Transcript of meeting of the Executive Directors of the IBRD, held on Thursday, March 19, 1970 : Chile - Second Vocational Training Project and Third Education Project

STRICTLY CONFIDENTIAL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. Thursday,. March 19, 1970 A meeting_ of the Executive Directors of the International Bank for Reconstruction and Development was convened at 10:00 o'clock,a.m. in the Board room, 1818 H Street, N.W., Mr. Robert S. McNamara, President, presiding as Chairman.  2 STRICTLY CONFIDENTIAL C O N T E N T S page • Proposed Loan - Chile (Second Vocational 3 Training Project) 2. Proposed Loan - Chile (Third Education Project) 3  3 STRICTLY CONFIDENTIAL P R O C E E D I N G S MR. McNAMARA: Gentlemen, the meeting will come to order, please. The two projects are both related to Chile. T~y are both in the field of education. If it is agreeable to you, · I suggest we treat them together. For that purpose I will ask Mr. ShibusaWa to come to the table and introduce them to you, and then we can discuss them together. If you wish, we can subsequently vote on them separately. But since they are so closely related, I suggest that we have·a common discussion. MR. SHIBUSAWA: Mr. Chairman, Me~rs of the Board: Chile has in recent years made substantial progress in widening the educational opportunities of its population. Enrollment in primary and secondary schools increased by 37 percent between 1962 and 1969. By 1967-68, about 70 percent of the children in the primary school age bracket and 25  4 STRICTLY CONFIDENTIAL percent of those in secondary school age group were attending school. The growth in enrollment has accentuated the need to upgrade quality of education and to make the educational system more responsive to the needs of a wider group of students and the labor market. The two loans being presented to you this morning are designed to assist Chile to make faster progress in achieving these objectives. The second vocational training project is designed to permit Chile to expand its impressive effort to train and retrain its labor fo}e through INACAP, which provide )'( 90 percent of the country's vocational training, so that it can provide the skills for which demand is most pressing. It is similar in scope to the first loan for voca- tional training made in 1965, which helped INACAP to almost doubl~ its training capacity and develop very successful progr ~- Given the continuing need to expand INACAP's facilities, and its excellent record of performance, the Bank may wish to consider giving it further financial assistance in future years. The significance of our Third Education Loan lies in its contribution to the wider government efforts to reform the educational system in accord- ance with the country's needs. These reforms started in 1966 and aim at reorienting the educational system to improve  5 STRICTLY CONFIDENTIAL its quality, raise its efficiency, and make the system more responsive both to needs of students and to the requirements of the labor market. Government reform measures which are outlined in more detail in the document in front of you, include improveme t and lengthening primary education from six to eight years, the diversification of secondary education, and application of curricula more relevant to the needs of a growing economy and changing society, and upgrading of primary school ' ' t eac h er t raining ' O th e o ld six-year f~ secon d ary course to a X three-year post-secondary course. Although the proposed Bank loan is modest in amount, it will support very significant of these reforms, primary teacher training and agricultural secondary education. Now with regard to the future, in order to improve the secondary educational system further, the government is serious~y considering the possiblity of introducing comprehensive secondary education. This typ~ of secondary school would have the advantage of raising the quality of secondary education by offering students a variety of ~ academic. as well as technical courses within the framework of a single institution. This would permit the students to postpone the decision regarding their future education and  6 C STRICTLY CONFIDENTIAL careers by about two years from the age level of fourteen to sixteen. Since the first two years of comprehensive secondary schools are normally dedicated to broad general education, while specialized courses to prepare for higher education or vocational training are offered during the third and fourth years. In order to investigate the feasibility of intro- ducing comprehensive seconda~y education in Chile, the Government has sent a mission to a number of developed countries where this type of secondary education has been successfully introduced. It is possible that the Government will decide to construct several prototype comprehensive schools, if this mission should make a positive recommendatio • As a result of the Government's wish to make this further investigation, no comprehensive schools could be included in the project now proposed for Bank financing. We expect to maintain the dialogue with the Government, howev r, on alternative ways of approaching its educational reform.~ Should the Government in future request financial and/or technical assistance for the introduction of comprehensive schools, or another alternative system, we shall carefully consider thetpssibility of rendering such assistance.  7 STRICTLY CONFIDENTIAL Thank you. MR. McNAMARA: Thank you very much. Gentlemen, I'll be happy to have your comments or questions on either the general economic condition of Chile and/or the two projects tha~ie before us. Mr. Alviar. MR. ALVIAR: Thank you, Mr. Chairman. I fully support the proposed loan for educational training in Chile. Although the amount of financing to be provided by the Bank is only $1.5 million, which is far below the average amount of a single loan according to the standards of later years, the features are in part ~ot only in the educational sector of Chile, but on the whole «Qpnomy of the country, which deserves special consideration !po,.• ' by the Board. In a country like Chile, where more than 50 percent of the population is less than twenty years of age, education and vocational training constitute one of the highest prioritie ~rom the economic and social standpoints . The present Government is well aware of this fact and .has made an outstanding effort to cope with the tremendous task of introducing ~ e f o r m , while widening the opportunities for young people, modernized  8 STRICTLY CONFIDENTIAL systems and broader vocational teaching. The Appraisal Report pointed out a five-year period, 1964-68, public sector spending on education has nearly doubled in real terms and both private and public expenditures have increased from 4.6 percent to more than 5.5 percent of GiP during the same period. X Annex 9 also indicates that of a total central Government current expenditure of 6,530 million escudos, 1,385 million, that is to say more than 21 percent goes to this sector. These figures show the determined and vigorous channeling of resources into that field, and it is deserving of the ~~ttention in the case of a country which is faced ~ with many other pressing economic and social issues. The channel through which the Bank project will be carried out is INACAP. I was very much impressed to read of some of the accomplishments of this institution, knowing for instance how, although founded just five years ago, INACAP today provides 90 percent of the country's voca- tional training measured in terms of persons trained each year; how from 16,000 trainees in 1965, they reached 30,000 trainees in 1969, and will be training 40,000 by 1975. We also see development of real expenditures which have risen from 24.5 million escudos in 1966 to 54.9 million escudos in 1969, or an increase by 225 percent in three years  9 STRICTLY CONFIDENTIAL ~~- in monetary terms of units o f ~ In short, the INACAP is a very dynamic and well-organized institution, which I am sure will effectively and successfully discharge its commitment to the Bank. I think this is a good opportunity to talk about the economic report on Chile, and about the memorandum on recent developments in that country, which you, Mr. President, attached to