Chapter 6 World Trade, Payments, and Reserves
Author:
International Monetary Fund
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Language:
English
Print Publication Date:
01 Sep 1965
Keywords:
AR; AREA; sc; EEC country; current account; U.K. market; export unit value; U.K. trade; Gold reserves; Trade balance; Manufacturing; Western Europe; Europe; Africa
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Abstract

THE exceptionally high rate of expansion in almost all the industrial countries during 1963 and the continued prosperity in most of them in 1964 were associated with a rapid growth in world trade. The value of world exports, excluding those of Soviet countries and Mainland China, rose by no less than 12 per cent from 1963 to 1964, following an increase of 8½ per cent from 1962 to 1963 and one of nearly 5½ per cent from 1961 to 1962. The accelerated rate of growth from 1963 to 1964 was due in part to a faster rise in export prices (Table 12). These prices were higher than in 1963 in all the manufacturing countries except Japan, and in most primary producing countries, other than those exporting petroleum. The volume of world trade was about 10 per cent greater in 1964 than in 1963, compared with an increase of about 7½ per cent from 1962 to 1963.

World Trade

THE exceptionally high rate of expansion in almost all the industrial countries during 1963 and the continued prosperity in most of them in 1964 were associated with a rapid growth in world trade. The value of world exports, excluding those of Soviet countries and Mainland China, rose by no less than 12 per cent from 1963 to 1964, following an increase of 8½ per cent from 1962 to 1963 and one of nearly 5½ per cent from 1961 to 1962. The accelerated rate of growth from 1963 to 1964 was due in part to a faster rise in export prices (Table 12). These prices were higher than in 1963 in all the manufacturing countries except Japan, and in most primary producing countries, other than those exporting petroleum. The volume of world trade was about 10 per cent greater in 1964 than in 1963, compared with an increase of about 7½ per cent from 1962 to 1963.

Changes in Trade, 1963-64

The value of trade between manufacturing countries increased by about 13½ per cent, which was again somewhat greater than the rise in world trade generally, or in the total exports or imports of the manufacturing countries to or from all sources. However, manufacturing countries’ exports to primary producing countries in Europe and the higher income primary producing countries outside Europe (Group I in Tables 13 and 14) increased by an even greater percentage, as did the exports of both this group of primary producing countries and the manufacturing countries to the Sino-Soviet Area. The latter increase was in part attributable to very large rises in agricultural exports to the Soviet Union from the United States, Canada, and Australia, and a sharp increase in Japan’s exports of manufactures to Mainland China. The value of trade between the manufacturing countries and the less developed countries (Group II) rose less than world trade in general, expanding by some 9 per cent in each direction.

Table 12.

Export Unit Values, 1961–64

(1960 = 100)

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Source:International Monetary Fund, International Financial Statistics; United Nations, Monthly Bulletin of Statistics, April 1965.

Belgium-Luxembourg, France, Federal Republic of Germany, Italy, Netherlands.

Austria, Denmark, Norway, Sweden, Switzerland, United Kingdom.

Table 13.

Direction of World Trade 1963 and 1964

(In billions of U.S. dollars)

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Sources:International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade; International Monetary Fund, International Financial Statistics, and staff estimates.

Australia, Canada, New Zealand, South Africa, and primary producing countries in Europe.

All other primary producing countries.

Including Cuba.

Military exports from United States are excluded.

Preliminary estimates.

The very slight growth of U.K. trade was in striking contrast to this general expansion. The value of U.K. imports (which account for more than one sixth of all manufacturing countries’ imports from the less developed countries) increased by only about 1½ per cent, and U.K. exports to the group showed no increase at all. U.S. imports from them also rose comparatively little (by about 5½ per cent, compared with an increase of over 11½ per cent in imports of EEC countries), but U.S. exports to the group rose faster than the average. Japan’s trade in each direction rose in value by nearly 16 per cent.

By contrast, the United Kingdom’s imports from manufacturing countries rose much more than the average. Table 15 (which details the corresponding export flows) shows that U.K. purchases from manufacturing countries rose by about 19½ per cent, while those of other EFTA countries, the EEC as a group, the United States, and Japan each rose by about 12½-13½ per cent. Japan, Italy, Norway, the United States, and the Federal Republic of Germany all increased their exports to the United Kingdom by 20-25 per cent or more.

Table 14.

Growth in Value of Trade Between Major Areas, 1961–64

(Percentage increase over preceding year)

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Sources:See Table 13.

Australia, Canada, New Zealand, South Africa, and primary producing countries in Europe.

All other primary producing countries.

Including Cuba.

Military exports from United States are excluded.

Excluding large changes in Cuba’s trade over this period.

Preliminary estimates.

The United Kingdom’s exports to manufacturing countries rose by only 5 per cent—i.e., little over one third as fast as those of the other manufacturing countries. U.K. exports to other EFTA countries rose no faster than those of EEC countries, and slightly less than those of the United States; its exports to the United States rose less than half as fast as those of other manufacturing countries, and there was scarcely any increase in the value of its exports to the EEC countries. U.S. exports (excluding special categories) to these countries, however, rose almost as fast as their exports to each other.

