Bearer of Light
(See Cover)
For centuries India's Damodar River, meandering 340 miles through the northwestern hills to the sea, has been known as the "River of Sorrow." A plaything of the seasons, in summer's 120DEG heat the river dried to a trickle in a parched gulley. But in the monsoon, it became a raging torrent, scourging the Damodar Valley with malarial, crop-destroying floods. Last week the fickle Damodar could bear a new name: the River of Promise. Across its path stood three mighty dams, shunting water into irrigation ditches that will eventually reclaim 1,026,000 acres of wasteland, and four humming power plants generating 200,000 kw. of electric-power capacity. The valley's desert was turning green with crops; plumes of smoke from new plants rose in the air. With 80% of India's coal, 98% of its iron ore, and all of its copper ore, the Damodar Valley was beginning to boom.
Halfway around the world in Mexico, another of humanity's sorrows was turning to promise. Huddled into a corner of Nayarit state, the squalid hamlet of Tecuala had for years had contact with the outside world only through a dirt mule track. But in 1951 an all-weather road pushed into Tecuala, and the town got a small, 600-kw. generator. Within weeks, the power plant put new life into Tecuala. A modern street-lighting system was installed, a water-pumping system modernized; Tecuala's hospital got refrigerators, fluorescent lighting, a fluoroscope. In short order, the town added a night school, a movie house, a public library, a daily newspaper, a radio station. Today, Tecuala boasts a population of 13,000 v. 1,000 only five years ago, and industry is arriving--an ice plant, two shoe factories, two ice-cream plants, two carpentry shops, a small shipyard on a nearby island. Said Tecuala's proud mayor: "Literally, I have witnessed our emergence from the dark ages into an age of light."
Tata & Kariba. Both India's Damodar Valley and Mexico's Tecuala owe their new prosperity to that most capitalistic of all capitalist archetypes: the banker. He is Eugene Black, president of the International Bank for Reconstruction and Development--generally known as the World Bank. It was the World Bank that lent Mexico $24 million to help bring power to Tecuala and other forgotten towns. To India it lent $38 million for its Damodar project, and from both nations President Black expects to get every nickel back--with interest.
Last week Banker Black opened the moneybags for a still bigger loan to India: $75 million (at 4 1/2%) for a huge, new steel mill to be built by Kaiser Industries for Tata Iron & Steel Co. The plant will eventually increase India's steel output by 45% to 2,000,000 tons annually. This week another new loan--$200 million to Chile--was approved, in Banker Black's biggest deal to date. With the money, Chile will launch an eight-year agricultural development plan to buy farm equipment, build new roads and start modern agricultural schools, thus make full use of its 50 million acres of arable land, only 3,000,000 acres of which are currently in crops.
Next week more money goes out, this time $80 million to the Central African Federation (Southern Rhodesia, Northern Rhodesia, Nyasaland) for a gigantic dam across Kariba Gorge on the Zambezi River south of Victoria Falls. For the money, Banker Black will see a 400-ft. dam rise to back the Zambezi up into a 1,500 sq. mi. lake, new power plants to provide 1,250,000 kw. of generating capacity for the federation's ballooning copper industry, its spreading cities and farms.
Progress & Achievement. The World Bank's president makes no bones about the fact that his job is much more than that of a moneylender. "We do our damnedest," says he, "to spread capitalism." He is convinced that capitalism is the best way for the "developing" nations, as he calls primitive lands, to catch up with the 20th century. By lending money in a businesslike way, he hopes to teach them one of capitalism's primary lessons: that money must be wisely invested to earn a profit, but that when it is, the harvest both for lender and borrower multiplies beyond all dreams. Black recognizes that the hunger of undeveloped nations for the fruits of mass production is the great political fact of modern times: "We are faced today by a revolution of expectancy. People are less and less content to live in the past or think in the past. The way to deal with a revolution of expectancy is to turn it into a revolution of achievement and progress."
In terms of the billions funneled out in direct U.S. Government aid abroad, Eugene Black's achievement appears modest. But, unlike direct foreign economic and military aid, its results are unquestioned and rarely disputed. Dollar for dollar, the World Bank has proved itself one of the most effective weapons in the cold war. In ten years, drawing funds from contributing member nations, it has lent only $2.6 billion. But by concentrating on basic projects--utilities, agriculture, transportation--it has helped build a solid floor under the economies of more than twoscore nations.