your report. Chile is heavily dependent on just one primary product, the concentration of exports in copper accounting for more than 75 percent of its total earnings, leaving the whole economy to fight the ups and downs of this commodity in a standard market. A one-cent drop in the price of copper means a loss of $11 million in balance of payments, which is a considerable sum in relation to the figure of $900 mill io total exports per year. Fortunately, the price of copper has advanced and shown a stability and some of the gloomy forecasts in the Economic Report are likely not to materialize. I am referring in particular to the balance of payments position, in VL:stm~f- \Yl°'f".,r-' the public paywer,ts situation, and the outleok for :lftflllt.!I at the time of the report. Since August 1968, many encouraging developments  10 STRICTLY CONFIDENTIAL have taken place in the economic field. I would like to mention the progress made in the public sector where savings financed 81 percent 1the investment in 1969, as compared to 63 percent in 1964; to the declining dependence on net external borrowing which in 1969 represented 10 percent of the total financing in that sector, as compared to 25 percent in 1964; the improvement in public sector savings as a result of substantial increases in tax collections~ and to the monetary impact of public sector operation which has b e e n ~ t h e last two years. X I agree entirely with the part of the recent economic development report which states that the Chilean authorities' policies are building up reserves for the country's monetary strength, and for some time to come it will still be important for the authori~s to continue to build up reserves to levels which will exceed minimum safety margins. Given the past record of extreme ~ s y of copper prices, safe levels of reserves in Chile will be "--' substantially higher than in many other developing countries. Moreover, given the importance of t h ~ t ~ the ~ efficiency of the economy, there is merit in the Government view that reserves should be high enough to allay any reasonab  11 STRICTLY CONFIDENTIAL reasonable fears of balance of pµyment difficulties associated u~ i~-r.·_ with m e a n i n g f u l ~ " · I'd like to raise three questions related to the Economic REport of 1968 and to the memorandum on Recent Economic Deyelopments. First, since copper is so important !o Chile, what is the outlook for price and consumption of this commodity in t c near future? The second question refers to the memorandum attachec ~~our report, Mr. Chairman, on Recent Economic Developments, page 4 of that memorandum, Table 3 at the beginning of the page, which shows annual changes in real output by sector. I see that the construction sector declined in 1966, 1967, 1968, and will decline again in 1970. It is the only sector among all the others which shows a persistent deterioration, a decline in four of the years of the period analyzed, and only in two has it risen. I would like to know the reason for that downward trend. Construction has a very high multiplier effect and low foreign exchange component, and I wonder whether this should be a cause for concern to Chile. In this connection I would also like to know if the  12 STRICTLY CONFIDENTIAL recommendation which appears on page 21 at the very beginning of the 1968 Economic Report, it says, "From an economic point of view, a reduction in public expenditures 6n ~ousing would bet:articularly appropriate." This recommendation has something to do with the reduction in the construction sector. My third and last question is also about the 1968 Economic Rlilport. On page 21, paragraph 52, the fourth line, the following appears: "Very little can be done to remedy this situation so long as inflation persists, and so long as the public sector continues to make increasing demands on available resources. " Nevertheless, within the limits ·set by fiscal policy, everything possible should be done to satisfy the credit needs of the private sector, and there are still good arguments in favor of establishing an industrial development bank in Chile to help meet the deman for medium- and long-term funds. A proposal along these lines was being actively discussed two or three years ago, but the project foundered on a division of opinion as to the prope extent of government participation and control." My last_question is, has the new development bank been founded? If the ansier is in the affirmative, what has been the result of its operation? If the new development  13 STRICTLY CONFIDENTIAL bank has not yet been established, I would like to know whether a further attempt will be made to do this , in the light of its importance to Chile? I think the World Bank ' i' could do a very good job on this matter in keeping with its role of giving technical and financial assistance to the countries that need it. Two years ago the policy of the Bank was not to give assistance to those development banks mainly financed and managed by the Government. Now this policy has been changed and some loans have been approved f o ~ n t banks. I wonaer if this new policy could be applied in the case of Chile? Thank you. MR. McNAMARA: Thank you, Mr. Alviar, very much. Mr. Glaessner, would you like to respond to the questions on the outlook for copper or do you want your colleagues, one of the others, to do so? MR. GLAESSNER: I think Mr. Hipskind could respond. M~. McNAMARA: Mr.Hipskind, would you come to the table then and comment on the outlook for price and consumptio of copper? MR. HIPSKIND: With regard to the outlook for copper prices, we have undertaken in the context of the  14 STRICTLY CONFIDENTIAL preparation of our most recent Economic Report, which is actually being prepared, to examine this as closely as possible, not only the situation of copper in Chile, but with respect to the demand for copper in future and with respect to the copper price. On that account, we have projected for purposes of calculating balance of payments and external finance r,quirements, et cetera, a copper price averaging 55 cents per pound over the 1971-1975 period. This represents a decline from the average price which prevailed in 1969 from 6~ down to 55 cents a pound. The price at this moment is about 70 cents a pound. Of course, these projections are subject to challenge ir the sense tha~~le would perhaps project variations from this 55-cent price level, but after conversations with the copper companies and so on, we think that this is a reasonable projection. The decline from the current level, from 70 cents, reflects various factors: projection of decline in consumptio of copper in Viet Nam, reflects some decline in the average rate of increase in economic activity in Europe, and so on. But we d~n't think that copper should go much below this 55-cent level because, for example, stocks at this stage of  15 STRICTLY CONFIDENTIAL the game are quite low in the United States, and the future demand for copper, given current technology and so on, is such as to support this figure. Shall I go on to respond to the other questions? MR. McNAMARA: Yes, would you then take the second question, why has construction output declined in three of the past five years, and why is it estimated to decline in the present year? MR. HIPSKIND: Construction output in Chile is a function not only of Government investment and housing, but al o of construction of pla~, and so on, by the private sector, construction of hydological works and that sort of thing, roads, et cetera. Despite the recommendation in the 1968 Economic Report that perhaps such large sums should not be allocated to housing construction by the Government, the allocation of such sums has continued over this period to increase in real terms very sub._rtantially, some 7 or 8 percent per year. So housing construction financed by the Government sector certainly has not contributed to the decline in construction overall; rather, the decline has been the result of declining investment by the private sector in construction of plants anc that sort of thing, which also reflects a more than proportion te  16 STRICTLY CONFIDENTIAL in the field of construction. MR. McNAMARA: Thank you ver~uch. Mr. Glaessner, whom would you like to ask to answer the question relating