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Tuesday, 10 May 1960

Mr CREAN (Melbourne Ports) . - The Opposition is in favour of this measure because we feel that it will do something which the family, of which this institution is a new member, was created nearly ten years ago to do, but has not done to date. As was envisaged in the original plans, this measure will authorize the granting of economic assistance to those countries which, in terms of population, probably form the majority of the peoples of the world to-day. To put this matter in perspective, I should like to quote briefly three statements which to me sum up the problem that the Inter* national Development Association seeks to solve. I cite, first, a statement by M. Mendes France who, prior to the decline of parliamentary government in France, was an important member of the Government and at one time was Premier of France. He said -

The evolution of under-developed countries is the problem of the century.

The February, 1960, issue of " Barclay's Bank Review" - Barclay's Bank is one of the big five of the British system of banking - contains this statement -

The battle for Asia and Africa will be won, in part at least, through economic aid, though, let it be added, that nothing will be gained by attaching political strings to such aid.

Finally, a document entitled "Broadsheets on Britain, February, 1960, Britain and the Colombo Plan" contains a description of the Colombo Plan. In a sense, the measure with which we are dealing is an extension of the concept of the Colombo Plan. The document states -

The Colombo Plan was described in Parliament recently -

That is, in the British Parliament - as "the sum of all the individual plans of tha countries of South and South-East Asia, and of the contributions of the Western countries in assistance of these plans".

Primarily, this legislation and the statements which I have read recognize that, largely, the world still can be divided into what may be called the " haves " and the " have-nots ". If we, as democrats, can conceive of these problems in terms of human beings, we find that far more people are embraced in the " have-nots " than in the " haves ". In fact, the schedule to the bill divides the nations of the world - at least, those nations which are outside the iron curtain - into two groups which are covered by Part I. and Part II. Part I. lists seventeen countries including Australia, and Part II. lists 51 countries beginning with Afghanistan and ending alphabetically with Yugoslavia. I do not have the population figures of the seventeen countries covered by Part I., but I have no doubt that there are something like three times as many people in the " havenot " group - Part II. - as there are in Part I. When you think of our geographical position in relation to such countries as China, India, Pakistan and Indonesia, and consider their populations as compared with the populations of Australia, Canada, the United Kingdom and the United States of America, you find that there are something like four times as many people in the underdeveloped areas in Asia and South-East Asia as there are in the developed areas of the other countries.

Basically, the International Development Association seeks to implement a scheme whereby the seventeen countries - Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Netherlands, Norway, Sweden, Union of South Africa, United Kingdom and the United States of America - or in other words the " haves ", will assist the economic development of those parts of the world which are poorer in economic circumstances and much larger in terms of human beings. There is to be an original subscription to the association of about 1,000,000,000 dollars- and I shall endeavour to put that in perspective in a moment -of which 131,000,000 dollars will come from the United Kingdom and 320,000,000 dollars from the United States of America. In other words, nearly half of the total subscription is to be provided by the two great "have" nations, the United Kingdom and the United States. One thousand million dollars sounds a lot of money when stated in isolation from anything else. In our currency it is roughly £500,000,000, which is something like two and one-half times the amount that Australia expends annually on defence activities. We spend on defence about £200,000,000 a year which is about 400,000,000 dollars. However, the United States budget provides the astronomical sum of about forty billion dollars annually for defence. As I have said, this association, which has not yet commenced operations, envisages the expenditure of about one billion dollars in the next few years. I think that the annual expenditure on defence budgeted for in the United Kingdom is £1,500,000,000 sterling - something like £1,800,000,000 Australian. Yet this practical measure that we are now considering deals with an International Development Association which is to have a total initial subscription of 1,000,000,000 United States dollars. This, weighed against the appropriations for defence against potential aggression, indicates the kind of perspective in which these things are put.

We on this side of the House feel always that the thing that leads to aggression as between nations is the kind of differentiation that exists between nations in relation to economic advantage. One country wants to attack another, not primarily because the first country has aggressive tendencies, but because it feels that, somehow or other, the second country is withholding from it a chance to improve its standard of living. As I have indicated, the funds being provided for this new International Development Association, when measured against the annual appropriations for defence expenditure, seem to me to indicate that we put these matters in a strange sort of perspective.

