Chapter

Chapter 3 Activities of the Fund

Author(s):
International Monetary Fund
Published Date:
September 1977
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The principal developments during the period under review were as follows:

  • Progress by members in accepting the Proposed Second Amendment of the Articles of Agreement and preparations in the Fund for implementing them, including work on revising the Fund’s By-Laws, Rules and Regulations, and general policy decisions.

  • Agreement on the principles for the guidance of members with respect to their exchange rate policies and on procedures for Fund surveillance over those policies.

  • Work on the establishment of a supplementary credit facility of a temporary nature that would enable the Fund to expand its financial assistance to those of its members that in the next several years will face payments imbalances that are large in relation to their economies and quotas in the Fund.

  • Initiation of the Seventh General Review of Quotas, which is to be completed in February 1978.

  • Consideration of the question whether a further allocation of SDRs would be advisable at the present time.

  • A major review of the Fund’s financial position and changes in the rates of charges paid by members for the use of the Fund’s resources.

  • Provision for the third successive year of a high level of balance of payments assistance to members, with extensive drawings under both the Fund’s regular tranche policies and the compensatory financing facility.

  • Enlargement of the General Arrangements to Borrow and activation of these arrangements in connection with drawings under stand-by arrangements made by two industrial countries.

  • Initiation of gold sales, both to the market through auctions and for distribution to members.

  • The initiation of operations by the Trust Fund, with loans to 12 member countries during the fiscal year.

  • The approval of stand-by arrangements for members for periods of more than one year.

As in the previous year, the work by the Executive Directors on major policy matters was guided by the discussions and understandings reached in the meetings of the Interim Committee of the Board of Governors on the International Monetary System (the Interim Committee) and the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (the Development Committee). During the past fiscal year, both Committees held meetings in Manila in October 1976 and in Washington in April 1977. The communiqués and announcements issued after those meetings are reproduced in Appendix III.

Second Amendment of the Articles

On April 30, 1976 the Board of Governors adopted a Resolution approving the Second Amendment of the Fund’s Articles. The Second Amendment will become effective when it has been accepted by three fifths of the members having four fifths of the total voting power. At the end of July 1977, the Second Amendment had been accepted by 45 members having 51.46 per cent of the total voting power.

By-Laws, Rules and Regulations, and General Decisions

In order to conform the Fund’s By-Laws, Rules and Regulations, and general decisions with the new Articles, extensive revisions need to be made in these provisions. The Fund’s staff and the Executive Directors have devoted much time to this work and substantial progress has already been made. It is expected that all necessary provisions will have been adopted by the Executive Directors, and, where required, by the Board of Governors by the time the amended Articles enter into force.

Surveillance over Exchange Rate Policies

During the latter half of 1976 and the early part of 1977, the Executive Board worked intensively on developing principles for the guidance of members with respect to their exchange rate policies and procedures for the Fund surveillance over those policies. This was in response to the provisions of Article IV of the amended Articles, which call for the Fund to “adopt specific principles for the guidance of members’ exchange rate policies,” and to exercise “firm surveillance” over these policies.1 As expected, negotiation of these principles and procedures was difficult and time-consuming. After a series of meetings, however, during which varying positions were gradually reconciled, agreement was reached on a text without the need to refer unsettled issues to the Interim Committee. This set of principles and procedures was endorsed by the Interim Committee at its meeting in April 1977, and approved by the Executive Board immediately following this meeting.2

The principles for the guidance of members’ exchange rate policies are aimed at (a) avoiding manipulation of exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members, (b) countering disorderly short-term conditions in exchange markets, and (c) taking into account, in intervention, the interests of other members.

Somewhat more detailed are the principles that are to guide the Fund in its function of exercising surveillance over exchange rate policies. The provisions in this part of the decision indicate developments that might suggest the need for discussions between the Fund and members, and give some guidance as to how the Fund would set about its task of appraisal.

The text agreed by the Executive Board relates to the procedures to be followed by the Fund in its discussions with members on their exchange rate policies. Regular consultations are to take place under Article IV, and these will comprehend existing consultations under Articles VIII and XIV. In addition, procedures are established for discussions between the Managing Director and members, and for subsequent review by the Executive Board, of cases where the Managing Director considers that a member’s exchange rate policies may not be in accord with the exchange rate principles.

The Sixth and Seventh General Reviews of Quotas

As noted in the 1976 Annual Report, the Board of Governors approved, effective March 22, 1976, a Resolution on Increases in Quotas of Members—Sixth General Review, under which the total of present quotas, amounting to SDR 29.2 billion, will be raised to SDR 39 billion, if all members consent to the full quota increases proposed for them in the Resolution. The texts of the Resolution and the Report of the Executive Directors on the Sixth General Review of Quotas were reproduced in Appendix II of the 1976 Report.3

The Board of Governors Resolution provided that the increase in a member’s quota would not become effective unless the member had consented to the increase and had paid the quota in full and provided that no increase in quota would become effective “before (i) the effective date of the second amendment of the Articles or (ii) the date of the Fund’s determination that members having not less than three fourths of the total of quotas on February 19, 1976 have consented to increases in their quotas, whichever is the later of these dates.” As noted earlier in this chapter, the Proposed Second Amendment is in the process of being accepted by member governments; by the end of July 1977, 26 members accounting for 42.04 per cent of quotas on February 19, 1976 had consented to increases in quotas.

The Board of Governors Resolution on Increases in Quotas of Members—Sixth General Review provided that “the seventh general review of quotas shall be completed by February 9, 1978.” At its eighth meeting held in Washington on April 28–29, 1977, the Interim Committee considered the main issues relating to the Seventh General Review of Quotas, and agreed that, in view of the expansion of members’ international transactions and the need for the Fund to be able to give balance of payments assistance to members on a larger scale than would be available on the basis of quotas under the Sixth General Review, there should be an adequate increase in the total of quotas pursuant to the Seventh General Review. The Committee noted that on the question of distribution of quotas, one view was that in order to conclude the Seventh Review at an early date, increases should be equiproportional to the quotas that would result from the Sixth General Review. Another view, however, was that a few special adjustments should be made for those members whose quotas are seriously out of line with their relative positions in the world economy, and that in this connection some emphasis should be placed on increases that would strengthen the Fund’s liquidity. The Committee urged the Executive Directors to pursue their work and to prepare a report, together with draft recommendations to the Board of Governors, on increases in the quotas of members under the Seventh General Review for consideration by the Committee at its next meeting.

The Executive Directors, following a preliminary discussion of the issue in their review of the adequacy of international liquidity, continued their discussion on the Seventh General Review of Quotas in June 1977.

Supplementary Credit Facility

At its meeting in Washington on April 28–29, 1977, the Interim Committee reviewed the international adjustment process and, among its conclusions, agreed that, given the persistence of large payments imbalances, substantial demands for the Fund’s resources could be expected.

The Committee found good grounds for believing that expansion of the Fund’s role as a financial intermediary could contribute significantly to promotion of international adjustment and to maintenance of confidence in the continued expansion of the world economy and in the effective functioning of the international financial system. After reviewing developments in international liquidity and in the financial activities and resources of the Fund, the Committee recognized that there was an urgent need for a supplementary facility of a temporary nature that would enable the Fund to expand its financial assistance to those of its members that in the next several years will face payments imbalances that are large in relation to their economies and quotas in the Fund.

The Committee set out the main features of this supplementary facility as follows:

(a) The Fund would establish substantial lines of credit in order to be able to assist members to meet their needs for supplementary assistance.

(b) Access to assistance under the supplementary facility should be available to all members and should be subject to adequate conditionality, and such assistance should normally be provided on the basis of a stand-by arrangement covering a period longer than one year.

(c) The Fund should pay interest on amounts borrowed under the lines of credit at market-related interest rates, and charges by the Fund for the use by members of resources borrowed by it under these lines of credit should be based on these rates. The possibility of a subsidy related to the rates of charge that would be payable by low-income countries should be explored.

(d) The claims of lenders under the supplementary facility should be appropriately liquid.

In welcoming the willingness of a number of countries in a position to lend to the Fund to collaborate with it on arrangements for supplementary credit, the Committee urged the Managing Director to complete, as soon as possible, his discussions with potential lenders on terms and conditions and amounts. It further requested the Executive Directors to take the necessary steps for making the supplementary facility operative as soon as possible.

Since this meeting of the Interim Committee, the Executive Directors have given further consideration to these matters with a view to completing the terms and conditions for the establishment of such a supplementary facility at an early date.

Special Drawing Account

Overall activity in the Special Drawing Account remained at a high level during 1976/77 with total use of special drawing rights (SDRs) by participants amounting to SDR 1,241 million, compared with last year’s record of SDR 1,285 million. Nearly two thirds, or SDR 805 million, of this total was accounted for by transfers to the Fund’s General Account mainly in payment of charges on the use of the Fund’s resources and a small amount in repurchases. Outflows from the General Account, largely to promote reconstitution, fell to SDR 495 million, and as a consequence the General Account’s holdings of SDRs increased to SDR 771 million at the end of April 1977, compared with SDR 461 million on April 30, 1976.

Transfers of SDRs between participants in transactions with designation amounted to SDR 119 million, which was the lowest level since 1973/74. However, there was a marked increase to SDR 317 million (from SDR 176 million) in transactions by agreement between participants. This increase reflected, in part, the preference of participants for obtaining SDRs for reconstitution from other participants rather than from the General Account following the Executive Board decision in August 1976, which prescribed that participants could engage in transactions by agreement for certain purposes and be exempt from the requirement of need.4 These latter transactions, which include those that bring holdings closer to net cumulative allocations, aggregated SDR 211 million by June 30, 1977.

Transfers of SDRs during the fiscal year resulted in a decline of SDR 132 million in the holdings of the industrial countries and of SDR 178 million in the total holdings of other developed and developing countries. The distribution of holdings on April 30, 1977 shows that the industrial countries have recorded a net receipt of SDR 716 million over their net cumulative allocations, while the nonindustrial countries made a net use of SDR 1,487 million. The balance of SDR 771 million is accounted for by the holdings of the Fund’s General Account.

Allocations of SDRs and the Basic Period

No allocation of SDRs was made during the fiscal year. The total of SDRs in existence therefore remains unchanged at SDR 9,314.8 million. The calendar year 1977 is the last year of the second basic period that began on January 1, 1973, and the Articles of Agreement require that the Managing Director must submit to the Board of Governors, not later than six months before the end of each basic period (i.e., by June 30, 1977 in respect of the current period), a proposal with respect to the allocation of special drawing rights in the next basic period. If he ascertains that there is no proposal consistent with the Articles that has broad support among participants, he must report that to the Board of Governors and to the Executive Directors.

The Interim Committee of the Board of Governors announced on April 29, 1977 that it had considered the question of whether a further allocation of SDRs would be advisable at the present time. The Committee noted that the Executive Directors had been discussing this question and agreed to request them to give further consideration to all aspects of the matter and to report to the Committee at its first meeting in 1978. The Committee also agreed to request the Executive Directors to review the characteristics and uses of the SDR so as to promote the purposes of the Fund, including the objective of making the SDR the principal reserve asset in the international monetary system.

On June 29, 1977 the Managing Director, after consulting with the Executive Directors, reported to the Board of Governors that there was no proposal for a new allocation that he considered to be consistent with the provisions of the Articles that had broad support among participants.5

Transactions with Designation

The use of SDRs in transactions with designation continued to decline and reached the lowest level since 1973/74. Seven participants used a total of SDR 119 million in transactions with designation, compared with eight participants using SDR 292 million in this way in 1975/76. This sharp decline reflected the low holdings of many participants, the need to maintain or restore SDR holdings to meet the rules of reconstitution, and the need to use SDRs for other purposes, particularly for the payment of charges to the General Account. More than two thirds of the total amount of designated transactions during the fiscal year was accounted for by one participant, Mexico, which used SDR 83 million in two transactions. Eleven participants were designated to provide currency in exchange for SDRs; over 80 per cent of the total amount was provided by France, India, and the United States. Designated participants provided the equivalent of SDR 61 million in U.S. dollars and the equivalents of SDR 35 million in French francs, SDR 21 million in pounds sterling, and SDR 2 million in deutsche mark. Of the amounts provided in currencies other than U. S. dollars, a total equivalent to SDR 38 million was converted into U. S. dollars to meet requests of participants using SDRs. Details of the designated transactions are shown in Table 15.

