Chapter

Chapter 9: The Primary Producing Countries

Author(s):
International Monetary Fund
Published Date:
September 1963
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THE countries whose economic developments are the subject of this chapter are treated as a group because they are dependent on primary products for most of their export receipts. In other respects they are dissimilar. Some are industrially advanced while others are in the early stages of development. Some are endowed with rich natural resources, and some are not. The exports of some are based almost exclusively on one crop or product, while those of others are diversified. There are therefore considerable variations in the degree to which their export receipts vary from year to year as a result of price changes, and in their potential for expanding the volume of their exports.

For the purpose of considering their balances of payments, the primary producing countries are divided between the more industrialized and the less industrialized. The first group (Canada, Australia, New Zealand, South Africa, and Spain) comprises a few countries whose external position has recently been much more favorable than that of the majority of the primary producing countries. The second group is a residual, which includes all countries exporting mainly primary products other than those distinguished in the first group. While this second group includes some relatively advanced countries, it is heavily weighted by countries that are less industrialized; therefore, the collective outcome of the balances of payments of this group is fairly representative of the less industrialized members of it. The statistics for, and the discussion of, the countries in this second group refer only to those countries for which reasonably complete balance of payments statements are available, and exclude a number in the overseas franc area and in the Middle East and Far East that have been major recipients of government aid and private long-term capital.

Of the countries in the first group, Canada, Australia, New Zealand, and South Africa are unquestionably much more industrially advanced than the majority of the primary producing countries. Spain has been included in this group mainly because its inclusion with the less industrialized countries would distort the picture of these countries’ external position.

The domestic economic developments and policies of Canada have been reviewed in Chapter 7 because of their similarity to those of the other industrial countries, especially the United States. The varied domestic developments of the other four countries were closely related to their international transactions during 1962 (as, indeed, were Canada’s); therefore, domestic developments in these countries are considered country by country in connection with the review below of their balance of payments.

The next section of this chapter is devoted to a brief discussion of general financial developments in the less industrialized countries. The third section discusses general balance of payments developments in the primary producing countries; and the two final sections discuss the balance of payments developments in individual countries, and consider (wherever appropriate in this context) financial or general economic developments in them.

General Financial Developments in the Less Industrialized Countries

Several of the less industrialized countries continued in 1962 to follow policies of financial stability. But in others, as shown in Chapters 4 and 5, inflationary pressures have created serious difficulties. In some, the pressures have originated in attempts to finance economic development more rapidly than available domestic and foreign reserves would permit. In others, the weak fiscal positions, and the less highly developed monetary instruments available, have made the control of inflation difficult.

On balance, financial developments in 1962 in the less industrialized countries as a group were marked by somewhat more moderation than in 1961 in the rate of credit expansion, as measured by net government borrowing from the banking system and bank credit to the private sector (Table 22, Columns 6 to 11). Fewer countries experienced an excessive credit expansion, and some actually reduced domestic credit (Column 7), which none had done in 1961. Many of the remaining countries slowed the rate of growth of domestic credit. In some, this rate of growth was less than that of time and saving deposits (Column 13) and similar liabilities of the banking system (Column 15), so that in fact the effect of the banking system’s domestic operations was contractionary; in most instances, this was accomplished through a reduction in net government borrowing from the banking system (Column 9). Such contractionary action was generally accompanied by increases in international reserves (Column 5), while, in one country, Venezuela, the decline in reserves was halted. In most countries where net foreign assets increased in 1962, the increase was associated with a contraction, or only a very mild expansion, of domestic assets.

Table 22.Selected Less Industrialized Countries: Percentage Changes in Money Supply, 1955-62, and Factors Affecting Changes in Money Supply, 1961 and 1962
Change inChange inBank Credit to
Percentage ChangeNet ForeignDomesticNet GovernmentPrivate SectorInc. or Dec.
in Money SupplyAssets1Assets2Borrowing fromand OfficialInc. or Dec. inin Other
AnnualAs percentage of money supplyBanking System3EntitiesQuasi-Money4Liabilities5
averageat beginning of year
As percentage of money supply at beginning of year
1955-6019611962196119621961196219611962196119621961196219611962
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)
1. Argentina29113-8-12312041127974511.
2. Bolivia6818128-919111168528-122.
3. Brazil32506322687335263347119123.
4. Burma7310-5168-74-9422-34.
5. Ceylon365-6-717131613135-25.
6. Chile6331329-34-307210036643636102715146.
7. Colombia162521-4-23332515281733167.
8. Costa Rica5-314-121395-13118.
9. Dominican Republic6111-272241236-6-1218541-19.
10. Ecuador8313-81220411193114-2-110.
11. El Salvador1-4-6871126-5-51615-11-611.
12. Ethiopia76544533-1-44732-1212.
13. Ghana636-5-71-11068652641-184-1813.
14. Greece1615156430251119252429-3-1514.
15. Guatemala4142-108209811574-115.
16. Haiti-2134-18815310553-8-716.
17. Honduras1114-61821111710310-2-217.
18. Iceland610292241464834-8-95643485212618.
19. India6510-2-2131951188254219.
20. Indonesia 73242109-15-1968111499319181110-1820.
21. Iran....7..821-42518..421.
22. Iraq81128-18-6202013177334-3222.
23. Israel6161030203820-1-10-4330421129623.
24. Jordan811161423787103524.
25. Korea61947830-162769-163543341323-32225.
26. Lebanon7157176951-4-192104-6-1126.
27. Malaya4157815-91104532527.
28. Mexico10613-2113151-21217322128.
29. Morocco..616-8-6162061310712-329.
30. Nicaragua-1329-713824128124-6830.
31. Pakistan75-3812-21101137231.
32. Paraguay1427-217-42163-171823784-432.
33. Peru7131961741920-3-622268149433.
34. Philippines71713-3554251424023202314-634.
35. Sudan41916-9-9363524171218335735.
36. Syrian Arab Republic12614-1332516186710-28536.
37. Thailand710156311-58116152237.
38. Tunisia713-9-1025221219133524-338.
39. United Arab Republic48-2-5-1113291624-35213-2739.
40. Venezuela93-2-26-57-11-16-142-740.
41. Viet-Nam7313-12-11496287-1-541.
Source: International Monetary Fund, International Financial Statistics.

