Address by Mr. Eugene Meyer, President of the International Bank for Reconstruction and Development at the annual meeting of the Life Insurance association of America at Hotel Waldorf Astoria, New York, December 13, 1946

[Confidential--Not to be released for publication • before 12:30 P.M., E.S.T., Friday, Pecember 13, 1946] I INTERNATIONAL BA..T\:~ FOR RECONSTRUCTION AND DEVELOPMEN? ,/ / Press Release No. 22 ~e.cember 9, 1946 Addrooo Eugene Meyer President, Internatiq~?l Bank for Recon- struction ap.c1 Develoument at the A~nual MeetinQ" of the Life Insurance Association of America, Hotel Waldorf~Aetoria, Ne-w Yorl~, N, Y. December 13, 1946 When the Life Insurance Association of America in- vited me to address your annual meeting; lt was a privilege as weJ..l as a pleasure for me to cQ.ccept •. since then I have re- signed as l'resident of the International Bank for Reconstruc- tion and·Development. I did so because, and only because, I felt strongly that the point had been reached when the Bank ohould have a permanent head. The basic organization of the Bank has been developed and it is now passing lnto the stage of operating activit~eo. Ito wo~k henceforth must be viewed in termo of long-time continuous operations and its permRnent head should have an oppo~tunity to part1cipate in the further determination of policies and procedu+es and the expansion of • staff. It hao been a privilege and a satisfaction to be aesociated with the Bank dur:Lng its initial period and I Ghall  2 • leave it with regret. The inst:rance companie.G of the nation are an import- ant factor in its social security. Under the supervision of the state authorities, you invest the funds for which you are trustees. Your first duty is to your policyholders and your first consideration must be the safety of your capital and income. But you also have a social responGibility to promote the public intereot whenever you can ~o so without jeopardizing the security of your investments, Surely, the promotion of better world conditions is a matter of real importance to those you represent. A year and a half ago, we and our Allies concluded • a second 1rrnrld war and turned to the construction of the peace. We approached that dlffic~lt task soberly, determined to pursue it untiringly and patiently, Certainly, w·e did not expect the achievement of peace to be an easy task. Our generation has had broAd experience in searching for conditions which will permit peace to exist. No one would be rash enough to believe that we know· the complete answer .. But we do know that the bu1lding of a stable society upon the weakened foundations which a wa;ra J..eaves in its 1·.rake must neces- sarily be a painstaking, continuous and flexible proces~. Long before the Bretton Woods Conference in 1944, members of the United Nations began to prepare for the estab- • lishment of an international bank to deal with the problems  :· . 3 • of reconntruction and development. They recognized that these problems were of ouch magnitude that they could not be met through the conventional channels of private investment, or through the unintegrated efforts of governments acting oepa- rately. They recognized, too, that thene problems affected the welfare of all nations .... -those that had esca,;,ed the direct ravageo of war as well as those that had endured them. 'rhey recognized the world depe~dence on economic ao well as political unity. They were keenly aware that the preservc=i.tion of peace would be impossible unless men everywhere had the opportunity to earn a living and return ~s soon as posoible to their normal pursuito. The International Bank was ~onceived as an instru- ment for helping to achieve theoe human aspirations. It was designed to finance constructive undertal:ings in deYastated or industrially underdeveloped countrieo--undertakingo whieh would help men to contribute to the world 1 s wealth and, through the exchange of goods with their fello~men, to raise their own standards of living. Only an international bank can do thio job on the scale on which it now has to be done. The Art1cles of Agreement of the International Bank and the International Monetary Fund were drafted at the Brett~n Woods Conference in 1944. Another year passed before the necesGary number of governmentG hRd accepted the agreementG and joined in the establishment of the Bank and the Fund. Last ,.  ,· 4 • spring ,,rganiza tional meetings were held·, and the two inst1 tu- tions came into being~ That is the brief chronology of the efforts to 6raanize 0 the nat16ns of the world for common action in the financial field~ It le only one part of our new and extens- ' . ive intarna~ional.mechanism. International cooperation raust grow and devel.op; it cannot spr-ing into ·ruil grown activity through a sud.den act of creation, After its formal estRblishmerii the Bank could not begin its op-€ra tions imme-dia tely .. A start had to be recruited from among the competent·people in many countries: That was not ·a 2imple matter. In my Opinion we have done weli. ! • have ·conr1aence in the ahili ty and character of the personnei we have secured. But they were not secured easily or quickly. The-Ghortage of tre,i.ned personrHJl :i:n· every country and ~n ev~ry field of endeavor was· in 1ts~lf nn obstacle to ... It is only within the l2st few week's that the Direc·tor of the Loan Department was appointed--Che.rles 9, ~ineC>,:. a Canadian of competence ~nd expt;;rj.ence ,· who· was until Pec.ently an o:ffice.r of the Royal Bank of· Canada fn charge of . their foreign business .. The Vice ~resident of the Banl1;:, Harald D. Sm5. th, was formerly .Director of the Budget of the Uni·ted States. The General Counsel/ Chester A4 McLain, is an American~ who came to the. Bank from the law {irm of Cravath,. • ·Swaine & Moore in New York • Mr." McLain had extensive . . : \ - . . . . . '· " . ::: " . . ( -,. . - .. '" ~  5 • experionce abroad as well as at home in matters related to inte.rnational finance. The Treasurer is D. Crena de Iongh, who was formerly the president of one of the largest banks in the Netherlands. The Director of the Research Department, Leonard B. Ri8t, is a French economist, who before the war was a vice president of Morgan and Cie. in Paris and, during the war, played an active part ~n the liberation movementf The Secretary, Morton M. Menclel n, is a lat-tyer from Montreal, who was only recently released from the Canadian Army. In his work he was responsible for military estimates, finance and economic stud.ies. • The Bank is novel in its organization. That is inevitably so, be~ause no such institution ever existed before. Its members are thirty-eight governments, each of w::1ich is entitled to appcint a Governor. The Governors meet at least once a year and are entitled to vote the shares of the Bank's capital to which their governments have subscribea.. There are twelve Executive Directors and each Direc- tor has an Alternate. Five of the Directors are appointed by the members hav;ing the la:t"ge st subscriptions to tl1.e Be.nJ::' s capital, and seven are elected by the remaining members. With the President cf the Bank as their Chairman, they meet regularly twice a wee!r.. E. rhe Governors have delegated to the Executive Direc- tors their authority with respect to the day-to..,..day operations  // 6 • of the Bank. There is, therefore, a Board of Directors, contin- ually available in l'lash~ngton to act upon the busineos of 4he Bank and give general policy directions. I know you are intere·sted not only in the way the Bank is organized but also 1n the manner in which the Bank con- ducts ita operations. You possess as a group a very large aggregation of invest~ent funds and the Bank desires your activ~ interest and support~ The Bank needo long-term funds in order to carry o·ut the purposes for 1 rhic·h it was created and you, of course, wa11t 1 long~term investments. While you are not authorized under • existing state laws to invest in the Banlt • s obligations, the, Bank hopes that the necessary legislation will be adopted. !t has felt,. however, that the m3.tter v:-as one that shoula_ be de~ t ·with by the !egularly constituted authorities in _this coun.try. The Ban1~ must use it~ resources and facilities solely for the benefit of its members. rt is authorized to mal·rn or participate in direct loans, or to guarantee in whole or in part C loans made by private investors through the usua+ investmen~ channels. If in any case a member is not itself the borrower, the member or i t.s central b2. nk or some other comparable agency ·acceptable to the Bank must fully gu2..rantee the loan. The first application f~r a.loan ·which was suffi- ciently documented to be studied was not re~eived until Octobe~. • I Since that time, fo~r additional applications have been received ,,: ;  ~ . : ... 7 •• in form for consideration. Of these five ap,lications, four request assistance in the reconstruction of economies which suffered seriously from the war. The fifth seeks funds for development projects. Upon the receipt of these applications, a committee of officers from the various departments of the Banl~ 1·ras appointed to study and report on each. These st~dies have been going forward and considerable progress has been made. Here are some of the questions i·Jhich m-q.st be consid- ered in the case of each application: Are funds ava.ilRble from private sources on reasonable terms? What is the effect of the • loan on the country's economy and how sound is the investment? What a:re the prospects that the borrower 1·.rill be able to meet the