Chapter

Chapter 5 World Trade, Payments, and Reserves

Author(s):
International Monetary Fund
Published Date:
September 1966
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World Trade

Cyclical Pattern of World Trade

THE growth of international trade, which had been very rapid in 1963 and early 1964, slackened during 1964 and continued to lose momentum in the early months of 1965. In the second half of 1965, however, trade expanded with renewed vigor, sparked by the upswing of demand in most of the countries in the European Economic Community (EEC) and by the continued growth of the U.S., Canadian, and German markets.

This cyclical pattern is clearly indicated in Table 3. From the first half of 1964 to the first half of 1965, the value of world exports grew by 7 per cent. This was the lowest growth rate (between corresponding half years) since the first halves of 1962 and 1963 (when it was 6 per cent), and only half the peak rate of growth achieved between the first halves of 1963 and 1964. But the downward trend that began in the second half of 1964 appeared to be reversed in 1965: world exports in the second half of 1965 were about 9 per cent higher than in the corresponding period of 1964.

Table 3.Growth in Total Value and in Unit Value of Exports from Major Areas, 1963–65(In percentage changes from same period of preceding year)
196319641965
Second

half
First

half
Second

half
First

half
Second

half
A. Total export value
World112141079
Industrial countries2131512911
Primary producing
countries
More developed 31720607
Less developed 4711856
B. Export unit value
World133211
Industrial countries11221
Primary producing
countries
More developed 5981−40
Less developed4321−1
Excluding
petroleum
exporters55316
Sources: International Monetary Fund, International Financial Statistics, and United Nations, Monthly Bulletin of Statistics, April 1966.

Excludes Soviet countries, Mainland China, Cuba, and Indonesia.

Canada, EEC, EFTA (except Portugal), Japan, and United States.

Other developed countries in Western Europe (Finland, Greece, Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia), Australia, New Zealand, and South Africa.

All other countries except the Soviet countries, Mainland China, Cuba, and Indonesia.

Excludes the trade of Iceland, Turkey, and Yugoslavia, for which no data were available. These three countries accounted for 12 per cent of the exports of the more developed primary producing countries in the base year 1958.

Insufficient data.

Sources: International Monetary Fund, International Financial Statistics, and United Nations, Monthly Bulletin of Statistics, April 1966.

Excludes Soviet countries, Mainland China, Cuba, and Indonesia.

Canada, EEC, EFTA (except Portugal), Japan, and United States.

Other developed countries in Western Europe (Finland, Greece, Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia), Australia, New Zealand, and South Africa.

All other countries except the Soviet countries, Mainland China, Cuba, and Indonesia.

Excludes the trade of Iceland, Turkey, and Yugoslavia, for which no data were available. These three countries accounted for 12 per cent of the exports of the more developed primary producing countries in the base year 1958.

Insufficient data.

The cycle can be observed in the data for each country group included in Table 3 (industrial countries and two groups of primary producing countries), even though, in any one period, the rates of growth of exports from each area were quite disparate. The export growth of the more developed primary producing countries was subject to much wider fluctuations than was that of either the industrial or the less developed countries. From the first half of 1963 to the first half of 1964, exports of the more developed primary producing countries increased by 20 per cent; their exports in the first half of 1965, however, showed no increase over the first half of 1964.

Table 3 also shows percentage changes in export unit values; the growth in exports in constant prices is approximately indicated by the figures in part A in the table less the corresponding figures in part B. It can be seen that, for both groups of primary producing countries (especially the more developed countries), the decline in growth of export values from the year ended June 1964 to the year ended June 1965 is associated with a parallel weakening in prices, so that their export growth fluctuated less in volume than in value. Even in terms of volume, however, the exports of the more developed primary producing countries grew only half as fast in the year ended June 1965 as they had a year earlier. Changes in the terms of trade are discussed in Chapter 7.

In the industrial countries, the growth in unit value of exports was quite different, showing some acceleration in the year ended June 1965. The fluctuation in growth of industrial countries’ exports is, if anything, more marked in terms of volume than in terms of value.

Table 4 shows the growth in imports of the same groups of countries over the same period as Table 3. The import data suggest that the slowing down and acceleration of the growth of trade during 1964-65 were strongly influenced by demand in the industrial countries. The imports of the latter countries were only 6 per cent higher in the first half of 1965 than in the corresponding period of 1964, and in general the growth of their imports fluctuated more widely than that of their exports. The more developed primary producing countries maintained a very high rate of import growth through the first half of 1965, in spite of the leveling out of their export earnings in the year ended June 1965. During this period the imports of the less developed countries were also growing strongly, in response to the boom in their export earnings in 1963-64. Both these developments helped to sustain the export growth of the industrial countries. From the second half of 1964 to the second half of 1965, the growth of industrial countries’ imports accelerated sharply. Their exports grew more slowly, however, as the less developed primary producing countries (and to a lesser extent the more developed ones) adjusted their import expansion to the deceleration in their export earnings during the previous year.

Table 4.Growth in Value of Imports into Major Areas, 1963–65(In percentage changes from same period of preceding year)
196319641965
Second

half
First

half
Second

half
First

half
Second

half
World110141079
Industrial countries2131610612
Primary producing countries
More developed countries 31517161712
Less developed countries4281062
Sources: See Table 3.

Excludes Soviet countries, Mainland China, Cuba, and Indonesia.

Canada, EEC, EFTA (except Portugal), Japan, and United States.

Other developed countries in Western Europe (Finland, Greece, Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia), Australia, New Zealand, and South Africa.

All other countries except the Soviet countries, Mainland China, Cuba, and Indonesia.

Sources: See Table 3.

Excludes Soviet countries, Mainland China, Cuba, and Indonesia.

Canada, EEC, EFTA (except Portugal), Japan, and United States.

Other developed countries in Western Europe (Finland, Greece, Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia), Australia, New Zealand, and South Africa.

All other countries except the Soviet countries, Mainland China, Cuba, and Indonesia.

Chart 2 shows changes in the trade balances of the major areas. In the two half-yearly periods ended June 1964, the industrial countries experienced a rapid expansion of demand, which, coinciding with buoyant prices for primary products, was reflected in a deterioration in their collective trade balance; this deterioration was matched principally by an improvement in the trade balance of the less developed primary producing countries. The slowdown in economic activity in the industrial countries during the second half of 1964 and the first half of 1965, in combination with a weakening of primary product prices, caused the industrial countries’ balance of trade with the rest of the world to improve markedly. These gains were matched mainly by losses among the more developed primary producing countries. While the trade balance of the less developed countries also deteriorated in the second half of 1964 (compared with the preceding year), there was little further weakening in the following period; seemingly, the less developed countries, as a group, were adjusting to events in industrial countries by early in 1965. Later in the year the trade balance of the less developed countries improved greatly; the prior trend of improvement in the industrial countries was reversed; and the balance of the more developed primary producing countries’ trade again deteriorated, although by a smaller amount than in the two previous periods.

Chart 2.Trends in Trade Balances of Major Areas, 1962–65 1

(Change from same period of preceding year, in billions of U.S. dollars)2

1 Based on customs data. Exports f.o.b. minus imports c.i.f.

2 Plus (or minus) sign indicates a decrease (or increase) in trade deficit or an increase (or decrease) in trade surplus.

3 The totals may represent a combination of at least three factors: (a) changes in the balance of the trade of Soviet countries and Mainland China with the rest of the world; (b) changes in expenditures on insurance and freight (an increase in such expenditure would appear as a minus change in the chart); (c) changes in “errors and omissions.”

Among the industrial countries, trends in exports, imports, and trade balances were rather disparate. As can be seen in Chart 3, Japan and the countries in the EEC other than Germany accounted for most of the improvement in the trade balance of the industrial countries in the year ended June 1965. The trade balances of Germany and of the United Kingdom deteriorated during this period. The small decline in the industrial countries’ trade balance in the second half of 1965, compared with the second half of 1964, seems to be accounted for by Germany, the United States, and Canada. The balances of Japan and of the EEC countries excluding Germany continued to improve, although there is evidence of a downturn in the balances of most EEC countries from the first to the second half of 1965.