Foreign assets are reported in gross terms for a few countries. For most of these countries, foreign liabilities are unimportant and do not change markedly in the short run. Hence changes in gross foreign assets may be taken as an approximate reflection of changes in net foreign assets.

The sum of net government borrowing from the banking system (cols. 8 and 9) and bank credit to the private sector and official entities (cols. 10 and 11).

Monetary system’s claims on government (excluding official entities), less government deposits.

Includes time deposits excluding foreign currency deposits where they exist.

Includes changes in advance deposits on imports, counterpart funds, exchange profits, capital, and unclassified liabilities.

Data have been adjusted to eliminate effect of revaluation of foreign assets and liabilities.

Data for 1962 cover the 12 months ended September 1962.

Data for 1962 cover the 12 months ended June 1962.

Source: International Monetary Fund, International Financial Statistics.

Foreign assets are reported in gross terms for a few countries. For most of these countries, foreign liabilities are unimportant and do not change markedly in the short run. Hence changes in gross foreign assets may be taken as an approximate reflection of changes in net foreign assets.

The sum of net government borrowing from the banking system (cols. 8 and 9) and bank credit to the private sector and official entities (cols. 10 and 11).

Monetary system’s claims on government (excluding official entities), less government deposits.

Includes time deposits excluding foreign currency deposits where they exist.

Includes changes in advance deposits on imports, counterpart funds, exchange profits, capital, and unclassified liabilities.

Data have been adjusted to eliminate effect of revaluation of foreign assets and liabilities.

Data for 1962 cover the 12 months ended September 1962.

Data for 1962 cover the 12 months ended June 1962.

In contrast, sizable decreases in foreign reserves are evident in those countries where domestic credit expansion was excessive in 1962. In many of these countries, increases in quasi-money (essentially time and savings deposits) and similar liabilities of the banking system proceeded at a slower rate than in 1961, as a result of the loss of confidence engendered by the inflation. Therefore, there was a lowering of savings in monetary form, such as might have dampened the inflationary effects of the domestic credit expansion.

Central Bank Legislation

Realizing that a central bank is a highly important instrument in the conduct of economic policies, and in particular an important aid to effective control of the monetary system, a number of the less industrialized countries have either established such institutions, revised earlier statutes governing existing ones, or initiated steps directed to one of these ends. Legislation establishing central banks has been passed in Algeria (1963), Cyprus (1963), Guinea (1960), Jamaica (1960), Jordan (1960), Madagascar (1962), Mali (1962), Sierra Leone (1963), and Somalia (1960), and has been proposed in British Guiana, Kuwait, Lebanon, and Trinidad and Tobago; legislation revising statutes governing existing ones has been passed in El Salvador (1961), Ghana (1963), Nicaragua (1960), Peru (1962), and Venezuela (1960), and has been proposed in Afghanistan, Bolivia, and Ethiopia. In addition, a common central bank for Rwanda and Burundi was established (1960), and the statutes governing the common central banks for seven countries (Dahomey, the Ivory Coast, Mauritania, the Niger, Senegal, Togo, and the Upper Volta) in West Africa, and for five countries (Cameroon, the Central African Republic, Chad, the Congo (Brazzaville), and Gabon) in Equatorial Africa have recently been revised. These laws or proposals have certain general characteristics. They tend to give the government a substantial degree of control over central bank policy, by various combinations of government ownership of the bank, government appointment to and participation in the board of directors, government approval of major policy decisions, and government policy directives. On the other hand, they generally place restrictions on government borrowing from the central bank, in order to limit this financing to the amount necessary to offset seasonal and other temporary fluctuations in government receipts. At the same time, a minimum foreign reserve cover against the banks’ monetary liabilities, or against the currency portion of them, is usually required. Eligible foreign exchange reserves are generally limited to gold, convertible currencies, and relatively short-term claims denominated in foreign currencies. There is also considerable similarity in the general quantitative credit controls—discount policy, variable cash reserve requirements, and open market operations—provided for in different laws. In most countries, the issue of currency is vested in the central bank. Most of them are permitted also to engage in commercial banking activities, i.e., accept deposits from, and grant loans to, the general public.

