Chapter

II Activities and Policies of the Fund in 1957–58

Author(s):
International Monetary Fund
Published Date:
September 1958
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The Nature of the Fund’s Activities

ONE of the most powerful motives for the foundation of the International Monetary Fund was the desire to avoid the disruptive effects of conflicting national monetary and exchange policies adopted with little or no regard to their repercussions in other countries. The world had had a memorable experience of such policies and their consequences during the interwar period. The Fund can now help to avoid any repetition of these conflicts by providing its members with an instrument for the mutual adjustment of monetary and exchange policies, at the same time as it makes available financial support to which they may turn when faced with threats of balance of payments disequilibrium. During the past year, the developments in the world economy, which are summarized later in this Report, provided further opportunities for extending these closely related Fund activities. Despite many difficulties, Fund members were increasingly willing to support its work in the promotion of freer transferability of currencies, and thus to increase its effectiveness as an agent of international policy. Fund transactions, at nearly US$666 million, did not reach the high level of more than US$1,114 million recorded in the preceding year, when sales of currency to members equaled about one quarter of the Fund’s original holdings of gold and convertible currency. However, they exceeded transactions in any other Activities and Policies of the Fund in 1957-58 previous financial year. And in no other year were there such useful contacts between the Fund and its individual members in relation to policy issues. Some members have taken the initiative in seeking the Fund’s advice, and the technical services of members of the Fund staff have been made available to them for prolonged periods. Specific opportunities for useful contacts also occur when a situation arises in which it is appropriate for a member to draw upon the Fund’s resources, or in the course of the regular consultations between the Fund and those members which maintain exchange restrictions, or when a member makes a significant change in its exchange system.

The Fund’s range of influence was extended during the year by the admission of 7 new members—Ghana, Ireland, Malaya, Morocco, Saudi Arabia, the Sudan, and Tunisia—which increased the total membership to 67.1 Several of the countries that have joined the Fund in the last few years have only recently acquired the status of sovereign states. By providing technical services intended to help in the development of efficient monetary and exchange systems, the Fund has already been able to assist some of these members which are endeavoring to gain experience especially in fiscal and monetary affairs.

The Fund’s total resources are now equivalent to US$9,088 million. On April 30, 1958, US$2,343.6 million of this total was in gold or U.S. or Canadian dollars, against which there were outstanding drawing rights under stand-by arrangements amounting to US$884.3 million. The increase in its resources during the last year resulted partly from the payment of subscriptions by new members, $137 million, and partly from increases in some members’ quotas, $19.5 million. These increases were approved in accordance with the understanding, expressed in the course of the quinquennial review of quotas in January 1956, that requests for adjustments of small quotas would be sympathetically received by the Fund. There are now 9 Fund members, whose quotas originally ranged from $2 million to $15 million, for which increases of quotas have been approved by the Fund since the 1956 review.

The Fund was actively engaged during the last year in carrying out the functions entrusted to it by its members in relation to their exchange practices. It does not attempt to impose formal adherence to policy standards interpreted or applied without due regard to the widely divergent conditions in which exchange practices develop. The discipline agreed to by members in accepting Fund membership is imposed by themselves, and the Fund’s influence can be exerted most usefully through continuing discussions with members of the basic causes of any exchange difficulties that may arise and of the methods which, in the circumstances of the individual member country and in the light of conditions elsewhere, are likely to be most effective for dealing with these difficulties. Such discussions have been facilitated by the varied contacts that the Fund has been able to build up with its members since it formally began operations in 1946. These contacts have made possible an appreciation of the economic and other problems faced by member countries and of the obstacles which frequently stand in the way of a more speedy attainment of the Fund’s objectives. At the same time, member countries have become more aware of the validity of these objectives, and the foundations have been laid for increasing confidence that the Fund will not take a position with regard to the policy of any member without a thorough investigation of all the relevant considerations.

