NEED FOR CAPITAL

26. The sterling balances of India, Pakistan and Ceylon will continue to be drawn down gradually during the six years, and by the end of the period it is expected that they will have been reduced to the level of reserves which these countries would wish to hold for the protection of their external financial position and for the backing of their currencies. To the extent of this reduction, they will themselves be providing external finance from their own resources. On the other hand, the economic burden of supplying the corresponding imports will directly or indirectly fall upon the United Kingdom, just as it would if the United Kingdom were giving these countries loans of equal size. It is not certain, of course, that the whole burden would immediately fall upon the United Kingdom. Other sterling area countries, such as Australia and New Zealand, may be in surplus on current account and accumulate sterling. In that event they would be easing the immediate burden on the United Kingdom to whom they would in effect be making short-term loans. Similarly, other countries outside the sterling area might accumulate sterling as a result of expenditure by the countries of South and South-East Asia. 27. Thus the net effect of the six-year operation will be that a part of the sterling balances of India, Pakistan and Ceylon will have been repaid, at immediate economic cost to the United Kingdom, while another part may have become the sterling balances of other countries who would then have to bear the immediate economic burden. In either case, and wherever the immediate economic burden may ultimately fall, the effect of the programme should be to eliminate the problem created by the accumulated sterling balances of Commonwealth countries in the area. 28. The contribution which can come through the second channel of external finance —private investors overseas to private enterprise in the area —will largely depend upon the contributions made in other ways. As was explained in previous chapters, there is a growing field for private investment in South and South-East Asia, for which the public development programmes are providing a sound economic framework, but the immediate problem is to finance public development of basic services. Private investment can carry forward the work begun by public development. 29. The third channel —private investors overseas to Governments in the area —can produce constructive results. There is a substantial volume of lending by the London market to Governments and public authorities throughout the world ; indeed, there is at present great pressure upon the London market, for there are more demands for loans for some years ahead than there are likely to be resources available. Borrowing by Governments from private investors abroad has been the principal source of finance for development in the past, and there is scope for an expansion of government borrowing in private capital markets in other capital exporting countries. 30. The fourth channel —the International Bank for Reconstruction and Development—is of great importance, and Commonwealth Governments are considering how best they would be able to facilitate its use. The Bank has already made loans to India totalling $62.5 million for development projects, and loans to Thailand of the order of $l5 to $2O million are being negotiated. All countries in the area, except Burma, are (or have applied to become) members of the Bank, and it is greatly hoped that it will be possible to enlist its full support and co-operation. The Bank must continue to make sound loans if it is to retain the support of the money markets from which it must borrow the money it lends, and recent developments warrant the belief that it will find ways and means of effective help. Much will depend upon the presentation of carefully prepared plans of general development from which

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