Chapter

Chapter 5 Balance of Payments Developments

Author(s):
International Monetary Fund
Published Date:
September 1962
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The year 1961 was marked by important changes in both surpluses and deficits in basic balances of payments (i.e., those arising out of international transactions on current and long-term capital account, excluding certain special transactions), and also in flows of short-term capital. The changes in the basic balances of various industrial countries, and of the primary producing countries as a group, occurred mainly in current account items. These balances were strongly influenced by the changes in economic activity, the relative rate of employment, and the associated movements in prices and costs in the major industrial countries, which have been described in Chapter 4, pages 73–79. Disequilibrating movements of short-term capital between major financial centers had imposed exceptionally severe pressures on the international payments mechanism in 1960 and the early months of 1961. These were successfully checked in the latter part of 1961, as a result of the changes in financial policies and other measures outlined in Chapter 4, as well as of the greater similarity in the cyclical positions of the industrial countries in 1961 than in 1960.

General Review of Industrial Countries

Among the most important changes in the basic balance of payments positions of various industrial countries that took place from 1960 to 1961, or during the course of 1961, were the reappearance of a large deficit in the U.S. balance of payments in the second half of 1961 (following a small surplus in the first half when imports were reduced by the recession); and the emergence of a considerable deficit for Japan. The changes were directly related to increased economic activity in these countries. The striking change in the German position, to a slight basic deficit in the second half of 1961 after years of substantial surpluses, was associated with a renewed expansion of activity on a seasonally adjusted basis and a very high level of employment, accompanied by strong demand pressures and rising costs. A further factor was the appreciation of the deutsche mark, the effects of which were felt only gradually in the course of the year. A sharp reduction in the basic balance of the Netherlands arose from similar circumstances, but occurred in the first half of the year. A rise in the basic deficit of Switzerland was also associated with the expansion of production at full employment. Conversely, the virtual elimination of the basic deficit of the United Kingdom, following a further increase in the first half of 1961, was brought about largely by a decline in imports as a consequence of the measures to restrain domestic demand, which are discussed in Chapter 4. France and Italy—although their output rose more rapidly than that in some of the other industrial countries—continued to be favored by greater structural possibilities of expanding industrial production and exports than existed in most of the other countries; their basic surpluses increased considerably from 1960 to 1961. An improvement in the payments position of Belgium was in part a reflection of easier conditions in the labor market there than in Germany and the Netherlands, and probably of the advantage gained from the appreciation of the deutsche mark and the guilder.

The estimates in Table 11 do not provide much evidence of marked progress toward greater balance in international payments in the course of the last two years. The basic deficit of the United States was slightly larger in the second half of 1961 than in the first half of 1960, as the cyclical factors which had lessened the deficit in the two intervening half years were reversed. The reduction in the basic deficit of the United Kingdom in the second half of 1961 was achieved at the cost of a slight fall in production. In both these countries, the problem of combining economic growth with external balance remained. The most helpful development recorded was the sharp reduction of the surpluses of Germany and the Netherlands, but this was, to some extent, offset by the strengthening of the basic positions of France, Italy, and some other countries in Continental Europe. It seems likely, however, that the balances of payments for 1961 did not fully reflect the important economic adjustments, particularly the changes in relative prices, costs, and incomes, that took place in that year. As pointed out in Chapter 4, these changes were generally in the direction of reducing surplus and deficit positions; their effects can be expected only with a time lag, and they may be reinforced as the remaining major surplus countries reach the limits of their productive capacity.

Table 11.Basic Balance of Payments Summary, 1960 and 19611(In billions of U.S. dollars)
19601961
FirstSecondFirstSecond
halfhalfhalfhalf
United States−1.1−0.70.2−1.3
United Kingdom−0.5−0.5−0.8−0.1
France20.50.30.70.5
Italy3−0.10.40.6
Germany, Federal Republic of0.30.70.8−0.1
Other industrial countries
In Europe0.1−0.50.4
Japan−0.10.2−0.6−0.5
Primary producing countries
Australia, Canada, New Zealand, and
South Africa−0.2−0.6−0.30.1
Other0.3−0.5−0.1−0.2
Balancing entry40.80.70.60.6
Sources: Based on data reported to the International Monetary Fund, and Fund staff estimates.

The basic balance of payments covers goods, services, transfer payments, and long-term capital transactions less certain transactions that are considered to be of an extraordinary character. The main part of these extraordinary transactions consists of repayments on post-EPU debts and advance debt repayments. No sign indicates credit; minus sign indicates debt.

Covering transactions with the non-franc area only.

Including inflows of Italian banknotes; see page 137. Accordingly, the entries for Italy should be regarded as quite tentative.

If it were not for statistical errors, the sum of basic balances for all countries could be expected to show a small excess of surpluses over deficits in 1960 and 1961. Conceptually, the sum covers (1) nonmonetary gold transactions of the countries included in the table, the counterpart of which—changes in world official gold holdings—is not part of the basic balance, and (2) the balance of these countries’ current and long-term capital transactions with (a) international organizations and (b) other countries, mainly those in the Soviet area. In 1960 and 1961, the balance with international organizations was negative, but slightly smaller than the positive entry for nonmonetary gold. The fact that the table records an excess of deficits thus implies that the country figures tend to err more frequently in the direction of overstating deficits or understanding surpluses than in the opposite direction.

Sources: Based on data reported to the International Monetary Fund, and Fund staff estimates.

The basic balance of payments covers goods, services, transfer payments, and long-term capital transactions less certain transactions that are considered to be of an extraordinary character. The main part of these extraordinary transactions consists of repayments on post-EPU debts and advance debt repayments. No sign indicates credit; minus sign indicates debt.

Covering transactions with the non-franc area only.

Including inflows of Italian banknotes; see page 137. Accordingly, the entries for Italy should be regarded as quite tentative.

If it were not for statistical errors, the sum of basic balances for all countries could be expected to show a small excess of surpluses over deficits in 1960 and 1961. Conceptually, the sum covers (1) nonmonetary gold transactions of the countries included in the table, the counterpart of which—changes in world official gold holdings—is not part of the basic balance, and (2) the balance of these countries’ current and long-term capital transactions with (a) international organizations and (b) other countries, mainly those in the Soviet area. In 1960 and 1961, the balance with international organizations was negative, but slightly smaller than the positive entry for nonmonetary gold. The fact that the table records an excess of deficits thus implies that the country figures tend to err more frequently in the direction of overstating deficits or understanding surpluses than in the opposite direction.

There may also be considerable scope for adjustment on capital account. The net outflow of U.S. and foreign private long-term capital from the United States during 1961 was more than $2 billion, an amount not significantly different in total from the net outflows of the previous five years. There was a small net outflow of private long-term capital from the United Kingdom (the Ford transaction being treated as completed in 1960), the Netherlands, and Switzerland. Most of the other industrial countries, however, were net importers of private long-term capital in 1961, as they have generally been in recent years. Increased exports of capital by some of these countries could contribute, to an important extent, toward a more balanced pattern of international payments. This end could also be furthered by improvements in the organization of capital markets in the countries that are potential capital exporters; by the elimination of the restrictions on capital exports that still remain in these countries; and by a further reduction of long-term interest differentials between surplus and deficit countries.

The effects of short-term capital movements and special transactions in moderating or intensifying the basic deficit or surplus positions of various industrial countries during 1961 are described in the following pages. It will suffice here to say that, although the recorded outflow of nearly $1.5 billion in 1961 of U.S. short-term capital was almost matched by the recorded inflow of foreign short-term capital (other than reserve holdings), the effect of these movements was to add to the U.S. balance of payments problem in 1961, since foreign short-term assets in the United States are generally more liquid than U.S. short-term claims on foreigners. About half of the outflow of U.S. short-term capital went to Japan, mainly for the purpose of financing trade, and thus helped to offset part of the basic deficit. Heavy inflows of private short-term capital added to the surplus problem of Germany in the first half of the year, and considerable outflows reduced it in the latter half. The opposite situation prevailed in the United Kingdom, where short-term capital movements aggravated the deficit until July and subsequently eased it. Inflows of short-term capital into Switzerland are believed to have been responsible for a substantial increase in reserves despite a recorded deficit on current and long-term capital account. Large advance debt repayments by Germany (mainly to the United States) and by France (mainly to other countries in Europe) helped to moderate over-all surplus and deficit positions in the course of the year.

Individual Industrial Countries

United States

The balance of payments of the United States for 1961 showed considerable improvement over 1960, although the improvement was confined mainly to the first half of the year, the figures for that period being in approximate balance. The basic deficit on current and long-term capital account, excluding certain extraordinary transactions, was reduced from $1.7 billion in 1960 to $1 billion in 1961 (Table 12). Seasonally adjusted, it rose again, to an annual rate of almost $2.6 billion in the second half of the year, but fell from the third to the fourth quarter. The reduction in the outflow of reserves, including the U.S. net position with the Fund, from over $2.4 billion in 1960 to about $0.6 billion in 1961 was even more pronounced than the reduction in the basic deficit. The increase in liabilities to foreign central banks and governments was greatly reduced, to about $650 million, and would have been completely eliminated had it not been for large withdrawals of foreign commercial bank funds at the end of the year; these were returned early in 1962. On the other hand, liquid liabilities to foreign holders other than the monetary authorities increased much more than in 1960.