In the 12 years since the Fund began operations, there has been considerable progress toward the achievement of its objectives. To an increasing extent, the world has moved toward exchange stability with orderly exchange arrangements among the Fund’s members, the avoidance of competitive exchange depreciation, the elimination of exchange restrictions, and the establishment of a multilateral system of payments. This progress has been greatly assisted by the generally high volume of production and trade which has been maintained throughout the world since the end of World War II. In some measure, however, it is also the result of a deeper understanding of the problems involved and of a determination on the part of national authorities to deal with these problems in accordance with enlightened long-term views. In addition to other forces that have operated in this direction, the habit of continually reviewing exchange policies and practices with the Fund may be assumed to have helped to promote a proper appreciation of the relation of these policies to other aspects of national policy, as well as of their international implications. Even though the Fund’s contribution cannot be measured precisely, the flexible machinery that it provides for constant consultation and collaboration in respect of international monetary and exchange problems has been a significant influence favorable to the development of mutually beneficial exchange relations. An international organization such as the Fund helps to create a favorable environment for the adoption of long-term views by national governments. Individual members are able to press resolutely toward the establishment of sound foreign exchange relations with increasing confidence, based upon their participation in the work of the Fund, that, since other countries have the same objectives and are directing their policies along broadly similar lines, their efforts will not be frustrated by short-sighted decisions elsewhere.

Fund Membership and Quotas

Seven countries became members of the Fund during the past fiscal year: Ireland on August 8, 1957, with a quota of $30 million; Saudi Arabia on August 26, 1957, with a quota of $10 million; the Sudan on September 5, 1957, with a quota of $10 million; Ghana on September 20, 1957, with a quota of $15 million; Malaya on March 7, 1958, with a quota of $25 million; Tunisia on April 14, 1958, with a quota of $12 million; and Morocco on April 25, 1958, with a quota of $35 million.

Terms and conditions for membership for Libya were approved by the Board of Governors at the Twelfth Annual Meeting on September 24, 1957. At the request of its Government, the period for acceptance of membership by Libya was extended through September 24, 1958. Terms and conditions for membership for Spain were approved by the Board of Governors on May 12, 1958. Spain has until November 12, 1958 to accept the terms and to complete the conditions of membership.

The quotas of four members were increased during the past fiscal year: Haiti’s on May 2, 1957 from $2 million to $7.5 million; Paraguay’s on July 24, 1957 from $3.5 million to $7.5 million; Honduras’ on September 30, 1957 from $2.5 million to $7.5 million; and El Salvador’s on October 23, 1957 from $2.5 million to $7.5 million. The Government of the Philippine Republic has until September 30, 1958 to consent to an increase in its quota, which has been approved by the Fund, from $15 million to $50 million.

The members of the Fund, their quotas, voting power, Governors, and Alternate Governors as of April 30, 1958 are shown in Appendix I. Changes in membership of the Board of Governors are shown in Appendix II. The Executive Directors and Alternate Executive Directors of the Fund and their voting power are shown in Appendix III and changes in the membership of the Executive Board in Appendix IV.

Par Values

By April 30, 1958, the end of the last fiscal year of the Fund, initial par values had been agreed between the Fund and all but 16 of its 67 members—Afghanistan, China, Ghana, Greece, Indonesia, Ireland,2 Italy, Korea, Malaya, Morocco, Saudi Arabia, the Sudan, Thailand, Tunisia, Uruguay, and VLet-Nam. Several of these members have only recently joined the Fund. No additional initial par values were agreed during the year. The Fund concurred in proposals for changes in the par values of the Finnish markka and the Iranian rial, which are described more fully in Chapter VI.

Most Fund members maintain exchange systems in which for the most part transactions take place within the prescribed margins of their respective par values agreed with the Fund. The currencies of these members include all that are most used as means of payment in international trading and financial transactions. Orderly exchange arrangements and exchange stability are important and generally accepted objectives of economic policy. They reduce exchange risks to a minimum and help to maintain that confidence in the currency which is an essential condition for an adequate flow of savings. Even in countries where the authorities are not prepared formally to stabilize the exchange rate on the basis of a realistic parity, de facto stable rates are often maintained for long periods of time. The principles of the Fund, of course, require that exchange rates should be both institutionally stabilized and realistic. However, especially after a period during which efforts have been made to preserve an unrealistic exchange rate, there may be overwhelming practical difficulties that prevent the immediate establishment of an exchange system based upon a new and effective par value, without any intervening period for adjustment. For some countries, therefore, the Fund has supported a program involving the use of a fluctuating rate system, as a lesser evil to be set against any other system that in the circumstances of the case was likely to be adopted—and in particular against a complex multiple rate system or the substantial use of quantitative restrictions—and in order to allow time to restore domestic stability and to accumulate reserves sufficient for the maintenance of a par value. Developments during 1957 in the countries where such conditions have applied are described in Chapter VI.