Table 15.Use and Receipt of SDRs in Transactions with Designation, Fiscal Year Ended April 30, 1977(In thousands of SDRs)
ParticipantUseReceipt
Colombia5,000
Dominican Republic1,000
France35,000
Gambia, The1,500
India20,298
Indonesia2,000
Iran4,500
Jamaica4,500
Korea2,000
Mexico83,298
Nicaragua1,000
Spain5,000
Trinidad and Tobago1,500
United States40,500
Viet Nam19,000
Yugoslavia2,000
Zaïre8,000
Zambia1,500
Total118,798118,798

Transactions by Agreement

Transactions by agreement between participants increased significantly, from SDR 176 million in 1975/76 to SDR 317 million during the past fiscal year. Of this total, SDR 164 million was used by Belgium and the Federal Republic of Germany in two transactions in settlement of obligations arising from foreign exchange market interventions under the European common margins arrangement. The remaining amount of SDR 153 million was accounted for by transfers of SDRs under an Executive Board decision that, as indicated earlier, permitted certain transactions by agreement between participants without the requirement of need. The transactions permitted are those that promote reconstitution of recipients’ holdings of SDRs and those that bring the holdings of the participants undertaking the transactions closer to their net cumulative allocations. The principal user under this decision was the Federal Republic of Germany, which transferred SDR 134 million in 23 transactions during the fiscal year. While technically the amount involved in these transactions was divided almost evenly between those to promote reconstitution and those to bring holdings closer to net cumulative allocations, all of the 19 participants receiving SDRs had a need to reconstitute their holdings or would soon have had such a need had these acquisitions not taken place. Since all but one of the participants transferring SDRs had holdings above their allocations and all the recipients had holdings below their allocations, these transactions contributed directly to a more balanced distribution of SDRs among participants. Details of all transactions by agreement are shown in Table 16.

Table 16.Use and Receipt of SDRs in Transactions by Agreement, Fiscal Year Ended April 30, 1977(In millions of SDRs)
ParticipantUseReceipt
Belgium165.9
Burma1.1
Canada6.3
Chile26.5
Costa Rica3.7
Denmark8.3
El Salvador2.0
Germany, Fed. Rep. of142.0155.4
Ghana4.8
Greece7.2
Israel10.0
Ivory Coast2.7
Jamaica3.0
Korea11.9
Liberia0.04
Madagascar1.3
Mexico45.8
Peru2.8
Senegal2.7
Sudan4.3
Tanzania3.3
Turkey16.3
Yugoslavia3.5
Zambia2.9
Total317.1317.1

Transactions and Operations Between Participants and the General Account

As noted earlier, transactions and operations between participants and the General Account again constituted by far the largest category of use of special drawing rights during the fiscal year. Total inflow of SDRs to the General Account was SDR 805 million, almost equal to the amount of SDR 817 million in 1975/76. While one half of the last year’s total was due to a single repurchase by the United Kingdom, nearly 90 per cent (SDR 709 million) of the total inflow in 1976/77 was in the form of charges paid to the General Account and reflected large-scale use of the Fund’s resources. Other transfers to the General Account were repurchases (SDR 73 million), interest on the Fund’s holdings of SDRs (SDR 23 million), and reimbursement of the expenses of conducting the Special Drawing Account (SDR 1 million).

A total of SDR 495 million was transferred during the fiscal year to participants from the General Account, compared with SDR 865 million transferred in 1975/76; the latter figure included a single purchase of SDR 396 million by the United Kingdom to offset the effect of a repurchase in the same amount, as mentioned earlier, on the same day. Transfers of SDRs to promote reconstitution of participants’ holdings of SDRs totaled SDR 445 million, purchases from the General Account amounted to SDR 25 million, the payment of remuneration SDR 24 million, and interest and transfer charges on Fund borrowing under the General Arrangements to Borrow (SDR 0.2 million) accounted for the remaining transfers. Three participants purchased a total of SDR 3 million under a decision of the Executive Board adopted in March 1977 under which participants may acquire SDRs as part of purchases from the General Account and use them, if they wish, in transactions with designation.6 Total purchases under this decision amounted to SDR 89 million up to the end of June 1977, of which SDR 54 million was used in transactions with designation.

The net effect of all transactions and operations during the fiscal year was to increase the Fund’s holdings of SDRs by SDR 310 million, to SDR 771 million on April 30, 1977, the highest level at the end of any fiscal year since 1971/72.

Reconstitution

The rules for reconstitution require participants to maintain, over successive five-year periods ending in calendar quarters, their average holdings of SDRs at not less than 30 per cent of average net cumulative allocations. All participants except Cambodia, with which the Fund has not been able to communicate, met the rules of reconstitution during the fiscal year.

As mentioned earlier, participants acquired SDRs for reconstitution both from the General Account (39 participants for amounts totaling SDR 445 million) and from other participants in transactions by agreement (19 participants for amounts totaling SDR 153 million). Of the amounts acquired from the Fund, SDR 402 million was acquired against currencies acceptable to the Fund and SDR 43 million as part of members’ purchases from the General Account. (See Table 17.)

Table 17.Acquisitions of SDRs for Reconstitution from the Fund’s General Account, January 1, 1972–April 30, 1977(In millions of SDRs)
Jan. 1, 1972–

Apr. 30, 1972
Fiscal Years Ended April 30Total

Jan. 1, 1972–

Apr. 30, 1977
19731974197519761977
Number of TransactionsAmountNumber of TransactionsAmountNumber of Transac tionsAmountNumber of TransactionsAmountNumber of TransactionsAmountNumber of TransactionsAmountNumber of TransactionsAmount
Against currency acceptable to Fund413.73471.564112.87095.688293.093401.8353988.4
In purchases332.7935.7944.4521.59111.21043.445288.9
Total746.443107.273157.275117.197404.2103445.23981,277.3

The continued growth in the volume of transactions for the purpose of reconstitution is explained mainly by the increased use of SDRs in transfers to the General Account, in particular for the payment of charges. For many participants, the need to obtain SDRs for reconstitution arose at regular intervals following their use of SDRs for payment of charges. To reduce the inconvenience of frequent acquisitions necessitated by payment of charges or repurchases, the maximum amount of SDRs that a participant may acquire in any month for reconstitution was increased by a decision of the Executive Board redefining the maximum amount to include the total amount of any charges paid to the General Account and any repurchase obligations in SDRs to be discharged prior to the next monthly calculations.7 Details of acquisitions of SDRs from the General Account are shown in Table 17.

BIS as a Holder of SDRs

As in preceding years, during 1976/77 there were no transactions in SDRs between the Bank for International Settlements (BIS) and participants. The Board of Governors Resolution under which the BIS was prescribed as a holder of special drawing rights provided for the Resolution to be reviewed at least once every three years. Accordingly, the Executive Directors conducted a review of the Resolution in January 1977 and proposed no change.

Valuation of SDR, Its Interest Rate, and the Rate of Remuneration

In June 1976, the Executive Directors completed a review of the valuation of the SDR, the rate at which the Fund pays remuneration on super gold tranche positions,8 and the rate of interest on the SDR. As a result of the review, no change was made in the method of valuation of the SDR that was announced on June 13, 1974. The change in Rule I-10 so as to make the rate of remuneration and the SDR interest rate more responsive to variations in market interest rates was described in last year’s Annual Report9 and is also dealt with below in relation to the rate of remuneration. The decision on the rate of remuneration and the interest rate on the SDR will have to be reviewed no later than three years after June 30, 1976.

Transactions and Operations in the General Account

The large-scale expansion in use of the Fund’s resources, which began in 1974/75, continued for the third consecutive year. Gross purchases amounted to SDR 4.9 billion in 1976/77, about 25 per cent below the level of the previous fiscal year, but the third highest total in the Fund’s history. In 1976/77 a record volume of purchases—45 per cent of the total—fell in the credit tranches; the sharp decline in purchases under the oil facility (which was terminated in May 1976) was partly compensated for by a doubling of the amount of purchases under the Fund’s compensatory financing facility, which had been liberalized in December 1975. The evolving pattern in the use of the Fund’s resources in recent years is shown in Table 18 and Chart 13. As in previous years, the volume of repurchases, at SDR 0.9 billion, was relatively low, reflecting not only the modest use of the Fund’s resources in the period 1972–74 but also the relatively large amount of repurchases that was incurred under Article V, Section 7(b), as of April 30, 1976 and that would normally have been discharged in 1976/77 but was delayed until May 1977. On April 30, 1977, the amount of purchases subject to repurchase amounted to SDR 16 billion—the equivalent of 55 per cent of present quotas.

Table 18.Flow of Transactions in the General Account and Resulting Stocks, Fiscal Years Ended April 30, 1973–77(In millions of SDRs)
Fiscal Year Ended April 30
Type of Transaction19731974197519761977
Total purchases1,1751,0585,1026,5914,910
Gold tranche6416079811,324161
Credit tranche3232391,6044612,370
Buffer stock55
Compensatory financing206212188281,7531
Extended facility8190
Oil facility2,4993,966437
Total repurchases540672518960868
Gold sales for replenishment411
In connection with auctions201
For distribution210
Outstanding borrowings
In connection with oil facility2,4996,4656,702
Under the General Arrangements to Borrow911
From Swiss National Bank89
Holdings of the General Account
Usable currencies 25,2007,50010,1007,2004,500
SDRs617499510461771
Gold5,3705,3705,3705,3704,959

In addition, credit tranche purchases equivalent to SDR 39.56 million in the fiscal year ended April 30, 1976 were reclassified as having been made under the compensatory financing decision.

A currency is considered to be usable by the Fund in its regular transactions when the member issuing the currency is judged to have a sufficiently strong balance of payments and reserve position and has made arrangements with the Fund for such use. The holdings of usable currencies are those currencies included in the currency budget as of April 30, adjusted for working balances and further adjusted if a member was in a debtor position at the time.

In addition, credit tranche purchases equivalent to SDR 39.56 million in the fiscal year ended April 30, 1976 were reclassified as having been made under the compensatory financing decision.

A currency is considered to be usable by the Fund in its regular transactions when the member issuing the currency is judged to have a sufficiently strong balance of payments and reserve position and has made arrangements with the Fund for such use. The holdings of usable currencies are those currencies included in the currency budget as of April 30, adjusted for working balances and further adjusted if a member was in a debtor position at the time.

Chart 13.Use of Fund’s Resources as at April 30, 1968–77

(In billions of SDRs)

The unprecedented increase in use of the Fund’s resources in the past three years has had an important financial impact on the Fund and on members. As one means of financing the increase in demand, the Fund has almost doubled the number of currencies it uses in its transactions, thereby spreading the financing of Fund transactions more widely among its membership. To the same end, the Fund has borrowed during the past three years over SDR 8 billion from 18 members and Switzerland. Indeed, during 1976/77, 93 members (71 per cent of the total membership) engaged in transactions with the Fund, with 55 members using the Fund’s resources while currencies of 38 members were used from holdings or were borrowed for the financing of transactions.10

As in the previous two fiscal years, the reduction in the Fund’s liquidity continued during 1976/77. The volume of usable currencies fell by about one third, to about SDR 4.5 billion at the end of the fiscal year, despite the additions to the Fund’s list of currencies for sale and the replenishment of the Fund’s holdings of usable currencies by sales of gold, amounting to the equivalent of SDR 411 million in connection with its gold sales program. The Fund’s holdings of SDRs increased sharply, owing mainly to the increased amount of charges paid to the General Account. During the year the Fund borrowed a further SDR 1,437 million, of which SDR 437 million was under the oil facility and the balance under the General Arrangements to Borrow and from the Swiss National Bank. The relatively low level of usable currencies held by the Fund is also partly explained by the fact that the quota increases approved under the Sixth General Review of Quotas have not yet come into effect while at the same time the credit tranches have been enlarged until the date of the Second Amendment of the Articles, in accordance with the agreement reached by the Interim Committee at its meeting in Jamaica in January 1976.11

Taking into account the volume of loan claims outstanding, which represent Fund borrowing under the oil facility and under the General Arrangements to Borrow, members’ reserve positions in the Fund amounted to SDR 18.5 billion on April 30, 1977 and accounted for almost 9 per cent of members’ official external reserves as of that date, compared with 4 per cent three years earlier.

Gold Tranche Purchases

Purchases in the gold tranche declined markedly during the fiscal year ended April 30, 1977, reflecting in part the ending of purchases under the oil facility, which required prior use by members of the gold tranche. During the fiscal year, of the 10 members that made gold tranche drawings, 7 subsequently made use of Fund credit. The Federal Republic of Germany made purchases totaling the equivalent of SDR 8.34 million in connection with the settlement of liabilities under the European common margins arrangement. Bahrain and the Syrian Arab Republic also made gold tranche purchases during the year but did not make further use of the Fund’s resources.

Credit Tranche Purchases and Stand-By Arrangements

During the fiscal year, drawings in the credit tranches totaled the equivalent of SDR 2.37 billion, the largest amount ever drawn in the credit tranches in any one year. Of this total, 4 members made credit tranche purchases not under stand-by arrangements totaling SDR 160 million, about the same amount as last year.

Of the SDR 2.2 billion of purchases made under stand-by arrangements during the year, all but SDR 500 million was accounted for by two drawings by the United Kingdom, the first for SDR 700 million in May 1976 and the second for SDR 1 billion in January 1977. A further 12 members drew the remainder, of which the largest drawings were by Argentina (SDR 159.5 million), South Africa (SDR 89 million), and Zaïre (SDR 40.96 million). In the preceding fiscal year, only SDR 304 million had been purchased under stand-by arrangements.

The amount of purchases under stand-by arrangements in a fiscal year may not be closely related to the amounts approved under stand-by arrangements, since the period of the stand-by arrangement may not coincide with the fiscal year and new arrangements may span one or more fiscal years. In 1976/77 the Fund approved 19 stand-by arrangements totaling the equivalent of SDR 4.68 billion, the largest amount ever approved in any one fiscal year. About 80 per cent of this total (SDR 3,810 million), represented stand-by arrangements for two industrial countries—the United Kingdom (for SDR 3.36 billion) and Italy (for SDR 0.45 billion). With one exception, South Africa, the remaining stand-by arrangements were for developing countries.