Chart 3.Seasonally Adjusted Trade Balances of Selected Industrial Countries, 1961-First Quarter 1966 1

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

1 Based on customs data. For United States and Canada, 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 U.S. dockers’ strike.

The trends in exports and imports underlying Chart 3 are presented in Chart 4. In this chart the acceleration of industrial countries’ import growth suggested by Table 4 can be illustrated in more detail. The seasonally adjusted series are not corrected for the U.S. dockworkers’ strike, which distorted trade from the fourth quarter of 1964 through the early months of 1965. The acceleration in import growth in the course of 1965 appears primarily in the series for the United States and for EEC countries other than Germany. The rapid growth of Germany’s imports, which helped to sustain the growth of trade throughout 1964 and early 1965, was maintained virtually throughout 1965 (although the decline in growth of imports in the early months of 1966 may indicate a change in trend). The imports of the countries in the European Free Trade Association (EFTA), excluding the United Kingdom, also grew at a virtually constant rate throughout 1964-65. The imports of Japan and the United Kingdom showed little increase during 1965.

Chart 4.Seasonally Adjusted Exports and Imports of Industrial Countries, 1961-First Quarter 19661

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

1 Based on customs data. For United States and Canada, 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 U.S. dockers’ strike.

Direction of Trade in 1964-65

Annual trends in the growth of trade among major areas are indicated in Tables 5 and 6. Almost all the series show a slowing down in the growth of trade from 1964 to 1965, and in most cases the peak growth achieved since 1962 was in 1964.

Table 5.Growth in Value of Exports from Major Areas, by Major Areas of Destination, 1962–65(In percentage changes from preceding year)
Primary Producing
Countries
Exports

From
YearIndustrial

Countries,
More

developed
Less

developed
Soviet

countries

etc.1
World
Industrial
countries 2196286–255
19631013559
1964131693013
1965311157210
Primary producing countries
More1962435–44
developed1963101533211
19641220131513
1965 3–179223
Less1962611145
developed196310165–68
19643998179
196536105236
World 4196276–135
19631014569
19643121592412
196539147108
Sources: International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade; International Monetary Fund, International Financial Statistics, and staff estimates.

Soviet countries, Mainland China, and Cuba.

Excluding military exports from the United States.

Preliminary estimates.

Excluding Soviet countries, Mainland China, and Cuba.

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

Soviet countries, Mainland China, and Cuba.

Excluding military exports from the United States.

Preliminary estimates.

Excluding Soviet countries, Mainland China, and Cuba.

Table 6.Growth in Value of Exports from Selected Countries and Areas, by Destination, 1965(In percentage changes from 1964)
Exports to
Industrial Countries
Primary Producing
OtherCountries
EFTAEEC− Soviet
UnitedUnitedCoun-Coun-MoreLessCoun-
Exports FromStatesCanadaJapanKingdomtriestriesTotaldevelopeddevelopedtries, etc.1World
Industrial countries
United States2,31511126100−593
Canada13−5−21212970−325
Japan3529428333132221427
United Kingdom217−12627105197
Other EFTA
countries1529−16315891411810
EEC countries2029−13410131220102113
Total32016−32101011157210
Primary producing countries4
More developed6−3−4−44−1−179223
Less developed519−11086105236
World, excluding
Soviet countries, etc. 1,41414201099147108
Sources: See Table 5.

Soviet countries, Mainland China, and Cuba.

Excludes military exports.

The recorded value of U.S. exports in 1965 to individual countries includes trade in certain nonmilitary items which, for security reasons, had not been reported in U.S. sources prior to January 1965. Staff estimates of this trade, for each country or area in the table, except the “World,” have been deducted from the 1965 export figures before computation of the growth rates. For the world market, comparable data, including all nonmilitary exports, were available (this growth rate, together with the estimated rates, implies no marked change in nonmilitary special categories, as defined in 1964).

Preliminary estimates.

Sources: See Table 5.

Soviet countries, Mainland China, and Cuba.

Excludes military exports.

The recorded value of U.S. exports in 1965 to individual countries includes trade in certain nonmilitary items which, for security reasons, had not been reported in U.S. sources prior to January 1965. Staff estimates of this trade, for each country or area in the table, except the “World,” have been deducted from the 1965 export figures before computation of the growth rates. For the world market, comparable data, including all nonmilitary exports, were available (this growth rate, together with the estimated rates, implies no marked change in nonmilitary special categories, as defined in 1964).

Preliminary estimates.

In 1965 the value of trade among industrial countries increased by about 11 per cent. By comparison, the trade of the industrial countries with the world as a whole increased by about 10 per cent, and the growth of world trade was only 8 per cent. The value of exports of the more developed primary producing countries to the industrial countries fell slightly, while trade in the opposite direction increased by about 15 per cent. Trade between the less developed primary producing countries and the industrial countries grew at about the same rate in each direction in 1965; this rate was somewhat less than that at which world trade in general increased, and much less than the rate of growth of the industrial countries’ trade among themselves. Exports of both groups of primary producing countries to the Soviet countries and Mainland China grew very rapidly in 1965, whereas industrial countries’ exports to this area increased very little over the 1964 total (which was 30 per cent greater than that in 1963). The acceleration of the less developed primary producing countries’ trade with the Soviet countries and Mainland China, over the period 1962-65, seems especially noteworthy.

Table 6 presents further details of the growth of the trade among selected industrial countries and between these countries and other major areas. Exports of the more developed primary producing countries to most of the industrial countries or areas selected declined somewhat from 1964 to 1965, and the increases in such exports to the United States and “other EFTA” countries were small, relative to the growth of these countries’ imports from all sources. On the other hand, the growth of the exports of each of the selected industrial countries to these more developed countries was more rapid than that of their exports to the world as a whole.

The growth of trade between the industrial countries and the less developed countries was much less even. With the United States, Canada, and the United Kingdom, trade grew rather slowly or not at all. But between the less developed countries and the EEC, EFTA (excluding the United Kingdom), and Japan, exports in each direction grew at least as fast as world trade generally. The U.S. and Canadian shares of world exports to the less developed countries fell markedly, while the corresponding shares of the EEC, EFTA (excluding the United Kingdom), and Japan rose. Conversely, apart from industrial markets in North America, the less developed countries broadly maintained their share of world exports to industrial countries.

Export Growth and Market Growth

Table 7 compares the growth of each industrial country’s exports in each of the last two years with the average growth in the market for its exports. The latter is equivalent to the growth of exports that each industrial country would have achieved if it had maintained its share of all industrial countries’ exports to each of 23 market areas. The difference between a country’s “market growth” and its actual export growth approximates the percentage change in its average export share.

Table 7.Industrial Countries: Growth of Each Country’s Exports Related to Average Growth in Its Export Markets, 1964 and 19651(In percentage changes from preceding year or same period of preceding year)
1965
19641965Second

Half
Market

growth
Export

growth
Market

growth
Export

growth
Market

growth
Export

growth
Countries which increased their average shares of markets from 1964 to 1965
Japan142313271120
Italy141712201217
Belgium-
Luxembourg151512151317
Countries which broadly maintained their average shares of markets from 1964 to 1965
Austria10912111211
Denmark14111110107
France111111121116
Germany131110111112
Norway162011121113
Switzerland121012121313
Countries which failed to maintain their average shares of markets from 1964 to 1965
Netherlands151712101310
Sweden151510897
United States 212146-8 338-10 34
Canada1919105148
United Kingdom1241371211
Source: Based on data in International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade. Some of the export data for the United Kingdom are taken from the Board of Trade, Overseas Trade Accounts of the United Kingdom.