Use of the Fund’s Resources

Last year’s Annual Report described a period of vigorous financial activity for the Fund during which both the amount of its resources made available to members and the number of members having transactions with the Fund were greater than in any previous year. In the year covered by the present Report, from May 1, 1957 to April 30, 1958, the Fund was again very active in financial assistance to its members (Table 1), and the number of members utilizing the Fund’s resources, by either drawings or stand-by arrangements, was greater than in any previous financial year. The Fund’s financial activities were again widely distributed in all regions. Of the 21 members that purchased currencies from the Fund or entered into or extended stand-by arrangements, 11 are in Latin America, 5 in continental Europe, 3 in the sterling area, 1 in the Middle East, and 1 in the Far East.

Table 1.Summary of Fund Transactions, Fiscal Years Ended April 30, 1948-58(In U.S. dollars)
Total Purchases

by Members
Total Stand-By Arrangements

in Force
Total Repurchases

by Members
1948606,045,000.00
1949119,438,380.91
195051,800,000.0024,207,652.46
195128,000,000.0019,093,244.36
195246,250,000.0036,578,805.97
195366,125,000.0055,000,000184,958,162.26
1954231,290,000.00112,500,000145,106,208.24
195548,750,000.00112,500,000276,275,398.29
195638,750,000.0097,500,000271,661,333.80
19571,114,047,648.761,212,280,00075,038,810.14
1958665,731,620.701,500,030,00086,806,219.72
Total3,016,227,650.371,119,725,835.24

The extent to which the Fund’s resources are utilized is necessarily related closely to the general world payments situation and to the economic conditions of individual member countries, both of which are discussed elsewhere in this Report. The growing awareness of the Fund’s functions and an improved understanding of the principles governing the use of its resources have also led an increasing number of members to look to the Fund for assistance in finding solutions for their short-term balance of payments problems, and the use of the Fund’s resources as a second line of reserves has thus become well established.

On the basis of programs agreed with its members during the past year, the Fund made substantial contributions to the international financing which was provided from several sources to countries seeking to make adjustments in their balances of payments. Several drawings were made under stand-by arrangements agreed with the Fund during the previous financial year, which were intended to deal with balance of payments problems described in last year’s Annual Report. There were, however, no transactions comparable to the unusual purchases of U.S. dollars which had been made in the previous year as a result of the abnormal balance of payments strains to which many members were subjected by the events of Suez. The tensions in European exchange markets in the second half of 1957 were eased as statements at the Fund’s Annual Meeting made it clear that the countries most directly concerned had already taken appropriate stabilizing measures and were determined to maintain the existing parities. At that time, no demands were made upon the resources of the Fund to meet the exchange pressures that had then arisen.

Use of the Fund’s resources by some members is closely associated with the execution of stabilization programs. As in the preceding year, several members that are largely dependent on a single major export crop purchased currency from the Fund to solve the balance of payments problems which arise when their foreign exchange reserves are under seasonal pressure. In accordance with the undertakings given by them when they requested use of the Fund’s resources, most of these members subsequently repurchased within a period of six or twelve months their currency which they had used to buy dollars from the Fund. There were again several members that, in the face of foreign exchange stringencies which were considered temporary, had recourse to the Fund with a view to supporting the liberalization policies previously adopted by them. In two member countries where effective domestic measures were taken to deal with temporary balance of payments difficulties, the improvement was such that one, Denmark, was able to make an early repurchase from the Fund and the other, the Netherlands, canceled an unused stand-by arrangement six months before the date that it was due to expire. This was the first Fund stand-by arrangement that was canceled before its expiration. No Fund member has yet requested use of the Fund’s resources in order to support policy measures in connection with the establishment of full convertibility. However, several countries have drawn upon the Fund’s resources in the past with a view to maintaining convertibility, and some of the drawings during the last year were in support of programs intended to bring members closer to this objective, or at least to prevent any check to the progress already made in that direction.