The arrangements for the United Kingdom and Italy approved purchases which would, if the arrangements were fully utilized, raise Fund holdings of these members’ currencies to 245 per cent of quota, which is in accordance with the decision to enlarge the size of each credit tranche.12 Both stand-by arrangements were approved for a period in excess of 12 months; the arrangement for the United Kingdom, approved in January 1977, was for two years, and that for Italy, approved in April 1977, for 20 months ending on December 31, 1978.

The remaining stand-by arrangements approved during the fiscal year were for 12-month periods, except for one of 10 months and one of 6 months; ten arrangements provided for drawings in the enlarged first credit tranche; five arrangements approved drawings in the enlarged second credit tranche; and two arrangements approved drawings in the enlarged third and fourth credit tranches.

As can be seen from Table 18, total credit tranche drawings have accounted for only 27 per cent of total use of the Fund’s resources since the rapid expansion in Fund activity from the beginning of the year 1974/75. Of this total, 16.3 per cent (SDR 2.7 billion) has been accounted for by drawings by two industrial countries (Italy and the United Kingdom), 3.3 per cent by the more developed primary producing countries, and the remainder by the developing countries. The relatively large-scale use of the Fund’s resources by the developing countries has been concentrated mainly in the oil facility and under the liberalized compensatory financing facility. The pattern of drawings made under various facilities during 1976/77 is shown in Appendix I, Table I.6.

Purchases Under the Compensatory Financing Facility

Members’ use of the compensatory financing facility for 1976/77 doubled from the previous year, to SDR 1,753 million. At the end of April 1977, total purchases outstanding under the facility reached an unprecedented high of SDR 2,666 million, compared with SDR 1,208 million at the end of the previous year. The rapid expansion in use of the facility during the year was not only a reflection of the adverse impact on commodity prices of the widespread recession in economic activity, particularly in the industrial countries, but also of the liberalization of the facility, which increased a country’s maximum entitlement in terms of quota, eliminated the upper forecasting limit, and permitted export shortfall data to be estimated for up to six months of the shortfall year.13

Since the amendment of the facility in December 1975 through the fiscal year ended April 30, 1977, purchases totaled SDR 2,360 million, representing 53 purchases by 47 members. During 1976/77, 35 members made use of the facility in 39 transactions.

The largest purchase, for the equivalent of SDR 332.5 million, was made by Australia. Five members made purchases in the range of SDR 90–185 million—Egypt (SDR 94 million), Malaysia (SDR 93 million), Mexico (SDR 185 million), New Zealand (SDR 99.5 million), and South Africa (SDR 160 million). At the end of April 1977 outstanding purchases by three members—Jamaica, New Zealand, and Zambia—amounted to 75 per cent of their quotas, which is the maximum amount that may be outstanding under this facility. Reclassification of purchases within 18 months after the date of the original purchase was approved for three members that had made purchases in the credit tranches.

The decision adopted in December 1975 required the Fund to review the provisions of the compensatory financing facility not later than March 1977, and when drawings under the facility had reached certain quantitative limits. After a review of the facility in May 1976,14 the Executive Directors decided that no change in the provisions was necessary. The Executive Directors again reviewed the facility in March 1977 in view of the continued large volume of purchases, which had reached a total of SDR 2.35 billion at the end of January 1977. The Executive Board again decided that no change in the provisions was necessary and agreed to review the facility again before March 31, 1979, if drawings under it exceed SDR 1.5 billion in any 12-month period or if outstanding purchases exceeded SDR 4 billion. Commodity prices improved during the calendar year 1976, and following the relatively heavy use of the facility by some countries in that period, purchases under the facility fell to SDR 120 million in the first 6 months of 1977, against purchases amounting to SDR 953 million in the corresponding period of 1976.

Extended Fund Facility

Only three members have entered into extended arrangements with the Fund since the extended facility was established in September 1974. In October 1976, the Fund approved a three-year extended arrangement for Mexico, effective January 1, 1977, for SDR 518 million, the maximum amount (140 per cent of quota) permitted under the facility. This arrangement, together with a purchase in the extended first credit tranche (SDR 134 million), was in support of an economic program for the short term and medium term intended to bring about an improvement in real economic growth and to reduce inflationary pressures. In February 1977, Mexico purchased the equivalent of SDR 100 million under the arrangement. The only other purchase under the extended facility during 1976/77 was made by the Philippines in September 1976, for the equivalent of SDR 90 million, in connection with its three-year arrangement for SDR 217 million. After the initial purchase of SDR 7.7 million in August 1975, Kenya made no further purchases under its arrangement for SDR 67.2 million, approved in July 1975, in view of the marked improvement in its balance of payments and reserve position. The comparatively small use made so far of the extended Fund facility reflects the relatively short period of time that has elapsed since the facility was established and the fact that members have been able to meet a substantial part of their needs for balance of payments financing from the Fund’s other facilities, in particular, the oil facility and the compensatory financing facility.

Buffer Stock Facility

On July 1, 1976, the Fifth International Tin Agreement providing for the operation of an international tin buffer stock provisionally entered into effect for a period of five years. It replaced the Fourth International Tin Agreement, which expired on June 30, 1976.

On the basis of their examination, Executive Directors concluded that the terms of the Fifth Agreement were consistent with the requirements considered appropriate to international commodity agreements for which the Fund’s financial assistance may be requested. On June 23, 1976, the Executive Directors decided that the Fund would meet members’ requests for financial assistance up to the full amount of their compulsory contributions to the buffer stock to be established under the new Agreement.15

In view of the improvement of the world price for tin, the manager of the tin buffer stock made no calls on participants other than in respect of their initial compulsory contributions, so that there was no need for financial assistance from the Fund under this facility.

On April 23, 1973, the Executive Board permitted purchases under the buffer stock facility in connection with members’ loans to the International Cocoa Council, provided that the use of the Fund’s resources was solely for the purpose of the acquisition by the Council of cocoa stocks, other than stocks involved in diversion to nontraditional uses. In view of the high market price for cocoa during the past year, no use has been made so far of this facility.

Oil Facility

As noted in last year’s Annual Report, the oil facility was terminated in March 1976;16 final purchases were made under the facility in the first half of May 1976 by 15 members for the equivalent of SDR 437 million. These purchases were financed by borrowings from 7 lenders, thereby utilizing the remaining amounts available under the borrowing agreements made in connection with financing transactions under the oil facility.17 Over half of the amount was purchased by 3 countries: SDR 115 million by Finland, SDR 91 million by Turkey, and SDR 56 million by Yugoslavia. The remaining SDR 174 million was purchased by 12 developing countries. Total borrowings made in connection with the oil facility amounted to SDR 6.9 billion.

Repurchases

The volume of repurchases effected during the fiscal year 1976/77 was SDR 868 million, almost SDR 100 million less than in the previous year. The decline in repurchases reflected the low level of purchases in 1973/74, which had been the lowest in a decade, and also the fact that members’ balance of payments and reserve positions had not improved sufficiently to induce members to make advance repurchases on any considerable scale. A contributory factor to the low level of total repurchases was an administrative delay in the discharge of obligations incurred under Article V, Section 7(b), that lasted until after the end of the fiscal year. The delay was caused by a change in the Fund’s practices regarding the order in which holdings of currency acquired by the Fund as a result of members’ purchases may be reduced. If these delayed repurchase obligations had been discharged within the fiscal year, the total of repurchases would have risen to over SDR 1.1 billion.

Slightly less than one third of the total of repurchases made during the year (SDR 232 million) was repurchased in accordance with schedules of repurchase approved by the Fund that provided in each case for repurchase within five years from the date of purchase. ‘ A total of SDR 199 million was paid in discharge of obligations incurred under Article V, Section 7(b), of the Fund Agreement,18 of which SDR 127 million and SDR 38 million related to obligations incurred as of April 30, 1974 and April 30, 1975, respectively. The remainder (SDR 34 million) was in discharge of obligations incurred as of April 30, 1976. (See Appendix I, Table I.7.)

The Executive Board agreed to the requests of seven members to schedule their repurchases totaling SDR 286 million over periods of up to five years from the date of purchase.

Three members made repurchases in advance of the latest date on which these were due. India repurchased SDR 230 million (26 per cent of the total), of which SDR 30 million was with respect to a drawing in the first credit tranche that it had made in 1974 and the balance was in respect of India’s 1974 oil facility purchase. The Fund repaid an equivalent amount to Iran, Saudi Arabia, and Venezuela in respect of loans that had been used to finance the purchases by India. South Africa repurchased the equivalent of SDR 75 million with respect to a purchase under its then current stand-by arrangement and thereby augmented its drawing rights under the arrangement; this repurchase had the effect of discharging pro tanto a repurchase obligation incurred under Article V, Section 7(b). Malaysia repurchased the equivalent of SDR 85.7 million with respect to its compensatory financing purchase made in 1976.

The Executive Board agreed that four members—Chile, Korea, the Philippines, and Uruguay—could postpone the discharge of repurchase obligations incurred in gold under Article V, Section 7(b). These purchases, which totaled SDR 11 million, were subject to review not later than December 31, 1977, and brought to SDR 35 million the amount of obligations incurred in gold that has been postponed since the fiscal year ended on April 30, 1973. In connection with these postponements, payments in SDRs have been made by members in amounts equal to their obligations payable in gold.

As noted earlier, the Executive Board endorsed a change in the Fund’s practices regarding the attribution of reductions in the Fund’s holdings of a member’s currency resulting from the discharge of repurchase obligations under Article V, Section 7(b). and from sales by the Fund. Hitherto, reductions resulting from the discharge of a repurchase obligation that could not be identified as being in respect of a particular purchase and reductions resulting from sales of a member’s currency were attributed to the member’s purchase carrying the earliest maturing repurchase commitment. However, if a member made a repurchase in advance of the date on which its Article V, Section 7(b). repurchase obligation was established, it was free to attribute the resulting reduction in the Fund’s holdings of its currency to any purchase that it desired. To put all members on an equal footing, and also to take into account members’ desires to execute a choice of the repurchases that they might wish to discharge because of the introduction of new facilities for a member’s use of the Fund’s resources, which have different periods of use and rates of charge, the Executive Directors agreed to allow a member to specify the purchase to which it wishes to attribute the reduction in the Fund’s holdings of its currency resulting from the discharge of an Article V, Section 7(b). repurchase obligation or a sale of the: member’s currency by the Fund.19 If a member’s attribution of a repurchase is in respect of purchases for which the Fund has borrowed and the attribution is different from the original practices then the Fund is to consult with the lenders to accept the new attribution; otherwise, repayment is to be made in accordance with the original schedule. If there has been recourse to the General Arrangements to Borrow, the matter is to be brought back for decision at the Executive Board.

Use of Currencies in Fund Transactions

During the past fiscal year, significant progress was made by the Fund in extending the list of usable currencies, thereby adding to the Fund’s potential liquidity. On April 30, 1977, a total of 101 members had completed arrangements for the use of their currencies in Fund transactions when their balance of payments and reserve positions are considered sufficiently strong. Consequently, the Fund was able to increase the number of currencies in the currency budget during the year. Among the currencies of members in a creditor position included for the first time in the currency budget were the Colombian peso, Guatemalan quetzal, Luxembourg franc, Nigerian naira, Paraguayan guaraní, Saudi Arabian riyal, and Yemen rial. The Fund also included in the currency budget some currencies of members in a debtor position, i.e., currencies of which the Fund’s holdings were in excess of 75 per cent of the member’s quota. A sale of currency held above that level would reduce the member’s indebtedness to the Fund; some of the currencies of members in a debtor position included in the currency budget for the first time were the Cyprus pound, Salvadoran colon, Nicaraguan córdoba, Papua New Guinea kina, Upper Volta CFA franc, and Uruguayan new peso.

Notwithstanding the additional currencies that the Fund was able to use in sales to members and the replenishment of its usable currency holdings through sales of gold for distribution and in connection with gold auctions, the continued heavy use of the Fund’s resources resulted in a further net reduction in its holdings of usable currencies. Furthermore, some currencies that had previously been included in the currency budget were excluded during the year because of a weakening of these members’ reserves and balance of payments positions.

On April 30, 1977, the aggregate amount of usable currencies was about SDR 4.5 billion, compared with SDR 7.2 billion at the end of the previous fiscal year and about SDR 10 billion on April 30, 1975. About three fifths of the decline (SDR 1,521 million) was accounted for by a decrease in the Fund’s holdings of U. S. dollars. Nevertheless, the Fund’s holdings of U. S. dollars still represented almost 60 per cent of the Fund’s holdings of usable currencies on April 30, 1977. In addition, six creditor members’ currencies aggregated SDR 1.9 billion, or 37 per cent of total holdings of usable currencies. Thus, the Fund’s holdings of seven creditor members’ currencies totaled about 90 per cent of the currencies available for use at the end of the fiscal year. Holdings of other usable currencies were low in absolute amounts and their use was limited by the need to preserve a minimum working balance for the possible payment of remuneration.