Trade in Manufactures

Much of the deterioration in the United Kingdom’s trading position seems to have been associated with the exceptionally high level of domestic investment during 1964. Pressure on the capacity of the engineering sector was apparently one reason why imports of machinery and transport equipment rose by more than one third in value from 1963 to 1964, while exports of these goods showed practically no change (Table 16). There were, however, some more specific reasons for the slow growth of such exports, namely, fewer deliveries of ships, aircraft, and aircraft engines, sales of which frequently vary sharply from one year to another, a fall in exports to the U.S.S.R., and the weakness of the Italian automobile market. The value of U.K. exports of other manufactures rose by some 10 per cent, compared with a 13 per cent increase in the value of all imports other than machinery and transport equipment. There was, however, virtually no increase in the value of U.K. exports of foodstuffs, materials, and fuels, owing to a marked decline in exports of mineral fuels.

The striking difference between the two broad classes of manufactures is also evident in the comparison between the growth of U.K. exports and imports and of those of other countries in trade with particular areas presented in Table 17. Table 18 indicates the relative importance of the two groups of manufactures in the imports and exports of the United Kingdom, other EFTA countries, EEC countries, the United States, and Japan.

Table 15.

Trade Between Manufacturing Countries, 1963 and 1964

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Source:International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade.

Because of rounding, the figures shown may not add to totals.

Excluding military exports. Figures in last column include estimate of U.S. special category exports, which cannot be allocated between the areas shown in the table.

Calculated from unrounded figures.

Table 16.

United Kingdom: Value and Growth of Trade in Three Major Categories, 1964

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Source:United Kingdom Report on Overseas Trade, February 1965

Standard International Trade Classification (SITC) Group 7.

SITC Groups 5,6, and 8.

SITC Groups 1-4 and 9

Table 17 (which relates to the first nine months of each year) shows the United Kingdom’s exports of manufactures other than machinery and vehicles to the rest of Western Europe did almost as well as those of the United States and of other EFTA countries; exports from the EEC countries rose one-third faster. U.K. exports of these goods to the United States and Canada also increased almost as fast as those of the EEC countries. But British exports of machinery and transport equipment to Western Europe showed only a slight increase, compared with increases of 9 per cent in exports both from the United States and from the other EFTA countries, and of 15 per cent in exports from EEC countries; U.K. exports of such manufactures to the United States and Canada rose only half as fast as those of the EEC countries. As a consequence, the United Kingdom’s share in the imports of machinery and vehicles into both the EEC countries and the United States dropped sharply between the two periods, whereas its share in their imports of other manufactures was much more nearly maintained. Table 17 also illustrates the relatively favorable development of U.K. trade with the EFTA countries. The United Kingdom’s share in their imports of manufactures other than machinery and vehicles actually increased slightly, and there was only a slight reduction in its share of their imports of machinery and vehicles.

Table 17.

Growth of Manufacturing Countries’Trade in Machinery And Transport Equipment and Other Manufactures, by Areas1

(Percentage increases from Jan.-Sept. 1963 to Jan.-Sept. 1964)

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Source:United Nations, Economic Survey for Europe, 1964; Statistical Office of the EEC, Monthly Foreign Trade Statistics; U.S. Department of Commerce, U.S. Overseas Business Reports and United States Trade with Major World Areas, January-September 1964 (December 1964); United Nations, Commodity Trade Statistics; and Japanese Ministry of Finance, Customs Statistics.

Commodity groupings as in Table 16.

Change in exports, excluding special categories.

Including Finland.

Percentage changes partly estimated.

Trade with Canada only.

Australia and New Zealand.

Also includes South Africa.

Excluding trade with Eastern Europe, which declined by one third

Table 17 also throws some interesting light on the comparative development of exports of manufactures from the United States and the EEC countries. It shows that, owing to a greater rise in the value of its exports of machinery and transport equipment, U.S. exports of manufactures rose proportionately somewhat more that those of the EEC countries between January-September 1963 and January-September 1964. This was due, however, in large measure to an increase of nearly 50 per cent in U.S. exports of manufactures to the United Kingdom, and to an even greater percentage increase in its exports of machinery and vehicles to Australia and New Zealand. U.S. exports of both groups of manufactures to the less developed countries also rose faster than the comparatively small exports of EEC countries to this area, while U.S. exports to continental Western Europe as a whole rose considerably less than those of EEC countries. However, EEC countries’ imports of manufactures from the United States rose at about the same rate as their imports from each other (see Table 19).

Table 18.

Value of Manufacturing Countries’ Trade in Machinery and Transport Equipment, Other Manufactures, and All Other Goods, January–September 19641

(In millions of U.S. dollars)

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Sources: See Table 17.

Commodity groupings as in Table 16.

Imports f.o.b. Export figures exclude special categories.

Including Finland.

Table 19.

EEC Countries: Imports of Manufactures from Each Other and United States, January–September 1964

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Source:Statistical Office of the EEC, Monthly Foreign Trade Statistics, 1964, No. 1, and 1965, No. 2.

