Transcript of two hundred and fourteenth regular meeting of Executive Directors, held on Tuesday, January 16, 1951 : South Africa - Transport and Electricity Supply Commission (ESCOM) Projects

STRICTLY CONFIDENTIAL 89484 McLaughlin INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TWO HUNDRED AND FOURTEENTH REGULAR MEETING of EXECUTIVE DIRECTORS Conference Room, Interns. tional Bank Building, Washington, D. c., Tuesday, January 16, 1951. The meeting was convened at 10:05 a.m., Mr. Eugene R. Black, President, presiding.  2 STRICTLY CONFIDENTIAL :1 -------- CONTENTS •: I. , Agenda. Item Proposed Loans to the Union of South Africa. •••••••••• 37  I 37 STRICTLY CONFIDENTIAL THE CHAIRMAN: - We next come to the tvo proposed loans to the Union of South Africa. I vould like to first call on Mr. Hoar and then Mr. Burland to talk about the loan aspects. MR. HOAR: Mr. Chairman, the Executive Directors vill recall that ve sent a mission to South Africa last summer. That mission vas to look into the general economic and financial position of the Union, to look into the develop- ment prospects, and to see vhether or not a loan could be vorked out. In the course of the discussions vith the mission, the South African Government suggested that the Bank should finance part of the foreign exchange cost of developing and improving the railvays and expanding the production of electric power. The loans submitted for your consideration today are for those purposes . By a memorandum of January 3rd, No. R-4o3, the Loan STRICTLY CONFIDENTIAL Director gave the Executive Directors a preliminary sketch of the operations which are now proposed. The purposes of the two loans and the considerations which were set out in that memorandum remain as described. So do the proposed terms of the loans and the participation of the private investors has been secured to the extent that was antic!- pated. There are thus two loans to South Africa before you today. One of these, the loan to the Electricity Supply Commission, falls into a normal pattern of International Bank lending. It is a loan to an autonomous government agency for the expansion of power production and d1str1bu- tion facilities, and the loan is to be guaranteed by the Government of the Member country. The other loan, the transport loan, represents, how- ever, a new departure since it is the first loan in which the International Bank and private bankers have undertaken parallel financing. The loan officer who has been concerned with the loan negotiations, Mr. Burland, is available, as the Chairman has said, to speak on the details of the loan, and General Wheeler to speak on the technical features. There is one last point I should mention, however, and I that is that as a result of unforeseen and unpredictable 11 dela7s the final text of the agreements 1n form appl'oved fol'  39 STRICTLY CONFIDENTIAL signing by the Ambassador of South Africa which is coming to us by mail will not be here until tomorrow. I under- stand, however, that there will at most be trivial verbal changes from the text which has been circulated to the Executive Directors, and I think, therefore, that that text can be accepted as definitive for practical purposes this morning. THE CHAIRMAli: Mr. Hoar said that the private banking participation turned out as anticipated. I might say it had been hoped that the private banks would be prepared to take 40 million instead of 30 million. They expected to take the - - MR. BURLAND: -- fourth, fifth, sixth and seventh. THE CHAIRMAN : Yes. -- the fourth, fifth, sixth and seventh years, but due to the Korean situation, the world situation, that didn't materialize. So, instead of taking a total of 4o million, they are taking 30 million. Mr. Burland. MR. HOOKER: Thirty? Out of the 6o they are taking 30? THE CHAIRMAN: No,· out of Bo. MR. HOOKER: There is an additional 20? THE CHAIRMAN: They had already extended a revolving credit of 20 million dollars, and that was cha.nged to a different maturity, to 1953, so they have changed that. That is 20 million. They are taking the  40 STRICTLY CONFIDENTIAL fourth and fifth years of the transport loan, five million each. That is ten million. That makes 30. And we are taking 50 if the loan is approved. That makes the 80 • .MR. HOAR: Mr. Chairman, just to save the Executive Directors from getting confused, I should have said "as anticipated in Mr. Iliff's memorandum.," which only refers to the 30. MR. BURLAND: Well, I shall make my remarks very brief as to the loans themselves. I think they are probaply fully covered in the documents which have been distributed. I would be very glad to try to answer any questions. I would like to call attention to two or three special things that may have escaped your notice and would unless they were pinpointed. These negotiations started for two $30,000,000 loans, j one for the electricity undertaking and one for the trans- port undertaking. It was stated at that time that since 11 these loans would take care of a portion of the import 'I requirements for 1951 and 1952, that the