Over the years, relatively few currencies have made up the bulk of the Fund’s holdings of usable currencies. The recent introduction into the currency budget of additional currencies has not substantially altered the position because the Fund’s holdings of these currencies are not large in relation to those members’ reserves. As a result, the Fund has continued to give relatively more weight to its absolute holdings of currencies in allocating amounts for sales rather than of allocating amounts broadly in proportion to a member’s official holdings of gold and foreign exchange. In general, the Fund allocated the amount of currencies to be used in repurchases broadly in proportion to a member’s reserve position in the Fund (excluding loan claims), while allocations of amounts of these currencies to be used in purchases were made on a net basis (i.e., after taking into account repurchases) in proportion to the Fund’s holdings of currencies.

The increase in the number of usable currencies and the further expansion in the use of the Fund’s resources led to a greater dispersion and absolute increase in members’ net creditor positions in the Fund. Table 19 shows the changes in these positions since April 30, 1975. Excluding borrowings by the Fund, the increase in members’ net creditor positions amounted to SDR 2.6 billion, double the increase in the preceding fiscal year, reaching SDR 6.3 billion at the end of April 1977, or nearly triple the amount of net creditor positions outstanding on April 30, 1975.

Table 19.Changes in Members’ Super Gold Tranche Positions,1 Fiscal Years Ended April 30, 1975–77 2(In millions of SDRs)
Change
MemberApril 30, 1975April 30, 1976April 30, 19771975/761976/77
Australia6.40.5–5.9–0.5
Austria71.3122.6174.7+51.3+52.1
Bahrain4.07.02.2+3.0–4.8
Belgium358.9372.0443.7+13.1+71.7
Brazil6.316.356.6+10.0+40.3
Canada28.144.1278.5+16.0+234.4
Colombia16.8+16.8
Denmark8.4+8.4
Ecuador4.05.0+1.0–5.0
Finland16.3–16.3
France78.8345.4452.2+266.6+106.8
Germany, Fed. Rep. of1,001.51,140.91,093.2+139.4–47.7
Guatemala3.6+3.6
Indonesia5.0–5.0
Iran20.1+20.1
Iraq1.0+1.0
Ireland11.613.737.4+2.1+23.7
Japan334.1514.7817.8+180.6+303.1
Kuwait20.637.439.1+16.8+1.7
Luxembourg3.9+3.9
Malaysia7.37.3–7.3
Malta3.89.7+3.8+5.9
Mexico5.35.3–5.3
Netherlands191.7253.7364.7+62.0+111.0
Nigeria1.5+1.5
Norway17.544.386.4+26.8+42.1
Qatar8.010.110.0+2.1–0.1
Saudi Arabia8.721.537.3+12.8+15.8
South Africa5.2–5.2
Sweden9.734.490.1+24.7+55.7
Trinidad and Tobago1.7+1.7
United Arab Emirates4.011.19.1+7.1–2.0
United States71.3565.12,049.8+493.8+1,484.7
Upper Volta1.0+1.0
Venezuela86.8161.9216.2+75.1+54.3
Total2,365.53,741.26,332.3+1,375.7+2,591.1

A member’s super gold tranche is the extent to which the Fund’s holdings of that member’s currency are below 75 per cent of its quota.

This table excludes changes of less than SDR 1 million; as a result, amounts do not add to totals shown.

A member’s super gold tranche is the extent to which the Fund’s holdings of that member’s currency are below 75 per cent of its quota.

This table excludes changes of less than SDR 1 million; as a result, amounts do not add to totals shown.

The decision adopted in August 1976 that enabled participants to obtain SDRs from other participants in certain categories of transactions by agreement, rather than from the General Account,20 had the effects of decreasing the inflow of usable currencies and increasing the Fund’s holdings of SDRs. For example, during the period August 1976–April 1977 a total of SDR 153 million was obtained in transactions by agreement, most of which might otherwise have been acquired from the General Account with currencies acceptable to the Fund. Further, there was an increase in the General Account’s receipts of SDRs by way of charges paid by members that had no need to reconstitute their SDR holdings. As a result of these factors, the holdings of SDRs by the General Account increased over the fiscal year by SDR 310.3 million, to SDR 771.1 million. Since further increases in the Fund’s holdings of SDRs were anticipated, and in order to conserve the Fund’s holdings of usable currencies, the Executive Directors decided in March 1977 21 to include SDRs in the currency budget for sale to members drawing on the Fund. Members obtaining SDRs in this way may hold the SDRs so acquired or use them to acquire currency in a transaction with designation.

Borrowing, Interest, and Repayments by the General Account

Since the end of fiscal year 1973/74, the Fund has borrowed the equivalent of SDR 8.3 billion, and has arranged for the financing of a further SDR 1.8 billion in purchases by Italy and the United Kingdom under the General Arrangements to Borrow and two borrowing agreements with the Swiss National Bank. The amount of borrowing effected since May 1974 is nearly 48 per cent of total purchases made during the same period. Of the total, the equivalent of SDR 6.9 billion was borrowed in connection with financing transactions under the oil facility and the remainder, amounting to SDR 1.4 billion, was borrowed under the General Arrangements to Borrow in connection with the purchases made by the United Kingdom in January and May 1977 and by Italy in May 1977.

Borrowing for the Oil Facility

As noted in previous Annual Reports, the Fund concluded borrowing agreements in 1974, 1975, and 1976 with 16 members and Switzerland for a total of SDR 6,902.5 million to finance transactions under the oil facility. Of this amount, a total of SDR 2,582.8 million was borrowed for purchases under the facility for 1974 and SDR 4,319.6 million for purchases under the facility for 1975. Purchases were made for a total of SDR 2,499.3 million in 1974/75, SDR 3,966.2 million in 1975/76, and SDR 436.9 million in May 1976, thereby exhausting the total available for borrowing.

Loans to the Fund by the creditor members are denominated in SDRs, with interest payable quarterly on these loans at a rate of 7 per cent per annum on amounts borrowed for the oil facility for 1974 and a rate of 7¼ per cent per annum on the amounts borrowed for the oil facility for 1975. The total amount of interest paid on oil facility loans in 1976/77 amounted to SDR 474 million, of which SDR 449 million was paid in U. S. dollars, and the balance, equivalent to SDR 24.3 million, was paid in four lenders’ own currencies.

Repayments of loans made in connection with the oil facility shall be made in eight semiannual installments starting three years, and to be completed not later than seven years, after the date of transfer of funds, except for loans borrowed from Canada and the Deutsche Bundesbank, which have to be repaid within five years after the date of transfer. There are also a number of circumstances under which the Fund may repay in advance of the scheduled repayments. On April 30, 1977, the Fund had made advanced repayments totaling the equivalent of SDR 200.3 million to Oman, Saudi Arabia, Iran, and Venezuela. These repayments were made in connection with repurchases made by Fiji and India with respect to purchases they had made under the 1974 oil facility. In the first two months of 1977/78, the Fund repaid a further total of SDR 85 million to 7 lenders as a result of repurchases of oil facility purchases made by 5 members. On June 30, 1977, the amount of oil facility loans totaled SDR 6,617 million.

General Arrangements to Borrow

As reported in the Annual Report, 1976, the General Arrangements to Borrow (GAB), which were established in 1962, were renewed for a further five years from October 24, 1975. The Swiss Confederation, which became associated with the GAB in June 1964, also extended its association for the same period of time. The amount of Switzerland’s financial assistance to GAB participants is Sw F 865 million (about SDR 300 million).

To strengthen the Fund’s liquidity, the Executive Board decided in November 1976, and the ten participants in the GAB formally agreed, to an increase in the amount of Japan’s credit arrangement from ¥ 90 billion (approximately SDR 265 million) to ¥ 340 billion (approximately SDR 1 billion), thereby raising the total size of the GAB to approximately SDR 6.2 billion. The increase in Japan’s credit arrangement is the first change in any of the amounts of the credit arrangement since the GAB came into effect.

In view of the low level of the Fund’s holdings of usable currencies in 1976 and an anticipated continued large volume of purchases in the months to come, the Executive Directors decided to finance purchases under the stand-by arrangements for the United Kingdom and Italy largely through borrowings under the GAB (SDR 2,897.5 million) and under bilateral borrowings from the Swiss National Bank (SDR 337.5 million). It was also decided that the balance of the purchases under the stand-by arrangements would be financed out of the Fund’s own holdings of usable currencies. How ever, the arrangements for the financing of purchases during the second year of the stand-by arrangements will be reviewed in the light of the Fund’s liquidity at the time and of the balance of payments and reserve position of each participant in the GAB. As a result of the reviews, the Managing Director may propose alternative arrangements for the financing of further purchases under the stand-by arrangements.

In connection with these transactions, the Fund called on eight participants to provide in their own currencies a total equivalent to SDR 1,285 million on three separate occasions in January and May 1977 for the purchases by the United Kingdom and in May 1977 for the purchase by Italy. Appendix I, Table I.13 lists the ten participants of the GAB, the amount of individual credit arrangements, and the amounts called as of June 30, 1977. No use was made of the amounts available to GAB participants under the association agreement with Switzerland.

The rate of interest on the amounts borrowed, including the transfer charge of 0.5 per cent of the amount borrowed, is the same as that received by the Fund in charges, including the service charge of 0.5 per cent on the amount purchased, except that the minimum rate of interest should be 4 per cent per annum.

Borrowing from the Swiss National Bank

During the year 1976/77, the Fund also arranged two loans from the Swiss National Bank in connection with financing the purchases by the United Kingdom and Italy, mentioned above. The Fund arranged to borrow, in U. S. dollars, the equivalent of SDR 300 million to finance purchases made by the United Kingdom and SDR 37.5 million to finance purchases made by Italy. The provisions of these two loans are similar to the provisions of the GAB, and calls are made on them at the same time and for amounts that are the same proportion as the purchase bears to the total of the stand-by arrangement. By June 30, 1977, the Fund had made calls in connection with these two loans amounting to the equivalent of SDR 125.4 million.

Gold Sales

During the year the Fund sold, at the official price of SDR 35 an ounce, 11.73 million fine ounces of gold, equivalent to SDR 411 million, for replenishment of its holdings of usable currencies. This was the first year in a four-year period in which it is planned to sell gold totaling 50 million ounces, half of which is to be sold for distribution to countries that were members on August 31, 1975, and the remainder is to be sold for the benefit of developing countries.22 About 5.73 million fine ounces of gold were sold to the market in eight auctions held during the fiscal year on behalf of the Trust Fund (and 1.1 million ounces in auctions held in May and June 1977), and nearly 6.0 million fine ounces were sold for the purpose of distribution to member countries in January and February 1977.

(i) Gold Auctions. As noted in last year’s Annual Report, early in May 1976 the Executive Directors adopted a gold sales program for the first two years of the four-year period in which one sixth of the Fund’s gold is to be auctioned. During the two years beginning in June 1976, 12½ million ounces of gold were to be sold in public auctions. The Executive Directors originally decided that these auctions should be conducted at intervals of approximately six weeks and with the same quantity of gold offered in each auction. After the first six auctions and following a review by the Executive Directors in November/December 1976 of the policies and procedures in the light of the experience gained, it was decided that for the ensuing period through August 1977 auctions should be held on a monthly basis. Accordingly, the last two auctions in the fiscal year were held on this basis in March and April 1977.

Apart from the timing of auctions and the consequential adjustments of the amount that it was decided should be offered at each sale as a result of the November/December review of the gold sales program, the terms and conditions of the auctions remained essentially unchanged over the year. Modifications were, however, made in the pricing method, the minimum accepted bid, the place of delivery, and the period allowed for payment.

Regarding the prices that successful bidders have to pay for gold awarded to them, two systems have been employed—the common price and the bid price. After completion of the review of the gold sales program in December 1976, it was announced that the pricing method would be expected to remain unchanged for a series of three successive auctions. In four auctions the common price system was employed,23 in which all bidders pay the same (or common) price; this was the highest price bid at which the amount of gold on offer was sold. In the other auctions held during the year the bid price method was used, under which each bidder pays the price actually bid for the gold awarded to him.24

The minimum bid was lowered from 2,000 ounces (five standard bars) in the first auction to 1,200 ounces (three standard bars) in later sales to facilitate participation in the auctions and to widen the circle of potential participants. Regarding the place of delivery, it is intended to deliver gold from the Fund’s depositories roughly in proportion to the distribution of the Fund’s holdings of gold among them. Accordingly, gold was delivered in New York in seven of the eight auctions held during the year, and in London in one auction; in the following three sales, delivery was made once each in New York, Paris, and London.

Participation in the gold auctions was substantial, and the amount of gold bid in each auction far exceeded the amount offered. Oversubscription was particularly large in the first five auctions, when bids were submitted up to 5½ times the amount of gold on offer. In 1977, bidding declined somewhat and stabilized around 2 to 2½ times the amount offered. (See Table 20.) Similarly, the number of bids initially increased, but then declined in subsequent sales. The fall reflected, however, primarily a decline in bids that were substantially below prevailing market prices. In the April 1977 auction, for example, only 36 per cent of the bids were below the average London fixing price on the day of the auction, compared with 55 per cent in the December 1976 auction and 99 per cent in the June 1976 auction. During the first four auctions, the average price realized remained below the current market price while in the last four auctions in the fiscal year and the May 1977 auction, average proceeds remained above the current market price. In the June 1977 auction, the average price realized was again slightly below the market price.