Fund members are now well aware of the general principles governing the use of the Fund’s resources, which have been described in earlier Annual Reports. The Executive Board’s decision of February 13, 1952 on Use of the Fund’s Resources indicated that for drawings within the “gold tranche,” i.e., the portion of a member’s quota which can be regarded as equivalent to its gold subscription, a member could count on receiving the overwhelming benefit of any doubt. Since that decision was taken, 17 members have made gold tranche drawings; of the total amount of $2,202.2 million drawn by members since that date, $993.5 million was within the gold tranches of the members concerned. Drawings from the Fund that increased its holdings of a member’s currency above 100 per cent, but not to more than 125 per cent, of quota have been made by 20 members. Members have been assured that they can confidently expect a favorable response to applications for such drawings—which are described as being within the first credit tranche—provided that they are also themselves making reasonable efforts to solve their problems. Fourteen Fund members have made drawings beyond the first credit tranche. It is expected that members requesting such drawings or stand-by arrangments which authorize them will produce substantial justification for their requests. Members are aware that requests are likely to be favorably received when the drawings or stand-bys are intended to support well-balanced and adequate programs aimed at establishing or maintaining the enduring stability of the currency concerned at a realistic rate of exchange.

The normal period during which currency purchased from the Fund may remain outstanding is understood to be within an outside range of three to five years; in requesting an exchange transaction that is within the limit of 25 per cent of quota during any 12 months, members indicate that it is their intention to repurchase not later than this three to five year period. Under Article V, Section 4, of the Articles of Agreement, the Executive Board is authorized to waive this 25 per cent limit. Since the first waiver was granted in August 1953, only 15 transactions have been made without a waiver; during the financial year 1957-58, a waiver was granted in connection with 24 drawings. In granting a waiver, the Fund may, in order to safeguard its interests, prescribe certain terms, and it has become the practice to grant waivers for drawings with a term obliging the member to complete repurchase within a specified period, which is normally within an outside range of three to five years. The corresponding provision in standby arrangements normally requires repurchase not later than three years after drawings under them, but the period may be shorter in appropriate cases. All the stand-by arrangements concluded or extended during the year ended April 30, 1958 require repurchase within three years or less. The increasing use of the Fund’s right to grant a waiver affords continuing proof of the readiness of the Fund to consider on its merits each request for a drawing or stand-by arrangement and, where the circumstances of an individual case warrant special consideration, to apply the Fund’s rules with a reasonable degree of flexibility. The number of standby arrangements (11) agreed or extended during the period under review was the highest in any financial year of the Fund. The expanding use of stand-by facilities shows that this form of credit commitment, which was instituted tentatively in 1952, has become generally acceptable as a useful technique for making the Fund’s fianancial assistance available to its members.

In the year ended April 30, 1958, the total volume of the Fund’s exchange transactions again exceeded by a substantial margin total repurchases by members amounting to nearly US$87 million (Table 1).

The Fund’s total holdings of gold and U.S. and Canadian dollars amounted on April 30, 1958 to the equivalent of US$2,343.6 million. On the same date unutilized drawing rights under standby arrangements represented potential claims equivalent to US$884.3 million, of which account has to be taken in determining the current policy of the Fund. In estimating whether the large volume of transactions during the last two years leaves the Fund with adequate resources for the future, it should, however, be noted that some of these drawing rights may not be utilized, and others may be used to purchase inconvertible currencies. The liquidity of the Fund, moreover, is to a large extent determined by the revolving character of its resources. All “outstanding” Fund drawings, i.e., drawings that have not yet been reversed by repurchases or by drawings by other members, are accompanied either by commitments by the members concerned to comply with the principles of the decision of the Executive Board of February 13, 1952 or by repurchase terms attached as conditions to waivers or to the terms of stand-by arrangements. The principle that drawings should not be allowed to remain outstanding for more than three to five years is thus intended to safeguard the liquidity of the Fund’s operational assets. Repurchases by members that had drawn on the Fund, drawings by other members of the currencies of members that had purchased from the Fund, and the settlement with Czechoslovakia totaled $1,195.8 million by April 30, 1958, or 39.6 per cent of total purchases ($3,016.2 million). Without taking into consideration the possibility of mandatory repurchases which the Fund’s Articles of Agreement require from members whose reserve positions improve, there should be substantial further repurchases beginning in late 1959 and 1960.