Table 12.United States: Balance of Payments Summary, 1960—First Quarter 19621(In millions of U.S. dollars)
19611962
19601961Jan-MarApr-JunJul-SepOct-DecJan-Mar2
Goods, services, aid. and long-term capital
Main categories, seasonally adjusted,
excluding major special transactions3
Trade surplus4,7365,4011,6921,3511,1001,2581,154
Services, remittances, and pensions−1,753−1,136−292−254−352−238−166
Government grants and capital−2,615−3,294−829−677−938−850−783
U.S. direct investment abroad−1,694−1,475−457−269−429−320−331
Other U.S. long-term capital−850−1,006−120−218−194−474−345
Foreign long-term capital43046612220120123153
Total−1,746−1,044116134−793−501−318
Seasonal influences−55−191−154400−182
* Major special transactions3−154517724−75−132
Total−1,900−52761667−1,022−233−500
* Unrecorded transactions−592−60216−296243−565262
* Short-term capital, n.i.e.
U.S. private assets−1,338−1,472−461−355−117−539−354
Foreign nonliquid capital−951407673−134127
Liquid liabilities to foreign
nonmonetary sectors257587−5515680406167
Total−1,176−745−440−126−50−129−60
* Liquid liabilities to foreign
commercial banks104615−1941415466417
* Liquid liabilities to central banks
and governments1,12165211−34088893−546
* U.S. reserves and IMF position
Net IMF position741−1352511−483312237
Gold and convertible currency holdings1,702742346−330270456190
Total U.S. reserves and IMF position2,443607371−319−213768427
Memorandum item: change in reserves,
IMF position, and liquid
liabilities, seasonally adjusted3,9252,461319−1769101,408476
Source: Based on data from U.S. Department of Commerce, Survey of Current Business.

Excluding military aid and transfers financed by it. No sign indicates credit; minus sign indicates debit.

Preliminary.

See text, page 117, for description of major special transactions.

These items are not seasonally adjusted.

Source: Based on data from U.S. Department of Commerce, Survey of Current Business.

Excluding military aid and transfers financed by it. No sign indicates credit; minus sign indicates debit.

Preliminary.

See text, page 117, for description of major special transactions.

These items are not seasonally adjusted.

If measured by the change in reserves and total liquid liabilities, the deficit was reduced from $3.9 billion to about $2.5 billion. A substantial part of this decrease can be explained by a few large, nonrecurring capital transactions. These are shown separately in Table 12, where they are identified as “major special transactions.” For 1960, the transactions that have been so classified are subscriptions to international organizations; for 1961, the main transactions are advance repayments on U.S. Government loans (credits of $649 million in the second quarter and $40 million in the fourth quarter) and, again, subscription payments. Altogether, these nonrecurring transactions accounted for $670 million of the reduction in the deficit; this was, in fact, the main objective of the advance repayments.

Changes in the goods and services account continued to be dominated by cyclical factors. Perhaps the most striking of these changes was in imports, which in the first half of 1961 were reduced to their lowest figure since the third quarter of 1958, but which rose sharply in the second half (Table 13). This rise was, of course, related to the recovery of business activity in the United States and reflected both an increase in consumption and a rebuilding of inventories. Merchandise exports, other than those financed by government aid, were remarkably stable throughout the whole of 1961; in fact, their total was almost identical with that of the previous year.

Table 13.Transactions on Current Account, by Main Types, 1960–61 1(In millions of U.S. dollars)
1961
FirstSecond
19601961half2half2
Goods and services
Not financed by government aid
Exports fob17,66117,7328,8358,897
Imports f.o.b.−14,723−14,514−6,786−7,728
Trade surplus2,9383,2182,0491,169
Investment income receipts3,2223,6821,8291,853
Other services, net−1,407−1,384−585−799
Total4,7535,5163,2932,223
Military expenditures−3,048−2,947−1,526−1,421
Financed by government aid
Exports f.o.b.1,7982,1839941,189
Services322391178213
Total2,1202,5741,1721,402
Total goods and services3,8255,1432,9392,204
Remittances and pensions−842−878−442−436
Government grants3−1,664−1,851−966−885
Total current
account surplus1,3192,4141,531883
Source: Based on data from U.S. Department of Commerce, Survey of Current Business.

Excluding military aid and transfers financed by it. No sign indicates credit; minus sign indicates debit.

Adjusted for seasonal variation, except as otherwise noted.

Not adjusted for seasonal variation.

Source: Based on data from U.S. Department of Commerce, Survey of Current Business.

Excluding military aid and transfers financed by it. No sign indicates credit; minus sign indicates debit.

Adjusted for seasonal variation, except as otherwise noted.

Not adjusted for seasonal variation.

Among the service transactions, investment income receipts rose by $460 million from 1960 to 1961. Only a small net decrease was recorded in total U.S. military expenditures abroad, in spite of the measures introduced to effect economies in certain of those expenditures; savings in some areas appear to have been almost matched by higher expenditures in others. Exports of goods and services financed by government grants and loans showed a strong and steady increase over the two years; these transactions, however, do not affect the basic balance, since it includes both the exports and their financing. As Table 13 shows, the United States was in surplus on total current account, i.e., increased its net foreign assets, in both 1960 and 1961.

U.S. private holdings of long-term assets, predominantly in the form of direct investments, showed their customary large increase. The total outflow of U.S. private long-term capital was almost the same as in 1960, as was the inflow of foreign long-term capital; in each year the net outflow was about $2 billion. More than 45 per cent of the U.S. direct investment capital outflow in 1961 was directed to European countries.

As in 1960, a substantial outflow of U.S. short-term capital contributed to the over-all balance of payments deficit. The recorded outflow in 1961, almost $1.5 billion, was $130 million larger than in 1960. Unrecorded transactions, which are believed to reflect in part private short-term capital, were about as large as in 1960, accounting for an outflow of $600 million. Movements of short-term capital between major financial centers in response to interest differentials and confidence factors have recently attracted considerably less attention than in 1960, and the statistical evidence suggests that such factors last year played a lesser role in movements of U.S. short-term assets. As indicated in Chapter 4, the commercial inducements for moving funds from the United States to other financial centers were not so great in 1961 as in 1960, and were reduced further in the course of last year. At the end of 1961, of the $4.7 billion of short-term foreign assets reported by U.S. banks (including those held for account of their customers), only $1.1 billion represented claims on the major financial centers in Europe and Canada; the remainder was mainly claims on Japan and the Latin American Republics (more than $1.4 billion for each of these two areas). The rise in these claims in 1961 occurred primarily outside the major financial centers—$639 million being in Japan and $255 million in other countries, compared with $169 million in the major centers. Short-term claims reported by U.S. nonfinancial concerns are more heavily concentrated in the main financial centers, but are quantitatively much less important. (Of $1.5 billion of such claims outstanding at the end of December 1961, $0.9 billion was held in the main financial centers; the increase in total claims during 1961 was about $375 million.) The fact that by far the largest part of U.S. short-term assets—even those on the major financial centers—consists of commercial and financial claims denominated in U.S. dollars also suggests that confidence factors have played only a minor role in determining the recorded movements. The reported rise in foreign currency claims on financial centers was only about $225 million in 1960 and $70 million in 1961.

The recorded outflow of U.S. short-term capital was almost matched by an equal inflow of foreign short-term capital other than official dollar holdings, including $600 million in liquid liabilities to foreign banks and an almost equal amount in liquid liabilities to foreign nonmonetary sectors. This large inflow of foreign capital contrasts with only a small inflow during 1960 as a whole. The change in the behavior of foreign short-term capital undoubtedly reflects mainly interest and confidence factors, and the substantial accumulation in 1961 helped to moderate the outflow of reserves. In liquid liabilities to the foreign nonmonetary sectors, the largest component in both years was the increase in liabilities to international nonmonetary organizations ($400 million or more in each year), in part resulting from the accumulation of subscriptions received in U.S. dollars by these institutions. The larger part of the increase in the inflow between the years was, however, attributable to a swing of over $260 million (from a decrease in 1960 to an increase in 1961) in liabilities to private holders.

In the first quarter of 1962, pressures on the U.S. balance of payments eased considerably. However, there was little change on a seasonally adjusted basis in most of the categories that make up the basic balance, and much of the improvement in the overall balance of payments was attributable to changes in unrecorded transactions, believed to reflect in part an inflow of funds from Canada related to the rapid deterioration of the Canadian balance of payments position. The reduction in reserves (including the U.S. position with the IMF) by well over $400 million was more than matched by a decrease in liabilities to foreign central banks and governments. Liquid liabilities to other foreigners rose somewhat more than the decrease in those to official holders; the movements in both categories are explained in large part by the return of funds held by German commercial banks, which had been repatriated late in 1961 for seasonal reasons. During the second quarter of 1962, the outflow of reserves was further reduced.

United Kingdom and the Sterling Area

The external position of the United Kingdom at the beginning of 1961 was one of considerable weakness, following a continuous deterioration in the balance of current and long-term capital transactions over the preceding two years and a substantial increase of short-term liabilities in relation to reserves.

During the first half of 1961, the pound remained vulnerable to speculative pressures, and a massive withdrawal from sterling took place after the revaluation of the deutsche mark and the Netherlands guilder in early March. As mentioned in the Introduction to this Report, this outflow of capital was countered by informal support from a number of central banks in Europe, the so-called Basle arrangements, under which the United Kingdom was granted short-term assistance, totaling the equivalent of $900 million, in the following months. Despite this assistance, U.K. reserves fell by almost $800 million in the first seven months of 1961.