to the development bank? MR. GLAESSNER: I'll answer that. MR. McNAMARA: Yes, would you? MR. GLAESSNER: Mr. Chairman, in the first year of the present Chilean administration, following about two or three years of debate in the Congress, legislation was approved which would enable the setting up of private or partially publicly owned development banks to take place, and as you of course know, since 1939, Chile has in fact had a puh· lie development bank, really very great effectivenss, the Corporacion de Fomento, but in the private area there has never really developed an investment bank. There was a good deal of interest in this proposal, but as I said, i t took quite some time to get it through parliament. It was approved and regulations were drawn up in a preliminary way, a a a group formed in Chile, supported by the banks and some of the industrialists who set up a private development bank. As was said in the 1968 report, essentially a rather difficult political and partly ideological controversy arose in the Government at the crucial point and the bank  17 STRICTLY CONFIDENTIAL was not approved, really -- not licensed; and no effort really has been made since that time to go forward with such an institution. The legislation, nevertheless, remains on the books. What has not effectively taken place is the publishing of regulations which would make it easy for the private sector to go forward with such institutions. Now as you know, this year is an election in Chile, and depending on the perhaps outcome of the election to some extent, the situation could very easily arise in which a private group would form again and such a bank might go forward. There are obviously alternatives. One of them could be the formation of such a bank with a substantial degree of Government participation, a mixed bank. It is also conceivable that CORFO would finally go ahead with one of the reorganizatio s that from time to time has been advanced to separate :its functions. It has picked up a considerable function, going beyond that of a public investment bank in recent years. A third alternative, there has been discussed in Chile converting the state bank, which in fact is a very important commercial bank, but which has some developmental fu tion, perhaps separating from it and setting up a distinct  18 STRICTLY CONFIDENTIAL public development bank, investment bank. · None of these ideas has jelled under this present administration. We,urselves have had preliminary discussions . over the years with the Chileans on this subject, which is terribly important, particularly in the light of the industrial situation, and the need to help strengthen the financial situation of Chilean industry, and we expect ~ to have a rather e)ff'ensiv~ dialogue on this subject with the Chileans in practically, I think, it would have to await formation of the new Government and laying down of the new policies, which we can expect to take place toward the end of this year and early next year, and I think that our attitude would obviously be that we would approach this with a completely open mind as to what solution Chile finds suits its particular needs. MR. McNAMARA: Thank you. In sum, we are anxious to see them proceed;actually in the allocation of our manpower, tentative · allocation for Fiscal 1971 we have made provision for work of this kind. Mr. Hanemann. MR. HANEMANN: Thank you, Mr. Chairman. I'm glad to start my intervention with some comment on the recent economic developments. The memorandum  19 STRICTLY CONFIDENTIAL since attached to your report, Mr. Chairman, shows that/the overall report presented in 1968, various developments have taken pl nc in the economy, as is normally the case in all countries. Two years ·bring new elements into the foreground. Now, some of these developments which we see now hav taken place are favorable ones, like the balance of payments situation, to which I will come back later. Others are not as favorable as one would would like to see them. In this respect, I certainly was somewhat concerned to see tha an inflationary development in the economy has accelerated over the last years, has reached rather high percentage of 36 percent in 1968, and 37 percent in 1969, and what is of course also of great importance for our discussion, it seems that in 1970 at best the inflation will accelerate again, with a margin of 35 to 40 percent. This is the Government's own view, so I thihk we have to expect that developments will not be more favorable. This is certainly a problem which needs careful attention. Election year is certainly not a very appropriate time for taking decisive measures, but I think that it might b a decisive question to be solved by the Government, which comes out as a result of the election, to see to it that these inflationary pressures are restrained, and then more  20 STRICTLY CONFIDENTIAL stabilization in the domestic development will tak~ place. I think this certainly also ought to play a role with respect to the creditworthiness mentioned in paragraph 16 of the Recent Economic Developments memorandum. I think the problems with which the country is faced in this respect, I wonder whether the expectation that Gross Domestic Product will be increased by 6 or 7 percent in this year in real terms is not perhaps a little bit too on the optimistic side. I see on the basic data that the average development, the average growth increase in real terms measured from 1960 to 1969 was about 4 percent per annum. Last year it was 3.5 percent. So I wonder if really an increase of 6 to 7 percent, even if agricultural output may recover from the slowdown of activities in the sector over the last two years, is a realistic expectation. There is another figure mentioned, not in the Economic Report, but in the Appraisal which has also some bearing on our consideration, and that is th~mployment figure estimated to be about 6 percent in the Appraisal, paragraph l.05~ and this is a relatively high figure for such a country and it seems to have some connection with the trend in the economy to invest more in labor-saving investmen s and not to give spe cial weight to the question of investments  21 STRICTLY CONFIDENTIAL which also have·highi~~paet cfor~labor, use. This is certainly a question which is always in the mind of the Bank, and I hope that this tendency of employers to adopt the most labor-saving techniques possible, which ls absolutely under- standable, doesf1ot bring the economy into a large dilemma, with this high unemployment figure of 6 percent. Now, one of the favorable aspects in developments over the last year is certainly the balance of payments development, but here I thihk we must take note of the fact that this is to a large extent due to developments in the cofpper exports, and the basic data mentions commodity X concentration. I think this is a commodity concentration in t export field, and it's to be seen there that the concentration on copper has increased from a percentage of 63 percent in 1965 to a percentage of 78.7 percent in 1969. Now if one looks at the general development N~ in the economy measured in terms of ~ross Domesti.c Product, as presented in the Appraisal, it is evident that the mining sector's share of the economy is 10 percent, whereas manu- facturing also has already a share of 27 percent, but as we see the balance of payments developments are to a large extent dependent on development in the copper sector, I wonder why the memorandum on Economic Developments does not  22 STRICTLY CONFIDENTIAL mention the problem of further diversification in the economy. I refer to paragraph 15 of the memorandum on Recent Developments, where it is said, "Success in realizing the medium-term potential for rapid growth wlthin a framework of price stability" is dependent on various factors: reconciliation of wage policy, pricing policies, import liberalization, appropriate credit policy, the exchange rate, but there is nothing said about further efforts with respect to diversification of the economy, and I wonder wheth~r it was omitted because the staff feel that there is nothing to be done in this respect or what are the reasons why this problem has not been touched upon in the overall review .of the economic developments. Now, Mr. Chairman