development of capital markets. In certain cases a development financing institution may even become a substitute for some of the ordinary functions of a capital market and thus actually retard the development of that market. Far too little attention has, in fact, been given to the development of capital markets in Latin America-undoubtedly because of the complexity and difficulty of this endeavor. There are, however, a number of things that development financing institutions can, and should, do to encourage the growth of indigenous capital markets. They can, and should, make their investments with a considered, even primary, view toward their future value and marketability. Most development financing institutions can directly nourish the growth of a local capital market by sales from portfolio, by participations, or by sales of their own shares to the public. Many can underwrite new issues of securities or attract direct investor participation in their own projects. In all of these ways, and in many others, development financing institutions can foster useful connections between savers and investors. If for some legal or institutional reason a development financing institution is unable to help in securing these connections, then certainly steps should be taken to remedy the situation. For the establishment of such connections is one of the most important social services development financing institutions can provide, as well as one of their own best assurances of a viable and worthwhile future. Thus, encouraging the growth of local capital markets is one of the most fruitful ways in which the institutions represented here can make even greater contributions toward accomplishing the enormous economic and social task that we have set for ourselves under the Alliance for Progress. DOCUMENT III-90 Report of the Inter-American Committee on the Alliance for Progress (CIAP), PRESENTED TO THE THIRD ANNUAL MEETINGS OF THE INTER-AMERICAN ECONOMIC AND SOCIAL COUNCIL, NOVEMBER 14, 1964 (EXCERPTS) 73 PART I CIAP POLICY STATEMENT THE STATE OF THE ALLIANCE FOR PROGRESS AND PROSPECTS FOR 1965 I. 1964- A HOPEFUL YEAR The Alliance for Progress is now completing its third year. Given its essential character, it was inevitable that progress be relatively slow in the initial stage. "OAS doc. OEA/Ser. H/X.6; CIES/621. The meetings referred to were the Third Annual Meeting of the Inter-American Economic and Social Council at the Expert Level, held in Lima, Peru, Nov. 30-Dec. 4, 1964, and the Third Annual Meeting of the Inter-American Economic and Social Council at the Ministerial Level, held in Lima, Peru, Dec. 5-Dec. 11, 1964. See post, doc. III-94. Past patterns of economic and social policy can not be suddenly halted and sharply reversed. It takes time to develop national plans and programs which are not merely statements of aspiration and priority but which are effectively linked, in both concept and execution, to specific projects and tasks in the sectors of the economy. It takes time to formulate, legislate, and execute programs of fiscal and agrarian reform, and to gather the fruits of expanded educational, health, housing, and community development programs. It takes time to prepare projects and negotiate loans for their financing; but it takes even more time to execute projects and thus to put to effective use the requisite funds. It takes time to assemble the men and to build the institutions necessary to implement the economic and social objectives of the Punta del Este Charter." It takes time to convince men and women throughout the Hemisphere that the Alliance for Progress is a serious, sustained venture worth the commitment of their minds and hearts, and worthy of their confidence. Moreover, the years 1961-1962 were marked by a continuing deterioration in the terms of trade for Latin America which reduced import capacity and dampen the rate of growth in Latin America as a whole. For all these reasons the over-all figures for Latin American growth did not achieve in 1962-1963 the target set at Punta del Este; although they approximated the Punta del Este targets, if abstracted from the specific situation in two major countries. 1964 has been a more hopeful year in three respects. First, the economic indices for Latin American production and trade, as well as the terms of trade, have improved. It is too soon to cast up an over-all balance sheet for Latin America in 1964; but there is little doubt that it will show a marked improvement over 1963. Second, and of even greater importance, the governments and peoples in certain of the Latin American countries, whose structural and financial problems have shadowed the over-all performance of Latin America, appear committed to deal with basic economic and social problems with a new vigor. Third, the machinery of the Alliance for Progress itself, in the wake of the resolutions passed at São Paulo Ministerial in 1963," has assumed a coherent form and moved forward with energy and teamwork which promise much for the future. II. THE CIAP COUNTRY REVIEWS 76 In its first phase, the work of CIAP has centered about the country review procedure: an exercise which illustrates and dramatizes its multilateral character. At the meeting in Mexico in July 1964, CIAP decided to review the plans and programs of every Latin American country in the three subsequent months. This task was accomplished. The Chairman, or a member of CIAP designated by him, presided over each session. Other CIAP members participated as well as members of the Panel of Nine" and the Secretariat. An