materials I bought would probably arrive in South Africa in 1953, and that the government would like to defer commencement of amortization until 1954. That vas the original basis on which the discussions ,,I were made. In the course of the discussions, however, it developed, as has been advised to the Executive Directors,  41 STRICTLY CONFIDENTIAL that the private markets would probably take a portion of the transport loan. As far as the electricity loan is concerned, the amortization will begin in the fourth year; that is to say, in 1954 as originally discussed. But as to the transport loan, which was to be $30,000,000, but which has now been reduced to $20,000,000, because the private markets will take the fourth and fifth year maturities -- in other words, to prevent the too large repayment obligations in the fourth and fifth year -- the Bank was asked to defer the commencement of amortization on the transport loan from the fourth until the sixth year. The management was willing to consider that, but it looked upon the $10,000,000 coming from the fourth year and fifth year notes from the private markets and the $20,000,000 coming from the Bank as from an economic point of view really one credit transaction, because the f\lnds were destined for transport purposes. However, in the actual negotiation of the private financing, it developed that those funds, that $10,000,000 they were getting from the four- and five-year notes, would not be specifically earmarked by the government for trans- port purposes. In order to satisfy itself, the Bank said, "Well, under those circumstances we would like a letter from the Government of the Union of South Africa to the effect that during the years 1951 and 1952 the Treasury  '! 42 STRICTLY CONFIDENTIAL would make available to the railways, to the transport organization, in appropriate foreign currencies, the equivalent of the $10,000,000 they are getting from the private markets." The Government was willing to do that, and that, I think, justified the deferment of amortization from the fourth to the sixth year. That is the particular point I wanted to call to your attention. I have nothing further to say about the loans themselves, Mr. Chairman, unless someone has some ques- tions. THE CHAIRMAN: Well, what about the South African announcement? Will they announce now $60,000,000 or $8o,ooo,ooo loan? MR. BURLAND: They will announce a renewal of the credit, of the outstanding $20,000,000 credit, and $60,000,000 in loans, of which $50,000,000 comes from the International Bank and THE CHAIRMAN: So it will be announced as a $20,000,000 renewal plus $60,000,000 rather than as $8o,ooo,ooo? MR. BURLAND: That's right. THE CHAIRMAN: Are there any questions that you would like to ask? MR. BEYEN: Mr. Chairman, I would like to say that I welcome this loan. I have for many years considered the  1· STRICTLY CONFIDENTIAL prospective custom of South Africa, and I am very satisfied that they have found the way to our door. There is one other interesting aspect that has been pointed out, and that is the fact that the Bank is now participating with private investors in a loan. That again I think is a very welcome and interesting development. l I mean in discussing the Bank at Bratton Woods we en- i . visaged that that, at least in the future, might be a more I regular feature of Bank lending, and it is very interesting for those who have followed the development or ideas on the Bank and the Bank itself during the years to see how gradually, even sometimes earlier than we expected, these features are coming out. Another feature I am thinking of is this still limited feature of placing bonds without a guarantee about which we have been talking. In this connection, I would like to ask a question about our relationship with the private investors. I don't know but I assume that there is no legal link between the Bank and the private investors in the form of a syndicate or something. We are just standing apart. I don't see any objection against that. I only wanted to put the question on the table, whether if similar cases come up in the .future we shouldn't give some thought to the relation between ourselves and the private investors, and whether in certain cases it might  44 STRICTLY CONFIDENTIAL not be in our interest and in the interest of the private investors if there would be a link on the side of the lenders which would, first of all, enable them to act as i a unit in case of difficulty, and, secondly, would incorpora~e in the thing more of the idea which we always had when we talked about the Bank in its early stages. The Bank might develop into some sort of a leading authority in international lending, where because of its particular position, its particular influence and particular knowledge private investors would welcome acting together with the Bank in those operations. There is nothing in this which would make me say it should be done differently in this particular case, but I think we might give some thought to that aspect. THE CHAIRMAN: This is not a legal