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Finance & Development, March 1978
Article

Fund activity: Transactions and operations in 1977, status of the ratification of the second amendment; gold sales, “restitution” to members, and the Trust Fund; new members; selected data on Fund holdings and commitments

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1978
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1977 in retrospect: eventful year for Fund

Drawings on the International Monetary Fund’s resources during 1977 totaled more than SDR 3.4 billion. These were accompanied by a record volume of repurchases which reduced the total net drawings for the year to SDR 427 million. At the end of 1977 total net drawings on the Fund since its inception were equivalent to about SDR 15.5 billion.

Of that amount, approximately SDR 6.4 billion reflects net drawings in respect of the use of the Fund’s oil facility between its establishment in June 1974 and the last purchases made under the facility in the first half of May 1976. Under the oil facility, the Fund borrowed the equivalent of SDR 6.9 billion for balance of payments assistance to members in meeting the impact of the increased cost of their oil imports. Members’ drawings under that facility are subject to repayment in 16 equal quarterly installments to be completed not later than seven years after the drawings. Such repayments had already begun by December 1977.

The Fund’s member states made credit tranche drawings of SDR 2,895.3 million in 1977, accounting for the major portion of the SDR 3,424.6 million total purchases from the Fund last year. This was less than half—about 49 per cent—of members’ total purchases of SDR 7,009.9 million in 1976.

The 1977 purchases raised the cumulative total since 1947 to SDR 44.6 billion (or to SDR 37.7 billion net of the oil facility). However, repurchases by members in 1977 amounted to an unprecedented SDR 2,936.5 million, compared with SDR 1,266.0 million in 1976. Thus, net drawings on December 31, 1977 were SDR 15,450.30 million (or SDR 9,026.5 million net of the oil facility), only slightly more than the SDR 15,023.7 million of net drawings as of December 31, 1976.

Nevertheless, the large-scale use of the credit tranches in 1977 raised the amount of total credit tranche purchases outstanding at the end of 1977 to a new high of SDR 4,414.27 million, compared with SDR 3,405.24 million in 1976, SDR 2,213.75 million in 1975 and SDR 1,726.75 million in 1974. Thus, during 1974-77, members’ outstanding credit tranche purchases from the Fund increased by some 156 per cent.

Industrial countries accounted for the preponderant share of members’ 1977 purchases, while purchases by the developing countries dropped sharply, from SDR 2,749.0 million in 1976 to an estimated SDR 0.7 billion in 1977. In 1976 the purchases of the industrial countries and of the developing countries had been roughly equal at SDR 2,478.3 million and SDR 2,749.0 million, respectively. Members’ purchases under the compensatory financing facility in 1977 fell to SDR 240.5 million from their 1976 peak of SDR 2,308.1 million. The facility has been in use since 1963 but the magnitude of 1976 drawings was unprecedented, being approximately equal to twice the sum of all amounts drawn in the first 13 years of the facility and exceeding the amounts drawn in the same year (1976) under the expanded credit tranches. The main factors in the exceptional rise were the world recession and the liberalization of access to the facility in December 1975. The Fund’s Executive Directors will again review the use of the facility by March 31, 1979, or earlier if drawings under it exceed SDR 1.5 billion in any twelve-month period, or if drawings outstanding under it exceed SDR 4.0 billion, or if experience and developing circumstances make it desirable.

The past year also saw agreement on the terms of the Fund’s supplementary financing facility which is intended to provide financial assistance to those members whose payments imbalances are large in relation to their economies and to their quotas in the Fund. Thirteen institutions in member countries and the Swiss National Bank have expressed their willingness to lend a total of SDR 8.71 billion to the Fund to finance purchases under that facility. The facility will become operative when agreements have been concluded for a total amount of not less than SDR 7.75 billion, including at least six agreements each of which provides for an amount of not less than SDR 500 million. This facility is temporary and is expected to become effective in 1978.

The Executive Directors defined the terms and conditions under which resources would be made available to the Fund’s members under the supplementary financing facility in conjunction with the use of the other “ordinary” resources of the Fund. Members will have access to the facility either under stand-by arrangements or under an extended arrangement.

Ratification of second amendment in progress

A comprehensive second amendment to the Fund’s Articles of Agreement, and a proposal for increases in the quotas of members that will raise the total of quotas from SDR 29.2 billion to SDR 39.0 billion were submitted to members during 1977. The first requires acceptance by three fifths (80) of the members having four fifths of the total voting power in the Fund. By January 25, 1978 the Fund had received acceptances of the proposed amendment from 72 members having 68.04 per cent of the total voting power. The increase in quotas will go into effect when members representing three fourths of total Fund quotas as of February 19, 1976 will have communicated their consent to the Fund and the second amendment has gone into effect. By January 25, 1978, 63 members representing 62.92 per cent of total quotas in the Fund had notified the Fund of their consent to the increases in their quotas under the sixth general review of quotas.

The pending second amendment of the Fund’s Articles of Agreement (the first amendment related to the introduction of special drawing rights in the Fund) allows members greater flexibility in their choices of exchange rate arrangements, subject at all times to certain general obligations and to firm surveillance by the Fund. On April 29, 1977 the Fund’s Executive Directors reached agreement on the principles and procedures for the guidance of members’ exchange rate policies and for their surveillance by the Fund after the second amendment becomes effective.

(See “The second amendment of the Fund’s Articles of Agreement: a general view, I” by Joseph Gold on page 10.)