For the purpose of this analysis the world has been divided into 23 markets, consisting of 14 industrial countries, 8 groups of primary producing countries, and the Soviet countries and Mainland China. The rate of growth in the market confronting each exporting country is taken to be the growth in each market weighted according to the share of the country’s exports taken by each market in the preceding year. Except for the Soviet countries and Mainland China, the growth in each market is taken to be the growth in exports of all industrial countries to that market area. For each exporting country, the growth of the market in the Soviet countries and Mainland China is equated with that country’s actual export growth to that market.

Nonmilitary exports.

The growth of the market for U.S. exports in 1964-65 is especially difficult to estimate as a result of a reclassification of certain U.S. exports from “special categories” to exports allocated by country of destination.

Source: Based on data in International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade. Some of the export data for the United Kingdom are taken from the Board of Trade, Overseas Trade Accounts of the United Kingdom.

For the purpose of this analysis the world has been divided into 23 markets, consisting of 14 industrial countries, 8 groups of primary producing countries, and the Soviet countries and Mainland China. The rate of growth in the market confronting each exporting country is taken to be the growth in each market weighted according to the share of the country’s exports taken by each market in the preceding year. Except for the Soviet countries and Mainland China, the growth in each market is taken to be the growth in exports of all industrial countries to that market area. For each exporting country, the growth of the market in the Soviet countries and Mainland China is equated with that country’s actual export growth to that market.

Nonmilitary exports.

The growth of the market for U.S. exports in 1964-65 is especially difficult to estimate as a result of a reclassification of certain U.S. exports from “special categories” to exports allocated by country of destination.

From 1964 to 1965, Japan, Italy, and Belgium-Luxembourg increased their shares of foreign markets, and the United Kingdom, Canada, the United States, Sweden, and the Netherlands failed to maintain their shares. Japan and Italy had also increased their shares in 1964, but by not so much as in 1965. The United Kingdom’s share fell less in 1965 than it did in 1964, and between the second halves of the two years its share was almost maintained. The reduction in the United Kingdom’s share in 1965 was distributed rather evenly among the major market areas (in contrast to rather more concentrated losses in 1963-64), although U.K. exports to the EEC countries, Australia, New Zealand, and South Africa continued to be particularly weak. The growth of exports from the United States in 1965 (3 per cent) was much the lowest of any industrial country, but the growth of the market for U.S. exports was also relatively low. Thus the decline in its export share was less than that which might be inferred from a comparison of its actual export growth with the export growth of all industrial countries (Table 6). Even so, the growth of exports from the United States in 1965 relative to the growth in the market for its exports compares unfavorably with 1964 (when the U.S. share increased by about 2 per cent) and with 1963 and 1962. France did not appreciably increase its export share in 1965 as a whole, in spite of the relative ease in domestic demand prevailing there; however, from the second half of 1964 to the corresponding period of 1965, France’s share increased by 5 per cent. Although Germany maintained its export share on the average for all markets, its share of the markets in most of the industrial countries fell.

The marked differences in export performance of the industrial countries were associated with the widely divergent trends in domestic demand (summarized in Chapter 6). In some countries these trends were reflected in marked changes in price competitiveness. Table 8 shows percentage changes in the ratio of each industrial country’s index of export unit values to the average unit value of other industrial countries’ exports. The countries whose share of exports increased substantially—Japan, Italy, and Belgium-Luxembourg—all improved their competitive position by this criterion between the first three quarters of 1964 and the corresponding period of 1965. Of the countries for which a decline in price competitiveness is recorded in Table 8, the United States had by far the most substantial deterioration—about 2 per cent; moreover, a similar result is obtained if unit value ratios are calculated on the basis of manufactured exports alone. (Calculations for 1961-62, 1962-63, and 1963-64 show moderate improvements in U.S. price competitiveness, whether manufactured exports or total exports are used.) The relative export unit value of the United Kingdom appeared to remain unchanged in 1965, as it did in 1964. In relation to manufactured exports alone, U.K. price competitiveness deteriorated somewhat in each of these years.

Table 8.Industrial Countries: Changes in the Relation Between Each Country’s Export Unit Value and the Average Unit Value of Other Countries’ Exports, 1964 and 1965

(In percentage changes from preceding year 1)

19641965 2
RelativeJapan−2.5Japan−3.0
improvementCanada−0.5Belgium-
Luxembourg−3.0
United States−0.5Italy−2.5
Germany−0.5Denmark−1.5
Italy−0.5France−1.5
Little change3AustriaAustria
United KingdomCanada
Norway
United Kingdom
RelativeBelgium-Germany0.5
deteriorationLuxembourg0.5Switzerland0.5
Denmark1.5Netherlands0.5
Sweden1.5Sweden1.0
Netherlands1.5United States2.0
France2.0
Switzerland2.0
Norway2.5
Source: Based on unit value indices published in United Nations, Monthly Bulletin of Statistics.

Percentage change in the ratio of each country’s index of unit value of total exports (in dollars) to the combined index for Industrial countries. Figures greater than 0.5 rounded to the nearest ½ per cent.

January-September.

Less than ½ per cent.

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

Percentage change in the ratio of each country’s index of unit value of total exports (in dollars) to the combined index for Industrial countries. Figures greater than 0.5 rounded to the nearest ½ per cent.

January-September.

Less than ½ per cent.

International Private Capital Movements

The pattern of international capital movements, and of international financing on international security markets, altered greatly during 1965. The capital outflow from the United States was sharply diminished during the year, largely as a result of the U.S. voluntary balance of payments program. One of the most interesting developments was a decrease in the second half of 1965 in the transfers of direct investment funds to Europe, concurrently with an actual increase in investment by U.S. businesses, made possible by increased financing from European capital markets. Part of this finance took the form of security flotations in Europe, accounting for a part of the increase in international issues which is discussed in Chapter 6. The net export of private capital on short-term as well as long-term account from the main industrial countries to the less developed primary producing countries appears to have been lower in 1965 than in 1964, but, taking into account also errors and omissions (which are believed to include important amounts of unrecorded capital transfers), the net balance of payments position of the latter countries on capital account improved slightly.

The broad pattern of international capital movements in recent years is indicated in Table 9. These transfers have been, and continue to be, the source of a number of difficulties for the smooth working of the international adjustment process.

Table 9.Balances on Private Capital Account, Annual Averages, 1961–64 1(In millions of U.S. dollars)
Long-

Term

Capital
Short-

Term

Capital 2
Errors

and

Omissions
Total
Industrial countries
Main capital exporters
United States−3,670−740−950−5,360
United Kingdom−200−18020−360
Total−3,870−920−930−5,720
Other European
countries9404151,1202,475
Canada and Japan790600201,410
Total−2,14095210−1,835
Primary producing countries
More developed76520125910
Less developed1,14540−385800
Total1,91060−2601,710
Discrepancy−230155−50−125

Includes reinvested earnings where data are available.

Includes liquid liabilities to foreign private creditors (including commercial banks).

Includes reinvested earnings where data are available.

Includes liquid liabilities to foreign private creditors (including commercial banks).

Historically, most private long-term capital movements have taken the form of a flow of funds from a more highly developed country, presumably with a lower current marginal efficiency of investment, to a less highly developed, capital-scarce country, with a presumably greater current marginal efficiency of investment. In recent years, the United States, and to a lesser extent the United Kingdom, have been the most important net sources of long-term investment funds. However, the less developed primary producing countries have not been the most important recipients of these resources. As a group their net receipts of long-term capital have been matched in rough orders of magnitude by the receipts of the industrial European countries (other than the United Kingdom), by those of Canada and Japan, and by those of the more developed primary producing countries. That is, the capital-scarce nations seem to have received only a little more than one fourth of the flow of long-term funds in recent years. The flows between the major industrial countries have not only been large, but in some important cases they have been disequilibrating, in the sense that they provided additional sources of reserve accumulation for countries with large balance of payments surpluses.

The pattern of private long-term capital movements in 1965 was similar to that of recent years. But, largely as a result of the reactions of U.S. banks and other financial institutions to the guidelines for their foreign lending activities announced in March, the direction of U.S. net short-term capital flows changed to an inflow for the year as a whole (Table 29, p. 94). This had a counterpart in marked changes in flows of capital in a number of other countries.

