Chapter

Chapter 7 World Trade, Payments, and Reserves

Author(s):
International Monetary Fund
Published Date:
September 1964
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World Trade

THE continued expansion in the manufacturing countries discussed in Chapter 5 brought about an acceleration in the growth of world trade in 1963. The value of world exports, including those of Soviet countries and Mainland China, was about 8½ per cent higher than in 1962,1 compared with an increase of about 4½ per cent from 1960 to 1961 and one of about 5½ per cent from 1961 to 1962. The value of exports from primary producing countries rose by about the same percentage as that of exports from manufacturing countries, after failing to do so for a number of years. A main factor underlying this change was a recovery in the prices of exports of primary producing countries, following a decline from 1961 to 1962 and from 1960 to 1961. For the second year in succession, there was little change on average in the unit value of exports of manufacturing countries (Table 12). The volume of exports from primary producing countries rose by rather more than 5 per cent, and that of industrial countries by about 8½ per cent, from 1962 to 1963.

Table 12.Export Unit Values, 1961–63(1960 = 100)
Last

Quarter,
1961196219631963
Primary producing countries
Canada101104105105
Australia, New Zealand, South Africa99100107109
Petroleum producing countries97989797
Other primary producing countries outside Europe97949798
Manufacturing countries
United States102102101101
EEC countries 1102102102103
EFTA countries 2100101102103
Japan95929595
Sources: International Monetary Fund, International Financial Statistics; United Nations, Monthly Bulletin of Statistics, April 1964.

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

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

Sources: International Monetary Fund, International Financial Statistics; United Nations, Monthly Bulletin of Statistics, April 1964.

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

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

Trade between manufacturing countries rose more rapidly than from 1961 to 1962 (Chart 18). However, a principal factor in the faster growth of total exports of manufacturing countries from 1962 to 1963 was the 6 per cent expansion in their exports to primary producing countries, following little expansion from 1961 to 1962. The value of primary producing countries’ exports to the manufacturing countries seems to have risen from 1962 to 1963 by about 8 per cent, compared with about 5 per cent from 1961 to 1962 and about 2½ per cent from 1960 to 1961. In Tables 13 and 14, dealing with the direction of world trade, the primary producing countries are divided into two groups, one comprising the more industrialized primary producing countries (including all primary producing countries in Western Europe) and the other the less industrialized primary producing countries in the Western Hemisphere, Asia, and Africa. The rise in exports to manufacturing countries in 1963 seems to have been broadly similar for both groups; however, the total exports of the first group rose more rapidly, owing principally to a sharp rise in the value of exports from Canada and Australia to the Sino-Soviet Area and to other primary producing countries.

Chart 18.International Trade: Direction of Exports, 1960–63

(In billions of U.S. dollars)
Table 13.Direction of World Trade, 1960–63(In billions of U.S. dollars)
Exports to
Exports fromYearManufacturing

Countries
Primary Producing

Countries 1
Sino-Soviet

Area1,4
World1
Group 12Group II3
Manufacturing countries196037.411.819.92.671.7
196140.712.020.82.475.9
196244.612.420.62.680.2
196349.313.721.52.687.1
Primary producing countries1
Group I2196010.30.71.70.613.3
196110.80.81.80.814.2
196211.20.81.70.814.5
196312.11.01.91.016.0
Group II3196018.11.85.81.327.0
196118.31.85.81.327.2
196219.32.26.11.328.9
196320.82.46.61.431.2
Sino-Soviet Area1,419602.90.61.410.815.7
19612.50.61.511.516.1
19622.90.81.912.017.6
19633.20.92.112.618.8
World 4196068.714.928.815.3127.7
196172.315.229.916.0133.4
196278.016.230.316.7141.2
196385.418.032.117.6153.1
Sources: International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade; International Monetary Fund, International Financial Statistics and staff estimates.

Figures for 1963 are preliminary estimates.

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

All other primary producing countries.

Including Cuba.

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

Figures for 1963 are preliminary estimates.

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

All other primary producing countries.

Including Cuba.