The faster than average expansion in the manufactured exports of the United States and Japan and the slower growth in U.K. exports, illustrated in Table 17, were strongly influenced by demand conditions in the home and export markets and by other nonprice factors. Nevertheless, the changes in the unit value indices for manufactured exports shown in Table 20 suggest that the disparities between these rates of growth were associated with an apparent improvement in the competitiveness of the former countries’ export prices and a further deterioration in those of the United Kingdom. These figures, however, must be interpreted with caution, as was stressed in last year’s Annual Report.1 Between 1962 and 1964, the price competitiveness of German exports of manufactured goods appears to have improved about as much as that of U.S. goods. During the same period the export prices for manufactured goods of France, Italy, Sweden, and Switzerland apparently rose as much as, or more than, those of U.K. manufactures.

Export Growth and Market Growth

In 1963 there was no very marked divergence in the rate of export expansion which each manufacturing country would have achieved if it had maintained its share of total exports from manufacturing countries to each of 22 market areas; under these conditions every country’s exports would have expanded by 8-10 per cent over their 1962 value. By contrast, in 1964 there was a range of market growth over 1963 varying from 10 per cent for Austria to 17 per cent for Norway and 15 per cent for Belgium and Sweden—the last three countries all being considerably dependent on the U.K. market where (as described above) import demand rose rapidly.

Table 20.

Manufacturing Countries: Changes in the Relation Between Each Country’s Export Unit Value and the Average Value of Other Countries’ Exports,1963-64

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Source:Based on unit value indices for manufactured goods published in United Nations, Monthly Bulletin of Statistics.

Percentage change in ratio of each country’s index of unit value of manufactured goods exports (in U.S. dollars) to combined index for other manufacturing countries for which such data are available. No figures exist for Austria, Denmark, or Norway.

The comparison of market growth and actual export expansion from 1963 to 1964 made in Table 21 may be summed up as follows: Japan and the United States succeeded in increasing substantially their shares of markets; to a large extent the counterpart of their success was the failure of the United Kingdom to maintain its share of markets. The majority of the EEC countries broadly maintained their shares of markets, but Italy and the Netherlands increased their shares. The United Kingdom’s loss of market shares was concentrated in a few areas, especially Australia, New Zealand, and South Africa (where both the United States and Japan greatly increased their shares of trade), the U.S. market (where Japan achieved a large part of its gains), and Germany and France (where the share of the EEC countries in trade increased).

Table 21.

Manufacturing Countries: Actual Growth in Each Country’s Exports Related to Average Growth in its Export Markets, 1962-641

(Percentage change from preceding year)

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Sources: Based on data in International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade, and in United Nations, Monthly Bulletin of Statistics.

For the purpose of this analysis the world has been divided into 23 markets, consisting of the 13 manufacturing countries, 9 groups of primary producing countries, and the Sino-Soviet area. The rate of growth in the market confronting each exporting country is taken to be the growth in each market weighted according to the share of the country’s exports taken by each market in the preceding year. Except for the Soviet area, the growth in the market is taken to be the growth in exports to the area from the manufacturing countries. The actual growth in each country’s exports to the Sino-Soviet area has been included as a factor in the average growth of its export markets.

Nonmilitary exports.

Development of World Trade During 1964

In the course of 1964, a marked difference developed in the trends of export prices of manufacturing countries and of primary producing countries. In the last quarter of 1964 the export unit values of manufacturing countries, except Japan, were higher than the average for the whole year, but those of most primary producing countries declined somewhat (Table 12, p. 53).

Chart 19.
Chart 19.

Volume of World Exports and Seasonally Adjusted Volume of Exports and Imports of Four Major Areas, Quarterly, 1961–64

(1960 = 100)

Although the growth of world trade from 1963 to 1964 was greater than that from 1962 to 1963, there was actually a slowing down in the rate of expansion during 1964. As Chart 19 illustrates, the volume of world exports in the last quarter of 1964 was some 7 per cent higher than a year earlier, following an 11 per cent increase between the last quarters of 1962 and 1963. The slowing down occurred principally in Western Europe’s trade, particularly its imports. The volume of imports of the European OECD countries in the last quarter of 1964 was only about 4 per cent higher than a year earlier, in contrast to an increase of 11½ per cent between the final quarters of 1962 and 1963; the corresponding increases in the volume of exports were 5 per cent and 10 per cent, respectively. On the other hand (again comparing growth between the last quarters of the years), there was a somewhat greater expansion in the volume of imports into the United States and Canada, and a considerably greater expansion in the volume of imports of Australia, New Zealand, South Africa, and the less developed countries, during 1964 than during 1963. The export section of the chart indicates that although a slowing down of export growth was common to both the North American and Western European groups, exports from the United States and Canada continued to expand more rapidly than those of Western Europe, as they had done, in volume terms, since the second quarter of 1963. In striking contrast to the upward trend of imports into Australia, New Zealand, and South Africa, the volume of these countries’ exports declined in the latter part of 1964. The increase in the volume of the exports of the less developed countries between the second half of 1963 and the second half of 1964 was greater than that between the same periods of 1962 and 1963.

