175 Report by Ward

[12 December 1948] [1]

REPORT ON THE FOURTH SESSION OF THE ECONOMIC COMMISSION FOP, ASIA AND THE FAR EAST

Held at Lapstone, N. S. W November 29th to December 11th 1948

[matter omitted]

4. Optimistic hopes about what might be achieved at the Fourth Session were not realised. The Session was not without distinguishable overall results but they were fundamentally of a negative character. It did not simply result in a continuance of the kind of work which had been carried out hitherto. Much was recognized as being unprofitable, and although a new direction was not given to the Commission's work, the ground was cleared for re- examination of the functions and organization of the Commission which will be possible when the Committee of the Whole meets in March, 1949. This was not a spectacular achievement, but it can be said that the fundamental questions about the kind of activity which the Commission might profitably pursue, which were becoming evident at the Third Session, were not sidestepped. They were recognized and left for solution in March, by which time it is hoped that member governments will have had time to digest thoroughly the reports submitted so far and make specific proposals. The Commission reached a turning point at the Fourth Session, but the new direction it will take has not yet been decided.

5. The crucial question of supplies of capital goods and financial assistance from highly industrialised countries outside the region seem to have been settled for the time being, at least, as a result of discussions at the Fourth Session. This was the deciding factor in forcing some revision of the Commission's work. At the Third Session a resolution had been passed appealing to the more advanced countries to set aside an 'adequate share of their production of capital goods and basic materials' for Asia and the Far East. Both the United Kingdom and the United States of America submitted replies to this appeal at the Fourth Session which said, in effect, that their respective countries fully appreciated the desire of Asian countries to obtain greater supplies of these items and that they were already doing all they could to meet the demands. However, commitments at home, and the legitimate needs of other countries, were so great that they could not hope to satisfy all requirements. Their governments had only very limited controls over the direction of exports and they could not promise anything in the way of a special allocation for Asia and the Far East as requested by the Commission. On the question of financial assistance, especially for any project in the nature of an Asian Recovery programme, the United States delegate said that his Government did not favour financial provision through a multi- governmental body such as ECAFE. The United States Government believed that outside financial assistance should be provided primarily through private investment, or when such investment was not available on reasonable terms, through the International Bank for Reconstruction and Development or the United States Export- Import Bank for specific projects. Since the former constituted the greatest potential source of financial assistance, Asian countries should create the domestic conditions which would encourage private foreign investment.

6. Hitherto, there had been some general feeling that ECAFE might contribute substantially to the economic reconstruction and development of Asia and the Far East by constituting at least a co-ordinating point for the realisation of outside assistance. It did manage, at the Fourth Session, to give some indication of the magnitude of the foreign exchange requirements (7.2 billion dollars) of the ECAFE countries for their five-year reconstruction programmes, but it is clear now that blanket assistance for such purposes is not forthcoming and the matter now rests with individual countries to arrange whatever they can with private investors, governments or governmental agencies.

7. This has produced a shrinkage in the possible sphere of activity for ECAFE as an inter-governmental body. The problem of the functions of ECAFE, as distinct from those of the individual governments, was also raised in some of the reports submitted by the Secretariat and Working Parties. In the 'Report on Financial Arrangements to Facilitate the Trade of the Countries of the ECAFE Region', for example, we find a recommendation 'that governments reinforce their efforts to put a stop to the process of inflation', and in the report on Industrial Development governments are urged to increase coal production. These are simply two examples from a considerable number of recommendations scattered throughout the various reports which tell governments the obvious about matters which are their own responsibility and do not involve any further action by ECAFE. Recommendations of this character do not justify the time and expense involved in holding sessions of the Commission. They are largely technical matters and committees of experts might well make such recommendations direct to the governments concerned, though in most cases the governments' own experts would probably be better informed.

8. This is not a criticism of the Secretariat or the Working Parties. It would be found that, generally speaking, recommendations which concern individual governments are often the only ones that can be made, because, in the ECAFE region, the scope for inter-governmental action is much more limited than, say, in Europe where the economies of the countries concerned are, to a considerable degree, complementary. In the ECAFE region, on the other hand, the economies of the countries are more competitive than complementary (excluding, of course, Japan) except, for example, in food supplies, which, however, must be dealt with as a world problem and not on a regional basis.