with respect to the project itself I certainly give my full support to it. I think we all know how important and appropriate development of the educational field is for economic progress of a country, and I have only one question with respect to the activities ~ f INACAP. I read in the Appraisal, paragraph 2.08, page 4, X last sentence, that "The Institute caters primarily for - persons ·above the age of 18 years, i.e., for adult workers, the unemployed and school "drop-outs. ' " Now, if I compare  23 STRICTLY CONFIDENTIAL this statement with Annex 3 of the Appraisal, where the structure of education is presented in a chart, I wonder how this comment that this institute caters primarily for persons above the age of 18, adults, can be reconciled with the presentation of the vocational training offered by INACAP. It is the second to last line of the chart where at least the impression is given that vocational training as offered by INACAP refers only to persons between the age of 13 to 17 year~-- at least i t seems so, if one looks at the age line which is on the bottom of this chart, whereas from the sentence mentioned in the Appraisal, one has the impression that the institute is primarily devoting its interest to persons above the age of 18, so I wonder what is the reasor. - for this presentation of the action of INACAP in vocational training on this chart entitled "Chile, Structure of Education, 1969." This would be my comment too with respect to the sec nd vocational training project. I have only one question with respect to the third educational project. In the Appraisal, paragraph 2.17, page 5, i t is said that the standards of industrial education and instruction are at present unacceptably low. The Government is recommending to rationalize and improve industrial education; and in a later paragraph, 4.14, just these considerations, that some  24 STRICTLY CONFIDENTIAL overall restructuring or redefining of the curricula and the course outlines has to be made before further useful assistance could be given to this sector of the educational field. It is stated that these reasons have not allowed inclusion of industrial schools in the proposed project. I fully understand this. I think there is certainly a need for restructuring and for redefining the curricula in the way in which the industrial training is performed, but I wonder whether there are any indications a~ what time or how long it will take until this aid definition has taken place, so that in this very important sector of the educational field, the training, industrial training can also go forward, perhaps also through assistance of it by the World Bank. Thank you. MR. McNAMARA: Thank you. There are four questions, gentlemen, and I'll ask Mr. Friedman to take the first and then I'll call later on Mr. Shibusawa and some of the others. Irving, would you first comment upon the in!rationar_ development in Chile, the outlook, and the penalties that accrue in it?  25 STRICTLY CONFIDENTIAL MR. FRIEDMAN: Well, I think, Mr. C~irman, we would 1 hare the concern that Mr. Hanemann has expressed about the 'ncreasing inflation in Chile, and this paper tries to briefly et forth the explanation for it. The paper also, by the way, oints out that there has been a recent economic mission and here will be a full economic report which will set these thing forth in detail. But on the other hand, I think we'd like to point out that as long as Chile maintains a flexible exchange rate policy which is allowed to reflect these .inflationary changes, it is possible for the Chilean economy to respond properly in terms of its investment decisions, and improvement of its balance of payments position. Now, Chile has .: inherited from the past, and I would · bring the attention of the Board to paragraph 15 of the Economic Report that~ is attached, under various things which the staff is emphasizing ought to be done, if Chile is to maintain a rapid growth, and in these things one sees that there are two kinds of problems; one is a problem of trying overcome some of the problems raised by past inflationary situations, like the rationalization of pricing policies. Another kind of problem is the fact that here is a government which in the last few years has been trying to increase the  26 STRICTLY CONFIDENTIAL real income, particularly in the agricultural sector. I think it's a policy which we have welcomed, yet at the same t i e this means a~~ problem of how do you harmonize a policy of increasing real wages in the agricultural as well as other sectors, with th~ other economic and social goals, one of which is an improvement in the price stability. Now, it is hoped that through a policy of import liberalization, it will be possible to combat the inflationary pressures and take advantage of the increase in income coming from copper earnings, and also incidentally, I would think, Mr. Chairman, that through this policy of liberalizatio , through the policy of rationalization of pricing policies, and appropriate credit policies, that you would also help out with respect to this problem of diversification. I think the staff has been much concerned with the dependency of Chile on copper for its foreign exchange earnings, but this in the end depends upon getting a more efficient agri- cultural policy; i t depends upon getting a more efficient industrial policy; and this is very intimately related to the pricing policies of Chile and very intimately related to their import liberalization policy, and the Chilean Government is taking steps in the field of pricing policy and import liberalization which ought to have their impact in improvinq  27 STRICTLY CONFIDENTIAL the industrial efficiency of Chile and improving the agricultural efficiency of Chile. That is why, when predicting, for example, the Gross National Product increase of 6 percent, it is not merely related to improvement in agriculture, but if I remember correctly, related to improvement in things like steel production, petrochemicals, when these types of things are the consequence of a better price policy, better foreign exchange rate policy, improvement in the import liberalization policy. But in all that I would not want to detract at all from the fact that we feel that it is very important 'pr•' c:. ~ that Chile do what it can to improve its p&iea~e stability, and at the same time maintain an adequate exchange rate, because unless they maintain an adequate exchange rate, then the inflationary process would become a great barrier both to the balance of payments and to diversification and to further growth of the economy, but as long as they are willing, as they have b-een, to allow the exchange rate to be · responsive to changes in internal price situation, the situation has been manageable and we have seen some favorable developments in the Chilean economy, but this would not diminish our desire to see them take further steps to bring about further price stability.  28 STRICTLY CONFIDENTIAL MR. McNAMARA: Mr. Shibusawa, would you comment on the second question which Mr. Hanemann raised, why didn't we mention the importance of diversification among the major economic actions we believe they should take? MR. SHIBUSAWA: Well, Mr. Chairman, with your per- mission I would like to suggest that Mr. Hipskind conunent. MR. McNAMARA: All right, Mr. Hipskind, would you comment on that? MR. HIPSKIND: With regard to the problem of export diversification, I would like to call attention to paragraph 15 (e), page 7 of the economic memorandum, which points out that continued attention to the adequacy of the exchange rate is called for so as to ensure it does not become a barrier for non-copper exports. The report also refers to an expansion in non- copper exports on the order of 20 percent in the two years 1968-1969. There is no question but what minor export expansion is extremely important for Chile, but I think the figures for the last five years give a somewhat misleading impression of trends in this regard. It is true thit copper'has become more important as a percentage of total exports, but this is simply because of the fact of the major increase in copper price which took place over this period, and secondly, because of the major increase in copper  29 STRICTLY CONFIDENTIAL production