to the development of the economy of the country in which they are located. IFC financing may take a variety of forms-subscriptions to capital stock, a combination of stock subscriptions and loans, or loans with equity or other special features. Through its ability to underwrite new issues of capital shares, the IFC is in a unique position to assist in the strengthening of local capital markets and the growth of private investment. Interest rates on loans are not uniform but reflect a variety of elements related to the particular transactions. More recently they have varied between 74 and 82 percent per annum. The usual range of final maturities on IFC loans is from 7 to 12 years, and a commitment fee of 1 percent per annum is charged on the undisbursed portion of IFC loans. To See American Foreign Policy: Current Documents, 1956, pp. 213–228. MEMBERSHIP, SUBSCRIPTIONS AND ADDITIONAL RESOURCES During the period under review, three countries accepted membership in the Corporation-Malawi, Nepal, and Zambia-with subscriptions of $83,000, $55,000 and $295,000, respectively. As of June 30, 1966, the Corporation had 81 members 60 with a total subscribed capital of $99,397,000 (see appendix table D-1), and its uncommitted funds available for lending totalled about $32 million. In December 1965, a proposal (involving an amendment of the Articles of Agreement of the International Bank and of the International Finance Corporation) became effective which would permit the Bank to lend to or guarantee loans to the Corporation up to a limit equal to four times the Corporation's unimpaired subscribed capital and surplus. This measure will result in a potential increase of about $400 million in the Corporation's resources, and will substantially expand its capacity to sustain a higher level of operations and to diversify its activities." PRINCIPAL ACTIVITIES During the period under review, the IFC has continued to focus its activities upon investments which are economically justifiable, which show promise of profitability, and which lend themselves to the development of local capital markets. In the course of its operations, the Corporation has shown a special interest in the mobilization of local resources and the encouragement of local ownership of industry. Its activities have increasingly emphasized the financing of enterprises in which local funds have already been invested. Gross commitments during the current period amounted to $35.6 million for 21 enterprises in 16 countries, including Ecuador and Liberia, which received IFC financing for the first So Portugal became the 82d member of the Corporation in July 1966, with a subscription of $443,000. [Footnote in source text.] 81 See ante, doc. II-63. 82 See American Foreign Policy: Current Documents, 1965, p. 214, footnotes 52-54. 83 On Oct. 19, 1966, the IFC announced that the IBRD had granted a 15-year, $100 million loan at 6 percent interest to the IFC, the first loan under the amended Articles of Agreement (The New York Times, Oct. 20, 1966). time. Equity financing increased during the fiscal period, with underwritings of public offerings of securities in Costa Rica, Venezuela, and Mexico. Although IFC commitments generally take the form of a subscription to shares in conjunction with a longterm loan, the Corporation during the current period made loans without equity financing to a private warehousing company in Colombia, and a cement company in Greece. Together with other investors-private and governmental-the Corporation has provided capital resources for development finance companies in Greece, Liberia, and Tunisia; and in Malaysia, the IFC entered into a joint investment transaction with the Malaysian Industrial Development Finance Ltd., to finance a Malaysian cement producer. Since 1962, the IFC has had the responsibility for handling relations between the Bank Group and development finance companies as well as for appraising the performance of such companies seeking assistance from the Bank Group. As of June 30, 1966, the total share capital resources of the 25 development finance institutions in which the Bank Group had an interest amounted to $270 million, of which over $200 million was provided by local investors. Through June 30, 1966, the Corpor ation authorized total net commitments of approximately $162 million, of which about 60 percent was channeled into 13 countries in the Western Hemisphere (see table 13). To indicate the recently increased pace of IFC activities, over 40 percent of total net commitments were authorized in the last 2 years. Total disbursements of $115 million amounted to approximately 70 percent of total commitments. Equity financing has become an important feature of IFC operations, this phase of its activity having increased from approximately $4 million through June 1964 to about $25 million on June 30, 1966. However, it is expected that the Corporation's commitments will continue to be made on a mixed loan and equity basis, loan 84 Of this amount, $18 million has been taken up by other investors. [Footnote in source text.] capital without equity to be provided only in exceptional cases. The underlying objective of equity financing is of course the development of local capital markets, an area of vital concern to the Corporation. Over the past decade, the Corporation has concentrated its efforts on industrial financing, having provided in excess of $150 million for this sector of the economy. However, in view of the existence of serious food shortages in various areas of the world, both the Bank and the IFC have initiated discussions which are intended to stimulate agricultural production through projects for the manufacture and distribution of chemical fertilizers in the developing countries. Other areas of diversification are under active consideration. CONCLUSIONS AND RECOMMENDATIONS In the opinion of the National Advisory Council, the policies and operations of the International Finance Corporation have been consistent with its Articles of Agreement, as amended. In supplementing the activities of the International Bank, the Corporation has performed a useful service in stimulating the growth of private investment in its member countries. Through its investments, without government guarantee, and through its standby and underwriting activities, the Corporation has acted as a catalyst in financing projects with a total estimated capital cost of approximately $675 million. Other investors have supplied nearly $4 for each $1 invested by the Corporation. As a result of the increased resources made available to the Corporation through the 1965 amendment of its charter, which was strongly supported by the Council, the Corporation will be in a position to expand the scale of its activities, to diversify its financing into new areas, and to undertake considerably larger individual commitments than heretofore was possible. The Council does not recommend any further changes in the Articles of Agreement of the IFC at this time. 85 85 The largest amount previously authorized by the Corporation for a single enterprise was around $6 million. [Footnote in source text.] |