link. MR. BEY.EN: It's no link at all I think. THE CHAIRMAN: I think that this transaction might very well lead to similar transactions and very possibly a closer link in future transactions than you might have in this one, but you wouldn't call this a legal link in this case. MR. SOMMERS: No, this is just two things that have been worked out together. THE CHAIRMAN: Rather a simultaneous transaction. I think that may well develop. This may be the forerunner  45 STRICTLY CONFIDENTIAL of that. MR. HOOKER: This Bank doesn 1 t supervise the expendi- tures under the $10,000,000? THE CHAIRMAN : No. MR. HOOKER: Which one is drawn down first? The I $10,000,000 in the private banks or the International Bank's Ii money? MR. BURLAND: The $10,000,000 is drawn down immediately 11 'I on signing. THE CHAIRMAN: The private banks • MR. BURLAND: Immediately upon signing the notes are II exchanged, and the entire amount is drawn down. That is 11 before the revolving credit. In the revolving credit II they are entitled to draw on it as they see fit from time i j! to time, but they will draw down the proceeds of the four- 11 I: and five-year notes immediately on signing. I' MR. HOOKER: In connection with South Africa's rel.a- tions with the International Bank, they are going to make some statement as to how they spend the $10,000,000? I should think you'd be interested in that, as to whether it's related to the transport project. THE CHAIRMAN: It's not related necessarily to the transport project. That's just the point. MR. BURLAND: That's just the point, and you will see in Appendix V here they advise the Bank from time to time  46 STRICTLY CONFIDENTIAL I I during 1951 and 1952 that they will make available for trans-I port purposes the equivalent of this $10,000,000 in the J appropriate foreign exchanges. MR. HOOKER: What I'm interested in is this: That you are assured that the transport program will be carried out. I mean it doesn't make any difference which money is used. MR. BURLAND: That's right. MR. HOOKER: But it all comes down to the same thing. MR. HOPPENOT: It may be in the papers, but do we know what the terms or this $10,000,000 loan are? MR. BURLAND: Yes. We have a copy or the contract. THE CHAIRMAN: What 1 s the rate or interest? There are two loans. There is a $20,000,000 credit, you see, that has now been extended to 1953. That is one. Then the $10,000,000 is a four and five. What are the rates? MR. BURLAND: On the four-year maturity, it's three and a quarter. On the five-year maturity it's three and a half per eent. THE CHAIRMAN: What are the revolving credits? MR. BURLAND: On the revolving credit, the old credit was a half per cent per year on the total amount of the credit, plus three per cent on amounts withdrawn. In the extending of the credit a year, we have really renewed it. It has really been replaced by a new credit, which is half a per cent on the total amount, half a per cent per annum, and  47 STRICTLY CONFIDENTIAL two and three-quarters rather than three on amounts with- drawn. So, the effective rate on amounts withdrawn under the credit would be three and a quarter. And, as I say, the four-year maturity bears three and a quarter per cent interes and the five-year notes three and a half per cent. THE CHAIRMAN: Three and three-quarters for 15-year, and four per cent for the 20. That includes the one per cent. MR. HOPPENOT: Including the one per cent? THE CHAIRMAN : Yes • MR. HOOKER: Do they have to repay this 20 million each year? I mean whatever they draw down? MR. BURLAND: The credit expires in January of 1953, and they can draw and repay and drav and repay up to the total of $20,000,000 during that time. At the end of that time, it matures, and they will have to pay it off. THE CHAIRMAN: See, their other $10,000,000 is a fixed maturity, $5,000,000 a year. I'd like to next call on General Wheeler. GENERAL "WHEELER: Mr. President and Gentlemen: Mr. Spotswood, who is a permanent member of our engineer staff, accompanied the Bank mission to South Africa and studied the projects. I would like to make a few comments supplementing his reports. First, the electricity project. The Electricity Supply Commission, which we call ESCOM, owns and operates two-thirds  48 STRICTLY CONFIDENTIAL of the total installed electric generating capacity in South Africa. The installed capacity there is somewhat less per capita than in many European countries of more or less comparable population. For instance, it is less than in Austria, Belgium, Czechoslovakia and the Netherlands. The production, however, of 820 kilowatt-hours per capita is relatively high. When it is considered that not many of the non-Europeans, which number nine and a half million, or 79 per cent of the total population, are direct consumers of electricity, the industrial character of the consumption is very evident. The per capita production com- pares favorably with these same European countries. In fact, it is somewhat greater than in Austria, Czechoslovakia and the Netherlands but less than in Belgium. The reason, of course, that the production is so much higher is that South Africa has a higher load factor because of the industrial load, and the largest part of that load is 24-hour pumping in mines. Except for one place in Italy where the f\lel is natural steam, the cheapest thermal power in the world is produced in ESCOM plants. ESCOM's average selling price is three and a half mills a kilowatt-hour. The largest industrial consumers in the United States in 1949 paid 15 and a half mills. The lowest price in the United States to large con- sumers is four and a half mills in Tacoma, Washington.  