This association is a new member of the international banking sphere. In the late 1940s and the early 1950's we saw established the International Monetary Fund and, alongside it, the International Bank for Reconstruction and Development. More recently, we have seen established a new member of this international banking group - the International Finance Corporation. All these were born essentially of the feeling after World War II. that, in the era of post-war reconstruction, we should so alter our economic structure as to make impossible recurrences of the sort of upheavals that were known as World War I. and World War II. I think that the world was genuine enough to have meant what it said about these various international organizations at the time, but, since then, most of these things have been sidetracked. I think it can be said, without being unduly critical, at least of the International Bank, that, primarily, it has aided the economic development, not of those countries which needed development most, but of those countries that offered, in terms of strict banking criteria, the best prospect of the ultimate repayment of both annual interest and the original capital. Basically, the International Bank lends to borrowing countries at interest rates of about 6 per cent. I think it will be realized that this does not provide for the problems that are faced by what may be called the undeveloped areas of the world.

At this juncture, I should like to read to the House an extract from a journal published in Italy. It is published in the English language and is regarded as being an international forum in which economists from all parts of the world state their views. The publication is the " Quarterly Review of the Banca Nazionale del Lavoro ". In the issue of September, 1959, there is an article under the rather pretentious title, "Export Credits to Under-developed Countries on a Multilateral Basis ". The author states -

Those countries are considered by authoritative opinion to be non-industrialised, in the process of development or under-developed, where, if modern productive techniques are adopted full employment of existing capital does not fully absorb the available manpower. In under-developed countries available manpower is kept fully employed by the use of antiquated production techniques with a very low productivity level. Unemployment and inefficient full employment result in personal incomes that on the average are far lower than in industrialised countries. Nearly the whole of the African Continent, most of Latin America, parts of Southern Europe (Portugal, Spain, Southern and Insular Italy, Greece and Turkey) and of Russia, some countries of the Near and Middle East, many Asiatic countries (among which India and Continental China) are all underdeveloped areas or areas in the process of development. About two-thirds of the world population live in these areas; in some the rate of population increase is very high.

That is the sort of problem that we are endeavouring to get at by means of this measure, Mr. Deputy Speaker. The new International Development Association is to have, as I have indicated, an initial capital of 1,000,000,000 United States dollars, or about £500,000,000 Australian, which is to be devoted to the solution of problems that affect two-thirds of the world's population.

The author of the article which I have mentioned goes on to indicate the kind of economic development that is necessary in the countries that he has listed. He states -

The above definition of under-developed areas implies that capital imports are the prime necessity of a development policy. Such imports can be classified under three main headings:

It will be seen that these are distinctive channels for economic development in the countries concerned -

(a)   finance for social infra-structures (aqueducts, basic communications, hospitals, elementary schools; etc. It is difficult to measure the returns such investments may yield within a reasonable period of time: therefore finance for such projects should take the form of "gifts"; .

That means that you cannot measure the economic return from a school or a hospital. But nobody here would deny that a country will improve the quality of its population only if it first improves the standard of health and then does something, by education, to raise the standard of the social and cultural environment. The articles goes on with the remaining headings of capital imports as follows: -

(b)   finance for basic projects (power plants, power cable networks, oil prospecting and drilling, land drainage, mining, roads, large industrial plants, etc. These projects may be amortized over a long period of time: therefore finance should be obtained either by direct investment or by loans repayable over a period of fifteen to twenty-five years;

That is not the normal criterion for investment in developed parts of the world. The article continues -

(c)   finance for the purchase of capital goods (machine tools, industrial and agricultural machinery, shipping, railway stock, buses, lorries, etc.). They may be amortized over a period of two to fifteen years and it should be possible to finance their purchase with medium-term credits.