The bank has also helped underdeveloped nations draw up complete economic plans to stimulate private investment in consumer and heavy-industry projects outside its scope. Thus, where direct U.S. Government aid is often resented for its political strings, loans from the World Bank are welcomed. Says President Black: "When I am doing this job, I am international. As a business corporation, we are not plagued by the multitude of difficult questions that can arise when one sovereign nation treats with another. We cannot be charged with invading national sovereignty, with economic exploitation, or with political discrimination. The World Bank has no interest except to help its members."
Borsch to Buddha. Banker Black's polyglot borrowers range from businesslike Belgium to borsch-Red Yugoslavia and Buddhist Burma. Some projects:
P:To Pakistan, six loans totaling $77.3 million to recondition railways, exploit a vast natural-gas find at Sui in West Pakistan, extend the country's power supply, develop the port of Karachi. One project: $3,250,000 for earth-moving machinery to divert three rivers, turn the barren Thal desert area into a 2,170,000-acre farm (wheat, cotton, sugar cane) belt.
P:To Austria, two loans totaling $22 million for Alpine hydroelectric projects to harness one of Europe's chief remaining undeveloped natural resources. One $12 million loan is for the Reisseck-Kreuzeck power project to help add 112,000 kw. of generating capacity by 1958; the other $10 million loan will go toward new dams and power stations to add 190,000 kw. of new capacity to the 111 River system in the Austrian Tyrol.
P:To Colombia, $95 million for highways, agriculture, railroads, and power development. Most dramatic project: a railroad along the winding Magdalena River to replace stern-wheeler river boats as Colombia's main transport, open up vast new areas for cattle production.
P:To Haiti, Finland, Norway, Burma, a total $62 million in four loans, all within the last month. Haiti got $2.600.000 for a three-year road program to improve much of its 1,875 miles of mule-track roads; Finland, $15 million to help finance 344,000 kw. of new power capacity for industry; Norway, $25 million to expand its enormous Tokke power project by 400,000 kw., eventually bring it to 800,000 kw.; Burma, two loans totaling $19.4 million to help improve its Toonerville railroads, turn Rangoon into a first-class seaport with new cargo berths, warehouses, dredges and tugs.
Stakes in Cairo. Last week, on the tenth anniversary of the formal opening of the bank, President Black was in the midst of a 15,000-mile jaunt to Europe and the Middle East. In London he touched economic bases with Governor of the Bank of England Cameron F. Cob-bold, Foreign Secretary Selwyn Lloyd, Under Secretary of State for Foreign Affairs Sir Ivone Kirkpatrick; in Paris, he chatted with Old Friend Pierre MendesFrance, lunched at the home of Bank of France Governor Wilfred Baumgartner. Flying on to Iran, Banker Black talked about accelerating Iran's seven-year, $930 million development program which is paid for by oil royalties. Since oil revenues are low, Black was working out a $32.5 million loan to get things rolling. This week Black moved on to Saudi Ara bia, where oil money is often frittered rather than being spent on economic projects to improve the lot of the people. On the invitation of King Saud, he will advise the Saudis on how to invest their wealth more wisely.
Later this week Banker Black comes to the most crucial part of his trip: Egypt. The most important single development project in the world today is the proposed high dam spanning the Nile at Aswan. The 15-year, $1.3 billion project will have 1,440,000 kw. of power capacity and increase Egypt's electric supply eightfold. Several months ago Black worked out a deal to lend Egypt $200 million to help get the project started, with the U.S. and Great Britain adding grants of $70 million. The only thing to be settled was the question of water rights between Egypt and neighboring Sudan.
Then the Russians, who had previously offered a $300 million loan, started jiggling the bait again. Though Egypt's Strongman Gamal Abdel Nasser prefers Western aid, and knows that he will get more dam for the money with no political strings attached, he is cagily bargaining with both sides. Last week Nasser received Russia's junketing Foreign Minister Dmitry T. Shepilov, who arrived in Cairo with tempting new offers (see FOREIGN NEWS). But on this trip, Black hopes to nail down the deal once and for all. Both he and the Reds know the size of the stakes. Whoever helps build the high dam will have the key to much of the future economic development in the Middle East.