between 1964 and 1972. Copper production in Chile is expected to double in volume terms. The other element which is important here with regard to the role of copper in exports is the question of change in the ownership of the copper production facilities in Chile, and the resulting increase in net foreign exchange earnings accruingto the country on that account, so that this means that copper does look as if -- and has become much more important as part of the total export over recent years, but at the same time minor exports are increasing and can be expected to continue to increase. In the Economic Report when its finished, we intend to emphasize most strongly the need for Chile, especially after 1973-74, to concentrate on minor export expansion if over the long term, it's to maintain its balance of payment situation in a healthy status. MR. McNAMARA: Thank you. And Mr. Shibusawa, would you respond to Mr. Hanemann s comment that Annex 3 and a statement in the report appear to be in contradiction, as far as INACAP student population is concerned. MR. SHIBUSAWA: Yes, perhaps again, with your permission, I think Mr. van Dijk can r e spond. MR. McNAMARA: Mr. van Dijk.  30 STRICTLY CONFIDENTIAL MR. VAN DIJK: Mr. Chairman, the place of INACAP's training program in the diagram in Annex 3 of the Appraisal Report of INACAP's project, and Annex 2 of the other report, is correc~ placed in relation to the structure of the educational system. It is true that students entering the training courses of INACAP enter these training courses after having completed only a few years of primary -- at the most six years -- or after having completed secondary education. s such, it is correctly related to everything that is n the top of the diagram. However, in respect of the ages a t ~ the bottom of the annex, it gives a somewhat / rong impression. Students entering the vocational training ourses of INACAP are considerably older. They are the ver-aged students who have normally not even completed primary ducation, but are much older than indicated in the table. MR. McNAMARA: Thank you. Then would you comment also on the length of time e expect the Government will require toccmplete its plan or reform of the industrial education system? MR. VAN DIJK: The Government of Chile is fully ware of the deficiencies described in the Appraisal Report n respect of the industrial education system. I~ knows that should rationalize as rapidly as possible the system to  31 STRICTLY CONFIDENTIAL make it more effective internally, and more productive toward the labor market, but is aware of the fact that these decisions would include the closing of quite a number of unproductive small schools, which is a politically very sensitive issue,and at the moment the Government is involved in lengthy discussions with local interests who have an interest in the maintaining of these schools, and teachers' unions, and does not seem at the present time politically prepared to take the decisions necessary. We do not know how · long it will take hut we expect in the coming years the Government would take a number f decisions to reduce the number of schools, so as to rationalize the system. MR. M.cNAMARA: Thank you. Dr. Chen. DR. CHEN: Thank you, Mr. Chairman. I think both of these projects are very good and have high priority and as such, I would give my support to both of these projects. However, I fully share with Dr. Hanemann the concern about the high rate of inflation. I am fully satisfie with the illuminating elucidation given by Mr. Irving Friedman .  32 STRICTLY CONFIDENTIAL While I can say that I sincerely hope that these various policies outlined in paragraph 15 of the attached Economic Memorandum, page 7, will be carried out in stages by the present administration, the Government of Chile, and even after the election which will follow soon. It is quite gratifying to me that the Chilean Government has made a very wise decision to increase expenditur s on education by about 51 percent from 1968 to 1975, as stated on page ii in the Appraisal Report. I think it is a wise move in the right direction. I also welcome the liberal terms of these two loans, 25 years' amortization with 10 years' 9race for the Third Education Project, and five years' grace for the voca- tional training project. I would like to see, if at all possible, that they both have the same liberal terms of ten years' grace, but I realize in one instance, that is the vocational training project, it is a very small amount, $1-1/2 million, which probably would not pose any problem in the balance of payments. I mean in external debt payment, rather. I also note with satisfaction that about 50 percent of the loan will be used for local financing. In view of the fact that educational projects in general would entail very  33 STRICTLY CONFIDENTIAL large expenditures, for such items as building construction, fVen local procurement, I hope that this policy of financing a substantial portion of the local cost will be generally applied to all other educational projects. I have a very minor question, Mr. Chairman. I note that the percentage of the people employed in agriculture who are trained is very low, about 3 percent, as stated in well, anyway, about 3 percent, and I wonder what accounts for this low percentage in the training of those employed in agriculture? Is there anything that might be recommended to bring this level up to a higher percentage? MR. McNAMARA: Well, Mr. van Dijk, would you respond 'to Dr. Chen's question? MR. VAN DIJK: The INACAP project is specifically designed to increase this percentage, because the percentage indeed is unacceptably low and ih conflict with the Governmentt policy to diversify and improve agriculture, not only for home consumption but also for export. MR. McNAMARA: Thank you. Mr. Karlsson. MR. KARLSSON: Mr. Chairman, I too warmly support your proposals, both of them. It is said in the report that these projects are important for the country. I agree.  34 STRICTLY CONFIDENTIAL I have only one question. It is related to what is said in paragraph 13, page 5, touched upon by Dr. Chen. It is about the covering of local expenditures. I'm not in principle against such coverage, but the reasons for coveri a ·of local expenditures are different for different countries and different projects, I think. I know that we always, when covering local expen- diture,:are financing import of other sorts of goods. Perhaps we help the country to pay debt. But for doing so, there must be some specific reasons so I'd like to hear what reasons there are for financing local expenditures to the extent we are doing it here. I think it is half the loan. Thank you. MR. McNAMARA: Yes, I'll ask Mr. Friedman to comment on this in relation to our general policy of financing local currency costs. MR. FRIEDMAN: Well, Mr. Chairman, I think it's true that, as Mr. Karlsson is saying, we do~ve different reasons in different cases. In some cases, the basic reason for the local currency financing is to be found in the macroeconomic situation, in the situation with respect to public savings, the efforts being made to increase public savings, the shortfall of savings, or it may be found in their external  35 STRICTLY CONFIDENTIAL inancial position, in their need for an increment to external esources, and the very nature of the project being financed ed to desire to increase the amount of local currency financing n order to reconcile the project aims of the Bank, together ~ ith need for certain amount of external financing. Now I think in other cases, and I think this is an xample, the reason is really to be found in the nature of the reject itself. The reason is to be found in the fact that project which is regarded as desirable, which the Bank feels s very important to be done in a certain way, where the Bank as had a great deal to do in sort of being the architect of he project, in bringing about in a certain way, and wishes to ee i t done in a certain way, and therefore wishes to see this reject go forward, in order to have a sufficient amount of nfluence on the project, it is necessary to play a certain art in bringing it about, and this I would think is a very ifferent kind of consideration than what might be called he macro-economic situation. In this case, I think the explanation is to be found n the nature of the project rather than the general economic ituation. MR. McNAMARA: Mr. Jahanshahi.  