I suggest that that sums up very well the sort of problem that we are facing. First, it is a problem that confronts two-thirds of the world's population. Secondly, it is a problem related to the kind of development that has already taken place in countries such as ours. Admittedly, we have border squabbles about whether more money out of our given total should be devoted to hospitals or schools and less to something else. But those of us who have looked at any of these countries, as I have looked at least at Latin America and some of the British colonies, will know that we are far in advance of these under-developed countries. Mostly, we have adequate water and power facilities and reasonably efficient transport systems, and we are at a stage of industrial development at which we have textile industries already established and a reasonable degree of heavy industry either developed or in the process of being developed. This is the kind of development that is basic to the needs of these particular people. However, we have here a measure that is not even under way yet but which proposes to distribute among, I suppose, nearly 2,000,000,000 people something like 1,000,000,000 dollars. That is the primitive way in which we approach this great project.

Admittedly, it is not as simple as it appears. I certainly think it is much more complex than has been indicated by the Treasurer (Mr. Harold Holt) in the speech he made recently. He gave no indication then that the problem was one cf this perspective at all. The evolution of undeveloped countries is the problem of the century. The Treasurer put this problem to us last week, and yet he expects us to debate it to-night. That shows the astonishing lack of perspective on the part of this Government. But let that pass for the time being. I want to examine now some of the points which the Treasurer stated he pressed at the international meeting which was convened to establish this organization. I quote from page 10 of the typewritten statement he presented to the House last week. The right honorable gentleman said -

The Australian Government has expressed its sympathy with, and support for, the objectives of the Ida proposal from its inception.

We on this side of the House express our sympathy and support with it except that we are critical of the extent of it, and we imply that there is a lack of perception on the part of the Government as to the problems embraced within it. The Treasurer said also in a reference to the annual meeting of the Board of Governors of the International Bank, wherever it was held - and I suppose it was in New York because it sprang from an American impulse -

I pointed out, when the proposal was under discussion at the annual meeting of the Board of Governors of the International Bank last year, that the proposal recognized only two categories of country; industrialized countries who would be called upon to provide the bulk of Ida's usable capital and who would not themselves be eligible to obtain finance from Ida;

They are those mentioned in Part I. of the schedule. If there is a need to develop undeveloped countries, there is no reason why the countries which are called developed should expect to get something from that development. The right honorable gentleman continued to give the second category which included - less developed countries whose subscriptions would be largely in inconvertible currency but who would be able to look to the institution for assistance.

They should be able to look to the institution for assistance, but the right honorable gentleman seemed to imply somehow or other, as a technical exercise, that there were countries between the category of developed and undeveloped. Possibly there are, but their circumstances are much more fortunate than those this measure is supposed to embrace. The Treasurer also said -

We regret that the Ida charter fails to recognize the position of " intermediate countries " and that the scale of contribution of the countries who will be making the whole of their subscriptions in inconvertible currencies is simply based on the International Bank scale.

That seems to me to be merely a verbal quibble at best.

Mr Uren - He believes that Australia is one of the intermediate countries.

Mr CREAN - Yes, and the Acting Prime Minister (Mr. McEwen) when returning from a trade mission two years or so ago said it was wrong to say there are only developed countries on one hand and undeveloped countries on the other because there are developing areas in between. It is also true that there are " have " and " havenot " areas, and Australia does not come within the category of the " have-not " areas which this measure is supposed to embrace. The point on which I take issue with the Treasurer is what he called his third point. He said -

The third point I raised at the bank annual meeting was that the "local currency" aspects of the proposal could cause difficulty and seemed out of keeping with the times. ... I said

I did not believe it to be beyond the ingenuity of the bank's executive directors to devise means of avoiding the creation of new holdings of local currencies. lt seems to me, Mr. Deputy Speaker, that the Treasurer has missed the whole point of why this measure is necessary. After all, if the so-called undeveloped areas had available to them supplies of convertible currencies, they would not be seeking the aid which is envisaged in this particular measure. The fact is - and I think the Treasurer hinted at this - in many ways the best approach to this matter might be straight-out gifts to these countries to assist them in their economic development. When you say that, you come up against psychological problems such as problems of pride of the countries concerned; but you also come up against a very real economic difficulty which has caused a certain amount of controversy in Australia. I refer to what are known as the surplus commodity transactions on the part of the United States of America and the arrangements under which quantities of wheat, butter and other commodities produced in the United States of America beyond its capacity to consume have been lodged in large sheds pending their ultimate disposition.