In 1965, there was a large increase in the outflow of capital from Italy, Japan’s net capital account changed from an inflow to an outflow, and the inflow into France and the Netherlands was much reduced (Table 10). On the other hand, inflows into Germany and Canada increased markedly. On balance, the flow to continental Europe was drastically reduced.

Table 10.Selected Industrial Countries: Balances on Private Capital Account, 1964 and 19651(In millions of U.S. dollars)
19641965
19641965Fourth

quarter
First

quarter
Second

quarter
Third

quarter
Fourth

quarter
Main capital exporting countries−6,001−3,596−3,396−748−1,046−190−1,612
United States−5,599−3,845−2,517−763−849−232−2,001
United Kingdom−402249−87915−19742389
Selected industrial European
countries 21,408352717−3083974257
Belgium22411872−461042634
France549169200962366−16
Germany5591,212380−86469594235
Italy−367−1,2127−260−311−636−5
Netherlands4436558−12112−449
Canada and Japan1,147503165427147−186115
Canada6891,186322296335202353
Japan458−683−157131−188−388−238
Total−3,446−2,729−2,492−629−502−370−1,240
Sources: International Monetary Fund, Balance of Payments Yearbooks, and data supplied by national authorities.

Private long-term and short-term monetary and nonmonetary sector capital, and errors and omissions.

Includes some foreign private investment in domestic government securities.

Sources: International Monetary Fund, Balance of Payments Yearbooks, and data supplied by national authorities.

Private long-term and short-term monetary and nonmonetary sector capital, and errors and omissions.

Includes some foreign private investment in domestic government securities.

In large part, these changes resulted from the reversal of the direction of short-term capital movements between the United States and Europe during the first three quarters of 1965, and of changes in the volume of U.S. direct investment financing. Although total U.S. direct investment was larger in 1965 as a whole than it was in 1964 (Table 11), transfers in the second half of the year were lower than they had been in the same period of the previous year. Transfers of direct investment funds to Europe slowed down, but there was a sharp rise in investments in Canada, prompted by the buoyant state of the Canadian economy. Canadian direct investment abroad changed very little from 1964 to 1965 (see Table 31, p. 96).

Table 11.United States: Distribution of Direct Investment, 1963-First Quarter 1966(In millions of U.S. dollars)
196419651966
196319641965Fourth

quarter
First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
Western Europe9241,3681,432 1390545413127347230
Canada365239895202241146185323210
Other Western
Hemisphere2362682601027390−2111845
Japan6878211416−8857
Australia, New
Zealand, and
South Africa10813617144638022645
Other2275327592163210215986929
Total1,9762,4163,3719151,148936419868566
Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

Including $80 million borrowed in Europe by U.S. companies and transferred to their European subsidiaries.

Africa, Asia, and Eastern Europe.

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

Including $80 million borrowed in Europe by U.S. companies and transferred to their European subsidiaries.

Africa, Asia, and Eastern Europe.

After allowing for the liquidation by the U.K. Exchange Equalization Account of about $500 million of U.S. corporate securities, and for the sale of $203 million of securities by domestic affiliates of foreign subsidiaries of U.S. firms,1 portfolio transactions in U.S. and foreign securities resulted in an outflow of capital in 1965 from the United States. Part of this outflow represented the switching by nonresidents out of U.S. domestic securities into higher-yielding U.S. securities issued on foreign markets. The decline in long-term bank lending abroad accounted for a more important element of improvement in the U.S. capital account. Altogether the outflow of U.S. long-term capital other than direct investment and net portfolio security transactions declined by more than $1 billion. While the voluntary balance of payments program was a powerful influence leading to this improvement, the restraints on domestic credit expansion also made a positive contribution.

The reversal of the direction of U.S. net short-term capital flows was primarily the product of two influences. In the second and third quarters of the year, the repatriation of short-term assets was the predominant factor. A large part of this flow evidently reflected the repatriation of Euro-dollar assets held with Canadian banks and relent by them to non-Canadian debtors. During the year, there were also marked changes in private foreign holdings of short-term dollar assets. In the last quarter of 1964 there had been a large increase in these holdings, mainly as a counterpart to the withdrawal of sterling balances from London. In the first half of 1965, these dollar holdings rose only marginally. In the third quarter of 1965, they rose markedly. This increase reflected the rise in Canadian and U.K. assets offsetting the increases in their Euro-dollar liabilities, particularly to Italy. In the last quarter, outflows from the United States, some of which were associated with the return of short-term funds to London, exceeded inflows. For the year as a whole, foreign private and commercial banks’ holdings of short-term dollar claims on the United States increased by a little more than $400 million, compared with a rise of $1.8 billion in 1964. The deceleration of the upward trend of these short-term capital movements may probably be explained in part by the marked reduction in the U.S. short-term capital outflow noted above. Because the placement of foreign funds in the United States is influenced by foreign borrowings of dollars, the relative decline in the latter seems partly to have offset the effect of the rise in the covered U.S. short-term interest rate relative to interest rates in other markets (U.K. interest rates even declined).

The other major capital exporter, the United Kingdom, also changed its stance during 1965. The outflow of U.K. funds reached a peak during the sterling crisis late in 1964. Thereafter, short-term capital returned on a small scale in the first quarter of 1965 and, after an outflow in the second quarter, the inflow was resumed in the second half of the year. Private U.K. long-term investment was cut back after the second quarter of 1965, largely as a result of government restrictions imposed during the year, although there was some bunching of oil company investments in the third quarter.

Partly as a consequence of the measures taken by the Government and the Bundesbank to restrain inflation, the high level of demand on the German capital market could not be accommodated by the banking system. At the same time, there was a large increase in the flow of international capital to Germany, particularly in the latter half of 1965. So far as long-term capital was concerned, however, this was mainly due to private direct investments. The net capital inflow in 1965 was near to $1.2 billion, of which nearly 50 per cent was errors and omissions, trade credit being a major element; in the third quarter of the year these transfers even reached an annual rate of $2.4 billion.

On the other hand, there was a reduction in the inflow of long-term private capital to France and an outflow of short-term funds from France, resulting, as noted above, in a substantially reduced inflow on private capital account. In 1964 there had been a net inflow of $500 million.

The Italian balance on private capital account changed more than that of any other European country. Italy looks forward to a fairly steady inflow of long-term capital in the long run. Yet, in the third quarter of 1965, net private capital exports exceeded an annual rate of $2.5 billion. Medium-term export credits were an important part of the outflow during the year, but it was dominated by an accumulation of short-term assets (chiefly in the Euro-dollar market) by Italian banks. This latter movement was encouraged by the Italian authorities for reasons outlined in Chapter 6.

A part of the repatriation of U.S. short-term capital represented a running-off of credits previously extended to Japan. In part, this was associated with the less rapid expansion of the Japanese economy and the consequent slowing down of the rise in imports into Japan. At the same time, Japan provided increased short-term financing to purchasers of its exports.

For the less developed primary producing countries as a whole, foreign long-term private capital receipts, according to the statistics of these countries, were much the same as in 1964 and above their 1962 and 1963 levels. The net loss was offset by an apparent reduction in the net outflow of short-term capital from these countries. The comparisons of annual receipts are dominated by changes in the flow of capital from the United States; in 1965 this flow (on short-term as well as long-term account) was approximately $500 million smaller than in 1964, but almost $700 million greater than in 1963. The aggregate flow from European countries was approximately the same as in 1964.

Balance of Payments Developments

Current Account and “Basic” Balances

For most countries the changes from 1964 to 1965 in the net position on current account (defined here as the balance on account of goods and services and private transfer payments) were, as is usual, explained by changes in trade balances. The most notable developments were as follows:

(1) A sharp decline (of $1.6 billion) in the current surplus of the United States, to $6.0 billion, a level which was still much higher than in most previous years except 1964. The large fall in the trade surplus was mitigated somewhat by an improvement on services account, as a sharp rise in income received on investments more than offset higher payments on account of travel and other services.

