A pasha and a bust of Keynes
As the annual meetings of the International Monetary Fund and the World Bank kick off in Dubai this week, Margaret Garritsen* de Vries remembers the Middle East and the IMF in the early years
With the Middle Eastern countries now continuously making headlines as conflicted, in turmoil, and connected with terrorism, it is fascinating to reflect that many of the International Monetary Fund's pioneering relations and some of its early precedent-setting Executive Board decisions, concerned these countries. The World Bank also had some of its earliest involvement with Middle Eastern countries.
Although I am by no means an expert on, or very knowledgeable about, the Middle East, a few personal memories of my own and from others about those early years may help refresh the recollections and emotions of a few old timers and amuse later comers. I am very aware that virtually all of the participants and most of the senior staff of the IMF's Middle Eastern Department have now passed away. I feel it worthwhile to recall a bit of their legacy.
First, how many now remember that Egypt, Iran, and Iraq were original members of the IMF and World Bank Group? As former World War II Allies, they had been present at Bretton Woods, and joined with the 40 plus others in the historic signing of the IMF's original Articles in the State Department at the end of December 1945. Lebanon and Syria were early members as well, joining in April 1947.
Moreover, the governor and for years thereafter the executive director for the Middle East, a colourful, dynamic man from Egypt, the late Zaki Bey Saad (later Pasha) participated actively in pre-Bretton Woods discussions which shaped the White Plan. He became a life-long admirer of Harry White, an American who was central to the creation of the IMF and the World Bank.
Since 1936 Egypt had "appeared" as independent, but in practice was under the control of the United Kingdom, and Egypt's finances, like those of several other countries, had been controlled by the Bank of England. In the mid-1940s, Egypt really felt newly independent and, Zaki Saad especially, resentful of the British; thus he was thrilled to work with the Americans in bringing into being a new international organisation to deal with world finances that would have some sovereignty over every member's exchange rate.
Indeed, Mr Saad so admired White that some years later another incident, not usually written about, took place. The IMF had had bronze busts made of its two founders, Messrs White and Keynes, but meanwhile White had become embroiled in a dispute with several US government officials over alleged communist activities, and since displaying his bust in the Board Room seemed embarrassing to the IMF, a few executive directors proposed using only the bust of Keynes. Mr Saad objected, threatening that if Keynes's bust alone was placed in the Board Room, he would "throw it out of the window". Few doubted that Mr Saad was as good as his word, and the two busts rested in the IMF's basement for years thereafter until the IMF Art Society resurrected them in the 1970s, with then Managing Director Witteveen's approval.
Mr Saad was a skilful lawyer, highly respected for many years by the executive directors and senior staff, with his intimate understanding of the early Articles of Agreement and of the intent of the drafters and planners. With his decisive clear-cut manner, he was often called upon to help the Board make decisions and on interpretations of the Articles. With Messrs White and Keynes both dead, Mr Saad was thus often being asked: What did the founders intend?
He was also a great supporter of the IMF as an institution and an early internationalist at a time when most other executive directors were not. For example, not wanting to represent only Arab countries, his first elected constituency from 1946 to 1948, before regional groupings emerged, included Greece, likewise resentful of earlier British domination of their internal affairs and financial arrangements, and the newly independent Philippines.
And taking the position that executive directors should represent the IMF itself, not just their constituencies, he led IMF missions to Havana in 1946 for the eventually unsuccessful planning for the International Trade Organisation. He was deeply disappointed that this organisation never was formed. Years later when I was writing up the history of the IMF's relations with GATT, he told me that "the GATT should never have existed." I am sure, today he would be pleased with the new WTO.
Mr Saad led the IMF's first mission on discussions about continuing restrictions in several countries that had been imposed under the GATT. He agreed with the IMF staff's conclusions, then controversial, that these restrictions ought to be reduced. These discussions, which also included the late Irving Friedman and W John Woodley, were in Torquay, England in 1950, two years prior to the start of the IMF's own consultations on restrictions and a forerunner to them.