II 49 STRICTLY CONFIDENTIAL :i Special rates for large consumers such as Aluminum Company i are lower than this, but they are from hydro plants not ~ thermal. And in Europe the rates are somewhat higher. ~! This average selling price or three and a half mills a kilowatt-hour includes all types or consumers. ESCOM is primarily a wholesaler of electricity. Its sales to domestic or household consumers are less than two per cent of the total sales. This average price includes sales at three mills in the Rand and about nine mills in the Cape- town region where coal has to be hauled a thousand miles. This low production cost is possible primarily because of extremely cheap coal available: 97t cents a ton delivere to the plants. And it is also due to the relatively modern equipment installed in most plants. I just checked on the prices at several mines in the United States, and the average price for comparison of the slack grade of coal today is $4.63 a ton at the mine. While the ESCOM plants are modern in design for the most part, they are not the high-pressure, high-temperature the:rmal plants found in the United States, which are designed to wring the last calorie of heat out of the coal. ESCOM invests in less pressure, less temperature, but saves in capital cost. While ESCOM plants use more coal than modern United States plants in producing a kilowatt-hour, the cheapness or the South African coal permits them to  50 STRICTLY CONFIDENTIAL produce cheaper electricity. As the report says, this six-year program of expansion would cost $168,ooo,ooo it is estimated. It will add 935,000 kilowatts. This program is conservative when compared with estimates to meet future requirements in Europe, which was recently published by the OEEC Committee on Electric Power. It is less than Austria, Belgium, Czechoslovakia and the Netherlands, all comparable in population. As the demand is increasing more rapidly at present than the capacity that is being added, the situation for the next few years might be tight, especially in the Rand. When the present program is completed, the installation should be adequate to meet anticipated demands until 1960 except perhaps in Natal Central and Cape Northern Undertakings, where in those two areas they have to have additional power by 1960. The commitments have been made for the entire program. All but a small portion will come from the United Kingdom. It is probable that a good portion of the equipment will be delivered even under present conditions. From the United States, miscellaneous accessories are in the list of goods: high pressure valves, control instruments, special pumps, switch gear. The best we can check at present, it is believed that that will not be a tight  51 STRICTLY CONFIDENTIAL 'i situation. 11 I am convinced that ESCOM's plants are sound from a 11 technical point of viev and its expansion program necessary II I to meet South Africa's growing needs for electricity. Shall I go ahead vith the South African transport pro- ject or wait for any questions? Tm: CHAIRMAN: Go ahead. GlBNERAL WHEELER: The impact of the expansion of the South African economy is felt directly in every sector or transport but most by the railways. In the last ten years the revenue freight and ton miles have increased 68 per cent, passenger journeys 214 per cent, and these increases were accomplished in spite of the fact that increases in equipment did not keep pace. The number of freight ears I JI increased 42 per cent, locomotives 36 per cent, and passenger II cars only 11 per cent. In other words, the South African II railways have done a good job in spite of shortages of materi 9 and equipment for expansion of services. To illustrate some of their difficulties, cement, which I is a basic material requirement, is an example. Last year they put in requisitions for 15,000,000 bags. The controller allocated 2,000,000 bags, and they actually received , 700,000. 