Similarly, in the question of monetary arrangements, the attempt to deal with these on a regional basis broke down because the economic links at the basis of currency areas cut across the ECAFE region. At present, in most cases, the ECAFE region is a geographical rather than an economic or political unit.

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46. Both the Australian and United Kingdom delegates criticised the endeavour to deal with trade and financial arrangements on a regional basis. The Australian delegate pointed out that notwithstanding geography the basic trade pattern of the ECAFE countries was not intra-regional. The important links were between ECAFE countries and countries outside the region. The world currency arrangements cut across the geographical relationship because they corresponded to basic trade patterns. It was therefore fruitless to press the question of regional currency arrangements if the currencies which it was useful to hold were world currencies. The Indian delegate was the most insistent for further study of currency problems on a regional basis. It was finally agreed to request the International Monetary Fund 'to undertake a study of balance of payments, trade movements, etc., in the region, and advise in the light of such study and of similar studies undertaken in other regions, whether and to what extent the establishment of a multilateral clearing system for the ECAFE region might be expected to remove any financial or payments impediments to trade within the region or otherwise to increase trade'. The Australian Delegation supported this resolution because it steered the Commission away from what was obviously not a profitable line of investigation and left the question to the Monetary Fund which could treat it in its proper world perspective. It also covered a recommendation in the report that a study should be made of 'the total foreign exchange resources and earnings of the region', with a view to examining the possibilities of utilizing them most effectively for the benefit of the region. A consolidated resolution on Measures to Promote Trade was adopted which covered adequately the remaining questions raised in the report.

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CONCLUDING COMMENTS 76. So far as the economy of Asia and the Far East is concerned the work of the Commission illustrates the supreme importance of an increase in food production at this stage for the recovery of the region. Food is the principal commodity in which the region has some degree of inter-dependence and the level of production is of supreme importance to both exporting and importing countries.

To countries such as Burma, Siam and Indo-China food is the principal source of foreign exchange so that increased food production means higher export income and greater capacity to purchase imports needed for reconstruction and development. To the importing countries such as India, Ceylon, Malaya and China, high food prices are one of the principal causes of foreign exchange difficulties and increased food production in the region would mean higher living standards and the release of foreign exchange for the purchase of their reconstruction and development requirements. As the United States delegate pointed out, it is paradoxical that a region which is primarily food producing should be a net importer of food. It may not strictly be a paradoxical state, but it is certainly an indication of a basic weakness. Again many of the monetary problems of the region may be traced to food shortages since it has been home out by experience that when supplies of basic necessities such as food are below customary levels, scarcity prices tend to rule and influence the entire price structure through the continuous pressure for higher money incomes. So long as there are such shortages even the most rigid control is often insufficient to prevent continuous inflation. Political instability is an almost automatic consequence. Whichever way we turn the supreme importance of an increase in food production is inescapable. This sometimes tends to be obscured by attention to the newer plans for industrial development but none of these plans is likely to materialize until there is a marked improvement in food production and agricultural output generally.

77. As mentioned already in this Report, the Commission's activities in the field of Industrial Development have reached a stage of re-examination. It is now a question of what inter- governmental action is possible and profitable. It is clear that spectacular activity involving large-scale outside financial assistance for reconstruction and development programmes must be written off, for the time being at least. This, however, although it reduces the sphere of possible inter-governmental action through ECAFE, does not eliminate it. Asian economic recovery and development will involve a long period of co-operation between East and West and within present limits set by shortages of foreign exchange in the region and large demands on the world's supply of capital goods there are still opportunities for at least lessening the difficulties by continuous inter-governmental consultation. One of the difficulties at present with the Commission is that information is only presented for consideration once every six months. But with a permanent committee requirements of Asian countries could be brought forward continuously and countries outside the region could make requests for the kind of information they required through their representatives.

Australia, for example, would require detailed information on the kinds of capital goods required by Asian countries because of the restricted and specific nature of the kinds we might be able to supply. These kinds of requests could be made more appropriately through a permanent committee than to full sessions of the Commission. Permanent committees would probably eliminate the need for more than one session per year. The problem is largely one of continuous examination of requirements alongside continuous examination of capacity to assist. These remarks are put forward as suggestions of the light in which proposals for reorganization of the machinery of the Commission might be examined. Otherwise, the Commission seems fated to become purely a fact finding and liaison body. This would not justify the present scale and frequency of the Commission's meetings.

E.E. WARD Alternate Delegate

1 The document is undated.

[AA:A1838, 856/20, V]