Special Message to the Congress on Increasing the Resources of the International Bank for Reconstruction and Development and the International Monetary Fund.

To the Congress of the United States:

In the Bretton Woods Agreements Act of 1945 Congress authorized the participation of the United States in the International Monetary Fund and in the International Bank for Reconstruction and Development.

This act of leadership on the part of the Government of the United States made it possible to bring these two great international institutions into being and to launch a major effort among the nations of the free world designed to establish an effective and continuing system of international cooperation in the fields of monetary and exchange policy and economic development.

Since their foundation twelve years ago, the United States has given vigorous support to the Bank and the Fund.

The two institutions have been outstandingly successful.

The Bank has assisted on an increasing scale the economic growth of the less developed countries through well-conceived and intelligently executed development projects. The Fund, through the provision of wise counsel and timely financial assistance to member countries faced with balance-of-payments difficulties, has successfully promoted the adoption of sound fiscal, monetary and foreign exchange policies in member countries.

The international standing achieved by the Bank and Fund is such that the international economic system of today cannot successfully function without them. They are indeed vital to the continued economic growth and cohesion of the entire free world.

The National Advisory Council on International Monetary and Financial Problems, which is responsible for advising me with respect to United States relationships with the Bank and Fund, has now recommended that the resources of the Bank and Fund be increased.

I strongly concur in this recommendation. Accordingly, I ask that Congress, in accordance with the provisions of the Bretton Woods Agreements Act, authorize the United States Governor of the International Monetary Fund to request and consent to an increase of 50 percent in the quota of the United States in the International Monetary Fund, and authorize the United States Governor of the International Bank to vote for an increase of 110 percent in the capital stock of the Bank, and, subject to said increase becoming effective, subscribe on behalf of the United States to 31,750 additional shares of stock of the Bank, amounting to a doubling of the United States subscription.

The recommended increase is necessary to enable the two institutions to continue to operate successfully over the years ahead. Our subscriptions are the only financial support we are required to give these institutions. Within the framework of their capital structure, they are self-supporting and do not require additional periodic contributions.

INTERNATIONAL MONETARY FUND

The International Monetary Fund has two primary tasks. It promotes international monetary cooperation and sound foreign exchange practices which are vital to the balanced growth of world trade and development. It also provides short-term financial assistance to member countries to help them stabilize their currencies, maintain or move toward convertibility, and overcome temporary balance-of-payments problems without resorting to restrictions or other practices which may be harmful to international cooperation. In its financial operations, the Fund utilizes the gold and currencies which have been provided to it by the member countries on the basis of their quotas. These operations consist of advances or drawings repayable in not more than three to five years.

Since the beginning of its operations, the Fund has made available about $4.1 billion to 36 countries. Of this sum $3.2 billion was actually drawn in cash; commitments of over $800 million under stand-by arrangements or fines of credit are still outstanding; and $100 million in such credits were allowed to expire unused. Approximately two-thirds of the total was provided during the past two years, and the total amount of drawings and unused stand-by commitments outstanding on December 31, 1958, was $2.6 billion. On that date, the Fund's holdings of gold and U.S. dollars available for new advances or commitments were $1.4 billion, compared with $3.5 billion at the end of 1956. In the light of past experience, this amount would not be adequate if calls on the Fund comparable to those of recent years were made. The Fund must maintain sufficient liquid resources to constitute a second line of reserves to which its members can turn with assurance at any time.

The proposed general increase of 50 percent in the resources of the Fund, together with larger increases requested by a few countries, will meet this need. These increases will raise the resources of the Fund by approximately $5 billion, of which gold and dollars will amount to some $2.3 billion. If these new resources are made available, the free world can have full confidence in the capacity of the Fund to perform its tasks in the coming years.

Under the Articles of Agreement of the Fund, when a quota is increased, the member must pay 25 percent of the increase in gold, and the balance in its currency. In our case, this means a payment of approximately $344 million in gold and $1,031 million in dollars. The latter will .be held in non-interest bearing notes to be utilized only at such time as the Fund may need cash to meet drawings by its members.

I should like to stress the cooperative nature of this proposed increase in Fund resources. Three-fourths of the gold to be paid to the Fund will come from other countries. Moreover, the additional holdings of other leading currencies will be increasingly useful to the Fund, particularly in view of the recent extension of the convertibility of major European currencies. This increase in resources on a very broad base is assured by the provision that the increase will not become effective until members having 75 percent of present Fund quotas have consented to quota increases.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

The International Bank for Reconstruction and Development has, in its 12 years of operations, made loans of over $4 billion in 49 different countries and territories. The Bank's reconstruction loans were made in 1947, and since then the Bank has made loans of some $3.6 billion for productive development projects. Loam by the Bank are currently running at the rate of about $700 million per year. Most of these loans have been made to the underdeveloped areas of the world. The Bank's own financing and technical assistance activities have increased the pace of economic growth all over the free world. The Bank has also been able to act as a conduit and stimulant to the flow of private capital into less developed areas.

Under the charter of the International Bank, only a small part of its authorized capital is available for lending, and the Bank obtains its funds primarily through borrowings in the financial markets of the world. Most of its authorized capital is, in effect, a guarantee for these borrowings. The Bank has raised the equivalent of more than $2 billion through issuance of its bonds in several different currencies. Approximately $ 1.8 billion of such bonds are currently outstanding. These bonds are recognized throughout the world as high quality securities. Both because of the member countries' guarantees and because of the outstanding character of its record, the Bank has been able to borrow large sums of money at frequent intervals at rates of interest comparable to those on high-grade Government securities. This permits the Bank to fix interest rates on its own loans that do not impose undue burdens on the borrowing countries.

At present, and in the foreseeable future, the ability of the Bank to raise funds in the capital market of the United States will depend largely upon the guarantee inherent in this country's subscription. Under the current rate of Bank borrowing, the present amount of this guarantee will be exceeded in the next two years. If the Bank is to continue to play its full part in raising productivity and living standards, additional capital far beyond the amount covered by the existing United States subscription will be needed.

The proposed increase of 110 percent in the total capital of the Bank and of 100 percent in the United States subscription will permit the Bank to meet its needs for borrowed funds for a substantial period of time. No part of the increase in our subscription would be required to be paid in except to meet defaults on the Bank's obligations. There is no reason to believe that this contingent liability will become a real one.

As in the case of the Fund, the proposed increase in the capital of the Bank will not become effective until subscriptions have been received for approximately 75 percent of the existing capital. This will assure a wide participation by the member countries.

The Special Report of the National Advisory Council, which describes in detail the proposal to increase the resources of the Bank and Fund, is attached.

The entire free world needs sound currencies and orderly exchange systems to foster trade and economic growth and it needs capital which will support rising living standards and accelerate the pace of economic development in all of the member countries. The International Monetary Fund and the International Bank for Reconstruction and Development have achieved outstanding records as effective instruments toward these ends. For the well-being of the free world and in our own interest, it is essential that the proposed increases in the resources of these two institutions take place.

There is real urgency for prompt action. The United States has for many months been taking the lead in this important effort to equip the Bank and Fund to continue their work. The countries of the free world look to the United States, because of our economic strength, to set the pace by acting without delay to take up our subscription in the new stock of the Bank and to pay our quota increase in the Fund. I consider it to be most important for the United States Government to maintain the posture of leadership which it now occupies. To this end, I urge the Congress to enact the necessary legislation so that these increases may promptly be made effective, to ensure further progress toward realizing a better life for the peoples of the free world.

DWIGHT D. EISENHOWER