The reserves available to Fund members have in several instances been supplemented by additional resources obtained mainly through short-term credit facilities from various sources. Although the Fund’s resources are not credit facilities in the legal sense, they can be considered as constituting a second line of reserves and, as has been described in this and earlier Annual Reports, they have had important effects in alleviating the difficulties of the recent past. There are, however, fairly strict limits to the resources that the Fund is in a position to place at the disposal of any individual member; and several members—particularly those undertaking comprehensive stabilization programs—have recently found it possible to supplement the facilities provided by the Fund in support of these programs by parallel arrangements for credit facilities from the U.S. Government and from New York commercial banks. Such a combination of resources has not only increased the amounts available to the countries concerned, but it has also widened the circle of those who have an interest in the success of the stabilization programs that have been worked out by several countries with the assistance of members of the Fund staff working under the general guidance of the Executive Board. In somewhat different circumstances in Europe, the support given to France by the Fund in January 1958 was associated, as is noted elsewhere in this Report, with both a special credit from the European Payments Union and a credit from the U.S. Government. Also, in 1957 for the first time since the war the banking system of the Federal Republic of Germany made loans available to the Governments of other European countries. The availability of such additional international liquidity from sources other than the Fund is clearly relevant to any discussion of the adequacy of the Fund’s resources.

Fund Transactions

The Fund’s transactions, stand-by arrangements, and repurchases by members in the 12-month period ended April 30, 1958 are summarized in Tables 2, 3, and 4. The exchange transactions included sales of deutsche mark and of Netherlands guilders as well as of U.S. dollars. The Yugoslav transaction in Netherlands guilders represents the first Fund sale of that currency. Transactions totaling the equivalent of some US$304 million were made under stand-by arrangements. The 11 stand-by arrangements entered into or extended by the Fund during the year totaled the equivalent of nearly US$1,044 million. Two of these arrangements were for a period of 6 months, and the remaining 9 were for a period of 12 months.

Table 2.Purchases of Currency from the Fund, Fiscal Year Ended April 30, 1958(In U.S. dollars)
MemberAmountMemberAmount
Bolivia1,000,000India72,500,000
Brazil37,500,000Israel3,750,000
Chile37,331,620.70Japan125,000,000
Colombia15,000,000Netherlands68,750,000
Cuba25,000,000Nicaragua3,750,000
Denmark34,000,000Paraguay3,500,000
Ecuador5,000,000Turkey13,500,000
France167,500,000Union of South Africa25,000,000
Haiti1,000,000Yugoslavia22,900,000
Honduras3,750,000
Total665,731,620.70
Table 3.Fund Stand-By Arrangements with Members, Fiscal Year Ended April 30, 1958(In millions of U.S. dollars)
MemberDate of

Inception
Date of

Expiration
AmountAmount Available

April 30, 1958
BelgiumJune 19, 1952June 18, 195750.00
BoliviaNov. 29, 1956Dec. 28, 19577.50
Dec. 29, 1957Dec. 28, 19593.502.50
ChileApril 1, 1956Mar. 31, 195835.00
April 1, 1958Mar. 31, 195910.0010.00
ColombiaJune 19, 1957June 18, 195825.0015.00
CubaDec. 7, 1956June 6, 195712.50
FranceOct. 17, 1956Oct. 16, 1957262.50
Jan. 31, 1958Jan. 30, 1959131.2566.25
HondurasNov. 12, 1957May 11, 19583.75
IndiaMar. 11, 1957Mar. 10, 195872.50
NetherlandsSept. 12, 1957Sept. 11, 195868.75(canceled

Mar. 11, 1958)
NicaraguaNov. 21, 1956May 20, 19573.75
Oct. 7, 1957April 6, 19587.50
ParaguayJuly 30, 1957July 29, 19585.502.00
PeruFeb. 18, 1954Feb. 17, 195812.501
Feb. 10, 1958Feb. 9, 195925.0025.00
Union of South AfricaApril 8, 1958April 7, 195925.0025.00
United KingdomDec. 22, 1956Dec. 21, 1958738.53738.53
Total1,500.03884.28

The Fund and Peru agreed to terminate on February 9, 1958 the stand-by arrangement that was due to expire on February 17, and at the same time to make a new stand-by arrangement for $25 million.

The Fund and Peru agreed to terminate on February 9, 1958 the stand-by arrangement that was due to expire on February 17, and at the same time to make a new stand-by arrangement for $25 million.