Table 14.Annual Increases in Value of Trade in Various Directions, 1961–63(Percentage increase over preceding year)
Exports to
Exports fromYearManufacturing

Countries
Primary Producing

Countries 1
Sino-Soviet

Area 1,4
World 1
Group 1 2Group II 3
Manufacturing countries19618.91.55.00.3 56.0
19629.63.5–1.47.55.6
196310.510.14.52.08.6
Primary producing countries 1
Group I219615.15.42.147.06.9
19623.55.6–5.7–1.02.4
19638.014.114.122.09.9
Group II319611.0–2.21.0
19625.522.05.9–2.35.8
19638.18.08.08.08.0
Sino-Soviet Area 1,419611.45–6.48.45.62.3
196212.636.724.74.99.1
19639.013.511.05.57.0
World 119615.22.03.84.64.5
19627.96.61.34.45.8
19639.511.15.95.48.5
Sources: Based on Table 13.

Figures for 1963 are preliminary estimates.

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

All other primary producing countries.

Including Cuba.

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

Sources: Based on Table 13.

Figures for 1963 are preliminary estimates.

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

All other primary producing countries.

Including Cuba.

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

Total exports to manufacturing countries from all areas rose by about 9½ per cent from 1962 to 1963; those to primary producing countries as a whole by about 7½ per cent. World exports to the first group of primary producing countries rose by a slightly higher proportion than the value of total exports of this group. Exports to the other group of primary producing countries rose by about 6 per cent (following an increase of 1 per cent from 1961 to 1962). This increase was smaller than that of the group’s own exports; and, for the second year in succession, there was some improvement in the group’s trade balance with the world. Recently the Sino-Soviet Area has provided more than 3 per cent of all exports to the manufacturing countries, 5 per cent of those to the first group of primary producing countries, and approaching 7 per cent of all exports to the other primary producing countries. It has taken about 3 per cent of the total exports of manufacturing countries, about 6 per cent of those of the first group of primary producing countries, and about 4 per cent of those of the second group.

Manufacturing countries

The development of manufacturing countries’ exports since 1960, including the influence of different trends in trade with various areas, relative export prices, and other factors, is analyzed in a note on their export performance on page 123 (see in particular Charts 26 and 27). Changes from 1962 to 1963 are best understood in the light of the divergent trends of output and activity in three main groups of countries. In one group—Japan and the EEC countries other than Germany—the marked growth of output from 1961 to 1962 was almost maintained or exceeded from 1962 to 1963 and continued to be accompanied, in general, by somewhat more rapid rises in wages and prices than elsewhere. In the second group—the United Kingdom, Norway, Sweden, and Austria—a loss of momentum in earlier years gave way to recovery during 1963. In the third group—Germany, the United States, and Denmark—production rose considerably less from 1962 to 1963 than from 1961 to 1962.

Imports of the countries in the third of these groups rose much more slowly from 1962 to 1963 than from 1961 to 1962. This was principally because of the slowing down in them of the growth of output and demand. In the other manufacturing countries, imports rose considerably faster (Table 15). The imports of Germany and the United States rose by 5-6 per cent in value; and there was no significant increase in the value of Danish imports. Imports into the United Kingdom and the other EFTA countries rose by 7-9 per cent, compared with less than 4 per cent on average from 1961 to 1962. Imports into the EEC countries other than Germany rose by 16 per cent (compared with 11 per cent), and Japanese imports rose by nearly 20 per cent, after a decline from 1961 to 1962.

Table 15.Trade of Manufacturing Countries(Percentage changes over preceding year in values of imports and exports)
ImportsExports
196119621963196119621963
Japan29–32041611
Italy11162415128
France613165210
Netherlands12512678
Belgium-Luxembourg681241012
Total EEC countries, excluding Germany911167710
Norway11396410
Sweden1797710
Switzerland21128999
Austria558755
United Kingdom–327437
Total EFTA countries, excluding Denmark and Portugal148548
Germany812611510
United States1–3115347
Denmark4143914
Source: International Monetary Fund, International Financial Statistics, June 1964.

Excluding military exports.

Source: International Monetary Fund, International Financial Statistics, June 1964.

Excluding military exports.

A comparison of exports with imports shows that, in the EEC group, Italy, France, and the Netherlands expanded their exports considerably less than their imports, with a consequent worsening of their trade balances. Belgium-Luxembourg, which was not subject to the same degree of inflationary pressure, expanded its exports as much as its imports. Most of the EFTA countries achieved about the same rate of growth in exports as in imports, so that their trade balances did not change much. The only marked exception was Austria, whose exports failed to increase in line with imports, in part because of heavy reliance on sales to Germany. The exports of the countries in the third group benefited substantially from the more rapid growth in other countries’ imports than in their own, and these countries achieved marked improvements in their trade balances.