Balance of Payments Developments

In both 1961 and 1962, balance of payments developments differed markedly between the more industrialized and the less industrialized countries exporting mainly primary products (Table 23 and Chart 8). In each of the two years, the combined basic surpluses of the more industrialized countries (Table 23, Group A) reached $450-500 million, to which was added a net inflow of short-term capital amounting to about $650 million in 1961 and about $250 million in 1962. Among these countries, the most marked changes occurred in Canada, as discussed below. Another noteworthy event was the diminution of the large over-all surplus of Spain, which had persisted since the stabilization program of 1959 was put into effect. Developments in each of the countries in the more industrialized group are reviewed further below.

Table 23.Primary Producing Countries: Balance of Payments Summaries, 1961 and 1962 1(In millions of U.S. dollars)
1961
Other
Goods,Short-Term
Services,CentralCapital
and PrivatePrivateGovernmentand Net
TransferLong-TermCapitalTotal,Errors andTotal,
PaymentsCapitaland AidCol. 1+2+3OmissionsCol. 4+5 2
(1)(2)(3)(4)(5)(6)
A. Canada-914692-101-323610287
Australia-175375-11189142331
New Zealand-1471087-50-1-51
South Africa 3249-6010199-57142
Spain17519166432-35397
Total-8121,208514476591,106
B. Other Sterling Area4
Burma-7- 11-7-3-10
Ceylon-28-27-23-23
Ghana-145-13129-29-1-30
India-663136494-33-26-59
Libya-31-232-1-6-7
Malaya-12481854-549
Pakistan-27028214-28-13-41
Rhodesia and
Nyasaland-313812191130
U.K. Colonial
Territories5-325140202176279
Other6-74238635-134
Total-1,5863951,19541822
C. Latin American Republics7
Brazil-292269159136-8749
Chile-2809384-103-9-112
Colombia-142-94-14718-129
Dominican Republic41-3011-27-16
Mexico-82169127214-249-35
Peru18-2161834
Uruguay-164-5-17-9-26
Venezuela375-247-9434-71-37
Other7-757291253-21343-170
Total-1,135540526-69-373-442
D. Other
Ethiopia-25618- 121
Indonesia-521-11365-167-64-231
Iran-69446338543
Iraq-472-451-44
Morocco-5018334-54-20
Philippines-8810-1-7910-69
Sudan-651540-10-1-11
Syrian Arab Republic-63-2160-24-15-39
Thailand73226651782
Tunisia-77950-183-15
Turkey-1193712240-832
United Arab Republic-1644072-5218-34
Other8-1,201265897-39489
Total-2,4824291,795-258-38-296
Total (B+C+D)-5,2031,3643,516-323-393-716
Grand total-6,0152,5723,567124266390
Source: Based on data reported to the International Monetary Fund. For 1962, data for many countries are provisional.

No sign indicates credit; minus sign indicates debit.

Represents net official reserve movements including changes in net IMF position. No sign indicates an increase in assets, a gold subscription to the Fund, a repayment of a drawing on the Fund, another reduction of Fund holdings, or a reduction of other liabilities; minus sign indicates a decrease in assets, a drawing on the Fund, another increase in Fund holdings, or an increase in other liabilities.

Including Basutoland, Bechuanaland Protectorate, and Swaziland.

Excluding Basutoland, Bechuanaland Protectorate, Cyprus, Hong Kong, Nigeria, Persian Gulf Territories, Sierra Leone, the State of Singapore, and Swaziland.

Covering all areas that were colonial territories of the United Kingdom at the end of 1961, except Basutoland, Bechuanaland Protectorate, Hong Kong, Northern Rhodesia, Nyasaland, the State of Singapore, and Swaziland, but including Tanganyika, which became an independent country on December 9, 1961.

Iceland, Ireland, and Jordan.

Excluding Cuba.

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

1962
Other
Goods,Short-Term
Services,CentralCapital
and PrivatePrivateGovernmentand Net
TransferLong-TermCapitalTotal,Errors andTotal,
PaymentsCapitaland AidCol. 1+2+3OmissionsCol. 4+5 2
(1)(2)(3)(4)(5)(6)
A. Canada-764533216-15158143
Australia-289425-2411228140
New Zealand717113535
South Africa 3396-126270-27243
Spain-74177-218278160
Total-7241,026182484237721
B. Other Sterling Area 4
Burma153449-247
Ceylon-3513-223-19
Ghana-571137-91-8
India-845117591-137-5-142
Libya3030-1515
Malaya-60602525-1213
Pakistan-213222615-141
Rhodesia and
Nyasaland-6-3110-274114
U.K. Colonial
Territories 5-320140200206080
Other6-13143102142741
Total-1,6523421,268-428442
C. Latin American Republics7
Brazil-40833112-263-125-388
Chile-1578313662-82-20
Colombia-1191080-29-13-42
Dominican Republic121527-1512
Mexico64131135330-31614
Peru-22-12417-16
Uruguay-40-40-40
Venezuela331-226-8916- 18-2
Other7-47127294-105-263-368
Total-8102915245-833-828
D. Other
Ethiopia-3844511-29
Indonesia-367-18272-11364-49
Iran-12253851-1437
Iraq13-1498-13-5
Morocco-497829-55-26
Philippines21-1916181937
Sudan-56538-137-6
Syrian Arab Republic51318-126
Thailand-58723953962
Tunisia-101968-2411-13
Turkey-23338137-585-53
United Arab Republic-29550153-92-8-100
Other8-1,02326194418266248
Total-2,1934131,8507077147
Total (B+C+D)-4,6551,0463,64233-672639
Grand total-5,3792,0723,824517-43582
Source: Based on data reported to the International Monetary Fund. For 1962, data for many countries are provisional.