At the end of July, as described in Chapter 4, a series of measures was introduced with the aim of restoring confidence in sterling and eliminating the continuing deficit on current and long-term capital account by improving the competitive strength of the economy. In August, the United Kingdom arranged for a drawing equivalent to $1,500 million from the Fund, and for a stand-by credit for a further $500 million. Thereafter, the short-term outflow was reversed, and reserves began to rise. By the end of 1961, the assistance received under the Basle arrangements had been repaid, and the U.K. liability to the Fund had been reduced by $420 million as the result of U.K. repurchases.

There was considerable improvement in the basic balance of payments in the second half year: the recorded deficit on current transactions almost disappeared, and there was an exceptional net inflow of long-term capital, including an abnormally large inflow of foreign portfolio capital (Table 14).

Table 14.United Kingdom: Balance of Payments Summary, 1960—First Quarter 19621(In millions of U.S. dollars)
196019611962
19601961First halfSecond halfFirst halfSecond halfFirst quarter
A. Goods, services, and transfer payments
Exports10,38010,8175,3345,0465,5025,3152,741
Imports−11,475−11,195−5,743−5,732−5,816−5,379−2,833
Trade balance−1,095−378−409−686−314−64−92
Services and transfer payments2881822048414636151
Total−807−196−205−602−168−2859
B. Long-term capital
Official long-term−288−115−106−182−28−87−31
Private long-term
Direct investment abroad (net) 1−692−591−333−359−344−247
Other investment abroad (net)−249−409−132−117−230−179
Ford transaction36733367338
Other direct investment in U.K. (net) 2378263199179115148
Other investment in U.K. (net)2865073425273434___
Total−198−345−338140−41469−23
C. Total (A plus B) 4−1,005−541−543−462−5824136
D. Errors and omissions85622847376125347
E. Total (C plus D)−149−313−16011−506193383
F. Short-term capital, n.i.e.384−196143241−1605−365300
G. Overseas sterling holdings
Non-sterling area: private8373−81532106273−8293,5145−97
Non-sterling area: official473−67143330−1625955−38
Sterling area: private−252238−53−1991439539
Sterling area: official−381190−37−344190−202
Total677−454263414−658204−298
H. Net reserves (including debts under
Basle arrangements)
IMF position−4221,047−92−330−421,089−250
Debts under Basle arrangements9045—9045
Gold and currency holdings−490−84−154−336462−546−135
Total−912963−246−6661,324−361−385
Source: United Kingdom Balance of Payments, 1959 to 1961 (Cmnd. 1671).

No sign indicates credit; minus sign indicates debit.

Excluding oil and insurance.

The purchase by the Ford Motor Company of the United States of the minority interest in its U.K. subsidiary for $367 million has been treated as if it had been completed in December 1960 and is therefore included in Group B at that time, while the temporary accumulation and subsequent spending of sterling is excluded from Group G.

These figures differ from the basic balances shown in Table 11 as certain official long-term capital transactions are there excluded for symmetry with the treatment of other countries’ basic balances. The transactions excluded in Table 11 comprise advance debt repayments of $189 million by Germany in the first half of 1961 and of $76 million by France in the second half of 1961, as well as the Swiss Government Funding Loan of $50 million in the latter period (see page 99).

Assistance received under the Basle arrangements has been entered in Group H and excluded from Group F ($353 million received in the first half of year, $303 million repaid in the third quarter, and $50 million repaid in the fourth quarter with the proceeds of a loan from Switzerland) and Group G (private, $238 million received in first half of year and repaid in the third quarter; and official, $313 million received in first half of year, of which $285 million was repaid in the third quarter, and $28 million was repaid in the fourth quarter).

Source: United Kingdom Balance of Payments, 1959 to 1961 (Cmnd. 1671).

No sign indicates credit; minus sign indicates debit.

Excluding oil and insurance.

The purchase by the Ford Motor Company of the United States of the minority interest in its U.K. subsidiary for $367 million has been treated as if it had been completed in December 1960 and is therefore included in Group B at that time, while the temporary accumulation and subsequent spending of sterling is excluded from Group G.

These figures differ from the basic balances shown in Table 11 as certain official long-term capital transactions are there excluded for symmetry with the treatment of other countries’ basic balances. The transactions excluded in Table 11 comprise advance debt repayments of $189 million by Germany in the first half of 1961 and of $76 million by France in the second half of 1961, as well as the Swiss Government Funding Loan of $50 million in the latter period (see page 99).

Assistance received under the Basle arrangements has been entered in Group H and excluded from Group F ($353 million received in the first half of year, $303 million repaid in the third quarter, and $50 million repaid in the fourth quarter with the proceeds of a loan from Switzerland) and Group G (private, $238 million received in first half of year and repaid in the third quarter; and official, $313 million received in first half of year, of which $285 million was repaid in the third quarter, and $28 million was repaid in the fourth quarter).

The marked improvement in the current account from 1960 to 1961 was due wholly to the reduction in the trade deficit to about the same amount as in 1959. The surplus on services, which had fallen sharply in 1960, continued to decline as a result of increasing government expenditures abroad. Net government expenditures totaled almost $950 million—$150 million higher than in 1960 and almost $300 million higher than in 1959. The increase from 1960 to 1961 mainly reflected higher net military expenditures and larger grants of development aid.

The volume of exports was about 2½ per cent greater than in 1960 while imports declined somewhat less; the terms of trade, however, improved by more than 3 per cent, the first substantial improvement since 1957–58. The principal factor in lower import expenditure was the 7½ per cent reduction in the volume of imports of industrial materials, which had risen much more during the preceding year. The volume of imports of raw materials in 1961 was reduced to about the same level as in 1959, but imports of semimanufactures (purchased mainly from other industrial countries) remained about 20 per cent higher than in that year. Expenditure on imports of food, beverages, and tobacco was reduced by about 3½ per cent from 1960 to 1961, although the volume was maintained; expenditure on fuels remained almost unchanged in spite of a 4½ per cent increase in volume. For finished manufactures, however, expenditure rose by 8 per cent.

Exports rose at the end of 1960 and beginning of 1961, but did not continue to increase during most of the remaining months. Although exports to the United States increased sharply in the latter part of 1961, and exports to other industrial countries rose steadily throughout the year, these increases were offset by the declining trend of exports to primary producing countries. In the last quarter of 1961, the value of exports to the primary producing countries was about 7–8 per cent lower than a year earlier, while exports to manufacturing countries in Western Europe and Japan rose by 25 per cent and exports to the United States were 10 per cent higher than those in the last quarter of 1960, when they were unusually low.

A reduction from 1960 to 1961 of $170 million in the net outflow of official capital resulted from advance debt repayments of $200 million by France and the Federal Republic of Germany. The scale of new intergovernment lending was almost unchanged, but the net outflow of other official long-term capital rose slightly. The net movement of private long-term capital changed from an inflow in 1960 to an outflow in 1961 mainly because of the exceptional inflows of private capital in 1960 on account of the Ford Motor Company transaction ($367 million) and of the receipt of $67 million compensation from the United Arab Republic. Private investment abroad by the United Kingdom was about the same as in 1960, when allowance is made for the Egyptian payment in that year; there was, however, a decrease in direct investment by businesses other than oil and insurance, and an increase in portfolio and other investment. Similarly, apart from the Ford transaction, net private long-term investment in the United Kingdom was about $110 million higher in 1961 than in 1960, direct investment declining by a similar amount, and portfolio investment almost doubling.

When the assistance received under the Basle arrangements is excluded, the net outflow of private short-term capital to non-sterling areas totaled about $1,000 million during the first half of 1961, compared with an inflow on the same scale during the second half of 1960. The outflow continued during July, but there seems to have been little net movement of short-term funds over the second half year as a whole.

An improvement in the balance of payments position of the overseas sterling countries as a group, mainly resulting from a sharp reduction in their current account deficit with non-sterling countries, contributed toward easing the pressure on sterling in 1961. While exports to Western Europe, like those to the United Kingdom, failed to increase, exports to North America were 8 per cent higher in value than in 1960, and exports to all other non-sterling countries rose substantially faster, as a result of sharp increases in shipments to Japan and to the countries in the Soviet area. There was a slight reduction in imports from the United Kingdom, Western Europe, and North America. The total deficit on current account, more than $1,400 million, was about $600 million lower than in 1960; over three fourths of the improvement was in transactions with the non-sterling area. The net inflow of capital into the overseas sterling area countries was somewhat larger than in 1960 and exceeded the current account deficit. The movement of long-term capital from the United Kingdom increased slightly, to more than $700 million.

The total official gold and foreign exchange holdings of the overseas sterling countries rose by about $500 million in 1961, to about the same figure as at the end of 1959. Holdings of gold and currencies other than sterling were considerably higher at the end of 1961 than two years earlier, however, while official sterling holdings, although rising by $190 million in 1961, were reduced in the two-year period. The improvement in reserves was achieved in part by net drawings of $328 million from the Fund; these comprised large drawings by India and Australia, and smaller drawings by Ceylon and South Africa. The increase in reserves in 1961 accrued mainly to Australia and South Africa, and much exceeded their combined drawings from the Fund; India and Ceylon barely maintained their reserves in spite of their drawings. There was some decline in the combined reserves of all other overseas sterling countries.