The divergent trends in countries’ trade balances became much more marked in the last quarter of the year, when there was a sharp deterioration in the position of EEC countries other than Germany and Belgium-Luxembourg and in that of Japan, and a marked increase in the trade surpluses of Germany and the United States (Chart 19). The deterioration in the position of the EEC countries coincided with an accelerated growth of output, not only in Italy, France, and the Netherlands, but also in Germany, where the faster rise in industrial production was in the main export induced. The acceleration in the final quarter seems to have been less marked in the EFTA group than in the EEC countries. In the United States and Japan, there was actually a slight slowing down in the rate of industrial expansion.

Chart 19.Manufacturing Countries: Seasonally Adjusted Trade Balances, 1960–631

(Monthly averages in millions of U.S. dollars)

1 For the United States, both exports and imports are f.o.b.; for all other countries, exports are f.o.b. and imports are c.i.f.

2 Exports exclude military shipments; imports refer to general imports.

3 Austria, Norway, Sweden, Switzerland.

Balance of Payments Developments

When developments in international payments during 1963 as a whole are compared with those in 1962, the broader changes are found to have arisen mainly from trade, which usually dominates short-run changes in current account position The most notable developments were a continuation of the decline in the collective surplus of the industrial countries of continental Europe on account of goods, services, and private transfers (here referred to as current account), which has been proceeding for several years, and a considerable reduction in the current deficit of the primary producing countries (Chart 20). The current account of industrial continental Europe was reduced to near balance in 1963 and appeared to be deteriorating by the end of the year. The reduced current account deficit of the primary producing countries was considerably smaller than the inflow of long-term financial resources, including all economic aid. These countries as a group had a surplus on account of current and long-term capital transactions (“basic” balance) of some $2.0 billion, compared with a small deficit in 1962; almost all the improvement accrued to the less industrialized countries.

Chart 20.Selected Areas and Countries: Balances of Payments, 1956–63

(In billions of U.S. dollars)

During the last two years, large unrecorded transactions in the European area—in particular, inflows into Switzerland and outflows from Italy—have made it difficult to assess the area’s collective “basic” balance, taken here before advance repayments of government debt. The indications are that there was an increase in the net inflow of private long-term capital into the industrial countries of continental Europe of several hundred million dollars, and a reduction in the net outflow from them of official long-term capital (other than advance debt repayments, which fell by $500 million) of the same order of magnitude. Accordingly, the surplus on current and long-term capital account (before advance debt repayments) appears to have been reduced much less than that on current account alone—probably by only a few hundred million dollars. Because of the many statistical uncertainties, a “basic” balance has not been entered in Chart 20 for 1962 or 1963 either for the EEC area or for the industrial countries in continental Europe as a whole. Even for the earlier years, the balance on current and long-term capital account for both areas is subject to considerable statistical doubt, and the surplus is believed to be understated—in particular that for all the industrial countries in continental Europe.

Developments in the collective balance of payments of the industrial countries in continental Europe in 1963, either on current account (Chart 20) or on account of all transactions other than changes in reserves and related items (i.e., in their collective “over-all” balance, see Table 16), were the outcome of divergent tendencies in different countries. There was, as discussed in detail in Chapter 8, a major deterioration in the balance of payments of Italy, a moderate reduction in the surplus of France, and a change from a small deficit to a large surplus in the German balance of payments. There was also a substantial improvement in the balance of payments of Denmark, mainly associated with the changes in its trade, discussed in the preceding section.

