Moving toward monetary reform
The problems of international monetary reform and the world economic situation are certain to be a major concern at the 1975 Annual Meetings of the International Monetary Fund and the World Bank, which will be held at the Sheraton-Park Hotel in Washington on September 1-5. The Chairmen of the meetings will be Gumersindo Rodriguez, Minister of Planning of Venezuela and Governor of the World Bank, and Alfredo Lafee, President of the Central Bank of Venezuela and Governor of the Fund.
In recent months the same problems have come under intensive study in the ministerial-level Interim Committee of the Board of Governors on the International Monetary System, first convened in Washington in January 1975 and which met in Paris on June 10-11, 1975. Although the Interim Committee failed to reach complete agreement on all subjects under review at the Paris meeting, it was able to report that widespread agreement had been reached on a number of important topics, including those related to the role of gold, floating exchange rates, and Fund quotas. The Joint Bank-Fund Development Committee, which had also met in January, held its next meeting in Paris on June 12 and 13. At this meeting the Development Committee re-emphasized the urgency of improving the flow of official development assistance to developing countries and endorsed the establishment of a new intermediate lending facility in the World Bank known as the Third Window.
Following the Interim Committee meeting. Chairman John Turner, the Canadian Finance Minister, told a press conference, “The third meeting of the Interim Committee of the Fund was held primarily to deal with some very complex technical matters. Although they are important matters for the evolution of the monetary system, and thereby for the improvement of the world trading system, and of the standard of living of millions of people around the world, it’s of utmost importance that these matters be settled in a manner which will attract general support from the members of the Fund.” He observed later that, although further negotiations would be necessary, “I think that the results of the meeting have to be seen in the context of the tremendous distance that we have come since these matters were first discussed last January” at the last Interim Committee meeting.
In its communiqué the Interim Committee reported that it had received opinions, including those of the Fund’s Managing Director, H. Johannes Witteveen, on the world economic outlook. It agreed that “external financing would remain for some time a critical problem for a number of countries and that its solution would require both maximum efforts on the part of such countries to enhance their creditworthiness and cooperative efforts in capital exporting countries to encourage the needed flows of financial resources.”
On the subject of the future role of gold, there was widespread agreement that a solution would have to be based on broad principles which, inter alia, should include the enhancement of the special drawing right (SDRI as the central asset in the international monetary system; the abolition of the official price of gold; the abrogation of obligations to use gold in payments between the Fund and member countries; and the sale of a portion of the Fund’s gold at the approximate market price for the benefit of developing member countries, and the sale of another portion to members at the present official price. The communiqué called on the Fund’s Executive Directors to continue their study of gold and also to study the establishment of a gold substitution account through which members would be able to exchange part or all of their gold holdings for SDRs.
Mr. Turner commented that following the Committee’s “thorough, detailed discussion of the role of gold” there was a need for “still further work to be done at both a technical and political level to bring about agreement on the gold question, particularly on the question of transactions between governments and central banks.”
The Committee also discussed the exchange arrangements that member countries should observe. Mr. Turner reported, “a widespread feeling that members should have a basic obligation to collaborate with the Fund and other members to promote exchange stability and maintain orderly exchange arrangements and to pursue exchange policies that contribute to adjustments.”
Some of the operational aspects of the Fund’s Articles of Agreement, including proposed amendments to the Articles were reviewed by the Committee. It was agreed that at some stage it would be appropriate to replace the Interim Committee with a permanent Council of Governors with decision-making powers. However, Mr. Turner said, ‘There was a feeling, on the part of some ministers, that more experience would have to be built up with the Interim Committee in order to gain a better understanding of the functioning of the Committee before it became a permanent Council.”
On other matters, the Committee endorsed the principle of the improvement of the Special Drawing Account and the General Account in the Fund; agreed to changes in the majorities that should be required under the amended Articles for certain decisions; and requested the Executive Directors to consider appropriate modifications of the facilities on compensatory financing of export fluctuations and on assistance to members in connection with their contributions to international buffer stocks.
There was a thorough discussion of the proposed increase in Fund quotas, which the Committee had agreed at its January meetings should be increased overall to SDR 39 billion, together with a doubling of the quotas of the major oil exporting member countries. The Committee noted that progress had been made in reaching agreement on quota increases for individual countries and agreed that, subject to amendment of the Articles, members should be given the option of paying 25 per cent of the quota increase (which in the past had been paid in gold) in SDRs, the currencies of certain other members, or in the member’s own currency.