(2) A return to current balance in the United Kingdom, from a deficit of $0.7 billion in 1964. In each of the three years prior to 1964, there had been surpluses on current account. For each quarter of 1965, the current balance was more favorable than in the corresponding quarter of 1964, and there was also a substantial improvement from the first half to the second half of the year.

(3) A rise of about $0.9 billion in the current surplus of the EEC countries, with increased surpluses occurring in each country except Germany. The $1.6 billion deterioration in the current account position of Germany was matched by the increase in Italy’s surplus alone.

(4) A change of $1.4 billion, from a current account deficit to a record surplus of $1.0 billion, in Japan. Most of the 1965 surplus was earned in the second half of the year, which is seasonally more favorable than the first half.

(5) A rise of about $0.7 billion in the current account deficit of Canada; the deterioration continued through most of the year.

(6) A rise of about $1.3 billion in the current account deficit of the primary producing countries as a group, owing to a deterioration of the position of the more developed primary producers.

The less developed countries as a group seem to have recorded a slight improvement. Although seasonality makes interpretation of the figures for the primary producing countries difficult, there was little indication of an easing of their collective position as the year progressed.

The major factors underlying the changes in current account positions as shown in Chart 5 were associated with the developments in trade discussed above, and thus to a considerable degree with the variation from country to country in the degree of economic expansion and pressure of domestic demand. Among the major countries, the largest improvements on current account occurred in the two countries, Italy and Japan, which experienced the most pronounced slack in their domestic economies. The improvement in the current account position of France was also associated with mildly recessionary tendencies in its domestic economy. In contrast, the United States and Canada, in which expansionary forces were particularly strong, each experienced a considerable worsening of its current account, and there was a similar development in Germany. The reduction in the current deficit of the United Kingdom was associated in part with the temporary surcharge on imports.

Chart 5.Selected Areas and Countries: Balances of Payments, 1958–65

(In billions of U.S. dollars)

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

The EEC countries as a group again exhibited considerable strength. From the first to the second half of 1964, there was a sharp rise in the area’s current surplus, and this improvement was approximately maintained in both halves of 1965 (Table 12). The influence of seasonal factors in the figures cannot be assessed precisely but they are more favorable in the second half than in the first half of the year, suggesting that, on a seasonally adjusted basis, the current surplus reached its peak in the first half of 1965. The improved position of the EEC countries other than Germany is to a considerable extent the counterpart of the German deficit, but collectively the EEC countries were in a position of strength throughout 1965.

Table 12.EEC Countries: Balance of Payments Summaries, 1964 and 1965 1(In millions of U.S. dollars)
BasicOther Non-
Goods,BalancemonetaryNet
Services,OfficialOther Non-Extraordinary(Cols.Short-TermCommercial
andTransfersmonetary1+2+3Capital andBank
PrivateandLong-TermTrans-minusErrors andShort-TermNet
TransfersCapital2Capitalactions 3Col. 4)OmissionsAssets 4Reserves 4,5
Year(1)(2)(3)(4)(5)(6)(7)(8)
Belgium-LuxembourgFirst half1964−46834−4222−20
Second half196492−26134200−638−232
Total46−181681961640−252
First half1965160−10478134−3212−114
Second half196540−52564422−48
Total200−156134178−3014−162
France 6First half196456−772502292748−428
Second half196493−67277303−24−29−387
Total149−144527532319−815
First half1965341−6821648913−110−532
Second half1965310−313145−17932149−144−176
Total651−381361−17981062−254−708
GermanyFirst half1964865−690−398128501−450−187
Second half196430−58219132−393−66463−36
Total895−1,27215240−26543513−223
First half1965−204−6022194−591674−525438
Second half1965−489−392259−92−5308847856
Total−693−994478−88−1,121762−47494
ItalyFirst half1964−407−80220−26757−344554
Second half19641,061611821,304−320−98−886
Total654−194021,037−263−442−332
First half1965817−72812−299−272−241
Second half19651,48812−621,438−355−362−721
Total2,3055−602,250−654−634−962
NetherlandsFirst half1964−378−2031−3969720890
Second half1964199−5118131145−20−337
Total−179−251212−85142188−247
First half1965−87−30161−102−3512313
Second half1965126−2−131110−172146−85
Total39−32328−207269−72
Grand Total6First half196490−8594689−310704−5369
Second half19641,475−619902331,725−371354−1,878
Total1,565−1,4781,370421,415333−182−1,869
First half19651,027−8115315742321−772−436
Second half19651,475−747385−2701,383−388120−974
Total2,502−1,558916−2652,125−67−652−1,410
Source: Based on data reported to the International Monetary Fund. For 1965, data for some countries are provisional and are not entirely comparable with 1964.

No sign indicates credit; minus sign indicates debit.

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

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

Increase (—).

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

Excluding transactions with overseas franc area, on which data are not available. The net balance of the transactions excluded is equivalent to “Transactions of the Overseas Franc Area settled through Metropolitan France,” which represented credits of $124 million in the first half of 1964, $137 million in the second half of 1964, $140 million in the first half of 1965, and $129 million in the second half of 1965.

Source: Based on data reported to the International Monetary Fund. For 1965, data for some countries are provisional and are not entirely comparable with 1964.

No sign indicates credit; minus sign indicates debit.

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

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

Increase (—).

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

Excluding transactions with overseas franc area, on which data are not available. The net balance of the transactions excluded is equivalent to “Transactions of the Overseas Franc Area settled through Metropolitan France,” which represented credits of $124 million in the first half of 1964, $137 million in the second half of 1964, $140 million in the first half of 1965, and $129 million in the second half of 1965.

Changes in flows of government capital and aid and private long-term capital were generally much less spectacular than those in current transactions. This can be seen from Chart 5, which compares the so-called basic balances (i.e., balances on account of current transactions, government aid, and government and private long-term capital transactions, excluding advance repayment of government debt) with balances on current account for major countries and areas. The figures suggest that little progress toward a more balanced pattern of international transactions in these categories was achieved in 1965. In particular, there was a substantial increase in the basic deficit of the United States and a further increase in the basic surplus of the EEC countries as a group. For the latter, the net outflow on account of government capital, long-term capital, and government aid (about $300 million in 1965) remained relatively small—outflows of government capital and aid being largely offset by inflows of private long-term capital. Canada turned from a basic surplus in 1964 to a deficit in 1965; while Japan turned from a basic deficit to a surplus. There was a quite sharp reduction in the basic deficit of the United Kingdom, partly the result of reduced capital outflows. However, despite a considerable improvement in Switzerland, the aggregate basic balances for the remaining EFTA countries (other than Portugal) moved further into deficit (see Table 13).

Table 13.Other Industrial Countries in Continental Europe: Balance of Payments Summaries, 1964 and 1965 1(In millions of U.S. dollars)
Other Non-
Goods,monetaryNet
Services,OfficialOther Non-Short-TermCommercial
andTransfersmonetaryCapital andBank
PrivateandLong-TermBasicErrors andShort-TermNet
YearTransfersCapital 2CapitalBalanceOmissionsAssets 3Reserves 3,4
Austria1964−135377192−82
1965−53−12−28−934945−1
Denmark1964−18914181610952−167
1965−1775135−3751−7359
Norway1964−6715157105−37−17−51
1965−88−11849530−39−86
Sweden196420−1226341587−199
1965−258−2474−208221−11−2
Switzerland1964−41135−80 5−456769 5−313 6
1965−13024−83 5−189−405229 6
Total1964−64887321−2401,00844−812
1965−706−8282−432311−78199
Source: Based on data reported to the International Monetary Fund. For 1965, the data for some countries are provisional and are not entirely comparable with those for 1964.

No sign indicates credit; minus sign indicates debit.

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

Increase (—).

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

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

Including changes in net commercial bank short-term assets.

Source: Based on data reported to the International Monetary Fund. For 1965, the data for some countries are provisional and are not entirely comparable with those for 1964.