Chart 20 illustrates the development of some major segments of Western Europe’s trade. It shows that the slowing down in the growth of the area’s imports indicated in Chart 19 reflected (1) a similar change in the imports of the EEC countries from the rest of the world until the final quarter of the year, (2) the interruption of the expansion of trade within the Community in the third quarter, (3) the leveling off of the volume of U.K. imports after the second quarter, and (4) a decline in the volume of other EFTA countries’ imports between 1963 and 1964. EEC countries’ exports to the rest of the world increased little in volume terms until the final quarter of the year. The exports of the other EFTA countries, however, showed a strongly rising trend.

As Chart 21 shows, there was a lessening of the imbalance in various countries’ external trade during 1964. Seasonally adjusted, the large combined deficit of the EEC countries other than Germany was steadily reduced in the course of the year, and the German trade surplus (measured imports c.i.f., exports f.o.b.) was about $630 million smaller in the second half of 1964 than at its peak in the second half of 1963. An exception to the general improvement was the United Kingdom, but the deterioration in the U.K. trade balance which had continued throughout 1963 was slower during most of 1964 and was halted in the last quarter of the year. The trade surplus of the United States was rising almost continuously during 1963 and 1964. It was higher in the final quarter of 1964 than in any other quarter of the last five years. However, the surplus may have been somewhat inflated by a speeding up of export deliveries in anticipation of the dock strike. This strike led to a very sharp deterioration in the trade balance in the first quarter of 1965. This change in the U.S. trade balance is, of course, reflected in the improvement of the trade balances of other areas shown in Chart 21, especially for Japan and the EEC. There was a significant improvement in the United Kingdom’s balance of trade in the first quarter of 1965, apart from this factor.

Chart 20.
Chart 20.

EEC Countries, United Kingdom, and Other EFTA Countries: Volume of Trade, Seasonally Adjusted, Quarterly, 1961–64

(1960 = 100)

Chart 21.
Chart 21.

Manufacturing Countries: Seasonally Adjusted Trade Balances, 1961–First Quarter 19651

Monthly averages in millions of U.S. dollors

1 For the United States, both exports and imports are f.o.b.; for all other countries, exports are f.o.b. and imports are c.i.f. The trade balances in the first quarter of 1965 are strongly influenced by the effects of the U.S. dock strike.2Exports exclude military shipments; imports refer to general imports.3Austria, Denmark, Norway, Sweden, Switzerland.

Private Capital Movements

In addition to the changes in trade discussed in the preceding section, the major influence on the balance of payments positions of individual countries and areas was exercised by movements of private capital. This section summarizes the broad changes in movements of private capital from 1963 to 1964. However, in 1964, as in other years, the pattern of capital movements was much more difficult to ascertain than changes in trade. Records of capital transactions are less complete and accurate than those of current transactions, and the data reported on capital transactions by different countries do not make up a fully consistent world picture. One difficulty, which applies especially to short-term capital movements, is that of determining the final destination of capital exports, and the initial origin of capital imports, passing through internationalized markets such as the Euro-dollar market.

Among the major events in international capital movements in 1964 were the following:

  • (1) A rise of about $1.8 billion in the net outflow of U.S. private capital (see Table 22), of which about two thirds derived from short-term capital. This change was reinforced by a reduction in the inflow of foreign long-term capital into the United States, but the total adverse change of $2.0 billion on these accounts was partly offset by an increase of $900 million in the inflow of foreign short-term capital, including liquid funds held mainly by foreign commercial banks.

  • (2) A rise of about $500 million in the net outflow of private long-term capital from the United Kingdom. About half of this rise was offset by an opposite change in movements of short-term capital (see Table 32, p. 83).

  • (3) A reduction of almost $400 million in the inflow of private long-term capital into Japan, reinforced by a reduction of about $200 million in the inflow of short-term capital (see Table 36, p. 90).

It is much more difficult to determine which countries benefited from an increase in inflows, or a reduction in outflows, of private capital between 1963 and 1964. U.S. and U.K. statistics suggest an increase of about $1.4 billion in the net export of private capital by these two countries to primary producing countries other than Canada, but the preliminary statistics of those primary producing countries show a much smaller increase.

Table 22.

Net Outflows of Private U.S. Capital1

(In million of U.S. dollars)

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Source:Department of Commerce, Survey of Current Business, June 1965.

No sign indicates net inflow; minus sign indicates net outflow.

U.S. published figures have been adjusted to exclude thart portion of the Columbia River Consortium payment to Canada that was converted by the Canadian Government into nonmarketable U.S. Government securities.

U.S. statistics show an increase of about $400 million in the net flow of capital into Canada, in the form of U.S. capital moving to Canada minus Canadian long-term capital moving to the United States. Canadian statistics show a rise of only about $100 million in the total inflow of short-term and long-term capital from all countries. The difference between the two figures, which results in part from the different treatment of flows of Canadian short-term capital (which are included in the Canadian statistics) and from purely statistical discrepancies, may also reflect movements of U.S. short-term capital to European financial markets that have been recorded in U.S. statistics as directed toward Canada.

For the European Economic Community there appears to have been a rise of $1.5 billion in the total inflow of private long-term and short-term capital other than changes in commercial bank assets and liabilities (Table 23). This, however, was offset by an almost equivalent and opposite change from a large inflow to a small outflow on account of commercial bank assets and liabilities, reflecting for the most part the change from net borrowing to net repayments by Italian commercial banks that took place under a series of directives by the Italian monetary authorities. However, net inflows of private capital into other industrial countries in Europe appear to have risen by almost $400 million from 1963 to 1964 (Table 24).

