Serious world economic problems demand positive approach toward inflation, growth, and energy
The Fund’s Managing Director, Mr. Jacques de Larosière, told the Economic and Social Council of the United Nations in Geneva on July 6 that the present world economic situation was a serious challenge for the authorities of the developed as well as the developing countries, and for the international institutions concerned. Failure to meet this challenge, he said, would mean lower growth rates and therefore higher unemployment for developed and developing countries alike for many years to come.
In his address, Mr. de Larosière reviewed the economic performance of industrial and nonindustrial countries in recent years, focusing especially on the problems of the poorest countries, and sketched what he considered to be the main elements of a positive approach to the problems of inflation, slow growth, and the energy crisis.
“The persistence of inflationary pressures and of deeply imbedded inflationary expectations,” Mr. de Larosière noted, “remains the most worrisome aspect of the economic situation in industrial countries. After increasing from around 3 per cent in the mid-1960s to about 6 per cent in the early 1970s and to more than 11 per cent in 1974-75, the rate of inflation in industrial countries, as measured by GNP deflators, fell but still remained at the high level of 7 per cent during 1976–78.” Mr. de Larosière went on to say that these inflationary pressures had started to increase once more—with consumer prices in industrial countries threatening to go up by more than 10 per cent in the course of 1979, after a 7 per cent increase in 1978. These persistent inflationary pressures, he said, had often been accompanied by sluggish economic growth. That this sluggishness had not prevented the continuation of serious inflation, the Managing Director pointed out, was a matter of considerable concern.
Lower growth in industrial countries combined with higher energy prices had had serious repercussions on the economies of the non-oil developing countries, whose total external debt had expanded sharply in recent years, Mr. de Larosière told his audience. The rate of growth of their volume of exports had decelerated markedly in recent years, he said, while their terms of trade were 10 per cent lower in 1978 than in 1972—and these were expected to deteriorate further in 1979, largely because of increased oil prices.
Mr. de Larosière then outlined the broad policies needed to deal with inflationary pressures and the energy crisis. A policy of gradual, but “not too gradual,” decreases in the rate of growth of monetary aggregates was a prime requirement in the fight against inflation, he said, adding that, to ensure the maximum impact of this policy on inflationary expectations, this policy stance must be firm and unequivocal in countries experiencing high price increases.
Since monetary restraint, by itself, may lead to a high adjustment cost in terms of unemployment, Mr. de Larosière suggested the adoption of additional measures, which might include various forms of incomes policies and also measures aimed at reinforcing the play of competitive forces in goods and labor markets.
Mr. de Larosière then urged that high priority be given to the implementation of effective energy policies by all countries. These, he said, must adopt realistic prices for energy to encourage conservation and the development of additional sources of supply.
Aldo W. Zanzi
The full text of the Managing Director’s speech was published in the IMF Survey of July 9, 1979.
(In millions of SDRs)
|January 1-June 30|
|Buffer stock purchases||—||—||36.1||—||12.8|
|Oil facility purchases||2,143.4||—||—||—||—|
|Repayment of loans|
|In connection with|
|Replenishment up to|
|May 31, 1978||(136.5)||(211.1)||(91.9)||(91.9)||(—)|
Includes Swiss National Bank.
Includes Swiss National Bank.
Latest GFS Yearbook shows significant new trends in government finances
The third Government Finance Statistics Yearbook was published by the Fund in August 1979 with expanded coverage and new world tables revealing several significant trends in government finances. The 400-page Yearbook gives detailed data for 112 countries, 15 more than last year. It includes five-year detailed time series up to 1977 or 1978 for most countries, showing central government revenue, grants, expenditure, lending, financing, and debt, with the amounts for social security funds and extra-budgetary accounts identified separately. The Yearbook also includes institutional descriptions of government for 118 countries and for most countries complete lists of central government taxes and the revenue they yield. Summary data are presented for state or local governments for some 55 countries. The purpose of the Yearbook is to provide sound and comparable statistics on the finances of member country governments as a basis for policy and analysis by national, international, and private institutions.