obligations incurred? If the loan is to be granted, what would be a reasonable rate of interest and what other che.rges should be made? ls the schedule of repayments e..ppropriate to '\ the loan? What methods of supervision can be ttnd.ertaken to see that the credit is properly used and repaid? Under the Articles of Agreement of the Bank, loans are required to be for the purpose of specific projects of.recon- struction and development, except in special circumstnnces. I mention.ad that one of the applicc\.tions now before the Be..nk seeks the financing of specific deve}.opment projects. Naturally, new development is planned and undertaken en a project basis, in an effort to expand and modeI·nize the productive fo..cili ties of a b . _.,!  8 • country. A power plant or a steel mill can be built; a rail- road can be run into a previously inaccessible area if the necessary manpower and local resources are available. There are many such projects which can be carefully 9lanned and engineered in any underdeveloped area, although it takeo a con- siderable amount of time to prepare such plans. The oituation is somewhat different, however, in the case of countries whooe economieo w·ere destr-'.)yed and a_1sru9ted. by the war. In many instances, thooe countries were highly industriRlized prior to the war. Their need now is to re- build and modernize their facili tiee, or even to ex~;Jand them • in order to strengthen their economies and increase their otandarde of living. In theoe countrieo it is not poosible to think of projects only in terms of a particular power plant or other facility. Often the beet way to promote r~construction will be to undertake a general program for the reyair and modernization of large segmento of their economies~ In making loano, the Bank will be intereoted in the foreign exchange reoources of the borrowing country, The fact that the financial aoslstance provided by the Bank resulta in profitable underta~ings within a country does not necessarily mean that the rorrower will have the resources required to repay the Bank. - The Bank will be lending foreign exchange ~ ~ with which borrowers can b~y goodo abroad. Therefore, it is •• necessary to conGider the ability of the borrowing country to  9 • repay the Bank With curre:1cies other than its own. the Bank 1 G assistance cannot be lim~ted to project? or pro- Obviously, gramG which will result directly in the receipt of foreign ex- change. But in each case the Bank must be satisfied that the over-all effect of its ~oan, combined w·i th the reoources and efforts of the borrowing country, will ·be to improve the economic position of the country sufficiently to give reason- able aosu,rance the.t the foreign exchange needed for repayment will be available. The Bank, to oucceeds muGt be operqted as a business inotitution, guided by economic rather than political consid~ era tions. In fact, the framers of tbe Bank 1 s Articles of Agreement provided that only economic considerations should be relevant to tl"rn Ban1{ 1 s deci Gions. In other wordo, the Bank has been gtven a mandate to operate on a business basis. I have discussed the nat1..:i.re of the Banl~ rs 01;:,erations and the considerations to be taken into account in making loe.ns.. Now I would lilie to tell you something about other elements i.n the Bank's structure and operationo which bear upon the character of itG securities a.s :i,nveo.tments. The governments which are msmbers of' the Banlr have oubocribed to its capital otock over 7·-1/2 billion dollars,, Four additional countries, recently declared· ellgible f'or \ membefahip, will bring the total to apnroximate1y·B billion dollars. Of this amount, the Bank iG entitled to require the • payment cf 20% as working capital~ Ten per cent, or the equi- 10 valent of about 750 million c1ollars, became payable by Novem- ber 25. The full 20%, which amounts to appr9ximately ll billion a.ollars, will have been received by next ·May. One half of this .sum, or about 750 million dollars, will be in gold or United States dollars, the rest in other currencies of the members. The remaining 80% of the members• subscriptions to the Banl'.:' s capital is not subject to cf).11 except for the purpose of meeting the Bank 1 s obligations. I recently noticed a newspaper story in which it was stated that there had been no official ruling as to the exact • procedure under w·hich calls could be made against this 80% of .subscriptions. It was further stated that certain investors had asserted that there was a serious question whether, if one or more members defaulted in the payment of calls on their subscriptions, the Bank could_ make ad.di tional pro rat a· calls on capital until the amounts paid in by non-defaulting members up to the ft0-1 amounts of their respective