Committee of Twenty moves toward completion of reform outline
During the first quarter of 1973, the momentum toward monetary reform acquired in the latter part of the previous year was well maintained. The Committee of Twenty (the name by which the Committee of Fund Governors considering the reform of the international monetary system is usually known) pushed ahead with its studies and set its sights on producing an outline of reform proposals for consideration by the 125 Fund Governors at their 1973 Annual Meeting in Kenya. This meeting—the first to be held in Africa—will take place September 24-28 in Nairobi’s Kenyatta Conference Centre.
The third meeting of the Deputies of the Committee of Twenty (“the C-20 Deputies” as they are now usually referred to) met in the Bank/Fund Paris office January 23-25. There were discussions on reserve assets and convertibility (one of the major topics of monetary reform) and the adjustment process. On the controversial subject of objective indicators for exchange rate changes, the Chairman of the Deputies, C. Jeremy Morse, said in a press briefing at the end of the proceedings he felt it was generally agreed that “there is no necessary conflict between the greater use of such indicators and continuing qualitative or discretionary assessment.” Announcement was made in Paris of the selection of Johathan H. Frimpong-Ansah, Governor of the Bank of Ghana, as a fourth Vice-Chairman of the Deputies.
The next meeting of the C-20 Deputies was scheduled for March 14-16, but the series of emergency meetings among officials of the industrial countries, called in Paris and Brussels to cope with the disruption of the international monetary system, forced postponement to March 22-23. When the Deputies did meet at Fund headquarters in Washington, they reviewed their work in the light of recent events, including the second devaluation of the dollar, the joint European float, and the cooperative steps taken to stem the massive speculative flow of funds which had caused the latest crisis. The Deputies decided to expand their schedule and to intensify their work between meetings by establishing a technical group on indicators to meet in Washington and another on disequilibrating capital flows to meet in Paris. (A third working group is currently active in London on the tentative drafting of several sections of the reform outline.) Discussion of the special interests of the developing countries was deferred, since it was felt that the subject could be more usefully considered at the following meeting, planned for May 21-25, when the implications of recent developments will have become clearer.
For the first time since its inaugural session in September 1972, the C-20 met at ministerial level in Washington on March 26-27 at the Pan American Union building under the chairmanship of Ali Wardhana, Minister of Finance of Indonesia. The various problems before the ministers had been accentuated by the foreign exchange crisis, the currency floats, and other developments. The Committee heard a report in which the discussions held so far by the Deputies were summarized by Jeremy Morse. At the conclusion of the meeting, the ministers and central bank governors of the C-20 issued a communique setting forth some of their basic understandings on reform. It concluded that in the reformed international monetary system the exchange rate regime should remain based on stable but adjustable par values and heralded an expanded role for the Fund. The Ministers instructed the Deputies to proceed urgently with the preparation of a draft outline of the reform.
If sufficient progress is made by the Deputies, the C-20 plans to meet again at ministerial level several weeks before the Nairobi Annual Meeting in September, which is expected to be an important milestone in the continuing efforts to reach agreement on the main elements of reform. If an outline has been agreed upon by the C-20, it will be placed before the assembled Fund Governors for comment and endorsement. Even if progress in the intervening months is less than anticipated and the outline is not completed by then, the Governors are expected to express many views on the preferred direction of modifications in the international monetary system.
In 1972 the Executive Directors of the Fund submitted to the Board of Governors a major report on reform which has played an important part in reform discussions ever since. In all probability, no special new report of so comprehensive a nature will be produced this year by the Executive Directors, but they have focused on several elements of reform and prepared a number of pertinent studies, including “Allocation of SDRs and Financing of Economic Development, and “Approaches to Consolidation, Convertibility and Asset Settlement”, which have been made available to the C-20. In addition, the problems of reform will undoubtedly receive considerable attention in the 1973 Annual Report of the Executive Directors to the Board of Governors, which as usual will be published several weeks before the Annual Meeting. The Executive Directors attended both the January and March meetings of the C-20 Deputies.
Foreign exchange developments
On February 13 the Fund announced it had been informed by the United States that the President was asking Congress to authorize a proposal to the Fund for a 10 per cent reduction in the par value of the dollar from 0.921053 SDR to 0.828948 SDR = US$1 (equivalent to $42.22 per fine ounce of gold). This anticipated change was immediately reflected in international markets.
The Fund was advised by the Governments of Japan and Italy, on February 14 and 18, respectively, that the market rate for the Japanese yen and the rate for the Italian lira on the official market would not necessarily be confined within the margins observed hitherto. Both Governments expressed the intention to return as soon as conditions permit to the maintenance of normal margins in accordance with the decisions of the Fund.
