general survey mission to a backward country – i.e. Colombia, 1949 – clearly supported a general approach, a “plan” policy. Lauchlin Currie, the mission chief, stated: It appears essential that the attack on the problem be incorporated in a comprehensive, overall program that provides for simultaneous action on many fronts. Economic, political and social phenomena are so inter-related and interwoven that it is difficult to effect any significant and lasting improvement in one sector of the economy while leaving the other sector unaffected [...]. Poverty, ill health, ignorance, lack of ambition, low productivity are not only concomitants – they actually reinforce and perpetuate one another (Currie 1950, p. 5).

Supporters of project loans, instead, insisted that, according to the Bank’s Articles of Agreement, “loans made or guaranteed by the Bank shall, except in special circumstances, be for the purpose of specific projects of reconstruction or development”<sup>7</sup> . The Bank would have been able to gain stable confidence of North American investors – the principal and practically the only source of financial resources available on international markets in the years immediately following the Second World War – only if it strictly adhered to this practice. Only individual and well-monitored projects would be able to guarantee to American investors that loans were administered according to sound criteria of responsible economic management.

Lauchlin Currie was not alone in promoting broad and multifaceted programs of development. Between 1947 and 1952 Paul Rosenstein-Rodan, then the most important economic theoretician at the Bank, opposed the institution’s increasing propensity towards financing of individual projects<sup>8</sup> . Specifically, Rostenstein-Rodan maintained that linking a loan to a single, well-defined project was chimerical. He claimed that single-project loans would end up financing the _marginal_ project that the beneficiary country would have abandoned had it not obtained a line of credit from the Bank. In other words, these funds would finance a project that a country would have probably accomplished anyway. It was a problem of “fungibility” of funds, their at least partial transferability from one destination to another that caused, in the words of Rosenstein-Rodan, “[the] psychoanalytical problem why a bunch of intelligent people committed what to an economist (not only to an economist, to any logical thinking people) must be rather an extraordinary shift in perspective in the wrong direction of giving so much emphasis to projects [...]. The bank thought it financed an electric power station, but in fact financed a brothel”<sup>9</sup> .

To better understand the implications of the discussion, it is interesting to note how – as a reaction to the restrictions posed by the Bank on the use of the disbursed funds – the notion of “fungibility” was deliberately used by the Colombian government during negotiations for a loan that would have covered a program to increase supply of both electricity and potable

> 7 _Articles of Agreement_ , Article III, Section 4, (vii).

> 8 Rosenstein-Rodan’s frequent disputes with senior management at the Bank forced the economist to leave the institution soon after the general reorganization of 1952 (Oliver 1975, pp. 272-273).

> 9 Oral History Interview, Paul Rosenstein-Rodan, August 14, 1961, pp. 1-2, 01 Columbia University project, WB IBRD/IDA 44 Oral histories. Burke Knapp’s thougt was in line with Rosenstein-Rodan’s with respect to US loans to post-war Europe within the frame of the Marshall Plan. In a later recollection, Knapp said: “The creditworthiness of countries has to be determined on the basis of their total capacity to service debt, rather than according to what particular commodities they are going to receive under an aid program. [...]. The question of whether you lend hard money or soft money should depend upon the country that you’re dealing with and its overall capacity to mobilize resources and make repayment, not upon the particular nature of the project”, J. Burke Knapp, Oral History Interview, July 24 and 30, 1975, available at <u>www.trumanlibrary.org/oralhist/knappjb.htm, paragraphs 92 and 94.</u>

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