In the year as a whole, while movements of private capital were in many cases disequilibrating, there were few examples of disruptive capital movements attributable to speculation. For instance, there was in the aggregate an apparent net inflow of short-term capital into the United Kingdom, even though there was a very large outflow in the last quarter. While there was probably a considerable speculative outflow of capital from Italy in the first quarter of 1964, there appears to have been during the remainder of the year a return of funds that was at least as large. The outflow of short-term capital from the United States was substantial in all quarters of 1964, except the third, but there is no evidence that it was greatly influenced by speculation; almost half of the increase in this outflow was directed to nonindustrial countries. There is also little evidence of large inflows of capital attributable to speculation in continental Europe during 1964 as a whole, perhaps in part because the net inflows of capital into that area were moderated by official measures in several countries.

Nevertheless, it is apparent that the pattern of capital movements that developed during 1964 was not consistent with equilibrium in the balances of payments of several major countries, and that in particular a reduction in the net outflow of capital from the United States and the United Kingdom was needed. The outflow of capital from the United States and the United Kingdom continued on a considerable scale in the early months of 1965, and both countries took measures to reduce their capital exports. The programs adopted by these countries to adjust their balances of payments are discussed in Chapter 8. Developments in international capital markets and in long-term and short-term interest rates are reviewed in Chapter 5.

Table 23.

EEC Countries: Balance of Payments Summaries, 1963 and 19641

(In million of U.S. dollars)

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Source: Based on data reported to the International Monetory Fund. For 1964, the dat for some countries are provisional and are not entirely comparable with those for 1963.

No sign indicates credit; minus sign indicates debit.

Excluding capital movements considered as reserve movements; see footnote 5.

Included in column 2; mainly advance debt repayments, but include also all repayments on post-EPU debts.

Increase (—).

Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in short-term liabilities of the central monetary sector, and in IMF position. Repayments on post-EPU claims and debts are included with official transfers and capital.

Transactions of overseas franc area settled through Metropolitan France are included with Other Nonmonetary Short-Term Capital. For 1964, half-yearly figures do not add to annual total since certain adjustments made to the latter are not yet distributable between half years.

Table 24.

Other Manufacturing Countries in Continental Europe: Balance of Payments Summaries, 1963 and 19641

(In million of U.S. dollars)

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Source:Based on data reported to the International Monetary Fund. For 1964, the data for some countries are provisional and are not entirely comparable with those for 1963.

No sign indicates credit; minus sign indicates debit.

Excluding capital movements considered as reserve movements; see footnote 4.

Increase (—).

Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in short-term liabilities of the central monetary sector, and in IMF position. Repayments on post-EPU claims and debts are included with official transfers and capital.

Covers only issues and redemptions of foreign bonds in Switzerland. Other private long-term capital is included indistinguishably in errors and omissions.

Balance of Payments Developments

Current Account and “Basic” Balances

The changes in the trade balances of the various countries and areas from 1963 to 1964, and during each of these years, provide much of the explanation of the changes in the net positions on total current account, defined here as the balance on account of goods and services and private transfer payments. The main changes between 1963 and 1964 were the following (see Chart 22; in the discussion of movements within each year, allowance is made as far as possible for seasonal factors):

  • (1) A sharp rise (of $2.6 billion) in the current surplus of the United States, to a record figure of $7.7 billion. This was largely a result of developments prior to the first quarter of 1964; during the remainder of that year, the surplus did not change much.

  • (2) A shift, by about $1.2 billion, from a current surplus to a current deficit in the balance of payments of the United Kingdom. Most of the deterioration had taken place by the first quarter of 1964, although the low point was not reached until the third quarter.

  • (3) A rise of about $500 million in the current surplus of the EEC countries. This resulted exclusively from developments during 1964. Indeed, the current surplus of the area fell sharply during 1963 and reached a low point in the last quarter of that year, after which it rose even more sharply.

  • (4) A reduction of about $300 million in the current deficit of Japan. The deficit rose during 1963 and reached its maximum in the first quarter of 1964, but was replaced by a surplus in the second half of the year.

  • (5) A rise of about $1.1 billion in the current deficit of the primary producing countries, as a group. The absence of seasonally adjusted trade figures for this group makes it difficult to determine the exact turning point between the improvement in the current balance that took place during most of 1963 and the deterioration that took place during most of 1964.

  • (6) An increase of about $0.2 billion in the aggregate current account deficit of EFTA countries other than the United Kingdom.

Chart 22.
Chart 22.

Selected Areas and Countries: Balances of Payments, 1957–64

(In billions of us dollars)

1Basic balance includes errors and omissions and small amounts of nonmonetary sector short-term capital.