1 ·1 Steel items have been in short supply and controlled. Whenever possible, however, the administration resorts to  52 STRICTLY CONFIDENTIAL salvage. In the design of new structures, every effort is made to eliminate the use of steel as far as possible and substitute other materials. But makeshift repairs and curtailed operations and services cannot serve an expanding economy. When it became evident towards the close of the war that the railways and all other forms of transport would have to be considerably expanded to overcome shortages that resulted from the war due to lack of replacements and shortages of materials and equipment, the railway administration formulated a com- prehensive plan to do the job in an orderly manner and took the intelligent step of sending a mission of top-flight men overseas to get first-hand information on the latest developments in the various fields. Although the original estimates of cost of the ex- pansion program had to be changed because of rising prices, a review committee found that 90 per cent of the program was urgent and necessary either for safety of operations or for increased revenues or efficiency. This speaks well for the soundness of the program. I might add that in a relatively sparsely-populated country like South Africa, with difficult operating problems, the efficiency of transport service is of vital economic importance. The maintenance of effective and comparatively cheap transportation is not only a prerequisite for the  53 STRICTLY CONFIDENTIAL large-scale mining and industrial production, but it is essential for trade with other nations. In South Africa are many valuable minerals so critically needed in other parts of the world, particularly manganese, chrome and coal; also uranium that exists in the wastes from the gold mines. To export these minerals requires long rail hauls to the ports. Fairly large quantities of manganese, chrome ore and coal have been exported in the past, but amounts cannot be substantially increased until the trans- port facilities are increased. The demand for each mineral is expected to increase as defense preparations mount. The railway administration's expansion and improvement program therefore has some international implications. But entirely apart from the international aspects, the program is necessary for South Africa from a technical point of view and is technically sound. I am convinced that the South Africans in charge of railway administration know their business and can solve their problems if given the necessary funds. While the railway administration is hampered in many ways by not having freedom of operations, particularly in administrative and financial fields, enjoyed by privately- owned railways, South Africa's transport is reasonably efficient and compares favorably with that in many European countries in this respect.  54 STRICTLY CONFIDENTIAL The total investment of South African :railways, including! I rolling stock, tracks, workshops and other facilities, in 1949 amounted to about $60,000 per mile of line. In the United States the investment is $131,000. The South African railways are primarily carriers of I; I! heavy freight, ores, coal and agricultural products. These I three categories amount to 70 per cent of the total revenue tonnage. In this respect they are not unlike the United States railroads. For the same categories their total was 65 per cent. I was tl'J'ing to think of a comparable system in our countl'J' to the South African railways to give a picture, and I think it is the Santa Fe. The Santa Fe bas 13,000 miles of track, and the South African railways 13,900. The freight carried by the sa.nta Fe in 1949 was 55,000,000 tons, and by the South African railways 50,000,000 tons. The total investment of the Santa Fe Railroad is about a billion dollars, and of the South African railroads three-quarters of a billion. The equipment is not standard European or American. The South African gauge is 3' 6" which as you know is I l' 2!" narrower than the standard gauge. The average I capacity of the South African freight cars is somewhat less II than the American but a little larger than those in Europe. The items that they wish to purchase in the United 11  55 STRICTLY CONFIDENTIAL states are electl'ic locomotives, machine tools and shop equipf ' ment, reinforcing bars and structural steel and Constellation. aircraft parts. At the present time the capacity in the United States plants is available for the electric loco- motives and the machine tools and the aircraft parts. The steel will not be available, although the capacity is available at the moment to produce items in question. Government restrictions on materials and especially critical materials like copper, coupled with priorities given to de- fense orders, will probably make impossible for them to get some items without some special action by the United States Government. In conclusion, I will say that the program has been very carefully planned to meet iDDDediate and future needs for expansion and improvement of the transport facilities and is arranged to pel'Dlit completion in successive stages and contains only essential items which are given priorities, so that those contributing most to the earnings and efficiency of service will be undertaken first. The recent rate increases and the improved operating efficiencies should maintain earnings at a level sufficient to cover all costs and finance charges and a small annual surplus. The investment is adequately justified in our opinion, and the teclmical works planned are necessary to meet the STRICTLY CONFIDENTIAL South African