The Role of the World Bank in Asia

Paper for Japan Times, September 1976.

               With its highly qualified staffs and large financial resources, the World Bank for almost three decades has been effectively carrying out a wide range of efforts to assist the economic development and industrialization of the developing world. Under the outstanding leadership of its president, Robert S. McNamara, the bank has a firm grasp of the problems facing developing countries, and is exerting every possible effort to help solve these problems.

As of the end of June 1975, the World Bank has extended some $36.3 billion in loans and International Development Association (IDA) credits for the financing of development projects throughout the world. Of that sum, $11.6 billion, or 32 percent of the total, has been provided to its 16 member countries in the south and east Asian and Pacific area. The 1.1 billion people of the Asian countries receiving IBRD assistance account for almost 56 percent of the 1.9 billion population of all the nations benefiting from the bank's worldwide development lending programs. This Asian region, with an average per capita GNP of less than $200 in 1975, is the poorest area of the world.

Roughly 80 percent of the World Bank's loans to the Asian region have been directed largely to the financing of projects in the areas of transportation, agriculture, electric power, and development finance companies (DFC). The concentration of IBRD loans in these four categories can be said to reflect, at least in part, an IBRD policy of assigning high priority to the development of social overhead capital and agriculture; but it also reflects the real needs of the Asian region.

From the fact that the bank has provided large sums in nonproject categories such as DFC loans and program loans, we can see that the IBRD is giving special policy consideration to those kinds of assistance that can simultaneously support both the balance-of-payments positions and the economic development endeavors of its member nations. It is also notable that, compared to other regions, a relatively higher level of IBRD financing has been provided to the Asian region for population planning and for technological transfer, reflecting the region's urgent needs in those two areas.

The Republic of Korea is one of the major recipient member nations of the World Bank, a fact attesting to its preparedness for loan utilization and its capacity for project execution, as well as its maintenance of close cooperation with the IBRD in development matters. All IBRD-financed projects in Korea have been successfully implemented. Over the past ten years, during the course of Korea's Second and Third Five-Year Plans, World Bank lending to Korea has been focused on the agricultural sector, with emphasis on irrigation; on the transportation sector, including roads, railroads, ports, etc.; on education and the development of technical manpower resources; and on DFC loans designed to meet the foreign exchange requirements of small- and medium-industry development.

Korea has benefited greatly from the technical services provided by the IBRD's highly qualified specialists and by IBRD-financed consultants, who have contributed significantly to ensuring a high level of investment efficiency. Deserving special mention is the close cooperation of World Bank specialists in the formulation of Korea's Fourth Five-Year Plan, due to be launched in 1977.

In addition to its stepped-up program lending, a particularly important aspect of the World Bank's efforts to relieve the balance of payments difficulties of the developing countries during the past three years has been the creation of its "Third Window." Another aspect, the bank's increased local cost financing, has had multiple salutary effects on economic management. As one of the beneficiaries of these measures, Korea highly commends the bank for its correct assessment of the situation and the appropriateness of this flexible lending policy.

At the bank's annual meetings during the past three years, President McNamara has clearly described the difficulties confronting developing countries and the priorities reflected in the lending policy of the World Bank. In sum, they are aimed at making the maximum contribution to the abolition of poverty, and particularly to improving the welfare of the rural and urban poor of the developing countries.

Since 1964 the IBRD has channeled some $6.3 billion, or 17 percent of its total lending, into the agricultural sector in support of projects in the areas of irrigation, flood control and drainage, regional development, agricultural credit, and livestock. It is expected that future priorities will continue to focus upon this sector.

In addition to its continued support for the agricultural sector, I believe the IBRD should also intensify its support for the development of the rural infrastructure, including electrification, communication, and roads, in view of the significant contributions such facilities can make toward education and enlightenment of the rural populace, and toward encouraging their participation in the process of national development.

In order to improve the conditions of the urban poor, the IBRD should provide increasing support for the development of family planning programs, housing, public health, and small-scale business, in addition to its ongoing efforts in the areas of education, water supply, and sewerage.

I would also like to stress that the bank, in considering future investment priorities, should place increased emphasis on such relatively labor-intensive industries as machinery, electronics, and shipbuilding. Such industries can fulfill a crucial role in developing and utilizing the skills of the abundant manpower of the developing nations, in increasing employment opportunities, and in advancing the industrial structure of their economies. In light of Korea's experience with its own economic development, these investment priorities reflect a stage of development through which many developing countries must pass, and increased emphasis in this area on the part of the World Bank would make a major contribution to their development.