The changes in the current balances of the United Kingdom, Japan, and the EEC countries, in particular, are closely related to the developments in the domestic economies of the countries concerned, which are reviewed in Chapter 5. The net movement in the current balance of the EEC area as a whole is the product of rather diverse movements in the balances of individual member countries, particularly those of Germany, Italy, and France. Balance of payments developments in these countries are noted in Chapter 8. The current balances of France (with countries outside the French franc area) and Germany deteriorated from 1963 to 1964, but the change from a large deficit to a large surplus in Italy’s current transactions was much greater than the opposite changes in the current balances of the other countries. The current balance of the Netherlands also deteriorated, while that of Belgium-Luxembourg showed a small improvement. The sharp rise in the area’s current surplus between the first and second halves of 1964, too, was dominated by the swing in Italy’s balance of payments, which was reinforced by seasonal factors. During that period all the EEC countries, except Germany, improved their current balances (see Table 23). The extent to which seasonal factors affect the balances of payments of individual members of the area is not known precisely, but it is apparent that the rise in the current surplus from the first to the second half of 1964 must include a considerable seasonal element. In 1963, when the current surplus of the area also rose between the first and second half of the year, the seasonally adjusted trade balance moved in the opposite direction. A comparison of the figures for the second halves of 1963 and 1964 suggests that the intervening rise in the area’s current account surplus was of the order of $1.4 billion, at an annual rate.

It is thus apparent that the reduction in the current surplus of the EEC area that began in 1961 was interrupted during 1964. Certainly, much of the rise in the area’s surplus in 1964 is accounted for by Italy, whose surplus early in 1965 seems likely to be gradually reduced as a result of the measures introduced late in 1964 and early in 1965 to reactivate the country’s economy. However, since there is a close relationship between the balances of payments of the individual members of the area, the resulting reduction in the area’s current surplus would presumably be much smaller. Some reduction in the area’s current surplus might also be induced by an upswing in the French economy later in 1965. It is not clear what further reduction in the area’s current surplus, from the high rate reached in the second half of 1964, would be required to restore equilibrium in the area’s overall balance of payments. For 1964 as a whole, the area’s current surplus was equal to the outflow on account of government transfer payments and capital transactions, and the area’s over-all surplus was about equivalent to the net inflow of private capital. If the inflow of private capital into the area should be reduced, as seems a likely consequence of the program recently adopted by the U.S. Government to reduce the outflow of U.S. capital, and if private capital exports from the area should increase, the reduction in the current surplus needed to restore equilibrium in the area’s over-all balance of payments might be rather limited.

As one indicator of the degree of imbalance in international transactions, Chart 22 shows so-called basic balances (balances on account of current and long-term capital transactions, excluding advance repayments on government debt) for major countries and areas for 1957-64, together with their current balances. While the picture presented by this analysis is rather mixed, it is apparent that the general progress toward a balanced pattern of international transactions that was recorded in 1963 was not continued in 1964. One helpful development, however, was that the basic deficit of the United States was reduced to a very low figure in 1964. This reduction, in contrast to that which occurred during 1959-61, has coincided with vigorous growth in the domestic economy. It has resulted from two opposite movements: a considerable rise in the current surplus, partly offset by larger outflows of capital.

A change in the direction of greater imbalance was the rise in the basic surplus of the EEC area, much of which was due to the very sharp improvement in Italy’s balance of payments in 1964. The extent to which this improvement relates to long-term capital transactions is difficult to ascertain, and most likely it is somewhat overstated in Chart 22—as is, therefore, the rise in the basic surplus of the EEC as a whole. This rise occurred after the first quarter of 1964, and at the end of the year the basic surplus was running at a higher rate than the average for the year.

Other major changes in basic balances between 1963 and 1964 took place in the United Kingdom and in the primary producing countries as a group. The basic balance of the United Kingdom changed from near equilibrium to a large deficit as a result of the deterioration of the current account in combination with the rise in the net outflow of long-term capital, discussed above. The reduction in the aggregate basic surplus of the primary producing countries was due mainly to a rise in the deficit on goods and services account; developments in the trade and balances of payments of these countries are reviewed in the next chapter.

Over-All Surpluses and Deficits

Table 25 presents estimates of over-all surpluses or deficits for all countries for which balance of payments statistics are available, based on a broadly symmetrical definition. A surplus or deficit is defined as the balance of all transactions other than “official settlements” (i.e., excluding changes in official gold and foreign exchange assets, in net IMF positions, and in liabilities to foreign monetary authorities, and adjusted for advance repayments of foreign debt by governments). The over-all surplus or deficit so defined is equal to the basic balance, unrecorded transactions, and all movements of short-term capital, excluding only those that constitute official settlements. The application of this concept to the U.S. balance of payments is discussed in Chapter 8.

In general, the changes between 1963 and 1964 in over-all balances, so defined, were in the same direction as those in basic balances. Thus the U.S. deficit fell by about $1 billion; this was, however, considerably less than the reduction in the basic deficit, since there was an increase of more than $900 million in the net outflow on account of U.S. and foreign short-term capital and unrecorded transactions (Item E of Table 30, p. 80). The over-all surplus of the EEC area rose a few hundred million dollars less than its basic surplus as a result of the change in movements of commercial bank assets and liabilities (mainly Italian) referred to above, since there was a rise in the inflow of other short-term capital into the area (see Table 23). The overall deficit of the United Kingdom rose by about $1.4 billion, a few hundred million dollars less than the rise in the basic deficit, movements of short-term capital (plus unrecorded transactions) being more favorable in 1964 than in 1963 (see Table 32, p. 83).