expanding economy. THE CHAIRMAN : Thank you. MR. BEYEN: May I ask a question purely out of curiosity? Why is it that countries like South Africa, and I think also Indonesia, choose a narrow-gauge track? Is that a matter of custom from the old days? GENERAL WHEELER: I don't lmow. There are others. I would think most of the railroads certainly in Asia are broad-gauge with the exception of Siam. India is broad. Burma is a broad gauge. MR. BEYEN: Indonesia was small? GENERAL WHEELER: Yes. That is a meter gauge I believe in Siam. MR. SAVKAR: Isn't it due to the capital investment re- quired? GENERAL WHEELER: I have beard railroad people in our country say today that they regret that our gauge wasn't started at the five-foot gauge, because so much more traffic could be carried, more luxurious passenger trains could be constructed, and so on. I In connection with that gauge, which was the gauge 11 tha.t built the Panama. Canal where I was a young engineer 11 11 officer during the construction days, they said the reason they could bring the freight trains out of the cut at express I I speed was because the gauge was only four inches wider than I  57 STRICTLY CONFIDENTIAL standard. In other words, a small increase in the gauge gives you a more stable railroad. MR. MELVILLE: Where you have large areas and the railways have to cover a lot of territory, I think the narrow gauge is an economic proposition on account of the capital expenditure. MR. BEYEN: It really needs less ground. MR. MELVILLE: Well, there are a lot of expenses that are saved. THE CHAIRMAN: Any other questions? (No response.) 11 Thank you, General Wheeler. I ! MR. PARKINSON : Does the Bank con template doing any- thing to assist South Africa to obtain the steel? GENERAL WHEELER: I happen to know they have a committee in the Loan Department organized by Mr. Iliff to look into the ways in which assistance can be given to the borrowers. It's just being organized and just being started, but I have no doubt that we can put up a very good justification before an allocation group for many of our loans. I think that those loans already ma.de, the majority part of them, could have come under any restrictions regarding allocations. MR. PARKINSON: I'm glad to hear that, because it's quite obvious that the operations of the Bank from now on STRICTLY CONFIDENTIAL are going to be inereasingly affeeted not by financial considerations or by efficiency of the projects but by the difficulties of supply. THE CHAIRMAN: Well, it is very important and it is uppermost in our minds as to how we can meet the problem. Mr. Rosen. MR. ROSEN: Mr. Chairman, South Africa is a member of the sterling area in the sense that it is one of the scheduled areas within the sense of United Kingdom exchange controls. This means, of course, that payment for current transactions and, in fact, capital movements may freely oecur between the UK and other parts of the sterling area and South Africa. South Africa, however, does not participate in the sterling area dollar pool. Its dollar earnings are not paid into the pool, nor does it draw upon the pool for its need to make hard currency payments. For these reasons, an appraisal of the creditworthiness of South Africa and its prospects of repayment of a dollar ~oan will be dependent upon the determination of the .future balance of payments position of South Africa itself rather than the balance of payments position of the sterling area taken as a whole. South Africa is in the position of a developing I I country in that it cannot be expected to achieve current 11  59 STRICTLY CONFIDENTIAL account balance within the near :f"uture. Its needs for investment capital are greater than the amount of savings available within the country itself. In 1949, of the total net investment in South Africa of 188,000,000 pounds, only 77,000,000 pounds were covered by domestic savings. In 1948, of a net investment of roughly the same magnitude, 192,000,000 pounds, only 25,000,000 pounds were covered out of South African savings. South African development historically has been accomplished through the import of capital. That is, South I ~ Africa has had a deficit in its current account balance I of payments position, even ta.king account of its current production of gold, a deficit which has been covered only as I a result of the import of capital. Traditionally, this capital has come from the United Kingdom, and, traditionally, I much of the capital or the great bulk of the capital has been private capital moving into South Africa. In view of the fact that continued investment in South Africa and continued development of South Africa is dependent upon continued inflow of capital to meet the re- quirements of the country and the fact that the UK is not in a position where its own capital resources are sufficient- ly large to meet its needs, the needs of other areas of the world which traditionally call upon the London market for capital and all of the South African need, South Africa  60 STRICTLY CONFIDENTIAL has had to have recourse to capital sources outside of the traditional London market. It is for this reason that South Africa is now looking towards dollar capital and towards the Inte:rnational Bank as a source of supplying dollar capital. As General Wheeler indicated in his exposition of the projects, a large amount of the investment occasioned for both the electric undertaking and the transportation undertaking will in fact be spent to procure goods phys!