The position of sterling at the end of 1961 was considerably stronger than a year earlier, as a result of the substantial reduction in volatile short-term funds held by foreigners. However, an increase of less than $100 million in centrally held gold and foreign exchange reserves, and a reduction of $880 million in sterling liabilities to holders outside the sterling area (and of only $450 million in total sterling liabilities to overseas holders), was achieved at the cost of an increase of $1,050 million in outstanding debt of the United Kingdom to the Fund between December 1960 and December 1961.

During the first quarter of 1962, the identified balance of current transactions was slightly in surplus for the first time since the third quarter of 1959. When allowance is made for unrecorded current and long-term capital transactions (which are likely to have accounted for a considerable part of the large item for errors and omissions), there was clearly a rather substantial basic surplus. Nevertheless, the greater part of the improvement in the reserve position over the period was due to a renewed heavy inflow of short-term funds into London. A substantial part of the inflow was in foreign currencies deposited with commercial banks and converted by them into sterling for employment in the United Kingdom. About one third of the $300 million recorded inflow of short-term capital, shown in Table 14, was offset by the reduction in private sterling holdings of non-sterling area residents; but including unidentified transactions, the total inflow of short-term capital probably exceeded this amount. The reserve position of the United Kingdom, including its IMF position, improved by nearly $400 million, and would have shown an even larger increase but for Australia’s repurchase from the Fund of about $170 million, which correspondingly reduced sterling liabilities to official institutions in the rest of the sterling area.

Federal Republic of Germany

Changes in the balance of payments of Germany in the course of 1961 contributed substantially toward equilibrium in international payments. The surplus on goods and services continued to increase between the second half of 1960 and the first half of 1961, but was reduced by almost 50 per cent in the second half year and declined still further in the first quarter of 1962 (Table 15). The net inflow of private and official long-term capital, excluding special transactions, declined between the second half of 1960 and the first half of 1961 and was followed by a substantial outflow in the latter half of 1961. The basic surplus on account of goods and services and long-term capital transactions during the first half year, again excluding special transactions, totaled almost $800 million. In the second half year, it disappeared. At the same time, a substantial outflow of short-term capital (other than commercial bank net foreign exchange assets but including errors and omissions) replaced the inflow during the first half year, which had exceeded that in the entire year 1960.

Table 15.Federal Republic of Germany: Balance of Payments Summary, 1960—First Quarter 19621(In millions of U.S. dollars)
19601961196019611962
First halfSecond halfFirst halfSecond halfFirst quarter
A. Goods, services, and transfer payments
Exports f.o.b.11,41012,6355,4585,9526,1616,4743,160
Imports c.i.f.−10,101−10,912−4,896−5,205−5,235−5,677−2,988
Other merchandise−45−122−7−38−34−88−43
Trade balance1,2641,601555709892709129
Paid services to foreign troops938945462476495450246
Other services−430−948−147−283−344−604−185
Total goods and services1,7721,5988709021,043555190
Transfer payments−694−869−345−349−370−499−238
Total1,07872952555367356−48
B. Long-term capital
Transactions in bonds3337249284156−849
Transactions in shares−9283−827314613737
Other private long-term capital−90−141−55−35−68−7322
Advance debt redemption−780−780
Other government long-term capital−283−293−134−149−116−177−50
Repayments on post-EPU claims27823677201661703
Other Bundesbank assets (increase –)2−25−20112−37−29−1721
Total204−824−133337−625−19922
C. Total(A + B)1,282−9539289048−143−26
Total, excluding certain extraordinary transactions31,028652303725793−141−30
D. Short-term capital, n.i.e. (including net errors and omissions)
590440294296781−341133
E. Commercial bank net liquid foreign assets (increase –)347−2623389−801539−692
F. IMF position and net reserves
IMF position−40−329−28−12−134−19575
Bundesbank liabilities45−2312−7141−16457
Foreign exchange (increase –)5−1,850955−873−977501454456
Monetary gold (increase –)−334−686−135−199−536−150−3
Total−2,219−83−1,024−1,195−28−55585
Sources: Deutsche Bundesbank, Monthly Report, May 1962, and supplementary data made available by the Bundesbank.

No sign indicates credit; minus sign indicates debit.

Covers IBRD bonds and notes and repayments received on consolidated credits.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption, (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes and repayments received on consolidated credits. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

Excluding liabilities to the IMF.

Foreign exchange covers freely usable foreign exchange and earmarked assets.

Sources: Deutsche Bundesbank, Monthly Report, May 1962, and supplementary data made available by the Bundesbank.

No sign indicates credit; minus sign indicates debit.

Covers IBRD bonds and notes and repayments received on consolidated credits.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption, (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes and repayments received on consolidated credits. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

Excluding liabilities to the IMF.

Foreign exchange covers freely usable foreign exchange and earmarked assets.

In the first half of 1961, special official transactions, which, owing to heavy repayments of post-EPU debt, had given rise to a net inflow of $160 million in the second half of 1960, provided a net outflow of $750 million in the first half of 1961, mainly as a result of the advance repayments in April and May of debts arising out of postwar economic aid from the United States, the United Kingdom, and France. The commercial banks increased their net foreign exchange holdings by $800 million. Consequently, there was only a slight increase in official reserves, whereas the increase would have been greater than during the previous six months except for those extraordinary official transactions and the success of measures taken to encourage the commercial banks to increase their liquid foreign assets. In the second half of 1961, substantial repayments of post-EPU debts to Germany were offset by large purchases of IBRD bonds and notes. The disappearance of the basic surplus and the outflow of short-term capital would have resulted in a considerable reduction of reserves except for a large-scale repatriation of commercial bank funds at the end of the year. In the first quarter of 1962, when the basic balance showed a very slight deficit, the renewed outflow of bank funds was responsible for the decline of almost $600 million in official reserves (including the IMF position).

The marked lessening in the course of 1961 of the underlying imbalance of the German payments position was a reflection both of internal developments and of measures taken by the authorities to reduce the payments surplus. The slowing down of the expansion of output associated with a shortage of labor, the more marked upward movement of prices than in recent years consequent upon substantial increases in wages and salaries and smaller gains in productivity, and the continuing rise in money incomes, generally tended to lessen the growth of exports or to increase expenditures on imports of goods and services. The revaluation of the exchange rate in March 1961 influenced the balance of trade in the same direction but had a more immediate impact in stimulating private short-term capital movements, as discussed elsewhere in this Report. Monetary measures adopted to halt or reverse the inflow of foreign funds (see Chapter 4) became increasingly effective as expectations of exchange appreciation gradually disappeared following the revaluation. The Berlin crisis also stimulated an outflow of short-term capital later in the year.

The trade surplus increased by about $340 million from 1960 to 1961, but was sharply reduced in the last quarter of 1961 and the first quarter of 1962. Owing to the backlog of unfilled orders, the effects of revaluation upon exports were felt only gradually. The stimulation of imports as a result of the revaluation was offset in part by a reduction in raw material inventories and the slowing down of industrial expansion. There was no increase from 1960 to 1961 in the dollar value of imports of raw materials and semifinished manufactures; imports of food and feeding stuffs, which had risen much less than other groups from 1959 to 1960, rose by about 8 per cent, and imports of finished goods by about 18 per cent. Import prices in deutsche mark were about 4 per cent lower than in 1960, while the unit value of exports changed very little and their prices in foreign exchange rose almost in line with the change in the exchange rate. The volumes of both exports and imports rose less than from 1959 to 1960, increasing by 6 per cent and 7½ per cent respectively, against increases of 15 per cent and 20 per cent in the earlier period. But while the increase in imports was maintained in the last quarter of 1961, exports were then slightly lower than a year earlier.

The surplus on services (excluding freight and insurance included in the cost of imports), which amounted to $450-500 million in 1959 and in 1960, disappeared in 1961, owing to greatly increased expenditures by German tourists, a larger outflow on account of interest, profits and dividends, and rising payments abroad by the growing numbers of foreign workers employed in Germany. Receipts for services to foreign troops remained about the same as in 1960. At the same time, net transfer payments to foreigners rose by $175 million.

Over the year the net outflow of private and official long-term capital (other than the special transactions referred to above) was about the same as in 1960, but there were substantial changes in the composition of private capital movements. Foreign purchases of German fixed-interest securities were much lower than in 1960, but there was a substantial inflow of other private long-term capital, in contrast to a net outflow in 1960.

One of the major aims of recent monetary and fiscal policies has been to provide more favorable circumstances for private long-term capital exports. A net inflow of private long-term capital, which had reached substantial proportions in the last quarter of 1960 and the first quarter of 1961, diminished sharply in the second quarter of 1961 and was replaced by a net outflow in the third. However, the inflow was resumed to a small extent in the last quarter of 1961 and to a larger degree in the early months of 1962.

The outflow of official long-term capital other than advance debt repayments again amounted to about $275-300 million but government transfer payments were nearly $100 million higher than in 1960, mainly because of higher indemnification payments, which made up nearly three fourths of the total. Official contributions for development aid increased only slightly as a result of commitments undertaken during 1961, but they are expected to amount to about $625 million a year in 1962 and 1963.