Also in 1950 Mr Saad ushered in the membership of Pakistan, despite the fact that Pakistan was in a bitter trade and exchange rate dispute with India. The IMF appointed a special three-person working party (of which I was a member) to figure out an appropriate initial par value for Pakistan.
In the 1960s, when the deputies of the Group of Ten who had been pushing their own limited international liquidity schemes, were holding joint meetings with the executive directors who had been studying possible broader liquidity schemes in the IMF, Mr Saad, alone among the executive directors, refused to attend the meetings. He agreed with then Managing Director Pierre-Paul Schweitzer's claim that international liquidity is the business of the IMF. For Mr Saad, it was the business of the IMF alone.
In addition, Mr Saad was a strong supporter of the staff and at times took courageous positions to help the staff, even individually. Two examples come to mind. One, during the notorious Joseph McCarthy period of the early 1950s when communist witch-hunting went on even in the IMF, one staff member was accused of being a communist and a Russian spy (the accusation was later proved to be false as a case of mistaken identity). Meanwhile, the staff member was in serious danger of being fired. Mr Saad had the staff member moved into the Middle Eastern Department where Mr Saad could, and did, protect him for several years. The staff member, weakened by suffering from his ordeal, eventually dropped dead from a heart attack on a street corner near the IMF. But, thanks to Mr Saad, he had retained his job until that time.
The second example concerns a young woman and the IMF's maternity leave policy. When an administrative assistant became pregnant but was denied maternity leave by the Administration Department on the grounds that she was unmarried, Mr Saad intervened to enable the woman to obtain maternity leave.
Egypt was also the first member to request technical assistance. When the late Frans Keesing was assigned in 1952 to go to Cairo for three months to advise on exchange controls, the Executive Board, eager to keep strict control in these early years, raised questions about Mr Keesing's relation to the Board. Did he not have to clear any advice given to officials of the country first with the Board? Did he speak for himself or for the IMF? This request, after all, was the first of its kind.
Mr Saad again took a firm position: in a technical assistance case, the staff spoke independently, not for the IMF, and did not need advance clearance. Such was the authority of Mr Saad's view that the Board bought the argument, setting the precedent for future technical assistance staff.
Also in 1952, when the IMF sought a new (second) managing director, one of the merits of Ivar Rooth, governor of the Central Bank of Sweden, was that he had just completed heading a high-level mission to Iraq for the World Bank, thereby familiarising himself with the Bretton Woods Institutions. The World Bank was very active in the Middle East at that time.
A separate Middle Eastern Department, along with other regional departments, was formed in the IMF in 1953. It included both Arab states and non-Arab states, such as Iran and Pakistan. The late Abol Hassan Ebtehaj, an Iranian, was appointed the first director. When Mr Ebtehaj resigned in 1954, the late Anwar Ali, a Pakistani, was appointed director. He had been the sole staff person, and a senior official, accompanying Pakistani Finance Minister Ghulam Mohammed to assist negotiating with the IMF staff's special working party on Pakistan's initial par value in its dispute with India when Pakistan was admitted to IMF membership four years earlier.
Another example of the IMF's early involvement with the Middle East was in 1954 when a technical assistance request came from Iran. The late John Gunter, accompanied by Barend de Vries, went for several weeks to Tehran on two occasions to advise on the validity of the then-appreciating rial, following the nationalisation by Iran of the Anglo-Iranian Oil Company. They stopped in Beirut, then a calm lovely "Paris of the Middle East", visiting with Bill Dale, years later an IMF executive director and deputy managing director, who at that time was stationed in Beirut by the US Treasury.