Summary of Fund transactions January 1 to December 31, 1977

(In millions of SDRs)

Data IMF Treasurer”s Department

Gold sales continue to add to Trust Fund; “restitution” to members under way

The Fund continued its gold sales program during 1977. The four-year sales program was adopted by the Executive Directors in May 1976, and provides for the sale of one sixth (25 million fine ounces) of the Fund’s gold holdings for the benefit of developing countries and for the sale of another one sixth to members at SDR 35 per fine ounce. In February 1977 the Fund announced its first Trust Fund disbursements to 12 of 61 eligible member countries. In July 1977 the second Trust Fund disbursements were made to 24 of the eligible members. The total of these disbursements was equivalent to SDR 152.2 million. The Trust was established on May 5, 1976 to provide additional balance of payments assistance to developing member countries from the profits on the sale of part of the Fund’s gold.

Fund holdings of gold and SDRs, and commitments as at December 31, 1977(In millions of SDRs)
Holdings of the General Account
Gold4,605.0
Special drawing rights1,182.1

Includes augmentation by repurchase equivalent to SDR 4 million.

Includes augmentation by repurchase equivalent to SDR 610 million.

Third phase of a three-year arrangement totaling SDR 67.2 million.

First phase of a three-year arrangement totaling SDR 518 million. Second phase effective January 1, 1978 through December 31, 1978 totaling SDR 400 million.

Second phase of a three-year arrangement totaling SDR 217 million Third phase affective January 1, 1978 through December 31, 1978 totaling SDR 57 million.

Includes augmentation by repurchase equivalent to SDR 387 million

Stand-by arrangementsAmount

agreed
Amount

purchased
Undrawn

balance
Argentina159.50159.50
Burma35.0025.0010.00
Egypt125.00105.0020.00
Gambia, The2.532.53
Haiti6.906.90
Italy450.0090.00360.00
Jamaica64.0019.2044.80
Madagascar9.439.43
Mauritania4.714.71
Pakistan80.0040.0040.00
Panama11.2511.25
Peru90.0010.0080.00
Portugal42.4046.401
Romania64.1325.0039.13
Sierra Leone9.027.002.02
Sri Lanka93.0055.0038.00
United Kingdom3,360.002,250.0021,720.00
Uruguay25.0025.00
Western Samoa0.590.59
Zaïre45.005.0040.00
Subtotal4,677.452,691.742,599.71
Extended arrangements
Kenya367.207.7059.50
Mexico4200.00100.00100.00
Philippines5160.00198.756
Total5,104.652,998.192,759.21

Includes augmentation by repurchase equivalent to SDR 4 million.

Includes augmentation by repurchase equivalent to SDR 610 million.

Third phase of a three-year arrangement totaling SDR 67.2 million.

First phase of a three-year arrangement totaling SDR 518 million. Second phase effective January 1, 1978 through December 31, 1978 totaling SDR 400 million.

Second phase of a three-year arrangement totaling SDR 217 million Third phase affective January 1, 1978 through December 31, 1978 totaling SDR 57 million.

Includes augmentation by repurchase equivalent to SDR 387 million

Includes augmentation by repurchase equivalent to SDR 4 million.

Includes augmentation by repurchase equivalent to SDR 610 million.

Third phase of a three-year arrangement totaling SDR 67.2 million.

First phase of a three-year arrangement totaling SDR 518 million. Second phase effective January 1, 1978 through December 31, 1978 totaling SDR 400 million.

Second phase of a three-year arrangement totaling SDR 217 million Third phase affective January 1, 1978 through December 31, 1978 totaling SDR 57 million.

Includes augmentation by repurchase equivalent to SDR 387 million

During 1977, the Fund sold 6,027,600 ounces of fine gold at public auction, raising the total sold by the end of 1977 to 9,926,800 fine ounces. With the auction held on January 4, 1978, the total gold sold at public auctions by the Fund amounted to 10,451,600 ounces. Of the total Fund gold to be sold during the four-year period that began in June 1976,25 million ounces are to be sold at public auction for the benefit of developing countries and another 25 million ounces are to be sold at the official price of SDR 35 per fine ounce to countries that were members on August 31, 1975, in proportion to their quotas in the Fund.

The total proceeds of the public gold auctions amounted to $1,030.0 million at the conclusion of the Fund’s seventeenth auction on January 4, 1978. The proceeds from the auctions held during 1977 amounted to $644 million, an additional $320 million having accrued from the auctions held in 1976. The lowest average price at which gold was awarded to successful bidders in 1977 was $133.26 and the highest was $161.86 per fine ounce. In the January 4, 1978 auction, awards to successful bidders were made at $171.26 an ounce.

In 1977 the Fund also carried out its gold sales to members at SDR 35 per ounce under the Fund’s “restitution” program. Most of the operations in connection with the first phase of the program were carried out in the period between January 10 and February 23, 1977. The amount of gold sold to 112 members was 5,998,431 fine ounces. At the price of SDR 35 per fine ounce, this amount was valued at SDR 209.95 million. During the second phase of these operations, which started in December 1977, 5,976,703 fine ounces of gold, equivalent to SDR 209.185 million, were sold to 112 members.

New members

The number of Fund members increased to 132 during 1977 with the accession of Guinea-Bissau, Seychelles, and São Tomé and Principe. The Republic of Maldives became the 133rd member on January 13, 1978.

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