- cally originating within Europe or within the United King- dam and in some very small part within other parts of Europe. In spite of the fact that these goods are coming from the sterling area, South Africa has had to secure its capital from the dollar sources for the reasons which have just been enumerated -- the fact that the capital resources in monetary terms of the London market are not sufficient to meet the capital requirements of South Africa. Yet, in its appraisal of the creditworthiness and the reasonableness of this loan undertaking, the staff of the Bank believes that it is prudent for South Africa to undertake a dollar repayment obligation in this case in view of the present balance of payments position of South Africa and its probable future position. I South Africa. is in the rather unique position or having  61 STRICTLY CONFIDENTIAL a surplus on ha.rd currency account even though it has a deficit on overall current account. Its current production of gold and its exports to the hard-currency area will probably run at the rate of $140,000,000 or $150,000,000 more than the requirements for imports from the rest of the hard-currency area. In fact, the financial arrangements between South Africa and the United Kingdom provide for a contribution by South Africa of part of its hard currency eal'Ilings to the United Kingdom as part of the normal arrange- ments whereby South Africa continues to have recourse to the London market for part of its capital needs. Consequently, since the dollar balance of payments position and dollar balance of payments prospects of South Africa are favorable, the ability of South Africa to service a dollar loan seems to be a reasonable risk to be under- taken by the Bank, and the staff of the Bank has felt that this kind or operation of a dollar obligation, even though a large amount of the purchases would be ma.de within the sterling area and from the soft-currency area, generally is a sound and prudent operation for South Af'rica. THE CHAIRMAN: Any questions? (No response. ) Thank you, Mr. Rosen. Any .further discussion on these loans? (No response.)  62 STRICTLY CONFIDENTIAL If not, can I have a motion to adopt the two resolu- tions? (Motion duly made by Mr. Beyen and duly seconded by Mr. Selek.) THE CHAIRMAN: All in favor say "aye." (Chot'Us of "ayes.") Opposed, "no." (No response.) I hereby declare the two proposed loans approved. Mr. Burland, do you Wish to make a comment? MR. BURLAND: I asked tor this opportunity to just say one more word about these two loans to South Africa. I revert for a moment to Director Beyen's remark that we bad found our way to the door. When we came to South Africa, I may say the mission was afforded every conceivable opportunity and facility to see the country and to learn everything we wanted to learn. They were willing to work on Sundays and nights and any time in order to give us the information we needed. You will recall that between the discussions and the actual negotiations the Governors' meeting took place in Paris, and the Minister of Finance attended. When we came back, the negotiations were very simple and they were quite agreeable to all of the policies and documents that the Bank proposed to them. The Minister of Finance did ask to see me  63 STRICTLY CONFIDENTIAL and received me just before I left, and he said, "I wish that when you get back to Washington that you would report to the :management and possibly to the Board if they are interested that we have undergone a great change in our attitude toward the Bank." He said, "You have been here long enough now probably to know that we in South Africa are tough, hard-working and honest people, and we are naturally slow and cautious in developing our relationships with new institutions. But," said the Minister, "I was so deeply impressed by what I learned at the Paris con- ference, that I feel that we can now completely change our attitude. We think the Bank has been very efficiently run. We think tha. t now what formerly appeared to us as somewhat restrictive policies are thoroughly and fully justified." And he said, "When you get back, you can tell the Bank that we think that it is a wonderful institution and can look f?:rward to a very auspicious future." I thought that would be of interest to the Bank to hear that. MR. MELVILLE: Mr. President, I would just like to express my thanks on behalf of South Africa for the Bank making these loans available. THE CHAIRMAN: Thank you, sir. These agreements will not be signed until next Tuesday,  64 STRICTL'( CONFIDENTIAL :t January 23rd, so I will ask you to please keep this confi- ! dential. II II I I