No sign indicates credit; minus sign indicates debit.

Represents net official reserve movements including changes in net IMF position. No sign indicates an increase in assets, a gold subscription to the Fund, a repayment of a drawing on the Fund, another reduction of Fund holdings, or a reduction of other liabilities; minus sign indicates a decrease in assets, a drawing on the Fund, another increase in Fund holdings, or an increase in other liabilities.

Including Basutoland, Bechuanaland Protectorate, and Swaziland.

Excluding Basutoland, Bechuanaland Protectorate, Cyprus, Hong Kong, Nigeria, Persian Gulf Territories, Sierra Leone, the State of Singapore, and Swaziland.

Covering all areas that were colonial territories of the United Kingdom at the end of 1961, except Basutoland, Bechuanaland Protectorate, Hong Kong, Northern Rhodesia, Nyasaland, the State of Singapore, and Swaziland, but including Tanganyika, which became an independent country on December 9, 1961.

Iceland, Ireland, and Jordan.

Excluding Cuba.

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

Source: Based on data reported to the International Monetary Fund. For 1962, data for many countries are provisional.

No sign indicates credit; minus sign indicates debit.

Represents net official reserve movements including changes in net IMF position. No sign indicates an increase in assets, a gold subscription to the Fund, a repayment of a drawing on the Fund, another reduction of Fund holdings, or a reduction of other liabilities; minus sign indicates a decrease in assets, a drawing on the Fund, another increase in Fund holdings, or an increase in other liabilities.

Including Basutoland, Bechuanaland Protectorate, and Swaziland.

Excluding Basutoland, Bechuanaland Protectorate, Cyprus, Hong Kong, Nigeria, Persian Gulf Territories, Sierra Leone, the State of Singapore, and Swaziland.

Covering all areas that were colonial territories of the United Kingdom at the end of 1961, except Basutoland, Bechuanaland Protectorate, Hong Kong, Northern Rhodesia, Nyasaland, the State of Singapore, and Swaziland, but including Tanganyika, which became an independent country on December 9, 1961.

Iceland, Ireland, and Jordan.

Excluding Cuba.

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

Chart 8.Primary Producing Countries: Balance of Payments, 1956-62 1

(In billions of U.S. dollars)

1 See also Chart 7 (p. 117).

The aggregate balance of payments of the group of less industrialized countries was not so satisfactory, though it was improving. The value of their exports rose by 4-5 per cent from 1961 to 1962; their combined deficit on goods and services account was reduced by $550 million, to about $4.7 billion; and the recorded inflow of private long-term capital and official aid went down by about $200 million, also to $4.7 billion. Accordingly, their basic position improved from a deficit of about $300 million to near balance. In each of the years 1961 and 1962, however, there was a net outflow from the area on account of short-term capital and unrecorded transactions; this outflow may have risen from about $400 million in 1961 to about $700 million in 1962. For both years, therefore, over-all deficits were recorded for the group, although the deficit was diminishing, and indeed appears to have been almost eliminated in the second half of 1962.

When the countries within the less industrialized group are analyzed in smaller groups, considerable variation in their payments balances is evident. There was little change in the combined position of the sterling area members of the group, which in both 1961 and 1962 had goods and services deficits of about $1.6 billion, matched by almost equivalent inflows of long-term capital and government aid. The flows on account of private short-term capital and unrecorded transactions being negligible, these countries were in approximate balance in both years on over-all, as well as on basic, account. For Latin America, a reduction of about $300 million in the deficit on goods and services, to a little over $800 million, was offset by a reduction of $250 million in the net inflow of private long-term capital and government aid, leaving, as for the sterling area, the basic balance near zero in each year. There was, however, in both years a substantial net outflow on account of short-term capital and unrecorded transactions, causing an over-all deficit of about $400 million in 1961 and about $800 million in 1962. For the other less industrialized countries, the balance of payments on basic and on over-all accounts improved between 1961 and 1962 by about $350 million and $450 million, respectively, as a $300 million reduction in the deficit on goods, services, and private transfer payments was slightly reinforced by larger inflows of long-term capital and aid, and as movements of short-term capital remained moderate. The combined surplus of these countries on either account was about $100 million in 1962.

Individual More Industrialized Countries

For Australia, the year 1962 was one of recovery from the recession which had followed the boom of 1960. Public authority expenditure on goods and services was accelerated, unemployment and social service benefits were increased, and personal income taxes were reduced; the government deficit, which was higher than in the previous year, contributed to the recovery. The expansion was accompanied by an increase in imports, and the goods and services deficit rose by $110 million. Exports of most commodities were well maintained in 1962, and prices became firmer toward the end of the year. Proceeds from wheat exports benefited from sales to Mainland China. The net inflow of capital, which had fallen sharply in the second half of 1961, remained small in the first half of 1962, partly because of repayment of short-term borrowing abroad; however, the net inflow rose again in July-December 1962, and now appears to have reached an annual rate of about $500 million. Despite the increase in the deficit on account of goods and services, an over-all surplus of $140 million was recorded during 1962; and at the end of the year, reserves amounted to slightly more than $1.3 billion, after repurchases totaling $177 million from the Fund in March and June 1962.