France and the Franc Area

The accumulation of net reserves by France, including reserves held for other countries in the franc area, exceeded $1,000 million in 1961, almost double the increase in 1960 (Table 16). The greater accumulation in 1961 was due primarily to the large increase in the recorded basic surplus of France with non-franc area countries; the surplus on goods and services, private transfer payments, and long-term private and government contractual capital transactions rose by almost $400 million, to about $1,170 million. The change from a deficit to a surplus on account of settlements by metropolitan France on behalf of other franc area countries contributed another $100 million to the rise in the over-all surplus. The outflow of advance repayments of long-term official debt increased by more than $100 million from 1960 to 1961, but this was largely offset by an inflow of commercial bank funds, which had shown little net movement in 1960.

Table 16.Franc Area: Balance of Payments Summary, 1959-611(In millions of U.S. dollars)
19601961
195919601961First halfSecond halfFirst halfSecond half
I. Metropolitan France
A. Goods, services, and transfer payments
Trade balance436923967814167229
services274551462269282270192
Total goods and services710643858347296437421
Transfer payments31−970−3−62842
Total741634928344290465463
B. Long-term capital
Private567305359181124211148
Advance debt redemption
−185−320−15−170−40280
Other official long-term capital−274−169−119−34−135−14−105
Total293−49−80132−181157−237
C. Total (A + B)1,034585848476109622226
Total, excluding advance debt redemption….7701,168476294639529
D. Private short-term capital−164−42−117−30−12−81−36
II. Rest of Franc Area
E. Net transactions with non-franc area59−1972−7−125121
III. Total Franc Area
F. Net errors and omissions1088111−16242784
G. Commercial banks assets (net)386−14105−3117150−45
H. Reserve movements
IMF position−16−186−225−55−131−28−197
Other liabilities−4602757−128−1269
Foreign exchange (increase –)−407−8−371−75−67−350−21
Monetary gold (increase –)−540−351−480−261−90−379−101
Total−1,423−518−1,019−392−126−769−250
Source: Data provided by the French authorities.

Groups A through D cover settlements by institutions in Metropolitan France, on account of transactions of any part of the franc area with the non-franc area and Group E covers similar settlements by institutions in the rest of the franc area. This distinction is administrative and does not necessarily coincide with a division between transactions for account of Metropolitan France and those for account of the rest of the franc area Groups G and H cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world, but exclude changes in the independent reserves of countries in the rest of the franc area. No sign indicates credit; minus sign indicates debit.

Source: Data provided by the French authorities.

Groups A through D cover settlements by institutions in Metropolitan France, on account of transactions of any part of the franc area with the non-franc area and Group E covers similar settlements by institutions in the rest of the franc area. This distinction is administrative and does not necessarily coincide with a division between transactions for account of Metropolitan France and those for account of the rest of the franc area Groups G and H cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world, but exclude changes in the independent reserves of countries in the rest of the franc area. No sign indicates credit; minus sign indicates debit.

More than $300 million of the increase in France’s surplus with non-franc area countries was due to a large trade surplus, on a payments basis, following a surplus of moderate amount in 1960, and a large one in 1959. An increase in the net inflow of private long-term capital, and a reduction in the outflow of official long-term capital other than advance repayments, contributed about $50 million each to the rise in the basic surplus. In addition to these recorded changes, a positive balance of more than $100 million for errors and omissions in the provisional estimates probably represents, for the most part, an understatement of the increase in the positive balance in various elements of the payments balance just mentioned.

The increase in France’s recorded surplus on goods and services, private transfer payments, and long-term capital transactions other than advance debt repayments was due mainly to increases of about $240 million each in the surplus with other members of the European Economic Community (EEC) and with the rest of Western Europe (Table 17). In transactions with EEC countries, the principal changes were higher transfer payments by Germany and a substantial increase in the trade surplus with the others. The net inflow of private long-term capital from EEC countries amounted only to about $50 million, but the net inflow from other Western European countries increased sharply, to nearly $140 million. The large surplus with the United States and Canada was reduced by more than $100 million, principally as a result of an increase in the deficit on trade with those countries. However, the heavy net inflow of private long-term capital from them continued; it totaled $150 million in 1961.

Table 17.Metropolitan France: Changes in Basic Elements of Balance of Payments Between 1960 and 1961, by Areas1(In millions of U.S. dollars)
Changes in Net BalancesActual

Payments

Balance of

Basic

Elements,

1961
Goods,

services,

and

transfers
Private

long-term

capital
Government

long-term

capital2
Total,

cols. 1-3
(1)(2)(3)(4)
European Economic Community220414238348
Other Western European countries1027263237416
North America−11616−27−127356
Eastern Europe−27−1−2860
Rest of world3115−3778−12
Total, non-franc area29454503981,1684
Source: Data provided by French authorities.

The table covers settlements by institutions in Metropolitan France on account of transactions of any part of the franc area with the non-franc area; see footnote 1 to Table 19.

Excluding advance repayments of official debt.

Including international institutions.

Table 16, item C, excluding advance debt redemption.

Source: Data provided by French authorities.

The table covers settlements by institutions in Metropolitan France on account of transactions of any part of the franc area with the non-franc area; see footnote 1 to Table 19.

Excluding advance repayments of official debt.

Including international institutions.

Table 16, item C, excluding advance debt redemption.

Changes in the timing of payments tended to exaggerate the trade surpluses in 1959 and 1961 and to reduce that for 1960. Favorable changes in leads and lags, following devaluation, increased the surplus for 1959; the lengthening, in 1960, of the time accorded for repatriation of export proceeds, and the consequent delaying of export receipts from 1960 to 1961, diminished that for 1960. Otherwise there would have been an increase in the trade surplus both from 1959 to 1960 and from 1960 to 1961. Moreover, if the entries reflecting the extraordinary repatriation of private long-term capital in 1959 were eliminated, the basic balance would also show a continued rise from year to year during the period 1959-61, and the surplus for 1961 would considerably exceed that for 1959.

Customs data (with import values approximately adjusted to an f.o.b. basis) indicate that the trade surplus with non-franc areas in 1961 was about $220 million larger than in 1960, (and about $270 million larger than in 1959). The value of exports was about 11 per cent higher and that of imports about 7 per cent higher, following an increase of more than 25 per cent for each from 1959 to 1960. Total exports rose substantially less from 1960 to 1961, as exports to the franc area declined; imports from the franc area increased by about 5 per cent. As in 1960, the most marked expansion in exports to non-franc countries was in capital goods and agricultural products. The value of each of these groups rose by more than 25 per cent, following increases of 45 per cent from 1959 to 1960. The rapid growth of these exports in recent years has been made possible, on the one hand, by the extensive re-equipment and expansion of capacity in the capital goods sector that has been carried out and, on the other, by the heavy increases in agricultural production, and concomitant agricultural surpluses, that have resulted from the application of more modern techniques. French exports of cereals and sugar, for example, tripled in value between 1959 and 1961. In 1960, production of cereals was nearly one fifth greater than its average in 1956-58, and production of sugar had risen by nearly one half.

Imports of raw materials from non-franc countries failed to increase following a large rise from 1959 to 1960, and imports of petroleum products again declined. Imports of semimanufactures and capital goods rose much less rapidly than from 1959 to 1960. However, imports of finished consumer goods again increased by almost 50 per cent, perhaps reflecting further liberalization.

After April 1961, only a very limited number of industrial products remained subject to quantitative restrictions; a few (notably coal, petroleum products, and aeronautical equipment) were subject to state trading. In addition to reducing customs duties on imports from EEC countries, France took a first step in 1961 toward bringing the duties on imports from other areas into line with the common external tariff of the EEC.

The lowering of tariff barriers between the EEC countries, and the closer integration of those countries through increasing commercial relations and interconnected private investment, has recently encouraged a much more rapid expansion of French trade with other EEC countries than with the rest of the world, excluding the franc area. From 1959 to 1960 both exports to, and imports from, EEC countries rose almost twice as fast as trade with all other non-franc areas. From 1960 to 1961 three fourths of the increase in exports, and almost all the increase in imports, was in trade with the EEC.

When allowance is made for seasonal variations (particularly in the timing of official capital movements, which are normally heavier in the second half of the year), the strength of the French balance of payments appears to have been sustained throughout 1961. A substantial further increase in reserves in the early months of 1962 seems to have reflected the continuation of a strong underlying payments position.

Italy

The over-all surplus of Italy’s balance of payments, as measured by the increase in the net foreign exchange assets of the banking system ($500 million), was slightly greater in 1961 than in 1960 (Table 18). The surplus fell by more than $250 million between the first half of 1960 and the same period of 1961, but rose by more than $300 million between the second halves of the two years. In the first quarter of 1962, however, there was an over-all deficit, and the net foreign exchange assets of the banking system declined by $220 million. While the timing of tourist receipts and other seasonal factors tend to make the balance of payments of Italy more favorable in the second than in the first half of the year, the recent change from surplus to deficit cannot be explained only by such factors. It also reflects a deterioration in the seasonally adjusted trade balance (see Chart 4, page 83) and most likely some outflow of capital.

Table 18.Other Manufacturing Countries of Western Europe, and Japan: Balance of Payments Summaries, 1960 and 19611(In millions of U.S. dollars)
19601961
Balances ofIncrease (—) or Decrease inBalances ofIncrease (—) or Decrease in
Goods, services, and private transfersPrivate capital2Official transfers and capital 3Commercial bank net short-term assetsReserves 4Goods, services, and private transfersPrivate capital2Official transfers and capital 3Commercial bank net short-term assetsReserves 4
Austria−5771−3735−12−5139−18−141
Belgium-Luxembourg160−848828−19210636−68196−270
Denmark−6142−714842−9666629−5
Italy352151−47−333−12354971−11711−514
Netherlands345−17−26105−407157−114−147166−62
Norway−10612627−29−209156−7573
Sweden−11674−194−511616914−4−195
Switzerland94231−64….−261−150586….….−436
Japan224−67−47394−5045−91833−655523985
Source: Based on data reported to International Monetary Fund. For 1961, the data for some countries are provisional and are not comparable with those for 1960.