Birth Pains. Compared to most citadels of high finance, Eugene Black's World Bank is as odd as a platypus in a poultry yard. In its slabsided headquarters in Washington, D.C., it does not even have a vault. Once, when money was left lying around--$30,000 in travel funds--it was promptly stolen by a thief who made a clean getaway. The World Bank was born at the 1944 Bretton Woods Conference,*almost as an afterthought to its sister institution, the International Monetary Fund, set up to deal with the temporary "disequilibrium" in world currency-exchange rates. But the job of equalizing the world's moneys proved too much for the fund (see FOREIGN NEWS). However, with the bank, the Allies could get on with the practical business of reconstruction and economic development by promoting "private foreign investment . . . and when private capital is not available on reasonable terms," lending money itself.
The World Bank started out with 38 nations (now 58), each subscribing loan funds ranging from $3.2 billion for the U.S. down to a minimum $200,000 for Panama. In a partnership of the world's "haves" with the "have-nots," all nations cooperated to run the bank through a board of governors, one member from each country, and a president, who has always been an American. Only member nations were allowed to apply for loans, and since voting strength was weighted by the size of each national subscription (the U.S. has a 30% vote), the U.S. and other like-minded countries could exercise an effective veto over any tendency to pauper profligacy by have-not partners.
From the start the bank had trouble, and its organization lagged until onetime RFC Banker and Washington Post Publisher Eugene Meyer moved in as the first president, set up a staff. Next, in 1947, came John Jay McCloy, onetime Assistant Secretary of War, who boldly started funneling out bank funds for the pressing reconstruction of Europe, a total of $500 million in four big grants, $250 million of it to France alone. Compared to the need, the loans were pitifully small, though they helped keep things going until the great flow of Marshall Plan aid started pouring from the U.S. Treasury.
The bank could do no more. It was in need itself, had to sell its bonds on U.S. securities markets to raise the money for loans. But foreign bonds were almost unsalable; so many foreign issues had defaulted in the '30s that more than 40 states restricted the purchase of foreign bonds. What McCloy needed was a good bond salesman, someone who could tell the story of what the bank was trying to do. His man was Gene Black, then 49, a senior vice president of Manhattan's Chase National Bank, and a salesman of rare talents. Within a year, as the U.S. executive director of the World Bank, Black had put over the first $250 million World Bank bond issues. In 1949, when McCloy resigned to become U.S. High Commissioner for Germany (he is now board chairman of the merged Chase Manhattan Bank), Bond Salesman Black was tapped as his World Bank successor --at $30,000 (tax free) a year.
The Four Bs. President Black is much more than an expert securities peddler. He is the world's leading salesman of the benefits of capitalism, and the Bank did not really reach its stride until he became its president.
Black seems to do his job with no more effort than it takes to sign a check. A tall (6 ft. 2 in.), setter-slim (160 Ibs.), amiable Southerner, whose high-domed head is as bare of top hair as the globe itself, he floats effortlessly through the stratosphere of world finance. He is an elegant dresser (Homburg from London's James Lock & Co., suits from Savile Row's Henry Poole), an amusing storyteller, a man of omnivorous tastes, who sums up his chief delights (besides Shakespeare) as "the four Bs--banking, baseball, Balzac and bourbon." As he makes his rounds, he speaks in an irretrievable Southern drawl, mixes so well that he charms people no matter how anti-banker or anti-American they are apt to be. Once, at a state dinner given by Marshal Tito, the conversation through interpreters was dragging badly when Tito, rotundly resplendent in his dress uniform, asked Black if he might try one of the banker's fancy Corona Corona cigars. After the Yugoslav dictator started to puff away, Black looked at him and drawled: "Now you look like a capitalist." Tito roared, and everyone relaxed.
Black's relaxed approach penetrates the entire World Bank. No tight-collared protocol man--"don't have time for it"--he keeps paperwork to a minimum, hardly ever writes a memo, instead prefers to work out problems face to face. He lets underlings work out projects, does not like to "discuss loans until they are just about on the edge of the stove."
In seven years he has been to 43 of the 58 World Bank member nations on bank business (plus such side trips as a visit to Sheik Sir Sulman of Bahrein), though he is a poor traveler. He gets seasick, and his queasy stomach makes him pick at his food. "I've had diarrhea in 40 nations," he says with a wry grin. On every trip, Black, who likes two, and only two, drinks before dinner, takes along a case containing three bottles of his favorite bourbon (Old Forester), a second case with his cigars, a third with his coffee percolator. Though he is treated royally, Black rarely gets out of his hotel room abroad, usually spends his time huddled with hopeful loan-seekers. Says he: "I don't believe that anybody in the world has really traveled as much as I have and seen so little."