Production, prices, and employment in Canada have been reviewed in Chapter 7. 1 The balance of payments in 1962 as a whole showed some improvement over 1961. The deficit on current account decreased from US$962 million (Can$982 million) to US$793 million (Can$848 million), reflecting chiefly a 13 per cent reduction in net payments for services and other nonmerchandise transactions. The excess of merchandise exports over imports f.o.b., US$145 million, was only slightly smaller than in 1961, despite an increase in the value of imports fully proportionate to the expansion of about 8 per cent in the value of the gross national product.

The net inflow of long-term capital in various forms amounted in 1962 to US$672 million, compared with US$780 million in 1961. This inward movement, coupled with a net capital inflow of US$315 million in short-term forms, exceeded the current account deficit by some US$194 million. With the aid of a drawing from the Fund equivalent to US$300 million, Canada was able to raise its official holdings of gold and foreign exchange by US$483 million during the year.

During the course of 1962, the Canadian balance of payments showed a marked deterioration in the first half, followed by rapid improvement and recovery of reserves in the second half. Both the deterioration and the reversal were centered mainly in the capital accounts, although the trade and service balance showed marked improvement in the fourth quarter after having been slightly less favorable in the first three quarters than in the corresponding period of 1961. The net long-term capital inflow dropped to negligible proportions in the first half of 1962, and there was a sizable outflow of short-term funds, especially in the second quarter when the foreign currency holdings of Canadian residents increased by US$226 million. The measures adopted to deal with the consequent losses of reserves have been described in Chapter 7. 2

The first effects of these measures were seen in a return flow of volatile capital; but by the fourth quarter, the current account deficit had diminished appreciably and the long-term capital inflow had resumed. The substantially more favorable balance achieved in the fourth quarter was sustained through the opening quarter of 1963. One of the principal factors contributing to the gains in the balance of payments and exchange reserves of Canada was a better international competitive position resulting from the adoption of the present exchange rate.

New Zealand’s basic payments balance recovered during 1962 from its disequilibrium in each of the two previous years. Imports, which had risen sharply in 1960 and the first half of 1961 as a result of the excessive pressure of domestic demand, declined by about 15 per cent following a reintensification of quantitative restrictions. On the other hand, a recovery of butter and lamb prices, combined with a record output of meat, resulted in a 4 per cent increase in export receipts. Thus, despite a further growth in the net payments on account of services and transfers, the current account showed a slight surplus in 1962, in contrast to the deficit of $147 million in 1961. A modest inflow of new private long-term capital continued; in addition, the Government borrowed overseas to help in rebuilding official foreign reserves, which rose by about $70 million.

The increase of $243 million during 1962 in South Africa’s net reserves, including the net IMF position, was the largest for any year of the past decade. An important factor was the increase of $90 million in gold production. The upturn in economic activity, fostered by a stepping up of government expenditures and a lowering of the official discount rate and of other interest rates, was reflected in an increase in the trade deficit by some $35 million. However, payments for services were reduced; and the outflow of private capital, which had been mainly responsible for the severe deterioration in the over-all balance of payments position in 1960, now seems to be under effective control. The increase in the outflow of capital in the middle of the year was the result of the controlled relaxation by the authorities of restrictions on the purchase of South African securities in London.

In Spain, continued rapid expansion of economic activity in 1962 added to the progress achieved since the stabilization program was instituted in 1959. The most important demand factor behind the expansion of output was private investment, but private consumption, stimulated by substantial wage increases and by higher farm incomes, also rose markedly. The rapid increase during 1962 in over-all demand, financed by a substantial growth in bank credit to the private sector, together with temporary scarcities of certain goods, caused upward pressures on prices; as a result, the balance of payments on current account deteriorated markedly. The trade deficit increased by about $450 million (to $830 million). Exports of edible oils, of textiles, and of metal products declined by amounts ranging from 29 per cent to 43 per cent; however, the reduction was partly compensated for by increases in exports of agricultural products other than edible oils, which rose by 20 per cent, to comprise half of total exports. Imports, which had risen by 50 per cent in 1961, increased in 1962 by 45 per cent, outpacing the growth in foreign exchange receipts from tourism, workers’ earnings, emigrants’ remittances, and inflows of private long-term capital. A small over-all balance of payments deficit was recorded in the last quarter of 1962—the first quarterly deficit since the introduction of the stabilization program. Official gold and foreign exchange reserves declined by $9 million during these three months; for the year as a whole, however, reserves increased by $160 million, to $1,029 million at the end of 1962, sufficient to cover eight months’ imports at the 1962 rate.

Individual Less Industrialized Countries

Other Sterling Area

In an effort to reverse the deficit payments position of 1960 and 1961, the authorities in Ghana intensified import controls, halted the increase in government expenditures, and restricted credit to the private sector. Subsequently, imports decreased by about $60 million in 1962; the value of exports, affected by the declining world market price for cocoa (the principal export commodity), remained virtually unchanged from 1961 in spite of a larger volume. To provide time for remedial measures to take effect, Ghana purchased the equivalent of $14.25 million from the Fund in August 1962. In 1962, international reserves increased by $10 million, to $209 million. In order to stimulate the economic development of the country and, in particular, to increase foreign investment, the Legislature passed a Capital Investment Act, and a development bank has been established.