The next meeting of the Interim Committee was scheduled to be held in Washington on August 31, 1975, the day before the opening of the Annual Meetings of the Fund and the World Bank. The Committee also agreed to meet in Jamaica in January 1976.
Development Committee discusses assistance
In its discussions the Development Committee, which met under the Chairmanship of Henri Konan Bédié, Minister of Economy and Finance of Ivory Coast, reviewed the present world economic situation and the medium-term and long-term prospects of developing countries in the context of analyses prepared by the Fund and the World Bank. In its communiqué it noted the conclusions of the Fund study that the balance of payments needs of the most seriously affected countries would continue to be large this year and next year, and recommended urgent steps to meet these needs through existing and new mechanisms. It agreed that there should be an expansion of the lending programs of the World Bank and regional development banks and, as a first concrete step, it decided to lend its support to the establishment for one year of a new intermediate lending facility in the World Bank (known as the Third Window). It noted with satisfaction that 11 countries had offered contributions toward an interest subsidy fund from among industrial and oil exporting countries.
The Committee also agreed to urge the Executive Directors of the Fund to consider all aspects of the establishment of a special Trust Fund to be administered by the Fund “to provide additional highly concessional resources to meet the balance of payments needs of low-income developing countries for the next few years.” Among other actions, the Committee established a Working Group to make a review of regulatory and other constraints affecting access to capital markets, and also to study further proposals to support developing countries’ access to private markets, including those of multilateral guarantees. This Working Group will present a status report on progress at the next Committee meeting, which is to be held during the Annual Meetings of the Fund and the World Bank. A subsequent meeting will be held in January 1976 in Jamaica in conjunction with the Interim Committee meeting.
Oil Facility for 1975
The Fund announced on June 10 that it had reached understandings with 11 lenders in connection with the financing of the oil facility for 1975. Accordingly, the Fund is able to borrow, in the period ending March 31, 1976, resources from these lenders to finance drawings under the oil facility to assist member countries with balance of payments needs in meeting the higher import costs of petroleum and petroleum products. The lenders are the Saudi Arabian Monetary Agency (which committed the equivalent of SDR 1,000 million), the Central Bank of Iran (SDR 410 million), the Deutsche Bundesbank (SDR 300 million), the Central Bank of Kuwait, the Kingdom of the Netherlands, the Government of Nigeria, and the Central Bank of Venezuela (SDR 200 million each), the Swiss National Bank (SDR 150 million), the National Bank of Belgium (SDR 100 million), and the Austrian National Bank and the Bank of Norway (SDR 50 million each), joined later by the Government of Trinidad and Tobago (SDR 10 million).
|Currency||(SDR millions)||of quota|
|South African rand||234.8||73.4|
Mr. Witteveen announced at the press conference following the Interim Committee meeting that “together with contributions that we can expect in the course of the summer… we would now have available an amount of almost SDR 4 billion for financing of the facility in this year.” He said that this was short of the SDR 5 billion which the Interim Committee had set at its January meeting as the maximum target for the facility in 1975; however, work would continue on further financing possibilities for the oil facility. He added that a number of members were of the opinion that next year there was bound to be the need for either a continuation of the oil facility or some other form of enlarged financial assistance from the Fund in financing balance of payments deficits and that this would be discussed by the Executive Board.
Mr. Witteveen said that the meeting had been useful in obtaining more support for the proposed interest subsidy account, which would reduce the interest burden of payments under the oil facility for the most seriously affected member countries.
Purchases under the oil facility in the second quarter of 1975 amounted to the equivalent of SDR 191.1 million.
In the second quarter of 1975 member countries purchased the equivalent of SDR 387.6 million under the regular facilities of the General Account, with repurchases amounting to the equivalent of SDR 245.8 million. Fund holdings of selected currencies as of June 30, 1975 are shown in Table 1.
Special Drawing Account
Transactions between participants during the second quarter of 1975 include a total of SDR 40.4 million transferred in transactions by agreement between the participants concerned. The users of SDRs in these transactions were Germany and Denmark and the transfers were made in connection with settlements of obligations arising from exchange market interventions. The recipients of SDRs in these transactions were Belgium for SDR 15.2 million and the Netherlands for SDR 25.2 million.
In other transactions between participants, Argentina, Chile, and the Sudan used a total of SDR 92.5 million to acquire currency through the designation procedures. The major recipients of the SDRs transferred in these transactions were France (SDR 23.5 million), the United Kingdom (SDR 23.5 million), and the United States (SDR 30.0 million).
Ian S. McDonald
Augmentation through repurchase
Augmentation through repurchase