evaluation of the country's program was made by the Panel of Nine, the Secretariat, or by both groups acting in collaboration. The country program was presented by a senior official of the government concerned, usually at the Ministerial level. Representatives of the lending agencies were present and actively participated in discussions marked by candor, mutual understanding, and in general, by a high degree of consensus which reflected in the final reports. On the whole the first round of country reviews must be accounted a major institutional success. It provided a cross-sectional view of the situation, plans, and prospects for each Latin American nation; it permitted an isolation of critical tasks to be undertaken by the Latin American nations themselves, by "Text in American Foreign Policy: Current Documents, 1961, pp. 395-409. See ibid., 1963, pp. 342-347. "The First Meeting of the Inter-American Committee for the Alliance for Progress was held in Mexico, July 10-21, 1964 (OAS doc. OEA/Ser.H/XIII; CIAP/74, Rev. 2). 77 See American Foreign Policy: Current Documents, 1961, p. 402, footnote 12. the lending agencies, and, most often, by both the nations and agencies acting in intimate cooperation. It has strengthened the sense of teamwork among the lending agencies as well as between the nations and lending agencies themselves; and it provided the foundations for the Secretariat paper on the requirements and needs for external financing of Latin America, produced in fulfillment of the São Paulo instruction to CIAP (Res. 1-M/63). The Alliance for Progress stands at an interval of momentum and of hope, but enormous problems confront the Latin American nations and those committed to assist them; in modernizing rural life; in bringing and keeping inflation under control; in the improvement of planning; in accelerating the development and execution of projects; in finding an enlarged and stable role for domestic and foreign private enterprise; in enlarging the capacity of Latin America to pay its way through export earnings; in promoting higher levels of education, health and housing; and in overcoming the short-term debt problem and preventing its recurrence, in those critically important countries where it now exists. Let us underline a point made earlier in this report, which has been driven in on us again and again in our work. There is a double interrelation which exists concerning each item in the balance sheet of the Alliance. On the other hand, what the nations of Latin America can do with respect to self-help is dependent in part on the scale and continuity of the external support they will receive; equally, it is true that what can be done for the nations of Latin America from outside depends on their domestic performance. These interconnections, of course, have important political meaning, but they are fundamentally technical. Projects cannot be financed unless feasibility studies are made; but the external financing agencies have the possibility of assisting substantially in identifying investment opportunities in the preparation of feasibility studies. The rate at which funds committed can be disbursed depends upon the speed and efficiency with which projects are executed. The scale at which the balance of payments of Latin American countries can be supported by private investment is dependent on the opportunities they may perceive in the expanding economies of Latin America and on the sense of confidence and security which external members and investors may feel in the policies being pursued by the individual countries and its consistency and continuity; and there are policies which can be pursued by the private investors and steps which can be taken by the external agencies and countries committed to the Alliance for Progress, which would make private lending and investment more attractive and feasible. On the most immediate problem of all-namely, the high level of short-term debts-once again the possibilities of solving the problem depend on what both the nations of Latin America and the external community are prepared to do. On the one hand, the Latin American nations mainly concerned must build their development around a diminished dependence on short-term suppliers credits and they must present to the external community a vision of monetary and investment policy which makes credible an expansion which will not in the future be as dependent as it has been in the past on suppliers credits. On the other hand. the external community must be prepared not merely to reduce the backlog of short-term credits but to shift to lending policies which are consistent with the maintenance of a lower proportion of short-term borrowing and a higher proportion of long-term borrowing in their dealings with Latin America. And so it is with each of the other major dimensions of Alliance policy including the great issue of trade, where the inter-connection between actions taken within Latin America to expand export earnings and purchasing capacity and trade policies pursued outside are dramatically linked. It follows from these interdependencies that no one figure in an analysis of Latin American requirements and availabilities is to be regarded as an independent variable. It is the task of the Alliance for Progress and for all of its partners within Latin America and outside to work together in such a way as to move Latin America towards the Alliance for Progress goals of sustained economic development and social justice and towards a position of self-sustaining growth within the shortest