Table 20.Selected Data on Gold Auctions on Behalf of the Trust Fund, June 2, 1976–June 1, 1977
1976
June 2July 14Sept. 15Oct. 26Dec. 8
Pricing methodCommonCommonBidBidCommon
pricepricepricepriceprice
Total bids (thousand ounces)2,320.02,114.03,662.44,214.44,307.2
Awards (thousand ounces)780.0780.0780.0779.2780.0
Price range of successful bids126.00–122.05–108.76–116.80–137.00–
(in U.S. dollars)134.00126.60114.00119.05150.00
Average price of successful bids126.98123.02109.40117.71137.89
Average realized price126.00122.05109.40117.71137.00
Cut-off price126.00122.05108.76116.80137.00
Number of bids220196380383265
Number of bidders3023232425
Number of successful bids5956413733
Number of successful bidders2017141613
Place of deliveryNew YorkNew YorkNew YorkNew YorkLondon
Profits (million U.S. dollars)67.164.053.860.375.4
1977
Jan. 26March 2April 6May 4June 1
Pricing methodCommonBidBidBidCommon
pricepricepricepriceprice
Total bids (thousand ounces)2,003.21,632.81,278.01,316.41,014.0
Awards (thousand ounces)780.0524.4524.8524.8524.8
Price range of successful bids133.26–145.55–148.55–147.33–143.32–
(in U.S. dollars)142.00148.00151.00150.26150.00
Average price of successful bids134.43146.51149.18148.02144.19
Average realized price133.26146.51149.18148.02144.19
Cut-off price133.26145.55148.55147.33143.32
Number of bids19218713610775
Number of bidders2121181714
Number of successful bids4914223835
Number of successful bidders157111413
Place of deliveryNew YorkNew YorkNew YorkNew YorkNew York
Profits (million U.S. dollars)72.555.657.056.453.3

As explained in the last Annual Report, the Trust Fund acquires the gold that it sells in auctions from member countries to which the Fund has sold gold in order to replenish its holdings of their currencies. These sales are made on the understanding that the member countries will resell the gold to the Trust Fund at the official price. Accordingly, during the fiscal year the Fund replenished its holdings of the currencies of ten creditor members against sales of gold under Article VII, Section 2(H), of the Fund Agreement (Appendix I, Table I.14). The members purchased the gold with their respective currencies at the official price of SDR 35 per fine ounce and resold it simultaneously at the same price to the Trust Fund against payment of U. S. dollars. The amount of gold sold in replenishment was equal to the amounts sold in public auction by the Fund as Trustee for the Trust Fund. Gold was sold on three occasions each to Belgium, the Federal Republic of Germany, and Japan; on two occasions each to Brazil, the Netherlands, Venezuela, and the United States; and on one occasion each to Austria, Canada, and Sweden.25

(ii) Distribution. In May 1976 the Fund announced, as part of its gold sales program, that 25 million fine ounces of gold would be sold for the purpose of distribution to members in four annual installments, with the first operation taking place about the middle of the 12-month period following the first gold auction in June 1976. The distribution of gold is to be made to all countries that were members of the Fund on August 31, 1975 and to Papua New Guinea, for which a membership resolution by the Board of Governors had been adopted on that date but which had not accepted membership.

In December 1976, the Executive Directors decided that, for operational reasons, gold sales for distribution should begin on January 10, 1977. Gold should be sold directly to all members whose creditor positions were large enough by an agreed minimum amount to permit the sale against those members’ own currencies, that is, the sale of gold would not raise the Fund’s holdings of the member’s currency above 75 per cent of its quota—and if the creditor’s currency was usable in Fund transactions. The distribution to other members would be carried out indirectly; their share of the gold would be sold to the creditor members whose positions were large enough to accommodate the additional replenishment with the understanding that the creditors would resell the gold, at the official price, to the debtors against convertible currency acceptable to the creditors. Members could select any of the Fund’s gold depositories for the delivery of gold, except that members in whose territories the Fund’s gold depositories are located—France, India, the United Kingdom, and the United States—were expected to take delivery of their share of the gold at the depository in their territory. Gold was to be delivered in whole bars weighing (in terms of fine gold content) not less than a member’s proportionate share in the distribution. In order to cover the Fund’s administrative expenditures in handling these operations, it was decided to levy a handling charge of SDR 1 for each 25 fine ounces or part thereof.

The Executive Directors also decided that a member representing that it had a balance of payments need could request postponement of the purchase of its share of the gold to be distributed until not later than 30 days after the amended Articles come into effect, when it will be able to purchase gold with its own currency. The balances above quota so acquired by the Fund would be subject to repurchase not later than two years after the date of acquisition and they would be subject to the rates of charge on holdings resulting from purchases in the credit tranches in effect at the time of the gold sale, provided, however, that the balances will be subject to a minimum rate of 4 per cent per annum. The balances would be excluded when the Fund determined a member’s drawing rights under the policies on purchases in the credit tranches and under the extended Fund facility.

As mentioned, the sales of gold for distribution began on January 10, 1977 and the bulk of the transactions had been completed by the end of the same month. A total of 5,998,431.028 fine ounces (SDR 209.95 million) was sold to 112 members.26 Of this amount 3,497,030.293 fine ounces (SDR 122.4 million) were distributed directly to 30 members against payment of their own currencies. The distribution of gold to 82 noncreditor members totaling 2,501,400.735 fine ounces was arranged indirectly through 12 creditor intermediaries,27 broadly in proportion to their creditor positions after the sales to them of their own shares in the distribution, and taking into account members’ options for depositories and operational convenience. With the exception of a small amount in French francs, all payments to intermediaries, both for the purchase of gold and for related handling charges, were made with U. S. dollars in an amount of SDR 85.8 million. Of total gold sales, 63 transfers were executed at the Federal Reserve Bank of New York, New York, 30 at the Bank of England, London, 18 at the Banque de France, Paris, and one at the Reserve Bank of India, Nagpur.

The Fund agreed to the requests of 14 members for postponement of their participation in the first phase of gold distribution. The postponed gold purchases amounted to 130,299 fine ounces (equivalent to SDR 4.6 million), or 2.1 per cent of the total amount of gold to be distributed.

Charges

The Executive Directors undertook a detailed review of the Fund’s financial position during the year and decided, with effect from April 1, 1977, on a number of changes with respect to the payment of charges applicable to members’ use of the Fund’s resources in the General Account.

In each fiscal year since 1970/71 the Fund’s expenses have exceeded income; the accumulated deficits amounted to nearly SDR 85 million by the end of fiscal year 1975/76. At the time of the review, a further deficit was estimated for the fiscal year 1976/77 (the actual deficit amounted to SDR 18.2 million). Of particular concern was the fact that the Fund continued to be in deficit in its income and expenses at a time when both the volume of transactions and the Fund’s operational income were at their highest levels.

In addition to an increase in the Fund’s administrative expenditure in recent years, a number of factors contributed to the deficits. Over the last few years there has been a sharp rise in the average cost of funds (i.e., the rate of remuneration) relative to the average rate of charge received by the Fund. Between April 1974 and January 1977, the average cost of funds (excluding interest on borrowing by the Fund) had risen from 1.5 per cent to 3.8 per cent, while the average rate of charges on balances in excess of quota had risen from about 2.85 per cent to 4.2 per cent, leaving a margin of less than ½ of 1 per cent, compared with 1.35 per cent in April 1974. The rise in the cost of funds was due in part to the decision to link the rate of remuneration more closely to selected market rates of interest. Moreover, while charges had been raised in 1974, there had been no subsequent adjustment of the rates of charge in response to the upward float of the rate of remuneration. Indeed, between September 30, 1976 and April 1, 1977, the rate of remuneration was the same as the initial rate of charge, so that no income was earned in the first year that balances were held in excess of quota (except for a one-time service charge of ½ of 1 per cent on credit tranche purchases). The Fund had also decided to borrow at market-related rates for the oil facility, and in 1974 the charges were set, taking the maximum period for which purchases could be outstanding, to yield income that on average was only slightly above the interest rate paid on loans; in 1975 the charges were determined to yield a margin for the Fund for each year that purchases would be outstanding.

Another factor that had a significant bearing on the Fund’s operational expense was the use by members of their gold tranche. Use of the gold tranche does not produce any income because no charges are levied but such use usually expands creditor positions on which remuneration is paid. Over the last ten years, gold tranche purchases outstanding accounted for about 45 per cent of total purchases outstanding. For a number of years this was a major reason why average creditor positions, on which remuneration is paid, exceeded average debtor positions, on which charges were paid.28 The combination of a small, and diminishing, margin referred to above and the periodic excess of creditor balances over debtor balances resulted in total operational income that, while sufficient to cover the Fund’s operational expense, was insufficient to meet the Fund’s administrative expenses. (See Chart 14 and Table 21.)

Chart 14.Relationship Between Periodic Charges and Total of Remuneration and Borrowings Net of SDRs (Excluding Oil Facility), Years Ended April 30, 1974–77

(In SDRs)
Table 21.Summary of Average Rates of Periodic Charges and Remuneration, Fiscal Years Ended April 30, 1976 and 1977(Balances and charges in millions of SDRs)
1977197619771976
Including the

oil facility
Excluding the

oil facility
Income from charges on balances in excess of quota
Average daily balances12,2096,8715,4722,593
Total charges for the period727.3408.5232.7101.2
Average annual rate5.975.944.263.90
Remuneration and interest on borrowings, net of interest
on SDR holdings
Average daily balances12,3646,6425,6012,356
Net expense for the period699.6386.7216.683.3
Average annual rate5.665.823.873.54
Excess of average daily balances subject to periodic charges
over average daily net creditor positions, net of SDR
holdings–155+229–129+237
Spread between the combined average annual rate of charge
and the combined average annual rate of expense0.310.120.390.36
Excess of periodic charges over remuneration and interest,
net of interest on SDR holdings+27.7+21.8+16.1+17.9

The Executive Directors therefore decided, with effect from April 1, 1977, to change some of the Fund’s schedules of charges and also to take other steps to strengthen the Fund’s financial position, including the timing of the collection of charges.29 The central decision provided for an effective increase in the initial rate of charge of ⅜ of 1 per cent per annum on balances of members’ currencies held in excess of quota that have been acquired since June 30, 1974, except holdings resulting from use of the oil facility. The initial rate of charge was raised from 4 to 4.375 per cent per annum for the first 12 months, with the rates progressing by an additional 0.5 per cent per annum for each subsequent 12 months, that is, to a rate of 6.375 per cent per annum on balances outstanding for five years and to 6.875 per cent on balances outstanding from five to eight years under the extended Fund facility. The service charge on all drawings other than those in the gold tranche remained at 0.5 per cent. The new schedules of charges are shown in Appendix I, Table I.16.

The decision also provides for a prompt review of the Fund’s financial position, the rate of remuneration, and the initial rate of charge if the margin of the initial rate of charge above the rate of remuneration is reduced to less than ¼ of 1 per cent or is increased to more than 1 per cent because of changes in the rate of remuneration. In these circumstances, the Executive Board would take action as it considers necessary to safeguard the financial position of the Fund; if a new decision is not taken as a result of a review, the initial rate of charge shall be ½ of 1 per cent or 1 per cent above the rate of remuneration, as the case may be. The decision shall also be reviewed if the Fund’s total annual income substantially exceeds its total annual expenses.

As mentioned, a number of related decisions were taken to help to strengthen the Fund’s income from charges. First, some balances of currency held by the Fund remain subject to the schedule of charges that was in effect prior to July 1, 1974, and the level of charges under the pre-1974 schedule was lower than the schedules adopted subsequently. In view of the method adopted by the Fund to measure the period over which the Fund’s resources are in use for the purpose of levying charges, circumstances could permit a member to pay charges under the pre-July 1974 schedule even though the balances of currencies on which charges were being paid under that schedule had been acquired by the Fund after July 1, 1974.30 Consequently, the decision was taken to eliminate the balances subject to the pre-July 1, 1974 schedule of charges by applying reductions in the Fund’s holdings of currency (other than holdings resulting from use of the extended Fund facility and the oil facility) first to the holdings subject to the pre-July 1, 1974 schedule.

Under another of these decisions members are required to pay charges promptly after the end of the quarter to which they relate rather than having a period of 30 days after the end of the quarter within which to pay. This change in the timing of the payment of charges by members brings the receipt of charges by the Fund more closely in line with the Fund’s practices of paying interest to lenders promptly after the end of each quarter and of paying remuneration promptly after the end of each fiscal year.