Table 16.Over-All Balances of International Payments,1 First and Second Half, 1962 and 1963(In millions of U.S. dollars)
UnadjustedAdjusted for Advance Debt Repayments
First half 1962Second half 1962First half 1963Second half 1963First half 1962Second half 1962First half 1963Second half 1963
A. Countries exporting mainly manufactured products
United States–72–2,169–1,410–597–131–2,791–1,469–864
United Kingdom74797–124–33474797–124–334
Common Market countries1305699833532491,2521,043606
Belgium-Luxembourg–64413651–64413651
France62968657215748542717398
Germany, Federal Republic of–354135243477–354135243477
Italy–146439–143–456–146618–143–456
Netherlands65–77906665–4790136
Austria92144251229214425122
Switzerland–53165–164367–53165–164367
Denmark, Norway, Sweden4391011042239101104
Japan13622060–24–872318 2283 2–222
Total, Group A984–935–529–9839–776–305–21
B. Countries exporting mainly primary products
Australia86561153788656115378
Canada–9471,077155–18–947984155–18
Finland–23–19–944–23–19–944
New Zealand49–1465–9149–1465–91
Portugal4754–24594754–2459
South Africa222337940222337940
Spain13838–2210913838–22109
Subtotal, more industrialized countries–4281,225359521–4281,132359521
Latin American Republics–353–6854303–353–6854303
Argentina–232–5735101–232–5735101
Other–121–1119202–121–1119202
Miscellaneous sterling countries–1317514116–1317514116
Other Europe812–4523812–4523
Other countries156–118421148156–118421148
Subtotal, less industrialized countries–320–99571490–320–99571490
Total, Group B–7481,1269301,011–7481,0339301,011
C. Excess of surpluses2361914011,00291257625990
1. Owing to increase in world monetary gold185155285560185155285560
2. Owing to errors and omissions 35136116442–94102340430
D. Memorandum items
United States and Canada–1,019–1,092–1,255–615–1,078–1,807–1,314–882
Continental Europe in Group A1739179459463101,6001,0051,199
Group B, excluding Canada199497751,029199497751,029

Over-all balances in the first four columns are measured by changes in official gold and foreign exchange assets, in payments agreement credit and debit balances, in net IMF positions, and in (other) liabilities to foreign monetary authorities (the last being entered in fact only for the United States, the United Kingdom, and Canada). This table is based on data on reserves, whereas Table 17 is based on balance of payments reports, which in general cover annual data only. Because of minor differences in the countries covered and between the half-yearly and the annual data, the aggregate “over-all balances” for 1962 and 1963 for the less industrialized primary producers differ slightly from the totals shown in Table 17. No sign indicates surplus; minus sign indicates deficit.

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

The discrepancies between the figures for advance debt repayments made and received, which result in different errors and omissions in the unadjusted and adjusted series (first four and last four columns, respectively), are due to the omissions from the table of one side of certain transactions because of incomplete information or because the partner is an institution (e.g., the International Bank for Reconstruction and Development).

Over-all balances in the first four columns are measured by changes in official gold and foreign exchange assets, in payments agreement credit and debit balances, in net IMF positions, and in (other) liabilities to foreign monetary authorities (the last being entered in fact only for the United States, the United Kingdom, and Canada). This table is based on data on reserves, whereas Table 17 is based on balance of payments reports, which in general cover annual data only. Because of minor differences in the countries covered and between the half-yearly and the annual data, the aggregate “over-all balances” for 1962 and 1963 for the less industrialized primary producers differ slightly from the totals shown in Table 17. No sign indicates surplus; minus sign indicates deficit.

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

The discrepancies between the figures for advance debt repayments made and received, which result in different errors and omissions in the unadjusted and adjusted series (first four and last four columns, respectively), are due to the omissions from the table of one side of certain transactions because of incomplete information or because the partner is an institution (e.g., the International Bank for Reconstruction and Development).