Table 4.Repurchases of Currency from the Fund, Fiscal Year Ended April 30, 1958(In U.S. dollars)
MemberU.S. DollarsGoldTotal
Chile12,331,620.7012,331,620.70
Colombia5,000,000.005,000,000.00
Cuba17,488,171.475,000,000.0022,488,171.47
Denmark10,000,000.0010,000,000.00
Ecuador4,999,180.814,999,180.81
Honduras2,483,826.3414,585.952,498,412.29
Iran1,248,395.417,118,880.108,367,275.51
Iraq7,293.901,989,359.831,996,653.73
Nicaragua5,624,905.215,264,905.21
Paraguay500,000.00500,000.00
Turkey4,000,000.004,000,000.00
Yugoslavia3,200,000.005,800,000.009,000,000.00
Total66,883,393.8419,922,825.8886,806,219.72

From March 1, 1947, when the Fund began its operational activities, to April 30, 1958, its total transactions amounted to the equivalent of US$3,016.2 million. The Fund sold currency to 35 members, 28 of which used the Fund’s resources more than once. The extent to which any member of the Fund has made use of its resources may be measured for comparative purposes by expressing as a percentage of its quota the total of all the member’s purchases from the Fund plus any amount outstanding under a stand-by arrangement on April 30, 1958. According to this criterion, the largest use of the Fund’s resources has been made by the following members: Brazil (137), Chile (137), Iran (131), United Kingdom (123), Turkey (113), Paraguay (112), Colombia (110), Bolivia (100), Burma (100), Peru (100), Philippine Republic (100), France (99), and Japan (99).

A summary of all Fund transactions is given in Table 5, and details appear in Appendix V. Of the total sales of currency by the Fund up to April 30, 1958, $2,766.7 million, or about 92 per cent, was in U.S. dollars. There have also been sales of sterling, Belgian francs, deutsche mark, Canadian dollars, and Netherlands guilders.

Table 5.Summary of Fund Transactions from the Beginning of Operations to April 30, 1958(In millions of U.S. dollars)
MemberCurrencies

Purchased by Fund
Currencies

Sold by Fund
Repurchases

by Members
Argentina75.0
Australia50.050.0
Austria7.5
Belgium83.011.421.6
Bolivia7.5
Brazil206.0131.0
Burma15.03.2
Canada15.0
Ceylon3.0
Chile58.625.0
Colombia40.05.0
Costa Rica1.22.1
Cuba47.522.5
Czechoslovakia6.01
Denmark44.222.8
Ecuador5.05.0
Egypt33.08.5
El Salvador2.52.5
Ethiopia0.62.0
Finland9.518.2
France452.5147.9
Germany, Federal Republic of26.445.1
Haiti1.0
Honduras6.32.5
India300.099.9
Indonesia70.027.0
Iran46.029.1
Iraq2.0
Israel3.8
Japan249.0124.0
Lebanon0.9
Mexico45.044.9
Netherlands144.15.075.4
Nicaragua6.16.1
Norway9.69.6
Paraguay6.40.9
Peru3.1
Philippines15.0
Sweden8.0
Syria1.4
Turkey48.531.0
Union of South Africa35.010.0
United Kingdom861.5191.7112.0
United States2,766.7
Yugoslavia31.99.0
Total 23,016.23,016.21,119.7

On the basis of the settlement with Czechoslovakia, an amount of $3.7 million has been offset against the drawing of US$6 million, the remainder to be paid in installments not later than July 2, 1961.

Totals may not equal sums of items because of rounding.

On the basis of the settlement with Czechoslovakia, an amount of $3.7 million has been offset against the drawing of US$6 million, the remainder to be paid in installments not later than July 2, 1961.

Totals may not equal sums of items because of rounding.

For the whole period of the Fund’s activities up to April 30, 1958, repurchases of their currencies by 37 members amounted to $1,119.7 million. All of the purchases made before May 1, 1952 have since been reversed. On joining the Fund, 32 members made subscription payments of less than 25 per cent of their quotas in gold and more than 75 per cent in their respective currencies; 18 of these members have since repurchased their currencies in a total amount of $135.7 million in excess of any previous transactions with the Fund. Such repurchases, if added to the original gold subscriptions, have thus put these members in a position which in effect is comparable to the position of members that made original gold subscriptions equivalent to 25 per cent of quota.

The Fund’s holdings of the currencies of 29 members have been above their quotas from time to time; during the year reviewed, 23 members in that position incurred charges amounting to $15.6 million, compared with $2.6 million paid by 12 members in the preceding year. Two members are currently paying these charges partly in their own currency, under the proviso of the Fund Agreement which permits payments in such currency by a member whose monetary reserves are less than half its quota.