The other manufacturing countries in Europe increased their over-all surplus by $290 million (Table 24). Although this was due to increased inflows of capital (the aggregate current deficit of these countries rose by about $200 million), it would apparently not have occurred had it not been for the large deficit in the balance of payments of the United Kingdom and the increase in exports to that country with which this deficit was associated. This group of countries and the more industrialized primary producing countries together increased their aggregate reserves in each of the years 1963 and 1964 by about $1.5 billion. This is more than twice the average annual addition to world monetary gold holdings during the past decade, which is the amount by which total surpluses can normally exceed total deficits. The aggregate surplus of the less industrialized primary producing countries, which had reached approximately $1 billion in 1963, fell to about $200 million in 1964.

The comparison of over-all surpluses and deficits in 1964 as a whole with those in 1963 fails to reveal the major deterioration that took place in international payments last year. At the beginning of 1964, the over-all positions of both the United States and the EEC area were close to equilibrium. In the second half of the year, however, a major U.S. deficit and a major surplus for the Community reappeared. Moreover, the over-all deficit of the United Kingdom remained moderate during the first half of the year (when a large part of the basic deficit was matched by an inflow of short-term capital); but a net outflow of short-term capital raised the U.K. deficit to a very large amount in the second half of the year, particularly in the last quarter. Early in the year, certain imbalances within the EEC area had been reduced—the large German surplus and large Italian deficit that existed at the beginning of the year had been eliminated. However, the Italian deficit was soon replaced by an equally large surplus.

Table 25.

Over-All Balances of International Payments, 1963 and 19641

(In million of U.S. dollars)

article image
Source:

Adjusted for advance debt repayments. Over-all balances are measured here by changes in official gold and foreign exchange assets, in net IMF positions, in liabilities resulting from “swap” transactions with the United States, and, where data are available, in other short-term liabilities to foreign monetary authorities. This table is based on data on reserves, whereas Table 29 is based on balance of payments reports, which in general cover annual data only. Because of minor differences in the countries covered and between the half-yearly and the annual data, the aggregate “over-all balances” for 1963 and 1964 for the less industrialized primary producers differ slightly from the totals shown in Table 29. No sign indicates surplus; minus sign indicates deficit.

Preliminary.

Adjusted for repayments on short-term credits negotiated by the Japanese authorities in connection with the 1961 balance of payments crisis.

Covers omissions from the table of one side of certain transactions, e.g., contra-entries necessary when Swiss franc proceeds of Roosa Bonds held by the Swiss Government are utilized by the United States in purchases of U.S. dollars from the Swiss National Bank, because both the bonds and the franc liabilities are included “above-the-line” in the Swiss figures; contra-entries to the adjustments to Japan’s figures (see footnote 3); and contra-entries for advance debt repayments to international nonmonetary institutions (e.g., the IBRD).

In the last quarter of the year, the total imbalance in world payments reached a very high figure. Indeed, when measured as the sum of the deficits of all countries in deficit, the total imbalance in world payments in that quarter was the highest ever recorded. This is illustrated in Chart 23, which shows by quarters for the period 1958-64 the aggregate deficit of all countries in deficit, and similar data for industrial and for nonindustrial countries. The very high figure for the last quarter of 1964 reflects mainly the coincidence of large deficits in the balances of payments of the United States and the United Kingdom.

Reserve Developments

The change in the pattern of over-all surpluses and deficits from 1963 to 1964 resulted in a slowing down in the growth of world reserves (Table 26). Aggregate reserves of countries outside the Sino-Soviet area increased by $2.5 billion in 1964. Although this increase was larger than in most postwar years, it was considerably less than the record increase of $3.4 billion in 1963. The smaller increase was associated with a marked reduction in the balance of payments surpluses of the nonindustrial countries. Within this group, the increase in reserves of the more developed countries fell from $0.8 billion to $0.5 billion, while that of less developed countries declined from $1.0 billion to about $0.1 billion. In both years, the growth in total reserves was considerably smaller than that in the value of international transactions, which for the two years combined rose about three times as fast as reserves. Chart 23.

Chart 23.
Chart 23.

All Countries in Balance of Payments Deficit: Aggregate Deficit, 1958-First Quarter 1965

(In millions of U.S. dollars)

Table 26.

Countries’ Official Reserves, Including Reserve Positions in the IMF, End of Calendar Years, 1961–641

(In billions of U.S. dollars)

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Source: International Monetary Fund, International Financial Statistics, and staff estimates.

The data for other countries and the totals in the 1964 Annual Report included residual estimates of reserves held by certain countries for which direct reports are not available. These estimates have been excluded here, since it has been ascertained that they refer for the most part to unofficial holdings.

Excluding the Sino-Soviet area.

Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland.

Includes assets arising from Swiss assistance to the United Kingdom, held by the Swiss Confederation.

Other Western Europe, Australia, New Zealand, and South Africa.

Sums borrowed by Fund under General Arrangements to Borrow.

Covers short-term liquid liabilities to central banks and governments; foreign official holdings of U.S. Government marketable securities; and foreign official holdings of U.S. Government long-term nonmarketable securities for those countries that are believed to include such holdings in their reserves figures.