The rate of growth in India did not show any marked improvement during 1962. Monetary expansion was somewhat larger than in 1961, while prices remained substantially stable. Unlike 1961, the main expansionary factor was an increase in credit to the public sector. Following the declaration of the Emergency, monetary policy was further tightened; and in the fiscal field, heavy additional taxation, amounting to one fifth of existing revenues, was included in the budget adopted by the Legislature for the fiscal year commencing April 1, 1963.

The further improvement in India’s trade balance in 1962 resulted mainly from a moderate expansion of export earnings. The higher value for exports of vegetable oil products and jute manufactures, deriving from increased volume, was partly neutralized by reductions in some other exports. Despite the smaller trade deficit, the continuance of a net inflow of capital and aid at a high rate, and a drawing on the Fund amounting to $25 million, India’s gross reserves fell during 1962 by about $150 million, to a level equivalent to about three months’ imports.

A sharp increase in imports in Nigeria in 1961, in expectation of the increase in import duties in early 1962, was followed by a decline of nearly $60 million in 1962. This decline—which was also due in part to the reduction in consumer purchasing power following a fall in export prices and in part to expanding local production of import substitutes—resulted in an improvement of about $30 million in the trade balance; however, it still showed a substantial deficit. Because of a slowing down in the inflow of foreign capital, reserves declined by about $65 million and at the end of 1962 were equivalent to about seven months’ imports. This external imbalance was accompanied by a relatively stable internal financial situation. Money supply and prices have risen only moderately, mainly because the loss of reserves and the continued rise in time and savings deposits have helped to offset the expansionary forces in the economy, which had originated in a rapid expansion of bank credit to the private sector. The Federal Government has introduced new tax measures in an effort to mobilize resources under the new Six-Year Development Plan and to strengthen the balance of payments.

Economic activity in Pakistan rose again in 1962 as the emphasis continued on replacing direct internal controls by a greater reliance on fiscal and monetary policies. The balance of payments position also improved. Receipts from exports rose by 5 per cent, to almost $420 million, while payments for imports declined. More official loans and grants were received, which helped to finance a larger proportion of imports than in 1961. Hence, foreign exchange reserves rose by $2 million, against a decline of $39 million in the preceding year.

Latin America

In Argentina, in the course of 1961, an excessive rate of credit expansion, attributable mainly to a relaxation of controls over bank credit, had given rise to considerable inflationary pressures, reversing the progress toward monetary stability achieved since the adoption of the stabilization program in 1959. The situation worsened further in 1962, as the Central Bank was called upon to finance a heavy cash deficit of the government sector, and the rate of economic growth declined sharply amid an inflationary environment. These developments brought about a depreciation of the Argentine peso by about 60 per cent in the course of the year. Larger shipments of wheat (150 per cent greater than in 1961) and of corn (75 per cent greater) resulted in higher export earnings. Imports were reduced for a number of reasons, including the exchange depreciation, a decline in activity, and strains on liquidity related to the repayment of foreign credits and other outflows of short-term capital. These outflows, and also the discouragement of the inflow of long-term capital, were caused by the lack of confidence induced by the inflationary climate and recurring political crises; they resulted in a much greater reduction in net reserves of the Central Bank than in any recent year.

The inflation in Brazil accelerated in the course of 1962; total bank credit and money supply rose by some 60-70 per cent and the cost of living by more than 50 per cent, while the exchange rate depreciated substantially. The cash budget deficit of the Central Government doubled (reaching 36 per cent of government expenditure), while credit to the private sector continued to expand rapidly. Export proceeds decreased by $190 million, partly as the result of lower prices for coffee and the poor cocoa crop. There was a reduction of $66 million in the inflow of direct investment capital and an even larger reduction in the net inflow of other long-term capital—both related to the lack of confidence created by a rapidly deteriorating financial situation and uncertainties about future policy toward foreign investment. Despite a small reduction in imports, these developments put a heavy strain on the monetary authorities, whose net reserves fell during the year by $293 million, to a very low level.

In Chile, the fiscal situation has unquestionably been the most critical area of the country’s finances in recent years. In 1962, internal and external imbalances were the result of heavy government deficits financed by the Central Bank as well as of an unrealistic exchange rate. Late in the year, the Chilean authorities undertook the preparation of a comprehensive stabilization program, designed to limit central bank financing of the government budget deficit and to introduce an exchange reform. Major tax proposals have been introduced in Congress, but have not yet been enacted. Prices continued to rise at a rapid rate during the early months of 1963.

For the balance of payments, the year 1962 again was one of difficulty though some improvement was achieved. Receipts from exports rose by about 10 per cent, and the goods and services deficit of almost $160 million was substantially lower than in 1961 and less than the inflow of government aid and ordinary foreign capital (i.e., other than that reflected in import arrears). However, much of the reduction in the goods and services deficit was accomplished—in spite of rising pressures of demand—through the introduction of import surcharges, advance deposit requirements, and other stop-gap measures, including the introduction of a waiting period for remittances of import payments, resulting in the accumulation of substantial arrears. Moreover, there was a large outflow of short-term capital, and the net liabilities of the banking system increased by $70 million, to about $260 million at the end of the year. During the first few months of 1963 there was an appreciable improvement in the balance of payments.