36 STRICTLY CONFIDENTIAL MR. JAHANSHAHI: Thank you very much, Mr. Chairman. I give my full support to both these projects efore us, and I don't have any special questions or comments bout these projects. I am grateful to the staff that they answers ·to my questions outside the Board, in a eeting we had yesterday and before, but I'd like to take a few minutes of the time of the Board for a general comment, Mr. chairman. MR. McNAMARA: Surely. MR. JAHANSHAHI: I am very much concerned about the increase in the cost of education in developing countries. While the increase of population is about 3 percent a year, the increase in enrollment in schools is very, very high. In some of the African countries that we studied before, the rate of enrollment was about 10 percent in primary education, primary schools. In some Latin American countries and in some other more advanced countries, the primary increase, the increase of the number of students in primary education is about 5 or 6 percent a year, but in secondary education, it is 10, 11, 12 percent a year. For all th~se countries i t is very difficult to face this problem: to build more schools, train more teachers, equip the schools with laboratory facilities and sports facilities, and others. The countries that have only 4 or  37 STRICTLY CONFIDENTIAL 5 percent increase in GNP, it's very difficult to increase their education projects by 12 or 13 or 11 percent. If they do this, the quality of education demands the same. We all know the quality of education has deteriorated during the last 20 years in these countries. In some countries, the number of students in one classroom is sometimes 90 or 95 in first-grade or second-grade classrooms, and the teacher has to pay individual attention to the students, but 95 students are in one classroom, and the buildings are inadequate. The government is not able to build, to finance building construction, and they sometimes rent old houses that are not adequate at all for the school. We~ve{noticed in different reports that we have had before us in this education sector, that the teachers are very limited, qualified teachers are ve!y limited in primary schools, in secondary schools, and in vocational schoo s. I really don't know how the governments can increase their budget to face this problem. In my opinion, this is a field in which the private sector can be very helpful, and ~nvestment of private sector (gan)be able to solve part of the problem: and the private sector is able to run schools more efficiently than the government. I've had this experience. I've seen i t before. Government has some  38 STRICTLY CONFIDENTIAL problems, for example in the scale of salaries of their teachers. The government has to pay the same salary to a teacher of drawing and painting that i t has to pay a teacher of physics or mathematics. The government has to pay the same salary to a teacher that works in a capital city of the country as the salary that is to be paid to a teacher in a small village. This salary may be too much for him or too small for him, I don't know. It depends upon the cases. But private schools don't have this problem. Private schools may pay higher salary to a good teacher of physics and a low salary to a bad teacher of physics. They may pay a good salary to a teacher of mathematics and a low salary to a teacher of physical education, for example. It depends on the market and the market mechanism does not play its role in the government sector. In my opinion, if particularly we take into account the cost of collection of tax, we arrive at a conclusion that government schools are very, very expensive compared to private schools, and I think in many countries, in countries that have an average per capita income of between $200 and, say, $800 or $1,000, that families are able to pay a tuition fee, and the government is not too rich, not like more advanced countries able to face this problem  39 STRICTLY CONFIDENTIAL of increasing educational expenditures, the solution is to ask the help of the private sector. In this connection I must also say this, that for government it's very difficult to ask for payment of tuition by the families. The government cannot discriminate among families, say one family which is richer should pay and another which is not rich should not pay, The government cannot have different types of schools, bad schools, good schools, and schools with good teachers and schools with ad teachers. They are all average teachers. They can't charg ., higher fees in one case and lower in another case. his is a problem again that private schools can solve, and I hink that by investing, by giving help to private schools, we an solve part of the problem. Private schools in these ountries are not encouraged. They don't have access to redit facilities. I've been talking to some of them. They et credit of very short term, six months, nine months, or ne year because the commercial banks don't like to give oans to private schools. They do not consider them still as profitable business. They get short-term credit for building They pay very high interest rates on their loans. ere are no credit facilities for them.  40 STRICTLY CONFIDENTIAL I think that if we deal with this sector as we deal with the industrial sector, in establishing what we call educational development funds or educational development bank or some other name, we could give to it, and channel a part of our assistance to this institution, and through this institution to the private sector, private schools~ we can solve part of the problem. These schools of course need technical assistance which could be given also through this"institution. I really believe strongly that this is a way that the World Bank could help to solve the problem of increasing number of students and improvement of the quality of education In the case of Chile, we see that the secondary education expenditures are increasing very fast, and the private primary and secondary both and the number of students will almost double in six years. I don't find information needed about the private sector of education in our report. I would appreciate very much, Mr. Chairman, if we could have some more information about it. In the case of Chile, the staff informed me that about 25 percent of the primary sector, of primary education is in the hands of the private sector, and 30 percent of secondary education is in the hands of the  41 STRICTLY CONFIDENTIAL private sector. Of course some of these are religious groups, but I am sure they also need some assistance, technica assistance, particularly financial assistance. However, saying this, I have a question related to this Chilean case. While we see that only 70 percent of th children go to school, attend school in primary school, the government has increased the number of years of compulsory education from six to eight. I didn't quite see the reason and logic behind this increase from six to eight years. I'd appreciate an explanation. MR. McNAMARA: Sure. Mr. van Dijk, will you comment on that particularly in relation to change in the secondary school· 'age"groups? MR. VAN DIJK: If I may limit comment on private schools to Chile, specifically MR. McNAMARA: Well, just on the extension of six to ~ight years . MR. VAN DIJK: On the extension of six to eight years in primary schools, it did not include an extension of the compulsory school age by two years. The compulsory school age remains six years, from the age of six, but the length of the primary schools has been extended to eight years The reason for this is that the Government became more and  42 STRICTLY CONFIDENTIAL more aware that children coming out of the primary schools after six years are not able to select in what direction further education should go, either technical, agricultural, commercial or general education, and the Government wants to keep children preferably in the same primary school a number of years more to extend their general education, and to better prepare them for career choice at a later age. MR. McNAMARA: Was there a corresponding reduction in the secondary? MR. VAN DIJK: Yes. MR. McN~ARA: They shifted two years from secondary to primary? MR. VAN DIJK: Yes. MR. McNAMARA: Dr. Machado. DR. MACHADO: There is an old American proverb that nothing succeeds like success. Five years ago, we made the first educational loan in the whole of Latin America and the country selected was Chile. It was the first time that Chile received financial assistance in this field and it was the first time we made a loan in that field, so we were both apprentices in what is a very difficult and complex, but very important subject of economic development.  