The new series of world tables facilitates comparison between countries and the discernment of trends, and presents significant time series as a percentage of total revenue, total expenditure, or total expenditure and lending minus repayments. On the basis of these world table time series, a number of significant developments between 1972 and 1977 are revealed. The data show an increasing share of total revenues coming from income taxes and social security taxes in developed countries, a general decline in the importance of domestic sales taxes and a rather level trend in the share of taxes on international trade and transactions. Among expenditures, a substantial, and widespread decline in the average proportion used for defense is evident—from an average of 17.8 per cent of total expenditure in 1973 to 14.7 per cent in 1977. This is accompanied by a rise in the average share of expenditures on social security and welfare and health in developed countries. The average share of current government purchases and wage payments in total outlays declines in both developed and developing countries over the period, from 34 to 29 per cent in developed countries and from 40 to 37 per cent in developing countries. This decline is offset by the rising importance of subsidies and other current transfers in developed countries (55 per cent in 1977, compared with 50 per cent in 1972) and by the increased importance of capital expenditures in some developing countries, notably in Africa.
The Yearbook gives a comparison of central governments’ domestic and foreign debts (including direct but not guaranteed debt), measured as a percentage of one year’s total expenditure and lending minus repayments. While wide variations between countries are evident, the foreign debts of central governments averaged about 15 per cent of one year’s total outlays in developed countries and 55 per cent in developing countries, with no pervasive upward or downward trend over the period. The domestic debt of central governments, on the other hand, averaged about 105 per cent of one year’s outlays in both developed and developing countries (although only 15 per cent in oil exporting countries) with the ratio declining in some countries up to 1975 or 1976 and turning upward again thereafter.
Country data are supplied by correspondents in each government or central bank. Preparation of the Yearbook is the direct responsibility of the Government Finance Statistics Division of the IMF Bureau of Statistics.
The Government Finance Statistics Yearbook may be ordered, at $10.00 a copy ($4.00 to university libraries, faculty members, and students), from The Secretary, International Monetary Fund, Washington, D.C. 20431, U.S.A. A monthly tape subscription in machine-readable form, updated and revised monthly, is also available.
The fourteenth volume of the Direction of Trade Yearbook, formerly called the Direction of Trade Annual, has also been published recently. This publication presents detailed data on the exports and imports of 151 countries for 1972 through 1978, as well as area and world aggregates showing the pattern of trade among major areas of the world. A subscription for 12 monthly issues of Direction of Trade and the Direction of Trade Yearbook is $16.00 ($6.00 for university libraries, faculty, and students). Single copies of the Yearbook may be purchased at $4.50.
Compensatory financing facility liberalized further
The International Monetary Fund has reviewed its policies under the compensatory financing facility and has decided to change its provisions to provide greater access to members—particularly the primary exporting countries—encountering balance of payments difficulties arising from temporary export shortfalls.
The compensatory financing facility was established in 1963 and, in the light of experience, was liberalized in 1966 and 1975. Under the present further liberalization of the facility, the Fund will be prepared to authorize drawings of up to 100 per cent of a member’s quota, provided that requests for drawings which would increase the drawings outstanding under the decision beyond 50 per cent of the member’s quota will be met only if the Fund is satisfied that the member has been cooperating with the Fund in an effort to find appropriate solutions for its balance of payments difficulties.
In a change from the 1975 decision, the new decision also stipulates that in the calculation of shortfalls, a member’s receipts from travel (primarily tourism) and workers’ remittances will be included at the option of the member if, in the opinion of the Fund, adequate data are available. When the option has been exercised by the member, such receipts will continue to be included or excluded for a period of five years.
The existence and amount of an export shortfall for the purpose of any drawing under the decision will be determined for the latest 12-month period preceding the drawing request for which the Fund has sufficient statistical data. However, in order to improve the timeliness of assistance, a member may request a drawing for a shortfall year for which data on travel receipts and workers’ remittances are estimated for up to the entire shortfall year. As under the 1975 decision, earnings from merchandise exports may be estimated for a period of up to six months. The new decision also provides that the trend value of export earnings from merchandise and services shall be calculated as a geometric average, rather than as an arithmetic average as under the 1975 decision.
So far, 145 purchases, totaling the equivalent of SDR 4.7 billion, have been made under the compensatory financing facility, of which 88 purchases, totaling the equivalent of SDR 3.4 billion, have been made since the facility was liberalized at the end of 1975.