As of the close of business on March 1, the Fund had received communication from 100 member countries advising changes in exchange rates, contemplated changes, or notifications that existing exchange practices would continue, in the light of the United States proposal to devalue the dollar.
On March 1 and 2, in the face of heavy speculative attacks on the U.S. dollar, most official exchange markets were closed. By the time they reopened on March 19, the meetings hastily called in Brussels and Paris by the finance ministers and central bank governors of the major western industrial countries had led to a joint float against the dollar of the currencies of six EEC members (Belgium, Denmark, France, Germany, Luxembourg, and the Netherlands) plus Sweden and Norway.
On March 16, Fund Managing Director Pierre-Paul Schweitzer, who had flown to Europe for the third time in less than two weeks in connection with the high-level monetary meetings called to deal with the crisis, issued a statement at the crucial Paris gathering where agreement was finally reached on measures to restore order in the markets. Mr. Schweitzer urged cooperative efforts to defend the exchange rate structure established as a result of the proposed change in the par value of the U.S. dollar, a structure which he termed reasonable. He emphasized that “in all our actions we must continue to support the aim of a one-world system that takes into account the interests” of all Fund members, including the developing countries.
Par value changes
During the period under review, changes in par values were carried out, with Fund concurrence, for the currencies of Jamaica, Yugoslavia, Uganda, Kenya, and Tanzania. The initial par value of the Bahrain dinar was established by agreement between the Government of Bahrain and the Fund. In addition, Bahrain notified the Fund that it accepted the obligations of Article VIII of the Articles of Agreement, relating to the avoidance of restrictions on payments for current international transactions, multiple exchange rates, and discriminatory currency practices.
Activity of the Fund’s General Account was below average during the first quarter of 1973, and both drawings and repurchases were for limited amounts. Drawings on the Fund included an SDR 2.85 million compensatory financing purchase by Jordan. Total gross purchases from the beginning of Fund operations to March 31, 1973 reached SDR 25,556.90 million, and net drawings as of the same date were equivalent to SDR 3,639.60 million. Fund holdings of selected currencies as of the end of March are shown in Table 1.
No SDR transfers
There were no transfers of SDRs between participants during the first quarter of 1973. The General Account received small amounts of SDRs in repayment of drawings and payment of charges relating to the use of the Fund’s resources. The General Account’s holdings of SDRs at the end of March 1973 were SDR 589.9 million.
At the end of March, stand-by arrangements for nine developing countries in the Western Hemisphere and five in Asia were in effect. Of the total amount of SDR 371.85 million, the undrawn portion was SDR 206.55 million.
During the first quarter of 1973, the Fund approved three stand-by arrangements for a total amount equivalent to SDR 60.80 (see Table 2).
The SDR 27.3 million stand-by arrangement for Bolivia, the twelfth for that country, is in support of a program designed to restore balance of payments equilibrium and to assist in attaining more rapid and sustained economic growth.
Burma’s stand-by arrangement of SDR 13.5 million provides support for policies whose basic objective is to improve the payments situation by increasing exports through higher production and diversification of agricultural export crops. Burma has had one previous stand-by arrangement with the Fund.
The Korean stand-by arrangement of SDR 20 million, the ninth since March 1965, is in aid of a stabilization program whose aims include the revival of economic activity through heavy investment expenditure and continued high exports.
NOW AVAILABLE in French SURVEYS OF AFRICAN ECONOMIES
Zaïre, Malagasy Republic, Malawi, Mauritius, and Zambia.
With this volume, the International Monetary Fund continues its series of surveys of the economies of the countries of Africa. Three countries on the continent and two island groups are covered in Volume 4: Zaïre, Zambia, and Malawi, and the Malagasy Republic (Madagascar) and Mauritius.
For the most part the text and tables cover the period 1965-69. Earlier data are given where they are pertinent, however, and the year 1970 has been included where information was available. The data are drawn from published sources and from material gathered by the Fund in its consultations with the member countries concerned. A map for each country, and an index, complete the volume, xxvi + 477 pages.
Previous French editions in this series:
|Volume 1:||Cameroon, Central African Republic, Chad, Congo (Brazzaville), and Gabon. 1968.|
|Volume 2:||Kenya, Tanzania, Uganda, and Somalia. 1969.|
|Volume 3:||Dahomey, Ivory Coast, Mauritania, Niger, Senegal, Togo, and Upper Volta. 1970.|
Volumes are priced at US$5.00 each (US$2.50 to libraries, faculty members, and students of universities). Payment will also be accepted in currencies other than the US dollar.
INTERNATIONAL MONETARY FUND
Washington, D. C. 20431, U.S.A.