The problems the developing nations are encountering today may be summarized in the following three points:

First, the development gap-and consequently the income gap-between advanced nations and developing nations is likely to continue to widen.

Second, the developing nations are expected to face even greater balance-of-payments difficulties in the years ahead.

Third, they will require an even larger capital inflow in order to meet their development needs.

Multilateral efforts have been made over the past three decades to alleviate the world's North-South economic gap through the IMF, the IBRD, organizations of the UN, and various regional economic cooperation bodies. It is true that the problem would be even more serious today if it were not for these efforts. Nevertheless, the world economy today has many accumulated problems to overcome before these efforts for development can bear their full fruit.

The worldwide inflation and balance-of-payments problems of the past two years have been a serious setback for advanced and developing countries alike. To cope with them, most countries have adopted austerity and trade-restrictive measures to defend their balance of payments. Unfortunately, these measures have had the overall effect of restricting economic growth. Worsening terms of trade for developing countries have reduced their foreign exchange earnings on one hand, while increasing the cost of development on the other, thus further exacerbating their payments imbalances and increasing and prolonging their dependence on capital inflows in the form of aid and loans. Moreover, global recession has constituted a serious setback to the international strategy of expediting the well-balanced development of both the advanced and developing nations through increased trade, which would ultimately lead to the reduction of the aid burden of the advanced nations.

I would like to emphasize that the barriers hampering free trade must be minimized as quickly as possible. The advanced nations should open the doors of their markets more widely to the export goods of the developing countries, especially of the non-oil-producing developing countries, whose share of international trade in manufactures is still only about 6 percent of the world total. In the meantime, preferential tariff measures should be allowed for the labor-intensive commodities of the developing countries so that more of their merchandise may be sold in the advanced nations, thereby increasing their export earnings.

With regard to capital movement between the advanced nations and developing countries, we are concerned that the absolute sum of official development assistance provided by DAC countries may not rise above the level of 1975 at constant market prices. The ratio of Official Development Assistance (ODA) provided by DAC countries to GNP remained at 0.33 percent of their GNP in 1975, far below the 0.7 percent target set by the UN for the Second Decade of Development. According to the estimate of the IBRD, unless the developing nations increase their concessionary aid commitments by an amount sufficient to offset inflation and reflect their rising incomes, ODA will decline to 0.28 percent by 1980.

It is disappointing to note that in 1975 the IBRD Board agreed only to a capital increase of $8.4 billion, instead of the $10 billion selective capital subscription proposed by the bank.

During FY 1976, IBRD provided some $6 billion in loans, an increase of more than 30 percent over the $4.5 billion provided in FY 1975. There are many impediments, however, to increasing loans above that level in the future. Again, it is disappointing to note that there has been no active discussion of the general capital increase plan to raise the present scale of IBRD loans. We believe that the DAC countries should make every effort to increase ODA to the level of 0.7 percent of their GNP in order to enable the developing nations to maintain a minimally essential rate of economic growth.

At the IBRD's annual conference in 1975, President McNamara pointed out that for the 1 billion people in the poorer developing countries with per capita incomes below $200, income was projected to increase, in constant terms, by barely $3, from $105 in 1970 to $108 in 1980. During this same period, the income level of advanced nations was projected to increase from $3,100 to $4,000, or by some $900.

Such a deepening income gap between the advanced and developing countries will render our joint efforts to achieve complementary well-balanced mutual development even more difficult. If the solution of such problems is delayed, the future of the developing nations, particularly of the non-oil-producing nations, will become increasingly bleak.

In order to overcome the world recession, special measures have been taken by IMF in providing oil facilities, and by IBRD in providing its Third Window and program loans for improvement of the balance of payments, particularly with respect to the capital accounts of the developing countries. But such measures alone are still insufficient; and I would like to call upon IMF, IBRD, and GATT to make even more active endeavors. The fact is that the loans required by the developing countries are increasing in terms of amount, becoming more expensive in terms of interest, shorter in terms of repayment period, and increasingly difficult to obtain. I would like to ask for more active cooperation, from the long-range viewpoint, by the governments of advanced nations to support the multilateral efforts being made by President McNamara to help the developing nations to slough off poverty and to achieve their goals of equitable national economic development.