43 STRICTLY CONFIDENTIAL They made their mistakes and we made ours, and finally we found our way, but this loan which only amounted to $2-3/4 million has been so successful, the results obtained by this loan have been peyond our best expectation, that now Chile has come back to us and requested a second loan, this time not for $2~3/4 million but only for $1-1/2 million, less money, with which they can continue the very excellent work made possible with our first loan to Chile, in Latin America, for education, The traininq of urtemplbyed fo~ employment anm employed for higher skills is really developing a source of capital that cannot be bought with money. Now, Chile comes to us today and asks not only for continuation and expansion of the program we originally financed, but also -- and this is very interesting they ask additional assistance for a larger amount in another field, the field of secondary education. The Chileans have found out, as we*'3,ve found out everywhere else, x that those who enter a vocational school are usually not entirely prepared, and they have to again go through a period of further training in what should have taken place in the secondary schools, so Chile very wisely is asking us to assist them in developing their secondary educational system so that those who come out of the secondary educational  44 STRICTLY CONFIDENTIAL system are prepared to go into vocational training in the most efficient manner with a minimum loss of time. I have read with great interest these two projects, and I am certainly delighted to see how well planned, how thoughtful this project is, and I was particularly impressed tha~not only is Chile seeking international financial cooperation, but they have already obtained the international cooperation of what I think is more valuable, the Swiss having taken a particular interest in helping Chile in the field of refrigeration and air conditioning, so important for industrial development and also for urban development and improvement of the conditions of life; and the United Kingdom is helping Chile in . this program with textiles with which they've had such wonderful experience; the Danish in the field of metallurgical appliances; the Germans, although it's not covered by our project, are also helping Chile in vocational training. With this total of $8-1/2 million plus the technical assistance and interest of all these developed countries, Chile should be making a great jump ahead in one of the most important needs. Now it is true that Chile has been afflicted with the problem of inflation. It's true that until recently, copper which has been the mainstay, was not yielding enough.  45 STRICTLY CONFIDENTIAL Fortunately that situation has been reversed. I do not know why, but if you look at the map of South America, you will find that south of the Equator, every country is afflicted with both hoof and mouth disease in cattle and inflation all over. Now, I don't know why and I don't know the cure, and if anyone knows the cure, they ought to come out and help us. If we're going to treat the members of the Bank and give them the assistance they require, we will have to learn, like the Chileans, Brazilians, Bolivians, Uruguayans, and Argentinians to live with inflation. Inflation is like climate; whether you like it or not, you have to live with it. Now as a Director, naturally I'm interested in the efforts made by the Chilean Government to correct inflation to the extent that they can and perhaps this time someone will find the remedy, the penicillin to cure inflation which could be applied not only in Chile but in other countries as well, but what I look at is the record of Chile as a borrower of the Bank. All the money that we have loaned to Chile in the past has been $213 million, of which $58 million are still undisbursed, so actually the net amount of money coming from the Bank to Chile has been $155 million.  46 STRICTLY CONFIDENTIAL Now, Chile has paid back $60 million of those $155 million. Ill) other words, out of every dollar we've given Chile, they have paid 40 cents, so I think it is remarkable that a country afflicted with unemployment, depending on one industry, with inflation, et cetera, has been able to maintain its record of a good debtor in meeting its obligations to the Bank, and that's why I think the economic situation has to be looked at, and why inflation is something we ought to help Chile to solve, but I do not hesitate to give my full support to this wonderful project. There's one question only that I have. When I first received ~hese· very·interesting~doa.uments and I read them through, I noticed that we were making two loans to one country and to the same borrower to be used by the same beneficiary for the same length of 25 years at the same rate of interest, and I wonder why in our love for efficiency we make two loans when one might do, until I discovered that one loan has a grace period of five years-- that's the small loan -- and the larger loan has a longer period of ten years. I wonder if there's some technical reason why in one case we give five years' grace and in the other case, ten years' grace. Is it because the vocationa is such a good investment it can pay back quicker?  47 STRICTLY CONFIDENTIAL Is there some other reason? I'm curious. MR. McNAMARA: I'll ask Mr. Aldewereld. MR. ALDEWERELD: Mr. Chairman, Dr. Machado has already referred in his last few words to the reason. In the case of vocational training, the result of the training will become more practical earlier than in the case of the other one. The training course is shorter and the graduates of the vocational training will enter the economy and earn more wages much sooner. DR. MACHADO: Do we penalize good results? MR. McNAr-,1'..ARA: We are taking advantage of them. (Laughter) MR. McNAMARA: Mr. Reid. MR. REID: Thank you, Mr. Chairman. These two loans before us total $8-1/2 million, which is much less than some other loans that have come to the Board recently, and which are scheduled to ~ome~to~the Board in the future. Nevertheless, I am not at all surprised t ~t these two loans have provoked a quite lengthy discussion in the Board, and I don't feel too guilty about prolong the discussion myself. I'd like to join others in giving warm support  48 STRICTLY CONFIDENTIAL to these loans, both on country grounds and on project grounds. A few words about the economic and development situation in Chile which a numberof other speakers have mentioned. I think reference has been made to both the negative and positive aspects of Chile and economic and development performance. I think it's useful to look at it this way. I think the shorter term negative features are clear. Dr. Hanemann and others have raised the question of inflation. Nobody really has the cure for inflation, the prescription in these countries of Latin America. I think perhaps possibly in the Chilean case, it is probably linked to a very large extent to the inability of the Government after the initial attempts to redistribute income in the earlier years of the present administration, the inability of the Government to resist pressures for considerab p increases in both personal and private consumption, and this of course was linked to the excessive wage increases recently and it may well be that during a period when copper prices were rising, these inflationary forces could be contained, but when the copper prices started to taper off a bit in their rise, these inflationary pressures became  49 STRICTLY CONFIDENTIAL greater. All I can say is that I hope that in dealing with this very important difficult problem of inflation in Chile, I think really Chile is a country where this problem