No sign indicates credit; minus sign indicates debit.

This item is a residual and includes net errors and omissions.

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

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

Excluding gold holdings not previously counted as reserves.

Source: Based on data reported to International Monetary Fund. For 1961, the data for some countries are provisional and are not comparable with those for 1960.

No sign indicates credit; minus sign indicates debit.

This item is a residual and includes net errors and omissions.

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

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

Excluding gold holdings not previously counted as reserves.

Unfortunately, the statistics do not permit an accurate analysis to be made of changes in the balances of various current and capital transactions; it is not possible to determine to what extent the large amounts reported for the repatriation of Italian bank notes ($185 million in 1960 and $330 million in 1961) arose from current transactions or from either long-term or short-term capital transactions, although it seems likely that they refer for the most part to transactions on capital account. The recorded surplus on “goods, services, and private transfers” (from which are excluded all transactions paid for in repatriated bank notes) rose from about $350 million in 1960 to $550 million in 1961, but remained some $200 million lower than in 1959. The trade deficit was reduced by about $100 million, to $530 million, mainly because of a reduction in the rate of accumulation of raw material inventories. The value of imports rose by about 11 per cent and exports by 14 per cent. Net receipts from tourism rose by about $100 million for the second consecutive year; there was also an 8 per cent increase in emigrants’ remittances, which amounted to $230 million in 1961. During the course of 1961, exports rose at a faster rate than imports, and the seasonally adjusted trade balance improved after the first quarter of the year; however in the early months of 1962 exports failed to expand, while imports rose markedly.

There was a slight rise in the net outflow on account of official transfers and capital movements. The recorded net inflow of foreign private capital again increased by about $160 million and exceeded $600 million in 1961, while the recorded outflow of Italian capital totaled about $100 million, as in 1960. However, since the inflow of lira notes suggests a substantial unrecorded outflow of private capital, the figure for foreign private capital is likely to be overstated and that for Italian capital understated. Many of the notes are believed to have been deposited in foreign bank accounts and utilized mainly to acquire Italian securities held abroad, a technique used for tax evasion purposes. If, in fact, most of the notes reflect capital transactions, the net inflow of private capital appears to have been moderate in both 1960 and 1961. The net inflow of private capital may be further reduced, or reversed, as a result of legislation passed in July 1961 to facilitate the granting of credits abroad.

Netherlands

The Netherlands balance of payments recorded a small deficit in 1961, after several years of surplus. The basic balance showed a deficit of about $40 million, compared with a surplus of about $300 million in 1960. The net outflow of short-term funds and unidentified capital transactions seems to have almost disappeared in 1961. A small increase in official reserves including the net IMF position, following a substantial rise in 1960, was associated with the continued inflow of commercial bank funds from abroad (Table 18).

The surplus on goods and services and private transfers, which had been considerable in 1960, was greatly reduced in 1961, mainly as a result of the appearance of a large trade deficit; there had been a small trade deficit in 1960 and approximate balance in 1958 and in 1959. While the dollar value of imports rose by nearly 9 per cent, that of exports was only about 2 per cent higher than in 1960. Net earnings from transportation services and investment income increased, but those from other private service transactions fell considerably.

There was a substantial net outflow of private and official long-term capital in 1961, whereas in 1960 the net movement in each had been small; on the official side, repayments increased sharply. The greater outflow of private long-term capital arose mainly from a sharp increase in purchases of foreign securities by Dutch residents; this was stimulated by the reopening of the capital market to approved foreign bond issues in April, for the first time in more than five years. There was a marked decline in sales of Dutch securities abroad; however, long-term credits and net direct foreign investment resulted in a smaller outflow than during the preceding year.

Japan

Japan’s balance of payments deteriorated sharply in 1961. There was a deficit of $918 million on account of goods, services, and private transfers, compared with a surplus of $224 million in 1960 and one of $441 million in 1959. Net official reserves (including the IMF position) declined by about $400 million, after having risen by about $500 million in 1960 (Table 18).

The deterioration was brought about by a slackening in the growth of exports and a rapid increase in imports, stimulated by the investment-induced boom. The trade balance was in deficit by $592 million, in contrast to a surplus of $268 million in 1960, and there was a marked increase in net expenditures for shipping and other services. The value of imports rose by nearly 30 per cent from 1960 to 1961, following an increase of a little less than 25 per cent from 1959 to 1960; but exports rose by less than 5 per cent, compared with an increase of 17 per cent between the preceding two years. The slower growth of exports reflected the recession in the United States (exports to the United States and Canada declined by more than 3 per cent) and the failure of the imports of primary producing countries to rise appreciably, as well as the effects of strong demand on the home market. While machinery exports increased by about 20 per cent, all other major groups showed declines; textile exports, for example, fell by nearly 6 per cent.

Notwithstanding the worsening of the balance of payments, the authorities started to accelerate their program for liberalization of trade and exchange transactions, with the aim of freeing 90 per cent of imports from restriction by October 1962. The prospect of increased foreign competition as a result of import liberalization provided an important stimulus to investments in modernization of plant and equipment during 1961.

Japanese investment abroad is also being encouraged. Although there was only a small net outflow of private long-term capital ($41 million, compared with $82 million in 1960), private long-term investment abroad increased by more than $120 million, to $266 million, chiefly as a result of increased loans and trade credits, which more than doubled, and a moderate increase in direct investment, which totaled $93 million. These increases were more than offset, however, by higher foreign private investment in Japan. Direct and portfolio investments by foreigners, which had been small in 1960, rose to $61 million and $72 million, respectively, under the stimulus of strong investment incentives within the economy; portfolio investment, in particular, was greatly encouraged by the shortening of the waiting period for repatriation of foreign capital and the easing of restrictions on the transfer of yen funds held by nonresidents. Long-term loans and trade credits provided by foreigners rose by more than $50 million, to $92 million.

The effect on reserves of the large deficit on current and long-term capital account was mitigated by the continued inflow of short-term funds. The main elements in this inflow—a further large increase in the outstanding amount of import usance bills and increased borrowing from foreign banks—were reflected in a further substantial decline in the net foreign asset position of commercial banks (Table 18). Official holdings of foreign exchange fell by $382 million and official liabilities increased by $97 million, but gold holdings rose slightly and the net IMF position improved by $55 million as a result of yen drawings made by the United Kingdom and India.

In order to help to provide needed foreign exchange while the domestic remedial measures were taking effect, the authorities concluded, in November 1961, a credit arrangement with U.S. commercial banks for $200 million (of which half is reflected in the rise in official liabilities referred to above and half was drawn in January and February 1962). In January 1962, arrangements were made for a stand-by of $305 million with the Fund and for credits with U.S. commercial banks under the guarantee of the Export-Import Bank of Washington to cover $125 million of imports of U.S. agricultural products; nearly $60 million of the latter amount had been drawn by the end of April 1962.

In the early months of 1962, industrial production ceased to expand and the payments position eased. Imports declined slightly, and on a seasonally adjusted basis exports expanded more rapidly than during 1961 (see Chart 4, page 83). Foreign exchange reserves rose by about $70 million during the first four months of 1962—that is, by rather less than half the amount of drawings on special credits referred to above.

General Review of Primary Producing Countries

The change from 1960 to 1961 in the aggregate basic deficit in the balance of payments of the primary producing countries appears quite small (Table 11, page 113). An appreciable deficit emerged in the second half of 1960, but was reduced thereafter and was almost eliminated in the latter half of 1961. These movements are largely explained by the changes in trade between the primary producing countries and the manufacturing countries that are reviewed in Chapter 4. It is noteworthy that the primary producing countries thus continued to be in deficit on their basic accounts in 1961 although this was a year of high activity in Western Europe and of increasing output in the United States and Canada. In both 1960 and 1961, the basic deficit was largely covered by an inflow of short-term capital, and the aggregate reserves of the primary producing countries, with allowance made for their positions with the Fund, did not change much in either year.

However, the changes in the balance of payments positions of the more industrialized countries (Canada, Australia, New Zealand, and South Africa), on the one hand, and the developing countries, on the other, were quite large and divergent. As Table 11 shows, the industrial group considerably reduced its aggregate basic deficit from 1960 to 1961, whereas that of the developing countries appears to have increased slightly. These divergent changes were brought about mainly by opposite movements in the goods and services balances of the two groups (Table 19). Exports of the industrial group were considerably higher and imports were lower in 1961 than in 1960. In contrast, the exports of the developing countries rose by only a minor amount, which was insufficient to sustain the increase in their imports by about 3 per cent. While the total deficit of these countries on goods and services account is estimated to have increased from about $3.9 billion in 1960 to about $4.6 billion in 1961, part of the increase was matched by a higher inflow of aid and long-term capital, in part representing consolidation in 1961 of short-term debts accumulated in 1960. Their total balance on current and long-term capital account is estimated to have deteriorated by only some $0.3 billion (Table 11). These figures for the aggregate balances of the two groups of primary producing countries on selected accounts should, of course, be regarded as indications of orders of magnitude rather than precise estimates.