It has been suggested that it is a crime and an economic travesty that there should be commodities on one side of the world and millions of people on the other side who really need them. I suggest that it is a travesty of what might be called common sense; but once you try to deal with this travesty, you run against all sorts of contradictions and complications in the capitalist methods of producing these commodities. One scheme that was devised was to offer to India or Pakistan some of these products. Instead of having to pay for the wheat or the wool, the products would be given to them, in a sense. The Governments would then sell it at whatever the commercial price was within the country and the money derived from the sale would be put into blocked accounts which virtually belonged to the United States Government. They would be accumulations of local currency.

We had the same sort of problem in reverse almost at the end of the war. America and Britain had expended sums of money in feeding their troops quartered in other countries and those countries had built up large holdings of foreign exchange.

If these holdings had been spent immediately, great confusion would have been caused, certainly in the United Kingdom, and inflationary problems might have arisen in the countries where the credits originated. Accordingly, arrangements were made to block off these amounts and they were allowed to sift back into trade only gradually.

We now have the same sort of situation with these undeveloped countries in determining how they should make their contribution to the new institution. It seems to me rather odd to tell the countries listed in Part II. of the schedule to the bill that they must contribute 236,000,000 dollars before they can borrow any of the 1,000,000,000 dollars. Senator Monroney of the United States of America suggested that the sensible idea would be to allow these countries to contribute their amounts in local currency. That seems to be the point at which the Treasurer raised his objections when the matter was being considered some six or eight months ago. I must confess that I find it very difficult to comprehend precisely what he meant by his objections, even in terms of the explanation that he gave recently. In all fairness to him, I point out that the matter is at least arguable and I shall quote from two documents that express opposing views on the matter. The November, 1959, issue of the journal of the First National City Bank of New York, which seems to hold the Treasurer's view, contained this statement -

If money repaid by Thailand in bahts-

That apparently is the currency unit in Thailand - were lent to India for financing imports from Thailand, Thailand would, in effect, be extending aid to India.

I cannot see anything wrong in Thailand extending aid to India. If the only difficulty in Thailand providing something that India wanted was a matter of currency, I would think that nothing was wrong with the arrangement. The other document from which I shall quote is Barclays Bank Review for February, 1960. I suggest that this is a reasonably orthodox source. Speaking about the question of local currency, the bank said -

The formulae under which such assistance will be given have yet to be devised. One possibility is for the loans granted in foreign currencies to be serviced as to interest and capital repayment in the currency of the borrower. The amounts paid in local currency could then be used either for capital development involving strictly domestic resources, or alternatively, -if there is already too much pressure on those domestic resources and further expenditure would be inflationary, these local .currency payments could best be used in the repayment of domestic debt.

That seems to .me to be an eminently sensible approach. After all, if we conceive of the problem as it must be conceived in the form of aid to some of these undeveloped areas, basically it does not matter whether the aid is given from dollar sources or from sterling sources; money will still be expended in the area. We can take as an example the project that was mentioned in the House recently, the Indus waters scheme which affects Pakistan and India. Whether the machinery comes from America, Australia or the United Kingdom, a large part of the expenditure will be for labour provided by the people of India and Pakistan. This money, in turn, will be expended by them on goods and services in India and Pakistan. If more money is circulated as a result of this activity, it seems reasonable to suggest that some of it should be withdrawn and blocked away in the International Development Association. If this is not done, inflationary tendencies may develop in the country where we aim to give service. However, I think we fall into error when we suggest that the circumstances and the monetary techniques used in developed countries are necessarily applicable to undeveloped areas. Unfortunately, most of these people live very close to a subsistence level. They have very few monetary transactions. Mostly they live in primitive villages and farm in a very antiquated manner. Very little money needs to pass from one to the other. Inflation is an entirely different concept in such a structure.