Another decision, which will become applicable on the date of the Second Amendment, provides that the Fund’s holdings of a member’s currency acquired by the Fund as a result of the member’s purchases under the oil facility shall be “excluded” within the meaning of Article XXX(c) (iii) of the amended Articles. This means that such holdings will be excluded for the purpose of determining the member’s reserve tranche. It also means that the holdings will be subject to the charges applicable to holdings acquired under the oil facility even when the holdings fall below the quota level. At present, a certain amount of holdings acquired as a result of members’ use of the oil facility has fallen into the gold tranche, and, as a result, the Fund receives no income from charges on the amount of holdings but continues to pay interest to the lenders of that amount.31

Remuneration

Since July 1, 1974, the rate at which the Fund pays remuneration on net creditor positions and the SDR interest rate have been related to a weighted average of short-term rates in the money markets of the five largest members.32 For the period July 1, 1974–July 7, 1975, the Executive Directors decided to set the rate of remuneration at 5 per cent as the basic rate but set a rate of 2.5 per cent per annum on net creditor positions that were between 75 and 50 per cent of a member’s quota. The rates were reviewed every six months and, unless decided otherwise, the higher rate of remuneration was determined automatically by a formula based on market prices and adjusted within set margins.33

In July 1975, the two rates of remuneration were unified at the SDR interest rate of 3.75 per cent per annum on the basis of a formula adopted in June 1974. The rate of remuneration fell to 3.5 per cent for the subsequent six-month period ended June 30, 1976. On the basis of a further review in June 1976, the formula for determining the rate of remuneration was changed to make the rate more responsive to changes in short-term market rates. Henceforward, the rate of remuneration has been determined for each calendar quarter, and equals three fifths of the weighted average of five market rates of interest, rounded to the nearest ¼ of 1 per cent; the adjustments made in response to the formula of market rates to certain maximum and minimum rates were abolished. Furthermore, the weighted average of the five short-term interest rates—the combined market rate of interest—is calculated for the six-week period ending on the fifteenth day of the last month before the calendar quarter for which the rate of remuneration is determined. In accordance with the amended formula in Rule I-10, the rate of remuneration for the calendar quarter beginning July 1, 1976 was 3.75 per cent per annum. The rate was subsequently raised to 4 per cent but was reduced to 3.75 per cent for the calendar quarter commencing April 1, 1977. The average annual rate of remuneration for the fiscal year 1976/77 rose by 0.25 per cent to 3.85 per cent per annum. Chart 15 shows for the period beginning July 1975 the rate of remuneration and, on a monthly average basis, the combined market interest rate and the five short-term interest rates prescribed in Rule I-10(b).

Chart 15.Rate of Remuneration and Short-Term Interest Rates, July 1975–June 1977 1

1 For the United Kingdom and the United States, the yield on three-month treasury bills; for France and the Federal Republic of Germany, the rate for three-month interbank deposits; and for Japan, the call money (unconditional) rate.

Income, Expenses, and Reserves

During the fiscal year ended April 30, 1977, the Fund’s operational income from charges and the receipt of interest on holdings of SDRs in the General Account rose by SDR 318.8 million (70 per cent), to a record of SDR 774.7 million. On the other hand, the payment of remuneration on creditor positions and interest on the Fund’s borrowing rose by the even greater amount of SDR 320.1 million (78 per cent), to SDR 727.6 million. In consequence, net operational income fell slightly in 1976/77 to SDR 47.1 million, compared with SDR 48.4 million in the previous fiscal year. With administrative and other expenditures rising by SDR 14 million (27 per cent), to SDR 65.3 million, a deficit of SDR 18.2 million was incurred in 1976/77, compared with the deficit of SDR 2.9 million in the preceding fiscal year. The deficit was charged against the Special Reserve, reducing it to SDR 320.9 million. The General and Special Reserves totaled SDR 686.5 million on April 30, 1977. A summary of income and expenses for a period of years is shown in Appendix I, Table I.17.

Income received from charges on balances in excess of quota amounted to SDR 727 million, an increase of 78 per cent from the previous year. The bulk of this increase came from the record increase in average balances subject to charge, which increased by approximately 78 per cent, to SDR 12.2 billion in the fiscal year, but there was also an increase in the average rate of charge owing to the progression of charges over the time purchases are outstanding.34 As described in the section on charges, higher rates of charge became effective on April 1, 1977, but this had a minor impact for the fiscal year as a whole. For the year, the average annual rate of charge on balances in excess of quota (except balances subject to charges under the oil facility) rose to 4.26 per cent per annum, against 3.90 per cent per annum for the previous fiscal year. Income from service charges on purchases declined by SDR 7.1 million (27 per cent), to SDR 19.4 million, mainly because of the phasing out of purchases under the oil facility.

Interest received on holdings of SDRs in the General Account rose by SDR 2.2 million (11 per cent), to SDR 23.0 million and reflects a 1 per cent increase in the average daily balance of the Fund’s holdings of SDRs, from SDR 535 million in 1976 to SDR 597 million in 1977.

The record use of the Fund’s resources was mirrored in the sharp increase in net creditor positions and loan claims on the Fund. The average daily balances of net creditor positions subject to remuneration and of loan claims on which interest was paid increased from SDR 6.64 billion to SDR 12.36 billion over the year, with a consequential increase in payments of remuneration and interest. These rose by SDR 315 million (77 per cent), to SDR 723 million, in part because of the rise in the average annual rate of remuneration from 3.60 per cent to 3.85 per cent in 1976/77.

As can be seen from Tables 18 and 21, there were substantial changes in the Fund’s financial position owing to borrowing, which increased by SDR 1,237 million (19 per cent), to SDR 7,702 million in 1976/ 77. Of this increase, SDR 437 million represented a drawing down of the remaining 1975 oil facility line of credit, partially offset by the repayment of SDR 200 million borrowed in connection with the 1974 oil facility, while SDR 1 billion represented borrowing under the General Arrangements to Borrow and the borrowing agreement with the Swiss National Bank. Loans made to the Fund in connection with the oil facility in 1974 bear interest at the rate of 7 per cent per annum and those in 1975 at 7.25 per cent per annum. The average rate of interest on the GAB and other borrowing of 4.10 per cent per annum was the same as the average rate of periodic charge levied on the drawings financed under the GAB and other borrowing arrangements. Interest paid on all outstanding indebtedness increased by SDR 192.3 million (63 per cent), to SDR 495.7 million, in 1976/77. Of this amount, SDR 483 million was interest paid on amounts borrowed in connection with the oil facility (SDR 303.4 million in 1975/76) and SDR 12.7 million was interest paid on the GAB and other borrowing.

The combined cost of all capital resources provided to the Fund declined from 5.82 per cent in 1975/76 to 5.66 per cent in 1976/77. This reduction is mostly attributable to the rapid expansion of creditor positions (for which the average cost of funds was 3.85 per cent per annum) relative to borrowing (average cost was 7.01 per cent) in 1976/77. The fall in the cost of funds combined with the rise in the average rate of charge resulted in an improvement in the spread between the average annual rate of charge and the combined average annual rate of expense from 0.12 per cent in 1975/76 to 0.31 per cent in 1976/77. However, as average creditor positions (including oil facility loan claims) exceeded average debtor positions by about SDR 155 million, the improvement in operational income that otherwise would have accrued from an improvement in the margin was reduced by about SDR 6 million for the year.

The Subsidy Account

The Subsidy Account was established by the Executive Directors on August 1, 1975 to assist the Fund’s most seriously affected (MSA) members to meet the cost of using the oil facility for 1975.35 Of the 39 Fund members on the list prepared by the Secretary-General of the United Nations as being those countries most affected by the increased price of petroleum and petroleum products, 18 made purchases under the 1975 oil facility for a total of SDR 551.04 million. (See Table 22.) The annual amount of subsidy payments to eligible members is calculated as a percentage per annum of the average daily balances of the Fund’s holdings of currency, in excess of quota, that resulted from use of the oil facility for 1975 and that are outstanding during the year.

Table 22.Subsidy Account: Total Use of 1975 Oil Facility by Most Seriously Affected Members and Subsidy Paid for the Years Ended April 30, 1976 and 1977(In millions of SDRs)
CountryTotal

Use

1975

Oil Facility
Subsidy at 5 Per Cent

for Year Ended
April 30,

1976
April 30,

1977
Bangladesh40.470.652.00
Cameroon11.790.140.59
Central African Empire2.660.050.13
Egypt31.680.161.57
Haiti4.140.070.21
India201.347.2310.07
Ivory Coast10.350.150.52
Kenya27.930.671.39
Mali3.990.010.20
Mauritania5.320.050.26
Pakistan111.012.605.55
Senegal9.910.300.50
Sierra Leone4.970.030.25
Sri Lanka34.130.481.71
Sudan18.300.360.92
Tanzania20.610.681.03
Western Samoa0.420.010.02
Yemen, People’s
Dem. Rep. of12.020.180.60
Total551.0313.82127.511

Purchases began in July 1975 and continued until May 1976; differences in amounts reflect larger average daily balances for the fiscal year 1976/77 than for 1975/76.

Purchases began in July 1975 and continued until May 1976; differences in amounts reflect larger average daily balances for the fiscal year 1976/77 than for 1975/76.

The Subsidy Account is funded by contributions from the 24 members and Switzerland listed in Table 23. The table also shows that contributions totaling SDR 160 million are anticipated over the life of the Subsidy Account, and that the contributions from all but two members had been received by June 30, 1977 in the total amount of SDR 66 million. During the year, one additional member—Greece—has agreed to contribute a total of SDR 0.6 million.

Table 23.Subsidy Account: Contributions(In millions of SDRs)
ContributorAnticipated

Total

Contributions1
Contributions

Received as of

June 30, 1977
Australia5.7001.070
Austria2.3002.300
Belgium5.600
Brazil1.8500.925
Canada9.5009.500
Denmark2.2000.640
Finland1.6000.400
France12.9005.046
Germany, Fed. Rep. of13.7006.841
Greece0.6000.150
Iran6.0003.000
Italy8.600
Japan10.3002.200
Luxembourg0.1080.108
Netherlands6.0006.000
New Zealand1.7000.286
Norway2.1002.100
Saudi Arabia40.0009.990
South Africa1.3501.350
Spain3.4000.980
Sweden2.8001.400
Switzerland3.2853.285
United Kingdom12.0504.509
Venezuela6.0003.000
Yugoslavia0.9000.450
Total160.54365.530

In some cases subject to final agreement on amount or timing, parliamentary approval, and/or certain conditions. In some cases where contributions are being made in installments, budgetary approval will be required in each year that a contribution is to be made. SDR amounts may be subject to small adjustments owing to exchange rate changes.

In some cases subject to final agreement on amount or timing, parliamentary approval, and/or certain conditions. In some cases where contributions are being made in installments, budgetary approval will be required in each year that a contribution is to be made. SDR amounts may be subject to small adjustments owing to exchange rate changes.

Contributions have been received either in U.S. dollars or in the member’s own currency with immediate conversion into U.S. dollars. These funds have been invested in U. S. Treasury bills or notes to mature, as far as possible, on dates appropriate to the payments requirement of the Subsidy Account. As required by the Executive Board decision establishing the Subsidy Account,36 the approval of the United States has been obtained with respect to investments in U. S. dollars.

The objective of the Subsidy Account is to reduce the effective rate of annual charge payable on drawings under the 1975 oil facility by about 5 per cent per annum. For the fiscal year ended April 30, 1976, the Executive Directors decided that the rate of subsidy would be 5 per cent, thus reducing the effective interest cost to recipients of using the 1975 oil facility from about 7.71 per cent to 2.71 per cent per annum. After reviewing the Subsidy Account for the fiscal year ended April 30, 1977, the Executive Directors decided to maintain the subsidy rate at 5 per cent for the fiscal year 1976/77. The rate of subsidy implies a grant element of 28 per cent; it involved payments by the Subsidy Account totaling SDR 13.8 million in fiscal year 1975/76 and SDR 27.5 million in 1976/77. (See Table 22.) The decision establishing the Subsidy Account, including the list of recipients, is to be reviewed annually.

The Trust Fund

As mentioned in last year’s Annual Report, on May 5, 1976, the Executive Directors established a Trust Fund to be administered by the International Monetary Fund.37 The resources of the Trust Fund consist of gold and currencies sold, donated, or lent to it, income from investments and loans, and the proceeds from repayments of loans. One category of assets results from the sale of a portion of the Fund’s own gold. Under its authority to replenish its holdings of needed currencies, the Fund sells gold to certain members for their currencies at the official price of SDR 35 per fine ounce. In accordance with an agreed procedure, these members then sell the gold, again at the official price, to the Fund as Trustee for the Trust Fund. The gold is sold in auctions, and the profit goes into the Trust Fund, the bulk of it to be used for loans and a portion to be distributed to developing countries on the basis of the ratio that their quotas on August 31, 1975 bore to total quotas on that date. The resources shall be used to provide additional balance of payments assistance on concessional terms in support of the efforts of eligible developing members that qualify for assistance to carry out programs of balance of payments adjustment. There are currently 61 developing members that are eligible for such assistance. The Fund shall review the Instrument establishing the Trust Fund, and in particular the list of eligible members, and the criterion of eligibility for inclusion before January 1, 1978.

The Instrument establishing the Trust Fund provides that the “Trustee shall report on the operation of the Trust in the annual report of the Executive Directors of the Fund to the Board of Governors of the Fund and shall include in that annual report the report of the audit committee on the Trust.” The operation and administration of the Trust through the end of April 1977 is described below, and the report of the audit committee is reproduced in Appendix VIII.