No sign indicates credit; minus sign indicates debit.

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

Increase (—).

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

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

Including changes in net commercial bank short-term assets.

The “basic” balances, as here defined, are in the nature of things only a very rough measure of the underlying trends in countries’ balances of payments. This is particularly true in a year like 1965, in which shifts in movements of short-term capital not only were very large but may also have reflected, in part, a trend factor and, in any case, do not appear to have included any appreciable element of volatile or speculative movements of funds likely to be reversed.

For the primary producing countries as a whole, fluctuations in flows of short-term capital are usually much more moderate, and changes in the basic balances for the primary producing countries from 1964 to 1965 are of considerable interest. The hope that the measures of restraint on capital outflows introduced by both the United States and the United Kingdom would not seriously affect the capital receipts of the less developed countries was realized in practice. Table 14 shows that, for these countries, receipts of government capital and aid on the one hand and of private long-term capital on the other were not significantly different in 1965 from the previous year. As a result, the basic balance of the less developed countries as a group improved in line with the current balance. However, for the more developed primary producing countries as a group an enlarged long-term capital inflow failed to match the marked deterioration in the current balance.

Table 14.Primary Producing Countries: Balance of Payments Summaries, 1964 and 19651(In millions of U.S. dollars)
Goods,Other
Services,Short-Term
andCapital
ServicesPrivateBasic(including
TradeandTransferCentralPrivateBalanceCommercial
Balance 3PrivatePaymentsGovernmentLong-(Cols. 5Banks) andTotal4
ExportsImports(Cols.Transfer(Cols.CapitalTermthroughNet Errors(Cols.
f.o.b.f.o.b. 21 + 2)Payments3 + 4)and AidCapital7)and Omissionsi8 + 9)
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
A. More developed
primary producers
196411,925−14,139−2,214973−1,2412861,03580426506
196512,316−16,204−3,8881,246−2,6423511,387−904219−685
B. Less developed
primary producers
196423,636−23,150486−4,419−3,9333,7541,5951,416−936480
196525,195−24,290905−4,716−3,8114,0041,4761,669−2581,411
Latin America
19649,987−8,3971,590−2281−691567809685−268417
196510,380−8,6291,751−2,180−429818420809140949
Asia
19645,864−8,004−2,140−43−2,1832,332328477−42057
19656,207−8,369−2,162−40−2,2022248189235−20827
Middle East
19644,060−3,475585−1,009−424479163218−19820
19654,508−3,683825−1,211−386418410442−94348
Africa
19643,725−3,274451−1,086−63537629536−50−14
19654,100−3,609491−1,285−794520457183−9687
C. Total
196435,561−37,289−1,728−3,446−5,1744,0402,6301,496−510986
196537,511−40,494−2,983−3,470−6,4534,3552,863765−39726
Source: Based on data reported to the International Monetary Fund. For 1965 data for many countries are provisional and in some instances involve estimates by the Fund staff. Table 28, pages 84-85, shows individual country details.

No sign indicates credit; minus sign indicates debit.

For a number of countries, c.i.f.

As recorded in the official balances of payments of countries for which such data are available. The figures may differ somewhat from recorded exports and imports based on customs returns (which are the primary sources for the figures in Tables 3-8 and Table 27) because of various coverage, timing, and valuation adjustments made in conformity with balance of payments concepts.

Represents net official reserve movements, including changes in reserve position in the Fund. No sign indicates over-all surplus; minus sign indicates over-all deficit.

Source: Based on data reported to the International Monetary Fund. For 1965 data for many countries are provisional and in some instances involve estimates by the Fund staff. Table 28, pages 84-85, shows individual country details.

No sign indicates credit; minus sign indicates debit.

For a number of countries, c.i.f.

As recorded in the official balances of payments of countries for which such data are available. The figures may differ somewhat from recorded exports and imports based on customs returns (which are the primary sources for the figures in Tables 3-8 and Table 27) because of various coverage, timing, and valuation adjustments made in conformity with balance of payments concepts.

Represents net official reserve movements, including changes in reserve position in the Fund. No sign indicates over-all surplus; minus sign indicates over-all deficit.

Over-All Surpluses and Deficits

A characteristic of balance of payments developments in 1965 was that changes in the movements of short-term capital were generally in an equilibrating direction, thereby tending to minimize changes in official reserves. As a result, there was a tendency for over-all imbalances in international transactions to be reduced from 1964 to 1965, in spite of some rise in imbalances on account of current and long-term capital transactions.

Table 15 provides estimates of over-all surpluses or deficits for all countries for which balance of payments statistics are available, based on a broadly symmetrical definition. A surplus or deficit is defined as the balance of all transactions other than “official settlements” (here interpreted as covering changes in official gold and foreign exchange assets, in net IMF positions, and, where available, in liabilities to foreign monetary authorities and advance repayments of foreign debt by governments). The over-all deficit or surplus is thus equal to the basic balance plus unrecorded transactions and all movements of short-term capital, excluding those that constitute official settlements. Table 15 is based on quarterly movements in central reserve assets. For the reserve currency countries, changes in monetary liabilities are also taken into account, but for most other countries these data are available only on an annual basis. As a result, the over-all balances shown in Tables 12, 13, and 14, which are based on the more complete annual data, may differ slightly from those shown in Table 15.

Table 15.Over-All Balances of International Payments, 1964 and 19651(In millions of U.S. dollars)
19641965
First

half
Second

half
YearFirst

half
Second

half2
Year2
Industrial Countries
United States−141−1,323−1,46480−1,603−1,523
United Kingdom−260−1,603−1,863−37517−358
EEC countries−931,9801,8873371,1541,491
Belgium−42422387240112
France376447823428370798
Germany20724231−429−24−453
Italy−579927348277691968
Netherlands−93340247−117766
Austria−89789−3427−7
Denmark44131175−13877−61
Norway141933355590
Sweden5415120576−688
Switzerland−122248126−114278164
Canada24313337−67212145
Japan−171132−395127132
Total, industrial countries−659145−514−19527681
Primary Producing Countries
Australia133−6667−263−94−357
Finland334275−83−7−90
Greece2−13−11−17−14−31
Iceland19103710
Ireland261440−4610−36
New Zealand103−812246−146−100
Portugal2290112−217655
South Africa−23−40−63−20178−123
Spain117266383−69−47−116
Turkey−4710−3721012
Yugoslavia−233077−13−6
Subtotal, more developed344261605−642−140−782
Latin American republics141163304142402544
Argentina−5−67−72−10137127
Brazil−7315178133198331
Mexico3477111−9347−46
Venezuela395594−10−4−14
Other146−539312224146
Middle East102−5151365−19346
Other Asia121−149−28−11118372
Other Africa−40−47−8711136147
Subtotal, less developed324−842405076021,109
Total, primary producing
countries668177845−135462327
Excess of Surpluses9322331−330738408
1. Due to increase in world monetary
gold640110750−35285250
2. Due to identifiable asymmetries3−70−82−152−23−23
3. Due to errors and omissions−561294 4−267 4−295 4,5476 5181 5
Memorandum Items
United States and Canada−117−1,010−1,12713−1,391−1,378
Industrial countries in continental
Europe−1112,6262,5151621,5231,685

Adjusted for advance debt repayments. Over-all balances are measured here by changes in official gold and foreign exchange assets, in net IMF positions, in liabilities resulting from “swap” transactions with the United States, and, where data are available, in other liabilities to foreign monetary authorities. For explanation of differences between data in this table and in the three preceding tables see text. No sign indicates surplus; minus sign indicates deficit.

Preliminary.

Covers omissions from the table of one side of certain transactions, e.g., contra-entries necessary when Swiss franc proceeds of Roosa Bonds held by the Swiss Government are utilized by the United States in purchases of U.S. dollars from the Swiss National Bank, because both the bonds and the franc liabilities are included “above-the-line” in the Swiss figures.

Affected by changes in U.K. liabilities resulting from central bank non-dollar swap assistance to the United Kingdom unmatched by changes in claims of those countries that do not include the swap sterling in their reserves.