Table 17.Primary Producing Countries: Balance of Payments Summaries, 1962 and 19631(In millions of U.S. dollars)
19621963
Goods, Services, and Private Transfer PaymentsCentral Government Capital and AidPrivate Long-Term CapitalOther Short-Term Capital (including commercial banks) and Net Errors and OmissionsTotal 2Goods, Services, and Private Transfer PaymentsCentral Government Capital and AidPrivate Long-Term CapitalOther Short-Term Capital (including commercial banks) and Net Errors and OmissionsTotal 2
A. More Industrialized Primary Producers
Australia−293−26
460
141−86−85
-664
493
Canada–76312052916652–4264749422137
Finland–91114414–22–354850–3231
New Zealand711
25
43–289
7
–26
Portugal–3562462093–34562235
South Africa3406–11–141–1024417041–15371129
Spain–70–316877172–177–192046472
Total, Group A–8391641,0504348723–616461,3004141871
B. Other Sterling Area 5
Burma1533–1471333–14–1220
Ceylon–37166–15–3116–1–2–18
Ghana–77471711–2–12253263–40
Iceland86–2820–55314
India–8747061214–142–75483722–8223
Ireland–668502416–8711596447
Jordan–706714–47–87604285
Libya–1528–5–26–1522
16
23
Malaysia 6–621366–152–7115409–7
Nigeria–171279532–17–12713
79
–35
Pakistan–3293393–112–379444–3728
Rhodesia and Nyasaland–1810–2042145113–70–6
U.K. Colonial Territories 7–1189642–146–1104904404–104104
Total, Group B–1,8141,39627290–56–1,7241,6122004–3454
C. Latin American Republics
Argentina–2752227–44–270255 86–90–22149
Bolivia–482721–4–4–553230–25
Brazil–50382192–21–250–1476770–98–108
Chile–16312572–54–20–185115–1051–29
Colombia–134152223–74–173104
34
–35
Costa Rica–2091627–27
30
–9–6
Dominican Republic–4146–151–182931–2517
Ecuador–17176612–7106211
El Salvador18–18–222127935
Guatemala–332106–15–341730–310
Haiti–221–6–53–2–4–3
Honduras–643–1–191121–13
Mexico–109–6272–1489–104
306
–79123
Nicaragua–135934–13415511
Panama–3313146–4528125
Paraguay–7241–995–41
Peru–20345–136–4870
4
18
Uruguay–95–1220–74–473
Venezuela509–102–334–685568–42–331–38157
Total, Group C–973265356–308–660–8450041504–2074359
D. Other Countries
China, Republic of–99711111–6–146018–1153
Ethiopia–29384–49–27259–61
Greece–11641103230–854392–3416
Indonesia–2481101280–46–11410610–58–56
Israel–17116213023144–10176170–4798
Korea–2542113–11–51–3512424218–49
Morocco–5757–27–27–3944
–52
–47
Philippines1518–3511916736–32–10566
Sudan–573894–6–74365–4–37
Syrian Arab Republic–4764–12512
–24
–12
Thailand–6538722469–9247741645
Tunisia–10071112–16–10965309–5
Turkey–23017843–23–32–24417930–15–50
United Arab Republic–365209643–107–339
344
5
Viet-Nam–20617212–22–156175322
Yugoslavia–66605–1–8626–60
Other 930 4604–104–40440436041004–304–6043704
Total, Group D–2,0651,59837188–8–2921,50044504–298360
Grand Total–5,6913,4232,049218–1–3,7163,6582,100–3981,644
Grand Total, excluding Group A–4,8523,259999–130–724–3,1003,612800–539773
Source: Based on data reported to the International Monetary Fund. For 1963, 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.

Fund staff estimate.

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

Malaya only; North Borneo and Sarawak included with U.K. Colonial Territories.

Covering all areas that were colonial territories of the United Kingdom at the end of 1962 except Basutoland, Bechuanaland Protectorate, Hong Kong, Kenya, Northern Rhodesia, Nyasaland, Singapore, and Swaziland.

Includes government transfer payments.

Iran, Iraq, and Saudi Arabia.

Source: Based on data reported to the International Monetary Fund. For 1963, 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.

Fund staff estimate.

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

Malaya only; North Borneo and Sarawak included with U.K. Colonial Territories.

Covering all areas that were colonial territories of the United Kingdom at the end of 1962 except Basutoland, Bechuanaland Protectorate, Hong Kong, Kenya, Northern Rhodesia, Nyasaland, Singapore, and Swaziland.

Includes government transfer payments.

Iran, Iraq, and Saudi Arabia.

If developments in the year as a whole are considered, there was little change from 1962 to 1963 in the position of either the United Kingdom or the United States on current and long-term capital account. In both countries, a relatively small rise in the current surplus was accompanied by a slightly larger increase in the outflow on account of government aid and other official and private long-term capital (other than advance debt repayments by foreign governments). In Japan, a considerable deterioration of the current account was only partly offset by a rise in the inflow of long-term capital.

Although changes in flows of short-term capital from 1962 to 1963 were in most cases rather moderate, they did serve to modify changes in the “basic” balances (from which short-term capital movements are excluded). Recorded outflows of U.S. private short-term capital were slightly higher in 1963 than in 1962, but there was a sharp reduction in the debit for unrecorded transactions, and recorded movements of foreign private short-term capital (including changes in liquid liabilities to foreign private parties) were also more favorable in 1963. Despite the rise in the U.S. deficit on current and long-term capital account before advance debt repayments (Chart 20), the over-all deficit of the United States (also before advance debt repayments) as measured in Table 16 was lower in 1963 than in 1962. (For a more detailed analysis of developments in the U.S. balance of payments—the outcome of which cannot readily be expressed in a single figure—see Chapter 8.) For the United Kingdom, changes from 1962 to 1963 in both recorded movements of short-term capital and unrecorded transactions were particularly unfavorable and, although the recorded current and long-term capital transactions showed only a small deterioration and remained in approximate balance, the U.K. over-all balance as measured in Table 16 worsened by $1.3 billion. For the industrial countries in continental Europe taken as a whole, larger inflows of short-term capital appear to have reinforced the increase in the inflow of long-term capital, and their collective over-all surplus before advance debt repayments as measured in Table 16 was about $300 million higher in 1963 than in 1962 in spite of the considerable decline in the current balance (Chart 20). The deterioration in Japan’s basic balance of payments account was more than equaled by an increase in the inflow of short-term capital, largely in the form of import usance facilities, which automatically increase as imports increase; there was, therefore, little change in the over-all surplus as measured in Table 16. (For further details of the balances of payments of the United Kingdom and Japan, see Chapter 8.) For the primary producing countries, changes in flows of short-term capital between 1962 and 1963 were generally of limited significance.