The resources available to the Trust on April 30, 1977 represented profits from the eight gold auctions that had been held to that date and the income from the investment of funds held by the Trust pending disbursements. By April 30, 1977, a total of 5.73 million fine ounces of gold had been sold, and the profits realized from these auctions totaled SDR 437.5 million. Income on investments through April totaled SDR 9.0 million, of which SDR 5.6 million was accrued. The General Account of the Fund was reimbursed SDR 0.8 million for the expenses of conducting the business of the Trust for the fiscal year 1976/77, including the administration and handling of the gold auctions. The Trust has not as yet received any voluntary contributions or loans. At the end of June 1977, the resources of the Trust Fund totaled SDR 543.34 million, including the net proceeds of the auctions conducted in May and June.

The Executive Directors have decided that, to the extent possible, the Trust shall disburse loans at half-yearly intervals, in January and July of each year. The Executive Directors are agreed that the direct distribution of profits to developing members (to be made in proportion to a developing member’s quota to total Fund quotas) would be made annually. In view of the relatively small amounts that are likely to be involved for each member, such distributions should, when feasible, be made to coincide with alternative disbursements of loans by the Trust Fund.

The first interim disbursements of Trust Fund loans (for the period July 1, 1976 to June 30, 1978) were made to 12 of the 61 members that had qualified by the end of January 1977 on the basis of both their need for balance of payments assistance and suitable programs for balance of payments adjustment. The amounts of their respective interim loan disbursements were as follows:

(In millions of SDRs)
Burundi1.007
Congo, People’s Rep. of the0.689
Haiti1.007
Kenya2.544
Liberia1.537
Morocco5.989
Nepal0.742
Philippines8.215
Tanzania2.226
Western Samoa0.106
Yemen, People’s Dem. Rep. of1.537
Zaïre5.989
Total31.588

The total amount available to the Trust for making loans at the time of the first interim disbursement was SDR 198 million, which consisted of a share (about 70 per cent) of the profits realized at the Fund’s gold auctions during 1976, and of the investment income on the amounts realized at those auctions. The loan for each member that qualified for assistance from the Trust Fund amounted to 5.3 per cent of its quota on December 31, 1975. This percentage was obtained as the ratio of SDR 198 million, which was then available for making loans, to SDR 3,760 million, the total quotas of the 61 eligible members. The balance remaining after the first loan disbursement is held in the Trust as the potential share of the 49 members that had not qualified by the end of January 1977.

In the period since the first interim loan disbursements, 9 of the other eligible members have qualified for Trust loans with suitable programs. These members are Bangladesh, Burma, Egypt, The Gambia, Lesotho, Malawi, Mauritania, Pakistan, and Sierra Leone. The quotas of the 21 members that qualified by the end of June 1977 represented 33.7 per cent of the quotas of the 61 eligible members. The second interim loan disbursements were to be made by the Trust toward the end of July 1977. Eligible members can qualify for loans for the first period by presenting a program for 12 months satisfying the criteria of the first credit tranche. Alternatively, a member can rely on such a 12-month program already presented to the Fund. To qualify, the program must begin not later than December 1, 1977.

Trust Fund loans bear interest at a rate of ½ of 1 per cent per annum and are to be repaid in ten semiannual installments, beginning not later than the end of the first six months of the sixth year, and to be completed at the end of the tenth year, after the date of disbursement. The Fund, as Trustee, decided that a recipient of Trust loans shall pay interest on its indebtedness under the Trust loan agreement on June 30 and December 31 of each year in the currencies specified by the Trustee. Interest payments amounting to SDR 0.065 million were paid to the Trust on June 30, 1977 in U. S. dollars.

Investments made by the Trust totaled SDR 406 million on April 30, 1977, and SDR 499 million on June 30, 1977. The Trust holds a working balance, also invested, to purchase gold from certain Fund creditor countries at the official price in connection with the amount of gold to be sold in public auction.

Subject to obtaining the concurrence of the country whose currency is used for investment, the Trustee may invest balances of currency held by the Trust in marketable obligations of international financial organizations or in marketable obligations issued by, and denominated in the currency of, the country whose currency is used to make the investment. The assets of the Trust, other than the loans already disbursed, have so far been held in U. S. dollars, and all receipts and disbursements of the Trust Fund have so far been made in U. S. dollars.

It would be possible for investments to be held in currencies other than the U. S. dollar, as the Fund may determine in accordance with its duties as Trustee. As required by the Trust Instrument, the concurrence of the United States was obtained regarding investments in U. S. dollar obligations. The investments held by the Trust on June 30, 1977 are shown in Table 24.

Table 24.Trust Fund Investments in U.S. Government Obligations 1 on June 30, 1977
Date of

Maturity
Face Value

(U.S. dollars)
Effective

Yield to

Maturity

(Per cent)
Current

Book Value

(In SDRs)2
July 14, 197720,210,0004.92917,265,880
July 21, 19779,920,0004.9148,461,994
July 26, 1977162,200,0005.168135,023,784
July 28, 1977161,960,0004.917136,803,261
August 4, 197712,000,0005.00410,051,618
August 11, 197722,700,0005.03618,993,602
January 31, 1978199,390,0005.257172,107,323
Total588,380,0005.109 3498,707,462

The obligations are all U.S. Treasury bills except for the January 31, 1978 maturities, which are U.S. Treasury notes.

On June 30, 1977, at SDR 0.857732 per U.S. dollar, on the basis of cost of investment.

Average effective yield to maturity.

The obligations are all U.S. Treasury bills except for the January 31, 1978 maturities, which are U.S. Treasury notes.

On June 30, 1977, at SDR 0.857732 per U.S. dollar, on the basis of cost of investment.

Average effective yield to maturity.

Consultations with Member Countries

In 1976/77 the Fund completed 77 regular consultations with member countries, of which 48 were under Article XIV and 29 under Article VIII. Member countries maintaining restrictions on current international payments and transfers under Article XIV are required to consult annually with the Fund. For members that have accepted the obligations of Article VIII, Sections 2, 3, and 4, the consultations are held regularly on a voluntary basis.

During the fiscal year, Venezuela accepted the obligations of Article VIII, Sections 2, 3, and 4. Out of a total membership of 130 countries, 44 now have Article VIII status. These members are listed in Appendix I, Table I.18.

Regular consultations have continued to be an important part of the Fund’s work. They present the opportunity for a detailed review of the economic and financial situation and policies of member countries from both national and international points of view. These consultations help the Fund to deal quickly with members’ requests for the use of Fund resources and proposed changes in policies or practices that are subject to Fund approval. They have been a major instrument through which Fund surveillance of members’ policies is made effective in accordance with members’ obligations under the Articles of Agreement. For the individual member, regular consultations provide occasions for an external appraisal of policies and for discussion of any special difficulties that may arise from actions or policies of other members.

In recent years, the regular consultations have been supplemented from time to time by special consultations with selected countries, particularly those whose external policies were considered to be of major importance to the world economy but also others representative of countries in their region. These consultations were held in connection with periodic reviews of world economic developments in the Executive Board. In 1976/77, such special consultations were held with 19 countries.38

In accordance with the principles and procedures for Fund surveillance over exchange rate policies adopted by the Executive Board in April 1977,39 members will be required, when the Second Amendment of the Articles takes effect, to consult regularly with the Fund under Article IV. These consultations under Article IV will comprehend the regular consultations under Articles VIII and XIV and, in principle, will take place annually.

Training and Technical Assistance

The training and technical assistance provided by the Fund to member countries have continued to be made available in various forms, including training at headquarters, Fund representatives and advisors, staff missions, and the assignment of experts from outside the staff of the Fund. The services provided have covered fiscal, monetary, and balance of payments policies, banking, exchange and trade systems, government finance, and statistics. During 1976/77 the assistance was again broadly distributed among Fund membership. In addition to technical assistance missions carried out by the staff, 31 staff members were assigned for six months or longer as Fund representatives or advisors to 22 countries, and 137 outside experts were stationed for six months or more in 55 countries. This assistance was in addition to that made available through the Fund’s regular procedures under Article VIII and Article XIV.

During the fiscal year, the IMF Institute provided training to 221 officials of member governments who attended eight courses. Thus, the total number of officials trained at the Institute since its inception in 1964 has reached 1,886 from 129 member countries.

The main course offered by the Institute continues to be that on Financial Analysis and Policy, conducted for 20 weeks in English and 22 weeks each in French and Spanish. This course consists of an exposition of the Fund’s procedures and policies, a review of the modern tools of economic analysis, and a comprehensive study of the instruments of monetary, fiscal, and balance of payments policies used for achieving economic objectives under changing international and national conditions. Special emphasis is placed on the problems of developing countries, drawing on the Fund’s experience in helping to resolve such problems. For this purpose, frequent use is made of case studies and workshops designed to illustrate the application of the tools of financial analysis studied in the course.

The Institute also provides two shorter courses, which are given in English, French, or Spanish, as required. One is an 8-week course on Balance of Payments Methodology, held in close collaboration with the Balance of Payments Division of the Bureau of Statistics. This course concentrates on balance of payments concepts and definitions used in the Fund, and serves as an important medium for assisting member countries in their efforts to improve their statistics on the balance of payments. The other is a 10-week course on Public Finance, organized in close cooperation with the Fiscal Affairs Department. It covers the objectives, instruments, and procedures of public finance, with special emphasis on the fiscal problems of developing countries.

The Central Banking Service has continued to provide technical assistance on all aspects of the organization and operations of central banks. During the last fiscal year, 54 member countries and 4 multinational institutions received technical assistance either in the form of assignment of outside experts to central banks or similar monetary institutions or through the provision of advisory services by regular staff members.

Experts on long-term assignments served in executive or advisory capacities in 41 countries and 4 multinational institutions, and short-term consultants visited 4 additional countries. Technical assistance through the assignment of experts was provided primarily in the fields of central bank organization and management, research services, and bank supervision, as well as in the areas of accounting, staff training, and foreign exchange operations. As in the past, the Fund has depended mainly on the cooperation of well-established central banks to meet requests for experts.

Technical assistance is also provided through advisory services, normally carried out by staff members of the Central Banking Service in cooperation, as needed, with staff from other departments within the Fund and other institutions. Advisory services cover a wide range of central banking and related activities, such as drafting or amending central and general banking legislation, administration and organization of central monetary authorities, and development of local financial markets and institutions. Most advisory work is carried out by staff members at headquarters, supplemented by visits to review specific recommendations with the requesting authorities. During the fiscal year 1976/77, advisory missions visited 14 countries in conjunction with surveys of the financial system, the drafting of legislation, and the establishment of new central monetary authorities. Where appropriate, other Fund departments participate in the advisory work, especially in the context of legislative assistance in which the Fund’s Legal Department takes an active role. On occasion, collaboration with specialized units of other institutions, particularly the International Finance Corporation, is also sought, especially for requests concerning the survey of financial systems and the development of financial markets. Similarly, on occasion, staff members of the Central Banking Service participate in missions of other departments and organizations.

During 1976/77 the Fiscal Affairs Department provided technical assistance through staff missions, staff assignments in the field, and use of the services of members of the panel of fiscal experts to 33 member countries, 8 more than in the previous year. Of the countries served, 5 received assistance for the first time. The principal fields in which assistance was given were tax policy, tax and customs administration, budgetary systems and procedures, government accounting and auditing, and general financial management. During the year, 41 assignments were undertaken by members of the fiscal panel, and 25 staff members carried out assignments in the field and at headquarters. At the end of the year, 26 panel members and 1 staff member were on long-term assignment in 17 countries. Groups of advisors were continuing to operate in 2 countries. As in previous years, members of the staff visited a number of countries to inspect progress and to review requests for further assistance; staff members continued to be substantially involved at headquarters in supporting and controlling the work of field experts.

The Bureau of Statistics provided technical assistance to member countries in the area of statistics for improving the assembly of financial and general statistics contained in existing bulletins of central banks or for establishing new bulletins. The technical work, which brings together the staff expert and national technician in a cooperative effort, includes discussions with national technicians on the concepts and classification standards for the organization of statistics relevant to the analysis of the monetary and payments problems, and it has helped to promote the use of statistical definitions that facilitate intercountry comparison of data. In improving the statistical content of central bank bulletins, the emphasis in the work has been on data on international reserves, money and banking, interest rates, prices, production, external trade, government finance, balance of payments, and, where available, the national accounts.

The Bureau staff’s discussions on statistics with national counterparts during visits to countries for purposes other than to work on central bank bulletins have, in substance, paralleled the technical work on the statistics for those bulletins. The recent availability of the Fund’s Draft Manual on Government Finance Statistics and the distribution to countries of questionnaires for assembly of government finance statistics for a yearbook on these data (the publication of which is projected for the fiscal year 1977/78) provided opportunities for assisting officials and technicians of ministries and central banks in understanding and applying the concepts and classification standards in the Draft Manual to the detailed data on the transactions of the government and other parts of the public sector. Other technical assistance was provided by the Bureau staff while participating in Fund missions.

During the fiscal year, the Bureau’s overall technical assistance activities resulted in visits to 39 countries, in the establishment of two new central bank bulletins, and in the substantial improvement of the statistics in several existing bulletins.