Table 19.Primary Producing Countries: Balance of Payments Summaries, 1960 and 1961(In millions of U.S. dollars)
Balance of Goods, Services, and Private Transfer Payments 1Balance of Capital and Central Government Transfer Payments 1,2Increase (-) or Decrease in Official Reserves and in Net IMF Position3Official Reserves, End of
1960196119601961196019611961
Canada−1,192−9201,1521,20840−2882,064
Latin American Republics
Argentina−205−558466330−261228461
Brazil−551−254526434925−955635
Chile−155−232147140689274
Colombia−85−11148423769149
Dominican Republic4929−70−4621179
Mexico− 182−78162512027411
Peru2910−1124−18−34102
Uruguay−82−1681231−7194
Venezuela442450−557−47911529542
Other7−195−2111801891522190
Total−935−971972623−373482,695
Overseas sterling area8
Australia−858−2495005793589−33091,3489
Burma−26−1718889112
Ceylon−57−261316441090
Ghana−95−15250−4845200182
India−745−66367053275131665
Libya−32−184523−13−584
Malaya122−7556−127−4982410
New Zealand−66−1462695405195
Pakistan−237−257252218−1539376
Rhodesia and Nyasaland−28−2725826−31226
South Africa4281−204−157200− 124394
U.K. Colonial Territories11−493−450527450−341,66912
Other13−98−7399105−1−32412
Total−2,609−1,8042,0031,935606−1316,477
Other
Ethiopia−12−241626−4−257
Indonesia−62−2301175−55225146
Iran−82−691610566−36208
Iraq−20−42−20−14043211
Philippines−64− 1009727−337344
Spain36217522154−384−329869
Sudan−3−613650−3311177
Syrian Arab Republic−62−265210101633
Thailand−351387−13−52….….
Turkey−117−15910714134141025237
United Arab Republic−86−1132468467221
Other15−1,053−1,2601,1681,278−115−182,915
Total−1,234−1,8961,7001,821−466755,118
Grand Total−5,970−5,5915,8275,587143416,354
Of which
More industrialized countries−2,112−1,0341,4741,725638−6913,901
Less industrialized countries−3,858 -−4,5574,3533,862−49569512,453
Sources: Based on data reported to the International Monetary Fund. For 1961, data for many countries are provisional.

No sign indicates credit; minus sign indicates debit.

Including net errors and omissions.

Reserve movements are generally the changes in gross official holdings of gold and foreign exchange assets as reported in International Monetary Fund, International Financial Statistics. Minus sign indicates an increase in assets, a gold subscription to the Fund, a repayment of a drawing on the Fund, or another reduction of Fund holdings; no sign indicates a decrease in assets, a drawing on the Fund, or another increase in Fund holdings.

Including $125 million of net receipts from swap transactions.

Including $215 million pledged as collateral.

Including drawings of $45 million on special loans from the Export-Import Bank of Washington.

Excluding Cuba.

Excluding Persian Gulf Territories, Singapore, and Hong Kong.

Including commercial banks.

Including all foreign assets of the Malaya-British Borneo Currency Board, which covers—in addition to the Federation of Malaya—Singapore, Sarawak, North Borneo, and Brunei.

Including Cyprus and Nigeria.

Including private as well as official holdings. Excluding Nigeria.

Iceland, Ireland, and Jordan.

Including drawings on special loans from the European Fund: $21.5 million in 1960 and $28.5 million in 1961.

China (Taiwan), Finland, Greece, Israel, Korea, Overseas French Franc Area. Portugal, Viet-Nam, and Yugoslavia.

Sources: Based on data reported to the International Monetary Fund. For 1961, data for many countries are provisional.

No sign indicates credit; minus sign indicates debit.

Including net errors and omissions.

Reserve movements are generally the changes in gross official holdings of gold and foreign exchange assets as reported in International Monetary Fund, International Financial Statistics. Minus sign indicates an increase in assets, a gold subscription to the Fund, a repayment of a drawing on the Fund, or another reduction of Fund holdings; no sign indicates a decrease in assets, a drawing on the Fund, or another increase in Fund holdings.

Including $125 million of net receipts from swap transactions.

Including $215 million pledged as collateral.

Including drawings of $45 million on special loans from the Export-Import Bank of Washington.

Excluding Cuba.

Excluding Persian Gulf Territories, Singapore, and Hong Kong.

Including commercial banks.

Including all foreign assets of the Malaya-British Borneo Currency Board, which covers—in addition to the Federation of Malaya—Singapore, Sarawak, North Borneo, and Brunei.

Including Cyprus and Nigeria.

Including private as well as official holdings. Excluding Nigeria.

Iceland, Ireland, and Jordan.

Including drawings on special loans from the European Fund: $21.5 million in 1960 and $28.5 million in 1961.

China (Taiwan), Finland, Greece, Israel, Korea, Overseas French Franc Area. Portugal, Viet-Nam, and Yugoslavia.

The difference in experience between the two groups of countries appears to have been accentuated by movements of short-term capital, which supported the improvement in the position of the more industrialized countries and brought about a major deterioration in that of the developing countries. As a result, the industrial group showed a striking improvement in its over-all balance of payments; an increase of some $700 million in official reserves and net positions with the Fund contrasted with a decline of some $640 million in 1960. The over-all position of the developing countries, which had shown a surplus of about $500 million in 1960, showed a deficit of about $700 million in 1961. A large portion of this deficit was financed by Fund resources; net drawings on the Fund by the developing countries amounted to some $450 million.

If Spain—the only developing country having a substantial addition to reserves in 1961 ($330 million)—is excluded, each of the three groups of developing countries was in approximate over-all balance in 1960, but in deficit in 1961. In 1961, as shown in Table 19, the reserves and net IMF position of the developing sterling countries fell by some $270 million; of the Latin American countries, by nearly $350 million; and of “all other countries,” excluding Spain, by about $400 million. The deterioration in the position of the latter countries was accounted for by an increase in the goods and services deficit, owing mainly to larger imports. In contrast, the less developed countries in Latin America and in the sterling area showed only minor changes in their trade and total goods and services balances, and the worsening of the over-all balance of payments in each group was attributable to a reduction in the net inflow on account of economic aid and capital movements (including unrecorded transactions) of the order of $250-300 million. In the sterling area countries there seems to have been some reduction in the inflow of foreign aid and capital. In Latin America, on the other hand, this inflow was apparently larger in 1961 than in 1960: net imports of capital from the United States, the main source of foreign funds, increased by some $400 million, and German long-term investment and IBRD disbursements were also somewhat larger than in the previous year; these three sources together provided $1.4 billion. The total net inflow on long-term and short-term capital account, including movements of Latin American funds, appears to have been substantially less than this amount. The difference may be attributable in part to repayments of short-term debts not included in the above figures; but the large discrepancy suggests that a considerable outflow of Latin American capital may have been responsible for much of the decline in the area’s reserve position.

Individual Primary Producing Countries

Canada

Canada’s current account deficit declined in 1961 to less than $1 billion, the lowest since 1955.1 The merchandise trade balance improved by more than $0.3 billion and showed a surplus for the first time since 1954. Exports responded to the growth in economic activity in the United States, and were also increased by substantial sales of wheat to China (Mainland) and Eastern Europe. In the second half of the year, they benefited from the reduction in the exchange value of the Canadian dollar. Merchandise imports continued to decline in the first half of the year, but rose in response to the recovery of Canadian economic activity in the second half. Four fifths of the improvement in the trade balance in 1961 was due to the rise in the export surplus with countries other than the United States and the United Kingdom. The deficit on account of services increased to a record total of some $1.1 billion and held the improvement of the current account balance to $0.2 billion.

Net inflows of capital in long-term forms financed a smaller proportion of the current account deficit in 1961 than in any postwar year except 1955. These inflows totaled $0.6 billion in 1961, compared with $0.8 billion in 1960. The main type of capital responsible for the decline was direct investment in Canada, which fell to $0.4 billion from a peak of more than $0.6 billion in 1960; the 1961 figure was, however, still relatively high. U.S. capital appears to have accounted for virtually the entire net inward movement of long-term capital in 1961, small flows to and from the other areas being about balanced.

The decline in the inflow of long-term capital was more than offset by an increase in that of short-term capital, which totaled $0.7 billion in 1961. During the year, the gold and foreign exchange assets of the Exchange Fund were augmented by about $230 million, the increase being largely concentrated in the first and last quarters of the year.

During the first quarter of 1962, the Canadian trade and current account deficit was somewhat larger than a year earlier. At the same time, inflows of capital were approximately balanced by outflows, and official reserves declined by $350 million. Pressures on the Canadian dollar continued in the following months. On May 2, a par value equivalent to 92.5 U.S. cents was established; and in June, Canada drew the equivalent of $300 million on the Fund and secured an amount equivalent to an additional $750 million in financing from foreign governments and central banks in support of the Canadian dollar.