Some of the more dramatic changes in international transactions that have occurred recently are not apparent if only the annual totals are compared. Thus, the year-to-year comparison obscures the major improvement that has taken place in the balance of payments of the United States since mid-1963, contrasting with a sharp rise in the deficit from the first to the second half of 1962. In early 1964, the payments balance improved further, aided by various transitory factors, and at the end of the first quarter the seasonally adjusted balance showed a small over-all surplus. Recent trends in the over-all position of continental Europe are more difficult to discern because of the conflicting tendencies referred to above. In early 1964, the tendency for continental Europe as a whole appeared to be toward a further reduction in the surplus position that has persisted for many years, with sharply increased imbalances within the area. This tendency may be reversed as stabilization measures in countries experiencing inflationary pressures take effect.

There was also a gradual deterioration during 1963 in the balance of payments of the United Kingdom, in part as a result of a rise in imports associated with economic expansion. In the fourth quarter of the year, the current surplus was nearly eliminated; and in the first quarter of 1964, a current deficit emerged. In Japan, where the current account was in deficit throughout the year, the over-all balance of payments deteriorated from the first to the second half of the year, mainly as a result of a decline in the inflow of capital. The seasonally adjusted trade balance also worsened in the course of the year; before seasonal adjustment, however, the current deficit was higher in the first than in the second half. The deterioration in the seasonally adjusted trade balance appeared to be leveling off in the first quarter of 1964.

The rise in export earnings of the primary producing countries was progressive over 1963 and continued in early 1964, but there was no evidence of an acceleration in their reserve accumulation. These countries have generally not continued to add to their reserves over long periods. It does not seem unlikely that their combined surplus will be somewhat reduced in the course of 1964. Past experience suggests that the impact of such a change would most likely benefit such countries as the United States, the United Kingdom, and Japan more than the countries in continental Europe.

Primary producing countries

Since the sharp rise in the export earnings of the primary producing countries was accompanied by a more moderate increase in their imports, their combined trade balance improved from 1962 to 1963. This is the normal pattern in a period of rising exports, since an increase in exports can be expected to be followed by an increase in imports only with a certain time lag, whether the level of imports is determined primarily by a free market mechanism or is subject to a high degree of government regulation. The improvement in the trade balance was the major reason for the decrease of about $2.0 billion in the collective deficit on goods and services account of the primary producing countries. Most of the improvement accrued to the less industrialized countries (Groups B, C, and D in Table 17); among the more industrialized countries (Group A in Table 17), variations in the goods and services balances of individual countries tended to cancel out.

Chart 21.Primary Producing Countries: Balances on Account of Goods, Services, and Private Transfers and Basic Balances, 1956–63

(In billions of U.S. dollars)

Judging from the preliminary figures now available, there was an increase of a few hundred million dollars in the inflow of private long-term capital into the more industrialized countries. This was offset, however, by an almost equivalent change in the opposite direction in short-term capital movements, including unrecorded transactions. The modest rise in the over-all surplus of these countries as a group from 1962 to 1963 was thus about equal to the reduction in the group’s goods and services deficit. For the less industrialized countries collectively, a much larger reduction in the goods and services deficit (by almost $1.8 billion) was accompanied by a rise of $0.3 billion in the net inflow on account of governmental transfer payments and capital (representing mainly economic aid). The inflow of private long-term capital appears to have been reduced by about $0.2 billion from the already relatively low level of $1 billion in 1962. There was an apparent increase in outflows on account of short-term capital and unrecorded transactions, which offset part of the improvement in the other accounts. As a result of the changes in all these transactions, the collective over-all balance of the less industrialized countries improved by $1.5 billion. The statistics for the less industrialized countries underlying both Table 16 and 17 are somewhat tentative; they also fail to cover all such countries. For these countries, the data in the various categories shown in the tables may not, therefore, be fully representative of the less industrialized countries as a group; nevertheless, they are believed to be a reasonably reliable indication of the broader trends in the group’s aggregate balance of payments.