Colombia’s balance of payments position, which had worsened in 1961, improved slightly in 1962. The goods and services deficit was reduced by some $25 million as a larger volume of coffee exports more than compensated for a decline in their price, and imports fell slightly. In addition, the Government was able to obtain additional amounts of foreign capital and aid, and there was a favorable shift in movements of private long-term capital. However, heavy central bank financing of the public sector and an overvalued exchange rate led to some exchange speculation, and the net reserves of the central bank were reduced by about $40 million.

In November 1962, an exchange reform was instituted and a stabilization program initiated. The strengthening of monetary policies included an increase of 5 per cent in the basic legal reserve requirement, the temporary application of a 100 per cent marginal legal reserve requirement, and a reduction of rediscount quotas. The fiscal task involves not merely avoiding large deficits, but also generating revenues sufficient to finance the greatly expanded investment needs of the Ten Year Development Program. New tax legislation designed to cover increased government investment expenditure within a balanced budget is planned but not yet enacted.

While the export earnings of the Dominican Republic expanded considerably, mainly as a result of increased sugar exports to the United States at prices considerably higher than those in other markets, its imports almost doubled in 1962, reflecting an upward pressure on domestic wages and prices and the liberalization of import restrictions. As a result, the surplus on goods, services, and private transfer payments was reduced by some $30 million, to $12 million, which is about equal to the average surplus for the preceding seven years. The deterioration in the balance of these transactions was more than compensated by such favorable factors as a sharp reduction in the outflow on account of private capital and unrecorded transactions, and the initiation of a U.S. aid program, both being associated with recent political changes. The net result of all these factors was the first increase since 1954 in the net assets of the Central Bank.

Within the framework of a considerable degree of monetary stability, Mexico has continued to record consistent and balanced economic growth. Through sales of securities, mainly to the private credit institutions, the Bank of Mexico has been successful in limiting the inflationary impact of central bank credit to the public sector.

A recovery in the volume of cotton exports, together with a further increase in receipts from other exports and tourism, caused the recorded balance on account of goods, services, and private transfer payments to show a $64 million surplus in 1962, instead of the deficit which has been customary in recent years. Although the improvement from 1961 to 1962 was partly offset by a $30 million decline in the inflow of long-term capital (more than accounted for by a reduction in borrowing from the Export-Import Bank of Washington), there was a substantial increase in the already large recorded surplus on account of current and long-term capital transactions. In both 1961 and 1962, this strong basic balance of payments surplus was offset by a heavy outflow on account of short-term capital and unrecorded transactions (which for Mexico are likely to include a considerable element of net current payments). However, although there was in 1962 a considerable increase in this outflow, a small over-all surplus was recorded, contrasting with a deficit in 1961. Moreover, late in 1962 the outflow of short-term capital appeared to have been arrested, and a counter-seasonal increase in reserves early in 1963 suggests a reversal of some of the earlier outflows.

Economic activity in Peru continued at a high rate in 1962, real gross national product increasing by 6½ per cent mainly because of a continued expansion of exports and rising domestic investment. Though government revenues continued to increase, expenditures, especially investment expenditures, rose even more. However, because of the confidence arising from the continuance of sound financial and monetary policies, an unprecedented amount of government expenditure was financed by foreign loans for investment projects, and the Government did not resort to central bank financing for its budgetary operations. The principal instruments of monetary management during the year were an over-all limit on central bank credit to the banking system and to the Government, and a more active central bank policy with respect to discounts and legal reserves than in previous years.

In respect of international payments, developments continued favorable. Exports of fish and fishmeal increased from 1961 to 1962 by some $50 million (approximately 70 per cent); however, the increase in the value of total exports was less than this amount because the expansion of cotton exports did not completely compensate for reductions in exports of copper, lead, and sugar. An increase of $65 million in imports, mainly machinery, apparently was related, for the most part, to projects financed by the augmented flow of capital to the Government. Rising foreign exchange receipts on both current and capital account enabled the authorities to avoid import restrictions, and $6 million was added to reserves, the fourth consecutive annual rise.

Although oil production in Venezuela increased by 10 per cent, net foreign exchange receipts from this industry remained virtually unchanged while those from the iron ore companies were reduced. However, imports (other than those by the oil and iron ore sectors) decreased by about $60 million, mainly as a result of a lower rate of credit expansion and the effects of the partial devaluation in April 1962, and the outflow of private capital was reduced, so that the over-all balance of payments was virtually in equilibrium, following deficits in the preceding four years.

Other Middle East and Africa

Iran had balance of payments surpluses of about $40 million in both 1961 and 1962. A 10 per cent increase in exports of oil was largely offset by higher investment income payments and a reduced inflow of capital. Iranian fiscal and monetary policies were neutral in their net effect. The balance of the transactions of the non-oil sector did not change appreciably; these transactions do not appear to have been affected by the modifications in the exchange and import system that were introduced in the course of 1962. Repurchases from the Fund in January and March 1962, equivalent to $38 million, completed the repayment of Iran’s drawings.