Outtraded. For an international traveler, Eugene Robert Black got a slow start. For the first 40 years of his life, except for a short hitch in the Navy, he barely budged from the Eastern U.S. seaboard. Born May 1, 1898 in Atlanta, he was the eldest of three children of Eugene Robert Black Sr., lawyer, banker, and a governor of the Federal Reserve Board, and Gussie Grady, daughter of famed Henry W. Grady, founder and firebrand first editor of the Atlanta Constitution.
Young Gene grew up in a sprawling brick house on Peachtree Street, went to the Peacock preparatory school and was ready for college at 15. But already his father had given him a lesson in finance. When Gene got a new bicycle, his father asked him if he felt like trading it for a piece of property. Young Gene bit at the deal, only to discover that the "property" was a nearly valueless inside lot, with no entrance or exit except across other people's land. Eventually, Black Jr. turned the lot into a profit by retrading it for a supply of eggs, which he sold. But he remembered the lesson, has since studied every deal with a microscope.
Bonds & Banks. At the University of Georgia, Black made Phi Beta Kappa ('17) with ease, soon after graduation went off to World War 1 as a Navy ensign on the cruiser Chattanooga. Back from the war, he worked as a cub reporter on the financial page of Grandfather Grady's Constitution, got married to Dolly Blalock (she died in 1928, a few years after the birth of their second child), later went to work at Harris, Forbes & Co., a Manhattan brokerage house. He soon showed that he was a good salesman, spent the next 14 years traveling the South selling bonds. One of his specialties was selling foreign bond issues. Some of them later defaulted, says Black, because they were poorly planned and the use of the money rarely supervised. The memory has not lessened Black's caution in seeing how his loans are planned and spent.
By 1933 Black was a vice president of Harris, Forbes, and had been married again to a pretty Georgia girl named Susette Heath, daughter of a Coca-Cola vice president. When Manhattan's Chase National Bank absorbed Harris, Forbes in 1931, he moved steadily up the financial ladder, was vice president in charge of the bank's $2 billion investment portfolio when he moved to the World Bank.
Blueprints for Nations. From the start, World Banker Black discovered that his job was far bigger than merely making loans. Some applicants had no clear idea of what they wanted the loan for. One early visitor informed Black that his country needed about $250 million. When asked how the money was to be used, he admitted that he had no particular plans. "We just wanted to get some of the bank's money before it was all gone," he explained. Those who did have specific projects rarely bothered to work out the economic details. Says Black: "It came as something of a surprise to learn that the tough problem wasn't going to be to raise the money for good projects. The tough problem was going to be to find projects good enough to warrant our lending."
For each project, teams of World Bank experts checked the plan to make sure it was workable. Black also found it increasingly valuable to take a look at the overall economy of a prospective borrower, gradually put the bank into the business of broad development planning. In 1949 the government of Colombia asked the bank for a team of experts to help work out a countrywide development program. A dozen specialists spent the better part of a year studying Colombia's basic problems, turned in a volume that became Colombia's charter for development, advising on how to attract foreign capital, how to encourage investment by Colombia's own citizens. The government followed it so carefully that Colombia now has ten World Bank loans totaling $94 million and is rapidly expanding.
To date, 14 such general missions have gone out to member countries. And to insure that the reports are not merely filed and forgotten, the Bank insists that the country asking such help pay half the cost of the mission. In several cases, the bank has actually taken a hand in helping run a member nation's economy. At Nicaragua's request, the World Bank stationed two of its experts in the capital for a year to advise Dictator Anastasio Somoza, now keeps one man on duty permanently.
Actually, says Black, "trained people are needed more than money in underdeveloped countries." To supply the need, the bank currently runs a year-long course for junior-rank career officials, training them in such subjects as balance of payments, national-income accounting, project preparation, etc. Black has also set up a school for senior governmental officials. Among his students last week: Colombia's national-planning director, the financial adviser of Pakistan, the economic director for Egypt's finance ministry.
Conditions & Creditors. With all its fine-tooth preparation, the World Bank purposely takes a long time to negotiate a project, and follows it through to the final rivet. "We are accused of imposing a lot of conditions," says Black. "That is absolutely true. We are proud of it." In Thailand, for example, the bank agreed to finance modernization of the government-owned railway system only on condition that it be set up as an autonomous agency, free from any government interference.