Total receipts from service charges on drawings decreased from $5.6 million in the year ended April 30, 1957 to $3.3 million in the year ended April 30, 1958.

In the last Annual Report, the Fund reported the sale in January 1957 of $300 million of its gold holdings, in order to replenish its holdings of U.S. dollars. A second $300 million of gold was sold in May 1957.

Fund Charges

The Executive Board extended for another year, i.e., until December 31, 1958, the current revised schedule of charges which has been in effect since January 1, 1954. The system of charges is being kept under continuous review by the Fund.

Computation of Monetary Reserves

Monetary reserves data as of April 30, 1957 have been submitted by 58 members. The 2 members that have failed to submit the required reports cannot have a repurchase obligation.

The Executive Board has decided that in all cases of minimal repurchase obligations, that is, repurchase obligations equivalent to less than $500, the member will be notified, and the obligation collected, only on the next occasion thereafter that a repurchase obligation accrues which, together with the first one, totals the equivalent of $500 or more.

The Fund and Exchange Restrictions

Another series of the annual consultations which most members are required by Article XIV of the Fund Agreement to have with the Fund concerning the further retention of their exchange restrictions was completed during the past year. The work required in connection with these consultations again formed a large part of the activities of the Executive Board and the management and staff of the Fund. Fund staff members visited 32 member countries in connection with the consultations of which consideration was completed by the Executive Board in the year ended April 30, 1958; the discussions required by the other 3 consultations were held at the Fund’s headquarters in Washington.

As Fund-member relations have developed, there has been a natural tendency in some countries for annual consultations to become closely associated with other kinds of Fund activity, and in particular with negotiations for Fund transactions and the rendering of technical assistance. In the course of time, the Fund has been able to build up a close knowledge of the whole complex of financial and monetary developments of the members with which consultations are held, as they affect both the country itself and its international monetary relations. This knowledge helps the Fund to assess the continuing need for the retention of exchange restrictions by the member. The Fund has taken a broad view of the exchange systems of its members, relating them to other financial and monetary questions of current importance. On their side, members have shown themselves ready to seek technical assistance from the Fund with respect to their monetary, financial, and exchange problems. Some of the programs of general economic and exchange reform which have been adopted by Fund members have been associated both with the technical services of the Fund staff and with financial transactions with the Fund which strengthen the reserve positions of the members.

In broad outline, the Fund’s attitude as indicated in its consultations on exchange restrictions during the past year has been much the same as in preceding years. In many countries the maintenance of restrictions is closely associated with the persistence of balance of payments pressures that stem from inflation, and it is a continuing concern of the Fund to ensure that appropriate steps are taken to correct this situation. Some shift in emphasis has been dictated, however, by changing conditions in the world economy and in the economic situation of many member countries. As members encounter less buoyant world markets, the problem most important for the Fund in this connection has continued to be that of avoiding or keeping to a minimum any recourse to exchange restrictions.

During the past year, some countries made progress toward a greater measure of freedom from exchange restrictions, while others, whose currencies were exposed to widespread speculative pressure, were able to avoid the reimposition of these restrictions. Some of the less developed countries, with falling demand for their exports, were in a more difficult position. If they were to avoid the imposition of more stringent restrictions, they would have found it necessary to take measures in other fields that were more intensive than they were prepared to face.

Special attention has been given in the consultations of the past year to the problem of multiple currency practices, the Fund’s attitude to which was set forth in a decision of June 1957, reproduced in last year’s Annual Report (pages 161-62). This decision reaffirmed the unification of multiple exchange rates as one of the objectives of the Fund. Complex multiple rate systems harm the economies of the countries that maintain them; increasing competition in international trade has intensified the fears of some countries with unitary rates that multiple export rates might be used as an instrument of unfair competition against them, or that multiple import rates might involve arbitrary penalization of their exports. In view of these considerations, the Fund urged that more rapid progress should be made in simplifying complex multiple rate systems. It also pressed for the removal of those aspects of existing systems which adversely affect the interests of other members, and recommended that changes should be avoided which might make multiple currency systems more complex.

Some progress has been made in the past year in simplifying several of the complex multiple rate systems which have developed since the war. Programs for simplification were undertaken in certain countries as part of a comprehensive economic reform, with which the Fund was associated by means of financial backing and technical assistance. The continuing success of these programs depends both on the general direction of world economic trends and on the determination of the members concerned to carry through the measures that are necessary for success.