For the two groups of primary producing countries and certain subgroups, the collective balances on account of goods and services and on the so-called basic accounts (i.e., goods and services, private long-term capital, and government capital and transfer payments) are shown in Chart 21 for the years 1956-63. A comparison of the over-all balances (including movements of short-term capital and errors and omissions in addition to the transactions entering the basic accounts) with the basic balances for the two main groups during 1956-63 is given in Chart 22. It will be seen that, while the movements of the basic balances and the over-all balances have generally been similar, there has usually been an inflow on account of short-term capital and unrecorded transactions into the more industrialized countries but an outflow from the less industrialized ones. The residual figures for short-term capital and errors and omissions do not, of course, provide a reliable indication of short-term capital movements alone; this is particularly true of the preliminary statistics for 1963. The more complete figures for 1962 that have become available since last year’s Annual Report was published have resulted in a downward revision of the residual debit for short-term capital and errors and omissions for the less industrialized countries; and the revised figures suggest that the unrecorded outflow of capital from these countries during 1962 was not nearly so large as the preliminary figures gave reason, to suspect.

Chart 22.Primary Producing Countries: Basic and Over-All Balances of Payments, 1956–63

(In billions of U.S. dollars)

In the two years preceding 1963, the less industrialized countries were generally in deficit, while the more industrialized countries, despite various balance of payments strains, succeeded in improving their reserve positions. Chart 21 and Chart 22 suggest that in 1963 the difference between the two groups was much diminished. Even in 1963, however, considerable dissimilarities become apparent when developments in individual countries are analyzed. In the more industrialized countries, favorable balance of payments positions generally coincided with high and rising levels of activity, considerable freedom in international transactions, and exchange stability. Among the less industrialized countries, on the other hand, there was much greater variety. Between one fourth and one third of these countries were in deficit, and many achieved a surplus only through the intensive application of import and payments restrictions or similar expedients, by depreciating their currencies, or by maintaining domestic activity at an unsatisfactorily low level. Some even incurred deficits in spite of such practices and policies.

In Latin America, for instance, much of the improvement in the area’s over-all position is accounted for by two countries—Argentina and Brazil—whose experience in 1963 was far from satisfactory. While the exports of Argentina rose by 12 per cent from 1962 to 1963, most of the improvement in its goods and services balance is attributable to a fall of 28 per cent in its imports. As indicated in the more detailed analysis of Argentina’s balance of payments in Chapter 8, the fall in imports in part reflects a depressed level of economic activity, particularly at the beginning of the year, attributable, inter alia, to political uncertainties. The reduction in Brazil’s deficit is perhaps more an indication of that country’s difficulty in financing a larger one rather than of any improvement in its underlying position. Its exports rose by 16 per cent while its imports remained stationary in spite of sharply rising domestic demands, being checked by a progressive depreciation of the cruzeiro and other changes in the exchange system. The improvement in the goods and services account reflects not only the reduction in the trade deficit but also in part an increase in arrears for interest, dividends, and profits, the remittance of which abroad has been held up under the Remittance of Profits Law. The Government has recently requested the cooperation of its creditors in dealing with the burden of foreign indebtedness.

* * *

It is evident that the balance of payments experience of a number of the less developed countries was far from satisfactory in 1963. Despite the marked improvement in the group’s position, many of its members continued to face serious balance of payments problems, and, as indicated in Chapter 6, it remained difficult for most of them to reconcile their targets for economic growth with balance in their international transactions.

Reserve Developments

The rise of $3.4 billion during 1963 in world reserves outside the Sino-Soviet Area was the highest recorded in the postwar period. This is largely explained by two factors: the primary producing countries’ balance of payments surplus of $1.6 billion, about $1.4 billion of which appears to have accrued in the form of foreign exchange; and the unusually high increase, $850 million, in world monetary gold holdings (including the holdings of international monetary organizations), which was also a postwar record. As in other years, most of the increase in world monetary gold holdings and of the amount of gold sold abroad by the United States ($392 million) accrued to the other main industrial countries. These countries, as a group, have tended for many years to keep about two thirds of their reserves in gold. In 1963, they added $1,040 million to their gold reserves and $520 million to their official foreign exchange holdings.