subscrip- tions should be sufficient to meet the obligations of the Bank. I think you will agree that it is unreasonable to expect· the Bank now to make pfficial rulings defining the ~~act_ procedure which it will follow in the remote contingency that it should need to call all or part of such eighty per ·cent of its capital in order to meet its obligations. I thinlt, however, that I can clear up any doubt as to the answer to the ... • ' particular question which seems to have been bothering the 10a writer of the story to w·hich I refer. I am assured by the General Counsel of the Bank that in his opinion the obligation of each member on its subscription to the capital of the Banlc is independent of the obligations of other members, and that in case some members fail to respond to a call on their subscrip- tions, the Bank may continue to make pro rata calls, up to the full amount of its capital s~bscribed and unpaid, until the -runount received by the Bank is sufficient to meet its obliga- tions for funds borrowed by it or on guarantees made by it. The Bank's working capital is available for le~ing • and may serve as a revolving fund. Most of the amounts used for loans will have to be replaced through borrowings. fact~ most of the funds required by the Bank in all its lend- In ing operations must be obtained through the sale of debantures in the public markets frdm time to time. The security behind the· Bartk\' ~ obligations will be its loan portfolio, its reserves, its paid-in capital on hand and its ability to call u9on its members for part or all of the remaining 80% of their subscriptions. If and when such call is made, the Bank is entitled to require that payment be made in the currency· necessary to satisfy 1 ts obligation·s. Let.us examine for a moment the nature of this • security . It is unlikely that the l3ank will borrow funds on 1 a ~arge scale in advance of the need for them since it will  '11 • ~ not want to pay interest on idle money.. In no ·event can the Banl( 1 s loans and guarantees excoed the amount o·f its unimpairetl subscribed capital, reserves and surplus. Those who hola_ the Bank 1 s obligations will have the Banlt's loans as the first line of security. I certninly shall not hazard the flat assertion that all the Ban..~ 1 s loans and . . ~ irit ere st thereon will be repaid in full and on the clot. There may be some defaults, o..nd aa_justments mRy have to be made ·where difficulties arise. ·But even if there are some defaults, the eighty per cent of subs.criptions to the Bank's capital can be called in any amounts and in any currency required to meet the Bankts obligations . • Furthermore, under the Articles of Agreement, the · Bank is required to charge n commission of from one to one and a half per cent on all the loans it mal~es. This commission must be held in liquid form as a special reserve to meet the Bank I s lio.bili ties. After the first years of op~·ration, this reserve should amount to a substantial sum. Apart from the portfolio, the special reserve and the subscriptions which can be ~allea_, there 19ay be other reserves as ·well as a surplus arising from the Bank I s operations. And as a final item of sectlrity, there is the pald-in CB~ital of the· Bank,.which can be exchanged by it, without restriction, into any currenCTy which th,e BaM.needs to meet its obligations. • The portfolio, together 1·11 th reserves, surplus and subscribed  12 • capital cannot be less than 200 per cent of the Bank's obliea- tions. I think you will agre~ with me that, in framing the .Articles of Agreement of the Bank, they intendec1 to mc?-Jrn every effort to assure a conservative operation~ I look upon the Bank as .a great opportuni t~.r fo1~ the people of the 1·rorld-·-not merely for the people of the bo.rrowing countries, but for those in the lending countries as well. The workers and the managers, the scientists and the engineers in the b9rroidng countries, with technical help from the outside in many cases, must plan projects of sound iecon- • struction and develo:9ment. If the Bnnl: assfst s in financing those projects, the people in the borro~ing countries must. labor to construct and operate them for the ben8fit of their fellow citizens~ They muat act 1·11 sely in hand.ling their domes- tic economie 9 so that the anticipated benefits will be realized. They rnqst act carefully so that their budgetary a2v:t fi seal affairs, as well as the social measures they qnc.ertaJ:e, Hill bring a rising standard of living to their people and not a period of boom, followed by a bust. tr But the laborer and the trader, the manufactu~er and the engineer, and the imre st ors in the p:roducing and creditor countries must also shoulder a share of the responsibility." Many countries today have been lnid waste by war, • Their economies have been disrupted and their n.c1ministrntive .