can be licked, and I would jus~hope that it will be approached primarily by attempting to restrain consumption as opposed to other methods. I am looking forward to the next Economic Report on Chile but on the basis of the interim economic memorandum it would seem that from a longer term point of view, the positive features of Chile ~in economic performance are most impressive indeed, and really deserve considerable emphasis and I think it's apparent from the Economic Report that on the basis of past policies, Chile does qualify highly for continued assistance from the Bank. I think that on the positive side, to list some of the _points from among an exhaustive list, tax reform has contributed to a significant increase in the proportion of Government tax revenues to GNP. It has contributed to a very large increase in public savings, so that the Government is financing a much largerproportion of Government investment. During this period of excessive demand for  50 STRICTLY CONFIDENTIAL consumption, the balance of payments p6licy was nevertheless such that foreign exchange reserves did increase considerably. I think this is an important achievement in the Chilean case. As others have mentioned, it is important that foreign exchange reserves be at a rather high level. Income distribution has improved in the country. I am particularly impressed by the attempts of the Government to come to grips with the structural and social problems in education and in agriculture through a comprehensive land reform program. I think it is rather impressive that in spite of these structural reforms, which t ke any economy quite some time to digest, in spite of the reform. in the field of taxation, income distribution, and land reform, the economy nonetheless has shown a significant rate of aggregate economic growth over the period, although of course this was aided by, I think, good luck and good Government management in the crucial copper sector. I think it may take some time for Chile to reap the full pay-out of the structural reforms introduced in the past period, but I think one does get the impression that when the benefits of these structural reforms do eventually appear, they should be great in terms of social cohesion and broadly based economic and social development.  51 STRICTLY CONFIDENTIAL This is not to minimize the need to come to grips with problems of inflation. I was particularly struck with paragraph 3 of the recent economic memorandum on Chile, which I think is a very, very carefully worded paragraph, and here one gets various messages in this para- graph, but what I would like to single out is the fact that Chile should take advantage of the recent improvement in copper prices, the recent improvement in its balance of payments, to bring about import liberalization which would promote greater efficiency on the part of excessively protected local industry to quote from the report, and they get away from what the report calls "past single-minded concentration on import substitution policy." I think Chile perhaps has a real opportunity here. Tu~ng to the projects, I think these projects are not only well presented in a very good appraisal report, but they are excellent projects per se because they fit into, advance and assist the Government's efforts to bring about fundamental reforms in an anachronistic educational sec r. I think this is perhaps an example of the World Bank at its best, and in this case greatly assisted by UNESCO, if I understand the report properly.  52 STRICTLY CONFIDENTIAL I think that as against that background, in view of the great impact of this project in Chile, I would fully accept what Mr. Friedman said concerning the justificatio. for the degree of local cost financing in this project as being entirely necessary. I nbonclusion, I would like to just single out one of the features of this project which I found particularly attractive. It is the i±nk'"' that these two projects have with the agricultural sector. In the Secon0 Vocational Training Project Appraisal Report, paragraph ~.02, page 8, it is stated, "The slow rate of growth in agriculture has been a major constraint on the country's development through its impact both on the balance of payments and on the size of the domestic market fo,jrianufactured goods. Low productivity in agriculture is in part due to the lack of adequately trained farmers and farm labor. Less than 3 percent of those employed in ~riculture are trained." In the other project document I was interested to find out exactly what the students, agricultural graduates would be doing, and it says here on page 15, paragraph 5.13 tha students would be trained as middle level agricultural tech- nicians and could fill many of the available middle level positions in the extension and agricultural reform services,  53 STRICTLY CONFIDENTIAL as well as becoming self-employed or continuing in higher education. My comment here is that the last, the 1968 Economic Report on Chile did indicate t h a t ~ were serious weaknesses in the agricultural reform services in Chile, and at that time I asked the extent to which the World Bank might get involved in improving the institutional side of the agricultural reform services in Chile. I am not necessarily pressing for any comment on that, because we all know, the situation in Chile is in abeyance, to some extent, at the present time, pending the next election, but I'd just like to say that it's my impression that this particular project should be of long-term assistance, anyway over the long run in improving the agricultural institutional setup in Chile by providing trained personnel, · and if the agri- cultural reform program can be improved, as the economic memorandum did note, this will, inter alia, have the effect of using land which was previously unexploited. Thank you. MR. McNAMARA: Thank you. As Mr.Reid said, thes~rojects are in importance disproportionate to the amounts involved. He.is quite correct in emphasizing that point. Mr.Tazi.  54 STRICTLY CONFIDENTIAL MR. TAZI: Mr. Chairman, I will be very brief. I'd like to associate myself with what Mr. Reid just said regarding the performance of the Chilean economy. I think ~-· that the Government of Chile has been able to achieve a very substantial progress despite heavy odds. I would like only to emphasize one important achievement, which is regarding the rate of demographic progression which has been decreased from 2.1 in the 1960s to 1.9 actually. I think this has certainly been taken into account in liberalizing the policy regarding financing of local currency expenditures, and I welcome very much that feature. However I would like to express here the hope that in similar educational projects, the Bank will adopt the same attitude toward other countries. I have a very short question to ask regarding the technical assistance which is provided in this project, particularly the third education project, which I highly welcome. I haven't been able to find any explanation in this regard of how the money is earmarked for the items which are going to be utilized by the Government. MR. McNAMARA: Mr. van Dijk, would you comment on that? MR. VAN DIJK: This is a problem still under study  55 STRICTLY CONFIDENTIAL by the Government. The Government intends to contact international organizations and voluntary agency who might help in recruiting technical assistance in the coming years, but has not yet made a decision on the source orfiationality of the$erersons. MR. TAZI: May we have such information, once it is available? MR. McNAMARA: Yes, surely. When the decision is made, we will be very happy to inform you. Gentlemen, are there other comments or questions? If not, we will consider the projects approved. Dr. Caram, would you care to comment? DR. CARAM: Mr. Chairman, the two projects approved '' today, although small in amount, are a very important contribution to the educational sector with which the Bank is already associated, and the development of the economy of Chile. I hope these relationships will be maintained and increased in the future, as has been suggested. I thank the Board for their approval, the administra tion and staff for the very excellent work done in preparation of the report. MR. McNAMARA: Thank you very much.