Affected by the sale of some $500 million of U.S. corporate securities by the U.K. Government, which is treated entirely “above-the-line” in the U.K. figures but partly “below-the-line” in the U.S. figures as an increase in liquid liabilities.

Adjusted for advance debt repayments. Over-all balances are measured here by changes in official gold and foreign exchange assets, in net IMF positions, in liabilities resulting from “swap” transactions with the United States, and, where data are available, in other liabilities to foreign monetary authorities. For explanation of differences between data in this table and in the three preceding tables see text. No sign indicates surplus; minus sign indicates deficit.

Preliminary.

Covers omissions from the table of one side of certain transactions, e.g., contra-entries necessary when Swiss franc proceeds of Roosa Bonds held by the Swiss Government are utilized by the United States in purchases of U.S. dollars from the Swiss National Bank, because both the bonds and the franc liabilities are included “above-the-line” in the Swiss figures.

Affected by changes in U.K. liabilities resulting from central bank non-dollar swap assistance to the United Kingdom unmatched by changes in claims of those countries that do not include the swap sterling in their reserves.

Affected by the sale of some $500 million of U.S. corporate securities by the U.K. Government, which is treated entirely “above-the-line” in the U.K. figures but partly “below-the-line” in the U.S. figures as an increase in liquid liabilities.

For the United States the deficit shown in Table 15 was virtually unchanged at $1.5 billion, but when allowance is made for certain special transactions discussed in Chapter 8, there appears to have been a reduction in its over-all deficit.

As measured in Table 15, the U.K. deficit was reduced in 1965 by some $1.5 billion, to $0.4 billion; net short-term capital inflows were a good deal larger than in 1964 and reinforced the improvement in the U.K. basic balance. For the EEC countries as a group, changes in short-term capital movements more than offset the rise in their basic surplus; the over-all surplus of the area, as defined in Table 15, fell by a few hundred million dollars to $1.5 billion.

The transactions of the EEC countries individually, and of the EEC area as a whole, are summarized in Table 12.

The collective over-all surplus of the EFTA countries other than the United Kingdom and Portugal was reduced from $0.6 billion to $0.2 billion. However, the changes in Switzerland’s reserves during 1965 used in Table 15 reflect the addition of some $400 million as a result of year-end operations by Swiss banks. A similar movement in 1964 added some $150 million and one in 1963 some $300 million to reserves. In the absence of these seasonal movements, the combined over-all balance in 1965 for the EFTA countries other than the United Kingdom would have been close to zero, compared with a surplus close to $1 billion in 1964 (see Table 13).

Canada and Japan experienced small over-all surpluses; in both these countries, changes in short-term capital movements were in an equilibrating direction. In Canada, a large inflow of short-term capital in 1965, compared with a small outflow in 1964, offset most of the substantial deterioration in the “basic” balance, so that the over-all balance remained in surplus, although at a lower level. In Japan, most of the sharp improvement in the basic balance was offset by a change from a substantial inflow to a substantial outflow of short-term capital, so that the improvement in the over-all position was relatively modest.

The primary producing countries collectively also experienced a reduction in their over-all surplus in 1965. Here net short-term capital outflows and negative errors and omissions produced a lower aggregate over-all surplus than the basic surplus.

Table 14, which summarizes the preliminary balance of payments reports by these countries, supplemented by some staff estimates, suggests that the net outflow of short-term capital (including errors and omissions) was a little lower in 1965 than in 1964. The more developed primary producing countries again experienced an inflow in this respect, while there was once more an outflow from the less developed countries, although both inflow and outflow were smaller than in the previous year.

The comparison of annual figures for over-all surpluses and deficits to some extent masks some interesting developments during both 1964 and 1965. At the beginning of 1964, the over-all positions both of the United States and of the EEC countries collectively were close to balance. In the second half of the year, however, the U.S. deficit rose sharply, the EEC surplus strengthened, and a large net outflow of short-term capital greatly increased the U.K. deficit. Early in 1965, action initiated by the two reserve currency countries began to take effect. In the first half of the year the United States had a small over-all surplus and the United Kingdom a considerably reduced deficit, while the over-all surplus for the EEC countries was quite sharply reduced. However, in the second half of 1965, an appreciable deficit for the United States reappeared (especially in the fourth quarter) and the surplus of the EEC countries again tended to rise. The overall deficit of the United Kingdom, which in each of the first three quarters of 1965 had remained disturbingly high, was replaced by a surplus in the fourth quarter. These movements within the year were in part influenced by seasonal and random factors.

The quarterly movements in payments imbalances are illustrated in Chart 6, which shows for the period 1958 through the first quarter of 1966 the aggregate over-all deficit of all countries in deficit, and similar data for the industrial and primary producing countries separately. It is apparent that payments imbalances were generally quite low during 1965 compared with other years in the period examined.

Chart 6.All Countries in Balance of Payments Deficit, Aggregate Deficit, 1958-First Quarter 1966

(In millions of U.S. dollars)

Reserve Developments

A particularly striking development in international transactions during 1965 was the unusual pattern of changes in reserves. The increase in world reserves was only about half the annual average for the preceding decade, as a result of the interplay of a number of factors working in opposite directions. The major cause was that large withdrawals of dollar balances by one group of countries more than offset accumulations by others.

Tables 16 and 17 give details of reserves at the end of each year from 1962 to 1965 and of changes in reserves during 1964 and 1965 by half years. The changes in world reserves during 1965 were as follows:

Table 16.Countries’ Official Reserves, Including Reserve Positions in the IMF, End of Calendar Years, 1962–651(In billions of U.S. dollars)
1962196319641965
Holders
Industrial countries48.9350.5552.3053.14
United States17.2216.8416.6715.45
United Kingdom3.313.152.323.00
Other 228.4030.5633.3134.69
Primary producing countries14.1315.9616.6017.09
More developed 35.346.176.715.98
Less developed8.799.799.8911.11
Total63.0666.5168.9070.23
Composition
Gold39.2740.2340.8941.94
IMF positions—gold tranche3.803.943.754.45
—lending under GAB 40.410.93
Claims on United States 512.5513.9214.9414.82
Claims on United Kingdom 66.226.537.056.75
Identifiable asymmetries 7−0.08−0.62
Other 81.221.891.941.96
Sources: International Monetary Fund, International Financial Statistics, and staff estimates.

Excluding Soviet countries and Mainland China.

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

Other Western Europe, Australia, New Zealand, and South Africa. Includes also Luxembourg, unpublished gold reserves of Greece, and an estimate of gold to be distributed by the Tripartite Commission for the Restitution of Monetary Gold.

Sums borrowed by Fund under General Arrangements to Borrow.

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

Covers liabilities to foreign central monetary authorities, including inter-central-bank assistance.

Covers assets arising from Swiss assistance to the United Kingdom, held by the Swiss Confederation ($0.08 billion in December 1964 and $0.12 billion in December 1965), and sales by the United Kingdom of U.S. corporate securities ($0.5 billion in December 1965).

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

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

Excluding Soviet countries and Mainland China.

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

Other Western Europe, Australia, New Zealand, and South Africa. Includes also Luxembourg, unpublished gold reserves of Greece, and an estimate of gold to be distributed by the Tripartite Commission for the Restitution of Monetary Gold.

Sums borrowed by Fund under General Arrangements to Borrow.

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

Covers liabilities to foreign central monetary authorities, including inter-central-bank assistance.

Covers assets arising from Swiss assistance to the United Kingdom, held by the Swiss Confederation ($0.08 billion in December 1964 and $0.12 billion in December 1965), and sales by the United Kingdom of U.S. corporate securities ($0.5 billion in December 1965).