Overseas Sterling Area

Australia’s exports rose by nearly 20 per cent from 1960 to 1961 and were the highest on record. Most of the advance was accounted for by a sharp rise in wheat shipments, partly to China (Mainland), and by increased exports of wool at slightly improved prices, but there was also a marked increase in other exports, including metals and manufactured goods. A continued rise in imports resulted in a sizable trade deficit through the first quarter of 1961. In April 1961, Australia drew the equivalent of $175 million from the Fund and obtained a stand-by arrangement. Subsequently, however, the restrictive policies adopted late in 1960 took effect and, as demand abated, imports slowed down considerably. In conjunction with the expansion of exports, this resulted in a rapid replenishment of reserves; and in September 1961 the stand-by was canceled. During the first half of the year, there was an unusually large inflow of short-term funds, reflecting, in part, the monetary restraint in Australia, although long-term investment from overseas probably also increased. Some of these shortterm funds were returned in the second half of the year, but the total new inflow of capital for the year as a whole was greater than in 1960. The improvement in the country’s payments position continued in the early months of 1962, exports remaining high while imports remained relatively low; and in March 1962, Australia repurchased from the Fund an amount equal to its 1961 drawing.

South African reserves, which had declined in 1960, increased in 1961 as the outflow of capital was halted and a sizable surplus on goods and services account developed. This was achieved, in the main, through curbing payments, although there was a rise in exports. Early in the year, controls on imports were tightened; and for the year as a whole, imports were 9 per cent less than in 1960. Furthermore, exchange allowances were curtailed for travel, for emigrants, and for some other types of remittance. A continued outflow of private funds, partly in the form of direct investment in Rhodesia, led to the imposition in the second half of the year of additional restrictions on capital movements. On the other hand, foreign credits were received from various sources, including the IBRD ($25 million) and German and Italian commercial banks ($20 million); some $75 million, including renewal of revolving credits, was provided by U.S. sources.

As a result, South African reserves, which had been declining through the first half of the year, showed an increase of some $170 million in the second half. The accumulation of reserves continued after the turn of the year, and $37.5 million drawn from the Fund in 1960-61 was repurchased in February and March 1962.

India’s balance of payments position in 1961 remained under considerable strain. Gross reserves had fallen by nearly $150 million in the course of 1960, in part as a result of a repayment of $72.5 million to the Fund; in 1961 they were maintained very close to their total at the end of 1960, but this was achieved by a drawing on the Fund of $122.5 million net. The deficit on account of goods and services was much less in 1961 than in 1960; the improvement in the trade balance was, however, partially neutralized by a considerable increase in the service payments on foreign loans. Export receipts increased by some 5 per cent, owing to larger shipments of tea and the expansion of a substantial number of other exports, including sugar, coffee, tobacco, cotton, wool, iron ore, and engineering products. Receipts for jute textiles also exceeded those in 1960; higher prices more than counterbalanced the effect of a smaller volume that was due to a shortage of jute. Imports were below those in 1960. The net inflow of capital and aid continued at a high rate.

The deterioration in the payments position of Ghana, which had been under way for a few years, continued in 1961 at a greatly accelerated rate. Official foreign exchange holdings declined by as much as $200 million. Export receipts were about the same as in 1960, as a sizable expansion in the volume of cocoa shipments offset the effect of a further sharp decline in prices. However, imports, which had increased sharply in the preceding two years, rose further in 1961, reflecting continued expansion in development expenditure and in consumption. Net payments on services also exceeded those in 1960. A large part of the decline in reserves, however, stemmed from a substantial net outflow of capital; loans of $28 million extended by the Government and other capital items amounting to $55 million by far outweighed small credits received from abroad.

The reserves held by the Central Bank of Nigeria declined by some $25 million in 1961. The trade deficit was slightly reduced, as exports rose somewhat more than imports. The latter were kept in check, despite the considerable wage and salary increases granted in 1960, as import duties were raised later in that year in order to restrain import demand.

Malaya’s exports were adversely affected by the sharp decline in rubber prices between 1960 and 1961. Though higher prices and receipts for tin provided some offset, total export receipts were much lower in 1961 than in the previous year. This development, in conjunction with some increase in imports and the continued large remittances of migrants, wiped out the surplus on current account. An increased net inflow of capital, however, permitted a further addition to reserves, though on a considerably smaller scale than in 1960.

The drain on Ceylon’s reserves in the last few years, caused by a considerable expansion of imports while exports remained sluggish, abated in 1961. Gross reserves, supported by a drawing of $11 million from the Fund, showed no further decline. Export receipts, in spite of increased earnings from tea, were somewhat smaller than in 1960, owing mainly to the sharp decline in prices and in receipts for rubber. However, credit restrictions and more rigid controls over imports imposed late in 1960 and early 1961 resulted in a reduction of imports.

The deterioration in the payments position of the other sterling area countries taken as a group was shared by most individual countries. Only a few, notably Iceland, Ireland, and Rhodesia, showed improvement in 1961 over 1960.

Latin America

Within the Latin American area, the most marked deterioration was in Argentina, where reserves, after allowance for changes in the net IMF position, declined by some $230 million, against an increase of some $260 million in 1960. This resulted, in the main, from a sharp increase in the trade deficit. Owing to a very poor wheat crop, shipments of grain were much smaller in 1961 and total export receipts declined by some $100 million. The greater part of the worsening in the trade balance, however, stemmed from an increase in imports, which reflected the reappearance of inflationary pressures in the country. Foreign investment continued on a large scale, but the total net inflow of foreign and domestic capital was less than in 1960.

The balance of payments of Chile also showed a serious deterioration in 1961. Although exports appear to have been slightly larger than 1960, a considerable rise in imports, related to a large expansion of domestic credit, increased the deficit on goods and services account. This deficit, coupled with a slightly reduced inflow of capital resulting in part from the termination of the expansion program by the large mining companies, caused a considerable drain on reserves. In spite of net drawings of nearly $60 million from the Fund, and a net increase of almost $20 million in other short-term foreign obligations, gross reserves declined by some $40 million. (A part of the remaining reserves of $74 million at the end of 1961 was pledged as collateral.) Early in 1962, measures designed to relieve balance of payments pressure were taken. They include the introduction of a dual exchange market, as well as restrictions on imports.

The balance of trade of Brazil improved in 1961 in spite of mounting inflationary pressures, largely because of a substantial depreciation of effective exchange rates which more than offset the increase in domestic prices. Exports increased by 10 per cent; the value of coffee exports was unchanged from 1960, but shipments of cotton and minor agricultural exports rose markedly, and those of iron and manganese ore continued their steady upward trend. Total imports, on the other hand, were virtually the same as in 1960. There was a marked improvement in the recorded balance on services account. During the year, a backlog of accumulated arrears and many short-term debts were liquidated, and gross reserves increased. This was facilitated by drawings of $60 million on the Fund and by receipts of over $250 million from foreign official institutions and commercial banks. Additional relief was provided by the postponement of approximately $100 million of amortization payments to European and U.S. suppliers, scheduled for 1961, and by an increase, from $28 million in 1960 to $84 million in 1961, in the amount of wheat imports received under U.S. Public Law 480.

The outflow of capital from Venezuela, which had caused a severe drain on reserves in recent years, slowed down in 1961. Export receipts were somewhat smaller than in 1960, mainly because of a decline in “minor exports”; shipments of iron ore declined, and receipts for coffee and cocoa remained below those in 1960. Imports were also reduced somewhat, and the surplus on goods and services account was much the same as in 1960. Gross reserves, which had declined by almost $900 million between 1957 and the end of 1960, showed only a minor decrease in 1961.

In 1961, Mexico’s receipts from exports and tourism exceeded those in 1960, while imports declined and foreign net investment was greater than in 1960. But there was a heavy outflow of short-term capital. The impact of this outflow on reserves was mitigated by drawing $45 million from the Fund.

The balances of payments of Peru and Colombia are discussed in Chapter 2.

Other Countries

In Indonesia, price inflation and lagging production were reflected in a seriously worsened balance of payments. A relaxation of import restrictions released repressed demand, and imports rose by some $200 million between 1960 and 1961. Though the decline in export earnings was partly caused by the sharp fall in rubber prices, a decline in production of tin greatly reduced shipments, in spite of high world demand and prices. The net inflow on account of aid and capital was nearly eliminated. The deficit was largely met by drawing down reserves and a net use of Fund resources, amounting to $34 million.

The deterioration in the payments balance of the Philippines in 1961 stemmed mainly from an increase in the merchandise trade deficit and a larger outflow of private capital. The increase in the trade deficit, in turn, was largely accounted for by a worsening of the terms of trade, primarily caused by a decline in the price for coconut products. Smaller receipts from official transfers and higher repayments on U.S. loans added to the strain and, in spite of the borrowing of $54 million from U.S. banks, reserves declined by $73 million. The corrective measures taken early in 1962 are mentioned in Chapter 4.

Both Morocco and Tunisia were adversely affected by poor crops, resulting from drought, which not only reduced exportable supplies but also necessitated larger imports of foodstuffs. In addition, there were increased imports of capital goods for the development of industries. In order to reduce the trade deficit, both countries introduced advance deposits on imports of consumer goods; in addition, Morocco raised customs duties on these goods. The payments problem of Morocco was further aggravated by the reduction of U.S. and French military expenditures in the country; in spite of continued U.S. aid, reserves fell in 1961, in contrast to 1960 when they had increased. The reserve position of Tunisia also deteriorated.

The pressure on Iran’s balance of payments eased in 1961, mainly as a result of substantial foreign aid and the measures adopted under the stabilization program. In addition, a better harvest and rising oil revenues contributed to the improvement. Foreign exchange reserves abroad showed an increase of $36 million, against a loss of $66 million in 1960. Early in 1962, Iran was able to make an unscheduled repurchase from the Fund.

All figures in this section are in U.S. dollars.

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