In some countries, the simplification of complex multiple exchange rate systems is still delayed. Where the circumstances have warranted such a course, the Fund, rather than approve proposed changes in multiple rate systems, has remained in consultation with the countries concerned, with a view to agreeing on a plan for simplification.

During 1957 there was a further significant decline in the number of restrictive bilateral payments arrangements maintained by members of the Fund that consult under Article XIV. As in the previous year, this reduction was achieved either by a termination of the bilateral arrangements or by a reduction of their bilateral effect made possible by permitting the transferability of accruals of the partner’s currency. Since January 1956 the number of restrictive bilateral payments arrangements between Fund members has been reduced by one third; and in contrast to the previous year, there was also during 1957 a reduction in the number of such arrangements between a member and a nonmember country.

Cooperation with Other International Organizations

Close relations have been maintained throughout the past year between the Fund and the International Bank for Reconstruction and Development, the United Nations and its regional and technical bodies, the Organization for European Economic Cooperation, and the Bank for International Settlements. Fund representatives have attended meetings of many of these and other international organizations, and the Managing Director presented a report on the Fund’s activities and on general monetary developments at the 25th Session of the UN Economic and Social Council in April 1958.

The further extension of the scope of cooperative activities has been especially evident in the relations between the Fund and the Contracting Parties to the General Agreement on Tariffs and Trade (GATT). The attainment of the Fund’s own purposes is closely related to the successful operation of the General Agreement, which is the major instrument for achieving the same freedom from restrictions in relation to international trade movements which the Fund seeks to achieve with respect to international payments.

In the second half of 1957, the Contracting Parties conducted a new series of 21 consultations with countries applying import restrictions for the purpose of safeguarding their monetary reserves. The consulting countries were Australia, Austria, Brazil, Ceylon, Denmark, Finland, France, the Federal Republic of Germany, Greece, India, Italy, Japan, the Netherlands, New Zealand, Norway, Pakistan, the Federation of Rhodesia and Nyasaland, Sweden, Turkey, the Union of South Africa, and the United Kingdom. In response to an invitation from the Contracting Parties, the Fund assisted in the preparation for these consultations, and Fund representatives participated in the discussions. Documentation that had been prepared for the Fund’s consultations with the countries concerned was supplied to the Contracting Parties, and, where necessary, special papers analyzing the current situation of the countries with respect to their economic positions and restrictive systems were prepared for the use of the Contracting Parties. The Contracting Parties announced that these consultations, which were the first full-scale discussions of the nature and effects of import restrictions held by them since 1951, constituted one of the most important GATT activities of the year, and that they were of considerable significance both for international trade cooperation and for the future operation of the General Agreement. During the consultations, several countries announced measures to reduce the incidence of their restrictions, including for some of them the complete freeing of a wide range of goods from import control. The Contracting Parties noted that the success of the consultations was due in large measure not only to the full and frank exchange of views between countries during each consultation, but also to the thorough preparation which had been undertaken by the GATT Secretariat and the Fund.

In addition to the activities involved in these consultations, the Fund assisted the Contracting Parties, where it was appropriate, in the normal conduct of their work. It assisted in consultations held under the General Agreement concerning the use of discriminatory restrictions by five contracting parties, and with three countries which had intensified their import restrictions because of new balance of payments difficulties. These consultations were incorporated in the series of special consultations mentioned above. Throughout the year, as in the past, there has been continuous technical liaison between the Fund and the GATT Secretariat.

The Fund welcomed the opportunity for increased collaboration with the Contracting Parties which was afforded by their consultations concerning import restrictions. It looks forward to further opportunities for close collaboration in the immediate future, when similar consultations are to be conducted by the Contracting Parties under the terms of the Revised Articles of the General Agreement.

On July 16, 1958, the Executive Board of the Fund concluded that, following the merger of Egypt and Syria into a single state, the United Arab Republic is a single member of the Fund with a single quota and subject to the provisions of the Articles of Agreement. The total membership of the Fund is therefore 66.

On May 14, 1958, an initial par value for the currency of Ireland was established at the rate of 0.357143 Irish pound per U.S. dollar, or US$2.80 per pound, which had been the Irish exchange rate since September 1949.

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