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

Table 17.Industrial and More Developed Primary Producing Countries: Changes in Reserves, by Areas, Semiannually, 1964 and 1965 1(In millions of U.S. dollars)
Estimated
Change
in Col. 9
Group of TenAustralia,Totalin
New(excl.Absence
EuropeanZealand.Unitedof Special
EconomicandStates andAssistance
UnitedUnitedCom-OtherSouthUnitedto United
StatesKingdommunityOther 2TotalEuropeAfricaTotalKingdom)Kingdom
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
1964
First half
Foreign exchange−3092−330−256−524159227−138−200−200
Gold27−45340115437−146−12279297297
Reserve position
in IMF−24926140−14636−110137137
Total−2524971−101−2334921531234234
Second half
Foreign exchange250−868311971,192587−1621,6171,4531,200
Gold−152−303550116211201−25387842600
Reserve position
in IMF−17−49151323323853291799250
Total81−8801,8945461,641841−1872,2953,0942,050
1965
First half
Foreign exchange114386−1,756−305−1,561−888−248−2,697−3,197−2,950
Gold−1,163901,29199317351−1954731,5461,150
Reserve position
in IMF1396532231,01559251,099960160
Total−91047618817−229−478−418−1,125−691−1,640
Second half
Foreign exchange23117347185636104−177563159159
Gold−242393206318033551566769769
Reserve position
in IMF−3043792297−2176380380
Total−315212746270913439−1471,2051,3081,308
Source: International Monetary Fund, International Financial Statistics.

The sum of the half-yearly figures may differ slightly from annual figures that can be derived from Tables 16 and 18, because the area totals shown in the latter include some unpublished data.

Canada, Japan, and Sweden.

Source: International Monetary Fund, International Financial Statistics.

The sum of the half-yearly figures may differ slightly from annual figures that can be derived from Tables 16 and 18, because the area totals shown in the latter include some unpublished data.

Canada, Japan, and Sweden.

Amount in
million
U. S. dollars
United States−1,222
United Kingdom+688
Other Group of Ten countries+ 1,222
Other industrial+ 152
Subtotal+840
More developed primary producing
countries−735
Subtotal+ 105
Less developed primary producing
countries (preliminary)+ 1,225
Total+ 1,330

The main sources of the increases in reserves during the year were (1) reserve creation through Fund transactions, reflected in increases in Fund reserve positions of $1,220 million and Fund net gold sales of $310 million, (2) an increase in world monetary gold holdings of $250 million, and (3) a rather large reserve accumulation in the less developed primary producing countries, mainly in the form of foreign exchange. The U.S. balance of payments deficit did not, as has been usual, contribute to an increase in world reserves because on balance it was not financed by an increase in foreign dollar holdings.

The industrial and more developed primary producing countries collectively achieved only a very small accumulation of reserves, so that the total increase in world reserves exceeded only slightly that of the less developed countries. For the latter countries, the increase in reserves exceeded somewhat their aggregate over-all surplus (Table 15), the difference representing their net use of Fund resources.

The use of Fund resources by the United Kingdom in 1965, amounting to about $1,390 million, net of Fund sales of sterling, substantially exceeded the U.K. over-all deficit in 1965, and enabled the United Kingdom to strengthen its reserves by $689 million. During the year the U.K. Government sold about $500 million of securities in the United States, but the proceeds were not added to reserves until 1966. In February 1966, a total of $885 million from such sales, including some in 1966, was so added.

During 1965 there were some quite marked changes in countries’ reserve holdings, by type (Table 18). With the exception only of the United States, every industrial country added some gold to its reserves. These increases in gold holdings were almost invariably associated with reductions in foreign exchange holdings. For several countries, this change in the pattern of reserve holdings was the result of a conscious policy of buying gold out of foreign currency holdings, while for others it was the result of electing to settle normal balance of payments deficits in foreign exchange or of accepting gold in settlement of surpluses. Special gold sales by the Fund, totaling $400 million in connection with the U.K. drawing in May 1965, also contributed significantly to the increase in gold holdings of some of the industrial countries.

Table 18.Countries’ Official Reserve Holdings, by Type, End of 1964 and 1965 1(Value in millions of U.S. dollars)
19641965
Gold asGold as
ForeignIMFper centForeignIMFper cent
GoldexchangepositionTotalof totalGoldexchangepositionTotalof total
Industrial countries
United States15,47143276916,6729314,06578160415,45091
United Kingdom2,1361792,315922,2657393,00475
EEC countries13,2226,6042,14421,9706014,8344,8973,17622,90765
Belgium1,4515402012,192661,5584373092,30468
France3,7291,3766195,724654,7067538846,34374
Germany4,2482,7219137,882544,4101,9431,0767,42959
Italy2,1071,5711463,824552,4041,4625494,41554
Netherlands1,6883962652,349721,7563023582,41673
Austria600645721,31746700539721,31153
Denmark925213364614974315858617
Norway3133125387831420254767
Sweden189688889652020262714397221
Switzerland2,7253983,123873,0422063,24894
Canada1,0261,6581982,882361,1511,5233533,02738
Japan3041,4952202,019153281,5692552,15215
Total35,79512,9503,54952,2956836,71511,7304,68853,13569
More developed primary
producing countries
Australia2261,6211001,947122311,2091351,57515
Ireland1941611446421378114105
Portugal5234161595455576418151,00957
South Africa5748938701824251153857874
Spain6167911071,514418104581411,40957
Other2342742651,149303526073599435
Total2,3004,0753366,710342,4153,1853755,97540
Less developed primary
producing countries
Brazil9227636825636256889
Mexico16936945583291583215553430
Venezuela40139338832484013793881849
Other Latin America473647291,14941433910231,36632
Israel56477135461056575136449
Saudi Arabia784931458513736271871810
Other Middle East641470201,13157661528361,22554
India2472514985028131859947
Other Asia3832,354552,792143892,422572,86814
Other Africa1001,095571,25281351,215741,4249
Total2,7906,8252709,885282,8057,99531411,11525
Grand Total40,88523,8504,15568,8905941,93522,9105,37770,22560
Source: International Monetary Fund, International Financial Statistics.

Excluding the Soviet countries and Mainland China. Totals may not add because of rounding and because some area totals include unpublished data.

Finland, Greece, Iceland, New Zealand, Turkey, and Yugoslavia.

Source: International Monetary Fund, International Financial Statistics.

Excluding the Soviet countries and Mainland China. Totals may not add because of rounding and because some area totals include unpublished data.

Finland, Greece, Iceland, New Zealand, Turkey, and Yugoslavia.

The reserve currency countries each experienced a decline in the ratio of gold to total official reserve holdings. However, the foreign exchange holdings of the United States and the United Kingdom at the end of 1965 were swelled by mutual holdings of each other’s currency as a result of inter-central-bank assistance to the United Kingdom. In the EEC countries as a group, gold holdings as a proportion of total official reserves rose from 60 to 65 per cent (64 per cent if the special IMF gold sales are excluded). The average, which covers figures ranging from 54 per cent to 74 per cent (Table 18), increased largely as a result of a marked addition to France’s gold holdings. Among the remaining industrial countries, the relative changes in gold holdings were not especially significant, although for Switzerland the gold ratio rose from 87 per cent to 94 per cent, owing mainly to larger than usual year-end operations in December 1965.

Among the more developed primary producing countries, South Africa reduced its gold reserves, and accruals of gold by most of the remaining countries, with the exception of Spain, were relatively marginal. In many of these countries, the ratio of gold to total reserves rose more because sizable balance of payments deficits were settled out of foreign exchange holdings than because of a conscious policy of gold accumulation. The less developed countries as a group secured barely any increase in their gold holdings. However, these countries’ foreign exchange holdings rose by 17 per cent, so that there was a fall in the proportion of their official reserves held in gold.

The U.S. balance of payments data record the sale of securities by such affiliates as sales by U.S. firms. To the extent that the proceeds of these issues were transferred to the subsidiaries (approximately $80 million in 1965) they are recorded as direct investment; to the extent that they are held for subsequent transfer to the subsidiaries (approximately $120 million in 1965) they are recorded as short-term capital outflows. However, when these latter amounts are eventually transferred they will constitute an addition to the outflow on direct investment account.

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