It was an unusual time for a mission. Iran was in a political crisis, with the nationalist Prime Minister Mossadegh recently having been ousted, and while the mission was there, the Shah was flown back to return to power. The mission's conclusion -- that an appreciating rial, following its previous depreciation, was appropriate -- was accepted by the Board. When the mission was preparing, Mr Ebtehaj, director of the Middle Eastern Department, had guided their preparation. But soon thereafter he had returned to Iran as the director of the country's "Seven-Year Plan Organisation" and he was the mission's main contact in Iran.
John Gunter once told me that this first IMF mission to Iran in 1954 was one of the highlights of his first years with the IMF and at the time of his death last year, he was writing up his memoirs of this trip.
Meanwhile, the World Bank had major involvement in Iran and other Middle East countries. Starting to become an international mediator, under President Eugene Black, the Bank had tried to settle the dispute between the United Kingdom and Iran over the distribution of oil revenues and the Iranian takeover of the Anglo-Iranian Oil Company. Later, the Bank, in its longest mediation ever, undertook to settle the Pakistan- India dispute by dividing and developing the waters of the Indus River system and took on with Egypt the development of the waters of the Nile River (the Aswan Dam project). The World Bank thereby became engaged in trying to help out in world politics.
In 1954, the IMF held its first Article XIV consultation with the Middle East. The late John Gunter, the late Mr El Selehdar, and Subimal Mookerjee went to Jordan, which had joined the IMF in 1952. They were amazed at how little the IMF was then known to the Jordanians, who queried the IMF team as to which of their many socio-economic problems the IMF was going to tackle.
After Afghanistan became a member in July 1955, the IMF stationed one of its first resident representatives there. The late Mr Hassanein liked the post and stayed several years. Later on, Eric Elmholt held the position and in the 1960s the late Howard K Carlson represented the IMF in Kabul. He reportedly very much enjoyed the country and people in a period prior to its invasion by the Soviet Union.
One other memory of the IMF's first decade or so and the Middle East comes to mind. Shortly before Saudi Arabia joined in August 1957, it asked for technical assistance to help form and establish a Saudi Arabian Monetary Authority (in effect its central bank). The late George Blowers, senior adviser in the then- Exchange Restrictions Department, who for years before had been governor of the Central Bank of Ethiopia, was very familiar with the technical problems involved, including for example, how to obtain and install bank safes and other physical equipment. He was the obvious choice to go.
But he was a technician and not a good writer of reports. He needed a colleague to write the usual necessary report for the Executive Board. So a colleague, Alex McLeod went along, with his wife and five small children, and later wrote up one of the most beautiful reports the Fund has ever seen. He related their several- years long, very joyful, and successful experience in a paper entitled "Arabian Nights". In the late 1950s the late Anwar Ali, on leave from the IMF as director of the Middle Eastern Department, became governor of the Saudi Arabian Monetary Agency, in which capacity he served for many years. Hence, for two decades until his retirement in 1977, John Gunter served as acting director of that Department.
There is no evidence that all these activities, however, gave the IMF or the World Bank, any important influence over these countries or over the increasingly difficult political situations in the Middle East.
One episode, however, transformed the IMF: the Suez Canal crisis in 1956. Several political developments led to Gamal Abdel-Nasser's seizing of ownership of the Canal from the United Kingdom. As further political troubles ensued, the United Kingdom encountered balance of payments deficits. Because of disagreements between John Foster Dulles and Sir Anthony Eden, the United States refused to lend to the United Kingdom, and the latter, encouraged by the late then-Managing Director Per Jacobsson, turned to the IMF for a sizable drawing. This drawing ended members' hesitation to draw from the IMF, started many drawings, and with payments from members now coming in, converted the IMF's deficits into surpluses. Mr Jacobsson took credit for changing the IMF into a viable organisation.
While many of these stories are not in the IMF's formal histories, they constitute a vital part of the drama, atmosphere, and history of the IMF. Subsequently, the IMF has for decades had many more dealings with Middle East members, often in the midst of political problems.
* The writer is a former IMF historian. The above article was originally published in The Caravan, the quarterly of The IMF Retirees Association. Reprinted with the author's permission.