The exports of Morocco increased in 1962 by less than 2 per cent, to $348 million; record shipments of phosphates offset a decline in exports of various other minerals. The value of imports declined by 4 per cent, to $434 million. Import demand for cereals decreased in 1962 as crops recovered to a more normal level, following the poor harvest in 1961. Other factors contributing to the smaller demand were the increase in import duties on a number of products and the beginning of operations of a domestic oil refinery plant. Although expenditures of foreign governments in Morocco declined, they again covered a large part of the deficit on trade and on other services. Foreign exchange reserves of the Bank of Morocco at the end of 1962 were about $10 million less than reserves a year earlier. In addition, in the latter half of 1962, Morocco used part of the drawing right of $20 million made available by France in July 1962, as part of a program under which French financial aid to Morocco was resumed. The Moroccan Government further accentuated its policy of encouraging private investment, both domestic and foreign, inter alia through an increase in the capital of the National Development Bank in December 1962, obtained from the International Finance Corporation and private foreign and domestic investors.

In the Syrian Arab Republic, the stabilization program introduced late in 1961, which was designed to eliminate the inflationary situation that had prevailed for several years, helped to bring about a marked improvement in the economy during 1962. The rapidity of the recovery, however, was due in large measure to the beneficial effect of favorable weather conditions on agricultural production.

Larger exchange receipts from exports and foreign loans, together with an increase in the official buying and selling rates of exchange, facilitated a relaxation of the exchange restrictions in force since early in 1961. As a result of political developments, however, restrictions similar to those put into effect in February 1961 were introduced in May 1963. The record cotton crop, as well as larger supplies of other products, enabled exports to be increased substantially in 1962, whereas imports rose by a smaller amount. As a result, the goods and services deficit was reduced to about $40 million, which was less than the inflow of government capital and aid. Other foreign credits, together with a reduction in the outflow on account of recorded movements of private capital and of unrecorded transactions, helped further to improve the balance of payments position, and a small over-all surplus was recorded, contrasting with a large deficit in 1961.

Production in Tunisia recovered in 1962, after having been adversely affected by a crop failure in 1961. Public investment, financed in large part by central bank advances, increased considerably between the two years, and prices edged upward. At the same time, there was some deterioration in the balance of payments. Exports of olive oil were increased by reducing inventories accumulated in earlier years, while crop failures in other countries reduced supplies; but most other exports fell somewhat. Imports rose, in part because of increased public investment and in part in expectation of the introduction of restrictions on imports from France in November; and the deficit on services was increased, owing largely to a reduction in expenditures by foreign governments. Despite the rise in the deficit on goods and services, increased borrowing enabled the Government to limit the decline in reserves to nearly the same amount as in 1961.

Economic developments in the United Arab Republic in 1962 were adversely affected by a crop failure which sharply reduced exports of cotton. Imports rose (although mainly as a result of increased shipments of surplus agricultural commodities from the United States), and there was an increase in net payments for services, including government expenditures.

In view of the mounting balance of payments deficit, a stabilization program was adopted in May 1962 which involved an exchange reform and sought to stem the rapid rate of credit expansion. A single exchange rate replaced the system of premiums on exports and surcharges on imports that had existed previously. Although the Government continued to rely on the banking system to finance deficits, some improvement was attained in the second half of the year through the revision of fiscal and monetary policies. The program was supported by a stand-by arrangement with the Fund for the equivalent of $42.5 million, covering up to 200 per cent of the member’s quota, under which the entire amount has been drawn.

Other Asia

In Indonesia, the sharp increase in money supply in 1962, resulting primarily from a sizable increase in government expenditures, and the intensification of import restrictions caused an unprecedented increase in domestic prices. Imports fell by 17 per cent. Since a large part of this decline was in industrial raw materials, domestic production was adversely affected. To promote exports, the Indonesian authorities introduced an export retention arrangement in March 1962; however, the volume of exports declined, and lower world market prices for several of the major exports further reduced their value. Large repayments on foreign loans added to the strain on the balance of payments. The net foreign assets of the deposit money banks were reduced by some $120 million, and, in spite of a drawing of $21 million from the Fund, the reserves of the Bank Indonesia declined further, to a very low level.

In the Philippines, the strength of the peso had been impaired, prior to 1962, by speculative pressures, fed by an excessive domestic monetary expansion, and by a marked deterioration in the terms of trade. A series of measures initiated early in 1962 brought about improved economic conditions. Monetary expansion was restrained without impairing productive activity, which showed satisfactory gains. Imports were reduced by about $25 million and exports increased by $55 million, closely approaching the all-time peak reached in 1960. A higher volume of exports of coconut products and wood, especially in the last quarter of the year, contributed substantially to this result. Aided by a gain in net receipts for services, the deficit on goods and services account turned into a large surplus; and an over-all balance of payments surplus of some $35 million contrasted with a deficit of almost $70 million in 1961.

The record of consistent progress in Thailand, where real gross domestic product has been rising at an average annual rate of 5 per cent during the past decade, continued in 1962. A great part of the credit for this achievement is ascribed to the large measure of freedom from direct controls, to the creation of a favorable environment for investment, and to policies aimed at avoiding inflation. A new commercial bank law enacted in 1962 has strengthened the authority of the Bank of Thailand to control credit.

Net reserves expanded by about $60 million in 1962, to nearly $500 million, which is the equivalent of ten months’ imports at the 1962 level. This increase occurred even though export receipts fell below those in 1961 and imports rose by some 12 per cent. Exports of rice, the major export crop, were reduced as a result of the Government’s actions to safeguard domestic supplies, which in turn brought about a 12 per cent rise in the export price. Aided by a sharply increased inflow of private capital, the authorities were able to liberalize payments for interest, the redemption of foreign loans, and certain other transactions.

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