As I said earlier, payments to the association in local currencies could serve as an anti-inflationary device against the expenditure of the loan and could also have the psychological advantage of making the borrowing country feel that in some way it is helping to pay for what has been given. I think that one of the factors that have bedevilled the kind of economic assistance that has been given to some of these unde veloped areas in recent years is the feeling in thses areas that political strings are attached to the assistance. I quoted earlier the statement in " Barclays Bank Review " that we should avoid creating the impression that we expect the country to which we give aid, somehow or another, to be under a political obligation to us. It is sometimes said that one of the great challenges to the future peace of the world is the kind of economic development that is occurring in India, on the one hand, and in China, on the other hand. India is trying to develop by what are called democratic processes, and China has adopted a different method. I am not arguing as to which system is better in the .context of the particular country, because I think the context is different. However, that is the sort of thing that is happening.

To put this .matter into some kind of perspective, I should like to contrast this measure that is supposed to embrace the economic development of two-thirds of the world with the expenditure of 1,000,000,000 dollars, with a recent move on the American continent through what is called the Inter-American Development Bank. This is simply a scheme jointly between the United States of America and the Latin-American countries to promote the mutual development of both areas. But the .amount of expenditure that is involved in the Inter-American Development Bank, to quote from the " International Financial News Survey ", dated 4th March, 1960, shows that the resources of the bank after all ratifications are completed will total 2,000,000,000 dollars, that is for the mutual development of the United States of America and Latin America. Primarily it means the development of Latin America, with a population of, I suppose, some 200,000,000 people, as against 2,000,000,000 people in this instance for whom 1,000,000,000 dollars is to be provided. Contrasting that expenditure with the vast amounts of aid which have been poured out in recent years by the United States of America, we see that since the end of World War II., in the period from 1945 to 1960, the United States of America spent something like 62,000,000,000 dollars in giving economic aid and " mutual assistance " as lt is called in various parts of the world.

Most of that sort of aid was given with strings attached to it; and it is the kind of thing which is resented by the rest of the world. When we compare the order of that kind of thing with the sort of problem which is involved here, we see how far we really are from reaching a satisfactory solution of the problems with which we are involved. As I say, although we are dealing with something like two-thirds of the population of the world, just a mere trickle of 1,000,000,000 dollars is to be provided as a start. It is true that this is said to be only a beginning, and that the position may improve when the scheme gets .going.

I shall quote now from an article in the " New Statesman ", dated 12th December, 1959, and entitled, "The Economics of World Tension", by Thomas Balogh, a fellow of Balliol College, Oxford. Some honorable members might not like what Thomas Balogh says, but he is an eminent economist in the United Kingdom. He said -

In the post-war years government aid in the form of low interest bearing loans or outright grants channelled either directly or through international agencies has represented a very considerable contribution. In the years since the war, America alone has provided 62,000,000,000 dollars in this way. Total bilateral and multilateral aid and technical assistance programmes represented 11,000,000,000 dollars between 1954 and 1957.

For the three-year period it is an average of nearly 4,000,000,000 dollars a year and yet we have this comparatively trifling measure which is not yet established but which, shared among two-thirds of the world's population aims to expend 1,000,000,000 dollars. We have been critical of this measure, because it does not go far enough; but we welcome it as a move in the spirit in which the great international organizations were conceived. Originally, under what was known as the British plan, the late Lord Keynes who largely inaugurated it had in mind some sort of exchange system which would enable countries temporarily in deficit - which meant underdeveloped countries which wanted to import more than they could export - to carry on on the idea of an international currency, but the rest of the world could not see things in that light. Then we had these new organizations, but they did not afford help to those who most needed help.

This measure, trivial to begin with, may grow into something which in the long run will be more permanent as a contribution to the peace of the world than the launching of Blue Streak missiles or something of that nature from one part of the world against another. We feel that the world is basically peaceful when the people live in content, and they cannot do that when there is a great disparity between standards of living. After fifteen years of comparative peace in the cold war there is still a great disparity. The average living standard of an Australian is ten to fifteen times higher than that of a person living in India or Indonesia. We hope that this measure may do something to promote the capital development without which those standards cannot be improved and the disparity bridged.

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