This broad explanation does not cover a number of generally minor movements in monetary gold holdings. Countries made gold payments to the Fund of more than $100 million, mainly as a result of subscriptions and repurchases. (This gold movement was more than offset in national reserves by a somewhat larger increase in aggregate gold tranche positions with the Fund.) On the other hand, there was a decrease of more than $200 million in the net gold holdings of the Bank for International Settlements, an equivalent increase being reflected in national reserves. South Africa added $130 million to its gold reserves, and countries in Western Europe outside the main industrial countries added a little more than $200 million. The generalization above also fails to account for all of the increase in world foreign exchange reserves. Additional factors were increases of more than $100 million in the foreign exchange assets of the United States and of almost $300 million in those of industrial countries included in “other high income countries” in Table 18, a large part of which is attributable to Denmark.

Table 18.Countries’ Official Reserves, Including Gold Tranche Positions in the International Monetary Fund, End of Calendar Years, 1960–63 1(In billions of U.S. dollars)
1960196119621963
Countries
Main industrial countries45.6947.4747.1248.37
United States19.3618.7517.2216.84
United Kingdom3.723.323.313.15
Other 222.6125.4026.5928.38
Other high income countries 35.286.257.128.34
Other countries11.7511.0811.5212.48
Total62.7264.8065.7669.19
Composition
Gold38.0238.8539.2340.21
IMF gold tranche positions3.574.163.803.94
Claims on United States 411.2111.9312.3513.71
Sterling claims on United Kingdom 57.087.106.21 66.50
Other72.842.764.17 64.83
Sources: International Monetary Fund, International Financial Statistics, and Fund staff estimates.

Excluding the Sino-Soviet Area.

Belgium, Canada, France, Federal Republic of Germany, Italy, Japan, Netherlands, Sweden, and Switzerland.

Other Western European countries, Australia, New Zealand, and South Africa.

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

For 1960-61, covers net sterling liabilities to foreign official holders; for 1962-63, covers gross sterling liabilities to foreign central monetary authorities. See also footnote 6.

The change in coverage described in footnote 5 reduces the figure for sterling claims by about $0.6 billion and increases the residual (“other”) by the same amount.

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

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

Excluding the Sino-Soviet Area.

Belgium, Canada, France, Federal Republic of Germany, Italy, Japan, Netherlands, Sweden, and Switzerland.

Other Western European countries, Australia, New Zealand, and South Africa.

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

For 1960-61, covers net sterling liabilities to foreign official holders; for 1962-63, covers gross sterling liabilities to foreign central monetary authorities. See also footnote 6.

The change in coverage described in footnote 5 reduces the figure for sterling claims by about $0.6 billion and increases the residual (“other”) by the same amount.

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

Of the total increase of $3.4 billion in national reserves, about two thirds ($2.3 billion) took the form of foreign exchange assets. The debtors on these increased claims cannot, however, be fully identified from the available statistics. Sterling assets in the form of claims on the United Kingdom rose by about $0.3 billion. Claims on the United States, including $0.5 billion for nonmarketable, medium-term U.S. Government bonds, counted as reserves by the countries holding them, increased by between $1.3 billion and $1.4 billion. Little of the remaining $0.7 billion of the increase can be identified, although some $0.1 billion represents the liabilities corresponding to the increase in the foreign currency holdings of the United States, of which Italian lire apparently formed an important component. One factor contributing to the rest may perhaps be an understatement in U.K. and U.S. statistics of the increase in liabilities to foreign reserve holders, caused by the uncertain classification of liabilities by the foreign sector. Other possible explanations are a reduction in the foreign exchange holdings of countries not included in the statistics (e.g., countries in the Sino-Soviet Area) and an increase in foreign exchange holdings not in the form of dollar claims on the United States or sterling claims on the United Kingdom (e.g., reserves held in the Eurodollar market).

The increase in reserves during 1963 arose in part from an unusually large surplus accruing to the primary producing countries, which cannot be counted upon to remain a significant source of expansion in international liquidity over the long run. Nevertheless, reserve developments during 1963 were helpful—not so much, perhaps, because they resulted in an exceptionally large increase in world reserves, but because there was an improvement in the distribution of these reserves. Even after the increase, the reserves of the less developed countries generally remained at very low levels.

The estimate for exports from the Sino-Soviet Area is tentative.

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