For 1961, covers net sterling liabilities to foreign official holders; for 1962-64, covers gross liabilities to foreign central monetary authorities, including inter-central-bank assistance.

The change in coverage described in footnote 8 reduces the figure for sterling claims by about $0.6 billion and increases the residual (“other”) by the same amount.

Including claims on countries other than the United Kingdom and the United States (including Euro-dollar claims), currency deposits with the Bank for International Settlements, and net errors and omissions.

The addition in 1964 to world monetary gold holdings (including the holdings of international monetary organizations) was $725 million, some $115 million less than in the previous year. Gold production rose again and there was an apparent reduction in hoarding, but Soviet sales were lower than in 1963 (for details see Chapter 9). Country holdings of gold rose by $635 million, or by $90 million less than total. monetary gold holdings. This was the result of a net inflow from the Fund of $133 million (IMF gold sales for currencies of $250 million less IMF gold receipts from subscriptions and repurchases of $117 million) and a net outflow of $225 million to the Bank for International Settlements and the European Fund. The chief beneficiaries from the increase in world monetary gold holdings were again the industrial countries other than the United States and the United Kingdom. The gold reserves of this group rose by $1,088 million in 1964. Those of the United States and the United Kingdom fell by $125 million and $348 million, respectively, and the gold reserves of the non-industrial countries were virtually unchanged.

Of the total increase of $2.5 billion in national reserves, $1,630 million took the form of foreign exchange assets. About two thirds of the increase referred to claims on the United States and about one third to claims on the United Kingdom, the latter representing mainly the use of central bank assistance rather than changes in ordinary sterling reserves. Of the total, the industrial countries added $1,085 million to their reserves, of which $220 million went to the United States and more than $850 million to the other industrial countries except the United Kingdom, whose holdings of foreign exchange were almost unchanged. The nonindustrial countries in 1964 were able to add only $545 million in foreign exchange to their reserves, compared with $1,490 million in 1963, and most of the 1964 addition went to the more developed nonindustrial countries.

The remaining component of reserves—reserve positions with the IMF—was also mainly affected by the transactions of the industrial countries. The change in this component reflected primarily reductions in the positions of the United States and the United Kingdom, resulting from their drawings on the IMF during the year, and the corresponding rise in the IMF positions of the other industrial countries, including those arising from the activation of the General Arrangements to Borrow.

There was a slight reduction in the percentage of total gold and foreign exchange reserves held in gold by the industrial countries other than the United States and the United Kingdom. The main reason was that Italy increased its foreign exchange holdings by $734 million while reducing its gold holdings by $236 million. This, in combination with the gold sales by the United Kingdom, helped to keep the outflow of gold from the United States lower than could have been expected in view of the size of the deficit requiring official settlement, and thus to maintain a higher rate of increase in world reserves than would otherwise have been possible.

During the first quarter of 1965, world reserves declined by about $800 million. Part of this decline is explained by a reduction of about $210 million in world monetary gold holdings, apparently associated with the developments in gold markets reviewed in Chapter 9. Another contributory factor was the conversion of existing foreign exchange balances into gold by certain countries.

1

See Annual Report, 1964, “Supplementary Note C, Export Performance of Manufacturing Countries,” especially pages 128-29.

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Cover International Monetary Fund Annual Report 1965
International Monetary Fund Annual Report 1965
ISBN:
9781616351779
ISSN:
2227-8915
Publication Date:
01 Sep 1965
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781616351779.011
Pages:
174
  • Chart 19.
    View in gallery
    Chart 19.

    Volume of World Exports and Seasonally Adjusted Volume of Exports and Imports of Four Major Areas, Quarterly, 1961–64

    (1960 = 100)

  • Chart 20.
    View in gallery
    Chart 20.

    EEC Countries, United Kingdom, and Other EFTA Countries: Volume of Trade, Seasonally Adjusted, Quarterly, 1961–64

    (1960 = 100)

  • Chart 21.
    View in gallery
    Chart 21.

    Manufacturing Countries: Seasonally Adjusted Trade Balances, 1961–First Quarter 19651

    Monthly averages in millions of U.S. dollors

  • Chart 22.
    View in gallery
    Chart 22.

    Selected Areas and Countries: Balances of Payments, 1957–64

    (In billions of us dollars)

  • Chart 23.
    View in gallery
    Chart 23.

    All Countries in Balance of Payments Deficit: Aggregate Deficit, 1958-First Quarter 1965

    (In millions of U.S. dollars)

Chart 19.

Volume of World Exports and Seasonally Adjusted Volume of Exports and Imports of Four Major Areas, Quarterly, 1961–64

(1960 = 100)
Chart 20.

EEC Countries, United Kingdom, and Other EFTA Countries: Volume of Trade, Seasonally Adjusted, Quarterly, 1961–64

(1960 = 100)
Chart 21.

Manufacturing Countries: Seasonally Adjusted Trade Balances, 1961–First Quarter 19651

Monthly averages in millions of U.S. dollors
Chart 22.

Selected Areas and Countries: Balances of Payments, 1957–64

(In billions of us dollars)
Chart 23.

All Countries in Balance of Payments Deficit: Aggregate Deficit, 1958-First Quarter 1965

(In millions of U.S. dollars)