-  ' .,. ' •· , . .,,. 13 • and distribution machinery shat-tered. Unless the destru~tion can be repaired and. the rtorm?,1 functions of economic life resUmed, we will not' achieve the secure peace for whieh 1·re fought .. I had occasion recently to comment publicly on the famine of materials and manufactured goods with tvhi ch the worl.d. is threatened. The famine of raw mnterlnls and manufactur-ed. goodJ can be just as real and just as desperate as ihe latik of foocL Arrieri can management: and Ameri c ari labor have 1 t 1:r,.thin their pcJwer to me't~t a v~er;y-: gr.eat part· of·· the 1·-rorld t's ess.enti~l- mate~ial needs. Our· factories and plants ana.· those. of Co.nada and other countries, which dia. not s~ffer -direct· attack, e.re • the hope of the world.· We have in our hanc1s the power to dec'ide wh~ther we will regenerate the world's economy or·whether ~e. Will ·squander ou·r · productive capnci ty by leav'fng it idle or by- producing only en:Jugh to satisfy our own requirements.- We shall also . have . to share our . technicians-..:.i-the engineers ana. chem'i~ts and _agronomists-.... to help tJ:ie· devastq.ted ·and underdeveloped countries plan their.p~ograms of reconstruc- tion·~nd development~ F1,.rrthermore, the crea.i tor countries will ha;ve to · inves:t their capital resources productively in other parts of the worid where it is needec1. All the funds o:::' the insurance .companies in the State of New York f'~re not invested within the boundaries of the State; they flnd their way into channels which •  14 • carry them throughout our country to strengthen the economies of other states and other areas. Now fo~eign 9ountries are a logical field for carefully planned investment. It is evident that most of the funds required by the Banlt in addition to 1 ts capital must, for the present, be obtained in the United States. Let me also point out that the participation in the Banl:: 1 s su.ccess is certainly not limited to the direct purchase of its securities. One of the principal functions of the Bank is to promote private foreign investment. The Bank can help to fill the gap which now exists between widespread and urgent needs and available private resources on reasonable terms. Its operations, however, are not a subst;tute for healthy private • investment. The loans it ma.:.1:es will, I hope, contribute to the strength and stabili t;y· of the borr,owing countries and improve the climate for private lending. They should also help to bring about conditions under ~-'hich private trade may be restored and expanded. lf we want to enjoy the kind of economic society in 1,1hich individual men can thrive and 11 ve comfortably, we cannot retreat into our own rich land anc1 cease to care how the rest of the ·world lives. We cannot do that because there is no way I,' Ii of shutting our~rnl ves up and keeping the rest of the world out. ?he spread of economic disease beyond our shores will eventually . -~ .• r / infect us. The deterioration of the economic conditions under which men live inevitably leaa_s to political illness, which 1/ • ,tr 15 • will surely invoive us unless. t. t . 'is cured. , In ·other words, ·we cannot be the .~nly happy and prosperous country on the face of the globe.. '.I'he I.nternational Bank ~-::-as conceivea. as an ·opportu- nity .for bus'iness and labor and technicians in all countr'ies to work together. terward a more prosperous world. The .Bank's e·ffort s alone will not bring about t'he condi tiGns which we lJ"ish to see restore(t throughout the vrorla.. There ts need for action on many fronts. The International .Monetapy Fund has the highly importo.nt tfr1.sk of bringing sta- bility into the c·haotic area of international exchange, The Food and Agriculture Oi..,gani z.ation is con.cern~cl with improving • agricultural conditions throughout t~e world. The United ·Nations have already trur.en preliminary steps to esto.blish an Internat'ional Trade ·Organization. In other fields as 1·rell, men of ge,.)dWill are working together to forge the economic cond.i tions of peace through mutual assistance. I am coijvi~ce~ that in a world of m~tual suspicion and smoulder:tng conflicts oq,r efforts to e;-cpand trD..de and raise standards of living among the nations w~ll be futile. I am equally convincecl of this: We shall r ~,t have peace unless economic cond_i tions are bearo.ble and bacl~warcl cconomios are helped to go forward~ ·Whether we live in a borrowing or lend.ing country we can all play our part in im9roving international relations and • ip strengthening the fo11 ces which· benefit men in their c1a1ly 1~ ves, We can, each and every one of us, help to lay the ne,:.·.r foundations upon w}1ich enduring peace must re st .•