When a loan is finally signed, the bank never finances the total cost of the project, requires the borrower to find enough local capital to meet local expenditures for labor and materials. Thus Black estimates that the bank's $2.6 billion in loans has prompted well over $3 billion of additional investment, plus an incalculable amount of other benefits, as each new project breeds new industries, which in turn give rise to still more. Furthermore, the bank rarely hands over a lump sum for a project, instead gives the borrower credit on its books to pay for specified equipment, all of which must be bought by international competitive bidding.
When a country gets off the beam, the World Bank is as tough as any other banker. Currently, the bank is on strained terms with both Brazil and Turkey. Beginning in 1947, the bank made ten loans worth $194 million to Brazil--$90 million for a big hydroelectric project on the Paraiba and Parai rivers to increase electric-power capacity for Rio de Janeiro and Sao Paulo by 637,000 kw.; $12.5 million to rehabilitate the Central do Brasil railroad; $3,000,000 to improve highways around Rio; another $25 million to produce 96,000 more kw. of power capacity in the state of Rio Grande do Sul. All went well until 1953, when Brazil went on an import spending spree that it could ill afford. The bank advised Brazil to reduce its imports. Brazil ignored this Dutch-uncle advice, and the bank reluctantly decided to make no further loans until the economic climate cleared. Brazilians bitterly criticize President Black for his action, call his stand shortsighted in view of Brazil's enormous potential. Snorts one Brazilian economist: "Black has a small-town banker mentality." Be that as it may, World Banker Black firmly believes that the safest, surest road to long-range prosperity lies in making certain that the day-to-day economy remains sound.
The same is true for Turkey, where the bank has loans totaling $63.4 million for a hydroelectric project, highway and harbor improvement. To help build the huge earthen Seyhan Dam, the World Bank funneled out $25 million for turbines, generators, power stations, which it hopes will eventually cut electric-power costs in the cotton-producing Adana area by 75%. Yet recently, Turkey's economic development has been hampered by inflation and a multitude of other economic ills, largely brought on by Turkey's own economic ineptness. As a result, a resident World Bank adviser strongly urged better coordination of overall economic policy. The proud Turks objected so angrily that the bank was forced to withdraw its man. But as the economic troubles get worse, the Turkish government will have to start taking the World Bank's strong medicine of curbing imports, tightening domestic credit, reducing subsidies to favored industries.
More the Merrier. All told, the World Bank by the end of fiscal 1956 (next week) will have made 151 loans to 43 nations for a grand total of $2,750,000,000. Next year the funds should flow even faster. Within the next few months, a new World Bank subsidiary, the International Finance Corp., will start operating to bring more private investment into the bank's projects. Currently, the bank cannot lend funds that are not backed up by member government guarantees. IFC will answer the need for more risk capital by being empowered to invest directly in productive private enterprises without a government guarantee. With a U.S. Government subscription of $35.2 million, IFC already has $64.6 million, will soon have $75 million and enough to start lending.
So far the World Bank has been largely an intergovernmental operation. But Banker Black hopes that IFC will act as a catalyst to draw in more private investment in developing nations abroad. As it is, the bank has already mobilized nearly $1 billion in private investment overseas by selling its bonds on world security markets, the best proof of the soundness of its projects. But there is need for much more.
For businessmen with vision, Black feels that the prospects for more international development are truly impressive. Vast new markets are being opened by the growing populations of Latin America. Asia and Africa. Yet Ethiopia, for example, with nearly as many people as New York state, buys less than 50-c- worth of U.S. products per capita a year v. nearly $50 per capita for such developed nations as Belgium and Luxembourg. "The question of economic development is important to every man, woman and child in America," says Black. "We have built up our productive capacity. We have got to have people to sell it to. It's as simple as that."
Banker Black draws a parallel between the development of backward nations and the South's renaissance after the Civil War. Says he: "The Civil War knocked us flat on our backs and left us there for a period of nearly 20 years. Slowly and painfully we picked ourselves up. We began to save and invest a little money in farming and industry. Other investment came creeping cautiously in from the North. A little capital begot more capital; a little expansion begot more expansion. The process began accelerating around the time of the first World War, and in the past two decades has been moving at a phenomenal rate. We are today one of the fastest-developing regions not only in the U.S. but in the world. When you see development in the perspective of decades, then it is a very exciting and dramatic business indeed--a business which can make all the difference in our incomes, in the opportunities for us and our children, in the satisfactions we get from life."
-*Among the bank's founding fathers: onetime Treasury Braintruster Harry Dexter White, who was posthumously named a Communist spy. The Soviets fought against the formation of a World Bank, have never joined.
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