feasible period of time. Document III-91 United States Renewal of Normal Relations With Bolivia: STATEMENT ISSUED BY THE DEPARTMENT OF STATE, DECEMBER 7, 1964 78 Document III-92 "What Is Needed Now Is Better Execution, Better Performance by All of Us in the Alliance [for Progress]": STATEMENT MADE BY THE ASSISTANT SECRETARY OF STATE FOR INTER-AMERICAN AFFAIRS (MANN) BEFORE THE THIRD ANNUAL MEETING OF THE INTER-AMERICAN ECONOMIC AND SOCIAL COUNCIL AT THE MINISTERIAL LEVEL, LIMA, PERU, DECEMBER 8, 1964 (EXCERPT) 79 This year the Inter-American Committee on the Alliance for Progress, which we, too, call CIAP, has not only been constituted under the able and dedicated leadership of Carlos Sanz de Santamaría but it has completed the first cycle of country-by-country studies ever made in our hemisphere. It has examined national and regional plans, the steps which have been taken to put them into effect, and the efforts which each country is making to carry out its responsibilities under the charter of the alliance.so It has recommended specific and concrete courses of action to countries and international organizations on how to accelerate progress. 81 The report which is a result of this extensive review is before us at this meeting. All of us owe to CIAP and its hardworking subcommittees a vote of thanks. The quality of the work was of course greatly enhanced by the indispensable participation of the Panel of Nine.82 We owe also a debt of gratitude to the representatives from the Inter-American Development Bank, the World Bank, and the International Monetary Fund who contributed information and valuable counsel during the country reviews. The caliber of the men whom each country sent to discuss its plans and programs was, moreover, impressive. It is not an exaggeration to say that this is the first time that so many able, dedicated people, knowledgeable about hemi Department of State Bulletin, Dec. 28, 1964, p. 901. A military junta had overthrown Bolivian President Paz Estenssoro Nov. 3-4, 1964. On Nov. 5, the Vice-President, General René Barrientos Ortuño, was sworn in as President. The United States concluded that the Junta was in effective control of the country, that it had pledged itself to fulfill international obligations and to hold elections at an early date. "Ibid., pp. 898-901. Text in American Foreign Policy: Current Documents, 1961, pp. 395–409. 81 See ante, doc. III-90. * See American Foreign Policy: Current Documents, 1961, p. 402, footnote 12. sphere affairs, have gathered around the same table at the same time in a common multilateral effort to identify specific obstacles and to find concrete solutions to them. What is needed now is better execution, better performance by all of us in the alliance. Measures of a self-help nature which are needed vary of course from country to country. They include programs to diversify production and to expand exports. They include the control of inflation and the elimination of the economic and social distortions which inflation creates. They include the reduction of deficits which do not contribute to social or economic progress of the people but which instead drain off budgetary resources needed to expand industry and production and to widen the horizons of social well-being. They include adequate incentives for the sectors of economies which lag behind. They include agricultural, tax and other reforms which contribute to increased production, economic growth, and social justice. They include the building of institutions for the mobilization and constructive use of savings so that those who need credit most may be able to obtain it on reasonable terms. They include a more equitable distribution of the national product among all the people both directly and indirectly in ways which will contribute to the well-being and dignity of man. If we can continue to work honestly and sincerely for human progress rather than for the short-term personal or political advantage of individuals or groups, we shall see an ever-growing number of countries join those who have already achieved viable and relatively selfsustaining economies capable of meeting both the spiritual and material needs of their peoples. We can then concentrate on building enduring foundations for the great societies which all our people seek instead of spending so much of our energy and resources dealing with crises created by errors of the past. 1964 has also been a good year for Latin America's export earnings. Preliminary ECLA [U.N. Economic Commission for Latin America] estimates indicate that the value of Latin America's export earnings will be up about 8 percent over 1963, which in turn showed an increase of 6 percent over 1962. Much of this increase in earnings was due to price increases in basic products exported by Latin America. Some of the speakers who have preceded me have expressed concern lest prices sag in 1965. There are already signs that the world supply of sugar exceeds demand. But other exports such as coffee, tin, meat, and cotton continue to be firm, and there is reason to hope that they will remain so. However this may be, greater attention needs to be paid to the diversification and expansion of exports. While Latin America's export earnings will increase by an estimated 8 percent in 1964, the volume of exports will, it appears, increase only by about 1 percent. Diversification and volume are essential elements in any program to increase export earnings. One of the achievements of 1964 is that this facet of the problem is better understood than before. Our host |