An increasing amount of technical assistance has been provided by the Treasurer’s Department both in the field and at headquarters in response to requests of members and of area organizations. These requests have been primarily in the fields of the Fund’s financial relationships with members and their reciprocal accounting problems for transactions and operations in both the General Account and the Special Drawing Account. Staff members in the Treasurer’s Department have either led or participated in technical missions to prospective members in connection with the collection of data appropriate to the calculation of quotas and to provide assistance to prospective members in the various financial steps associated with achieving membership. Assistance has also been provided in the field to existing members.

Relations with Other International Organizations

In its international setting, the Fund maintains active collaboration with other organizations in the monetary and financial area having related responsibilities and interests. Close relations are maintained through staff contacts, exchange of documents and information, and attendance at meetings from plenary to working party levels with the United Nations (UN) and its relevant organs and specialized agencies, the International Bank for Reconstruction and Development (IBRD), with which the Fund has a special relationship, the General Agreement on Tariffs and Trade (GATT), the Organization for Economic Cooperation and Development (OECD), the Commission of the European Communities (CEC), the Bank for International Settlements (BIS), and the Organization of American States (OAS), particularly its Inter-American Economic and Social Council and its Permanent Executive Committee (CEPCIES). Regional organizations, including the regional development banks and the UN regional economic commissions, and other development and financing institutions, as well as ad hoc conferences and seminars on technical matters within the Fund’s competence, are also focal points for cooperation with regard to common members.

Most of those organizations were represented as observers at the Annual Meeting of the Fund’s Board of Governors, held jointly with that of the IBRD and its affiliates, in Manila, Philippines, in October 1976, and several of them were also represented at meetings of the Interim Committee and of the Development Committee, held in Manila in October 1976 and in Washington in April 1977.40

Primary responsibility for maintaining continuous liaison rests with the Fund’s Special Representative to the United Nations; the European Office in Paris, with respect to the OECD, CEC, BIS, and the Conference on International Economic Cooperation (CIEC, or North-South dialogue), for which Fund reports on debt servicing were made available; and the Geneva Office with respect to the GATT, the United Nations Conference on Trade and Development (UNCTAD) and its various bodies, and other UN agencies and meetings in that locale. Their activities are supplemented by attendance of headquarters staff as occasions require, and from time to time by staff resident representatives in certain member countries.

Owing to unexpected developments, the Managing Director’s annual address to the UN Economic and Social Council (ECOSOC) was delivered on his behalf by the Special Representative to the UN at the 61st Session, Part I, in Abidjan, Ivory Coast. The Deputy Managing Director addressed the Fourth Session of UNCTAD in Nairobi, Kenya, in May 1976. Staff representatives attended sessions of the ECOSOC, the General Assembly, and their subordinate bodies, the Special Fund, and the Administrative Committee on Coordination (ACC) and its preparatory and working groups. The Managing Director attended various monthly meetings of the BIS in Basle and participated in meetings of the central bank governors of the countries adhering to the arrangements on gold,41 composed of the Group of Ten industrial countries, Switzerland, and Portugal. On the invitation of the governors of the central banks of the Group of Ten countries and Switzerland, the Managing Director entered into arrangements to monitor a $3 billion medium-term financing facility provided by the BIS, with the support of the participating central banks, with respect to U. K. official sterling balances.

In connection with Fund concerns regarding aid coordination and debt renegotiation, staff representatives participated in meetings, and in some cases, staff reports were made available at the request of the subject country, of the Inter-Governmental Group on Indonesia (IGGI), convened by the Netherlands Government; IBRD Consultative Groups on Aid Coordination for East Africa—Kenya, Korea, the Philippines, the Sudan, and Thailand; the India and the Pakistan Consortia, and the Aid Groups for Bangladesh, Burma, Nepal, and Sri Lanka, which were also held under IBRD auspices. Fund staff also participated in debt renegotiation meetings held by Zaïre with creditor countries under the aegis of the Paris Club and with private creditor banks.

Commodity problems are followed closely by the Fund, particularly with reference to its compensatory financing and buffer stock facilities. Fund staff attended meetings of the UNCTAD in connection with its Integrated Program for Commodities, including the UN Negotiating Conference on a Common Fund and the preparatory meetings therefor, the Preparatory Meeting on Copper, and the UN Sugar Conference; the Food and Agriculture Organization of the United Nations (FAO) meeting of its Committee on Commodity Problems’ Intergovernmental Group on Rice; and meetings of the International Cotton Advisory Committee and the International Cocoa Council and its Statistics Committee.

Long-standing cooperative arrangements with the GATT with respect to its consultations with common members on trade restrictions imposed for balance of payments reasons involved staff participation in those consultations and the provision of pertinent documents. Fund representatives also attended the annual session of the Contracting Parties to the GATT, meetings of the Council of Representatives, the Consultative Group of Eighteen and other GATT bodies, and continued to pay close attention to the ongoing multilateral trade negotiations.

On the technical level, Fund staff participated in the International Labor Organization’s (ILO) Tripartite World Conference on Employment, Income Distribution and Social Progress, held in Geneva, and also attended sessions of its Governing Body and International Labor Conference; the Conference of Asian Chambers of Commerce and Industry; the 19th Session of the UN Statistical Commission, held in New Delhi, at which the Fund’s Draft Manual and work on improving and developing government finance statistics were broadly agreed; the Group of 77 Conference on Economic Cooperation Among Developing Countries, held in Mexico City; the general meetings of the International Union of Credit and Investment Insurers (Berne Union); the 10th meeting of the Latin American Banking Federation; the 13th meeting of Central Bank Technicians of the American Continent, at which two papers were submitted by Fund staff; and the Conference on External Financial Policy, sponsored jointly by the OAS and the Central Bank of Chile. Lecturers were also provided by the Fund to the South-East Asia, New Zealand, and Australia (SEANZA) central banking course in Tehran, and to the Center for Latin American Monetary Studies (CEMLA) courses in Mexico City and Washington.

As follow-up to the technical assistance provided in connection with its establishment, a Fund representative attended the first annual meeting of the Board of Governors of the Islamic Development Bank. Technical assistance was also extended to the Organization of Petroleum Exporting Countries (OPEC) Special Fund in connection with establishing criteria for balance of payments support to MSA countries.

Membership, Quotas, and Participation in the Special Drawing Account

The Comoros became a member of the Fund on September 21, 1976 with a quota of SDR 1.9 million, and Guinea-Bissau became a member on March 24, 1977 with a quota of SDR 3.2 million, bringing total membership on April 30, 1977 to 130 and aggregate quotas to SDR 29,216.5 million. The Comoros and Guinea-Bissau also became participants in the Special Drawing Account, bringing the total number of participants to 122, with quotas equivalent to 98.9 per cent of the Fund total. The eight members of the Fund that are not participants in the Special Drawing Account are Ethiopia, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Singapore, and the United Arab Emirates.

The Board of Governors approved terms and conditions for the admission of Seychelles to membership in the Fund on September 7, 1976, and for the admission of Surinam to membership in the Fund on October 8, 1976, with each country given a six-month period for acceptance of membership. Owing to unexpected delays in the completion of the official action needed for membership, the Executive Directors, at the request of Seychelles and Surinam, respectively, have extended the period during which Seychelles may accept membership until July 5, 1977 42 and the period during which Surinam may accept membership until October 6, 1977. At the close of the fiscal year, applications for membership from Cape Verde, Maldives, and São Tomé and Príncipe were under consideration by the Executive Board.

The Sixth and Seventh General Reviews of Quotas are discussed in an earlier section of this chapter.

Executive Directors and Staff

A list of Executive Directors and their voting power on April 30, 1977 is given in Appendix IV. The changes in membership of the Executive Board during 1976/77 are shown in Appendix V.

In the year ended April 30, 1977, there were 111 appointments to the Fund’s regular staff and 101 separations; the separations included the Secretary of the Fund, the Directors of the Administration, African, and Western Hemisphere Departments and the Central Banking Service, the Acting Director of the Middle Eastern Department, and the Directors of the Bureau of Language Services and the Office in Geneva. At the end of the fiscal year, the staff numbered 1,373 and was drawn from 89 countries. These figures do not include Advisors and Assistants to Executive Directors.

Publications

As a memorial to the late J. Marcus Fleming, who had served as Deputy Director of the Research Department, the Fund organized a conference on “The New International Monetary System,” to which a number of internationally distinguished economists were invited as participants. The seminar was held at the Fund, November 10–12, 1976. The papers delivered at the seminar and selected policy papers by Mr. Fleming are being published by the Columbia University Press under the joint sponsorship of the Fund and Columbia University.

The list of publications issued by the Fund in 1976/77 is shown in Appendix I, Table I.19.

Article IV, Section 3(b).

Executive Board Decision No. 5392-(77/63), adopted April 29, 1977 and reproduced in Appendix II.

Board of Governors Resolution No. 31–2. See Annual Report, 1976, pages 107–11.

Executive Board Decision No. 5185-(76/128) S, adopted August 25, 1976 and reproduced in Appendix II.

The full text of the report by the Managing Director is reproduced in Appendix II.

Executive Board Decision No. 5355-(77/36) G/S, adopted March 15, 1977 and reproduced in Appendix II.

Executive Board Decision No. 5167-(76/120) G/S, adopted August 2, 1976 and reproduced in Appendix II.

A member’s super gold tranche is the extent to which the Fund’s holdings of that member’s currency are below 75 per cent of its quota.

See Annual Report, 1976, pages 49–50.

Ecuadoran sucres were sold by the Fund before Ecuador purchased its gold tranche.

See Annual Report, 1976, page 103.

See Annual Report, 1976, pages 50 and 51.

These changes in the compensatory financing decision were described in detail in Annual Report, 1976, pages 52–53.

See Annual Report, 1976, page 53.

Executive Board Decision No. 5127-(76/191), adopted June 23, 1976 and reproduced in Appendix II.

See Annual Report, 1974, pages 52–53; Annual Report, 1975, pages 53–54; and Annual Report, 1976, pages 53–54.

See Annual Report, 1976, Appendix I, Table I.16, page 91.

Article V, Section 7(b). provides that, subject to certain limitations, a member shall repurchase an amount of the Fund’s holdings of its currency equivalent to one half of any increase in the Fund’s holdings of its currency that has occurred during the Fund’s financial year, plus one half of any increase, or minus one half of any decrease, in the member’s monetary reserves during the same period, or, if the Fund’s holdings of the member’s currency have decreased, one half of any increase in the member’s monetary reserves minus one half of the decrease in the Fund’s holdings of the member’s currency.

See Appendix II, Section K, Attribution of Repurchases Under Article V, Section 7(b), for the text of the change in practices of attribution.

Executive Board Decision No. 5185-(76/128) S, adopted August 25, 1976 and reproduced in Appendix II.

Executive Board Decision No. 5355-(77/36) G/S, adopted March 15, 1977 and reproduced in Appendix II.

See Annual Report, 1976, pages 54–56.

In June, July, and December 1976, and in January 1977 (and also in June, July, and August 1977).

In September and October 1976, and in March and April 1977 (and May 1977).

Arrangements have not been completed with regard to distribution to Cambodia and the Republic of China.

Austria, Belgium, Brazil, Canada, France, the Federal Republic of Germany, Japan, the Netherlands, Norway, Sweden, the United States, and Venezuela.

When the Fund’s holdings of a member’s currency are less than 75 per cent of the member’s quota, the margin between the level of these holdings and 75 per cent is the creditor position. A debtor position is the margin between 75 per cent of quota and the level of holdings when they exceed 75 per cent of quota. Only holdings in excess of 100 per cent of quota attract charges.

Executive Board Decisions No. 5368-(77/51), No. 5369-(77/51), No. 5370-(77/51), and No. 5371-(77/51), adopted April 8, 1977 and reproduced in Appendix II.

Namely, the last-in, first-out basis, so that on a decrease of holdings, the latest acquisition of holdings is deemed to disappear first.

This ongoing cost is somewhat offset because repurchases of drawings having an earlier maturity reduce creditor positions and remuneration payments.

The interest rates are as follows: for the United States and the United Kingdom, the yield on three-month treasury bills; for the Federal Republic of Germany and France, the rate for three-month interbank deposits; and for Japan, the call money rate (unconditional). The average is calculated on the basis of the weights prescribed in Rule I-10(b), that is, U.S. Treasury bills, 47 per cent; interbank deposits in the Federal Republic of Germany, 18 per cent; U.K. Treasury bills, 13 per cent; French interbank deposits, 11 per cent; and Japan, the call money market rate, 11 per cent.

The adjustment to the 5 per cent per annum was minus three fifths of the amount by which 9 per cent exceeds, or plus three fifths of the amount by which 11 per cent is exceeded by, the combined market rate of interest; the resulting rate was rounded to the nearest ¼ of 1 per cent.

Outstanding balances amounted to SDR 13.4 billion at April 30, 1977, compared with an outstanding balance of SDR 9.8 billion a year previously.

See Annual Report, 1976, pages 58–59.

Executive Board Decision No. 4773-(75/136), adopted August 1, 1975 and reproduced in Selected Decisions of the International Monetary Fund and Selected Documents (Eighth Issue, Washington, 1976), pages 81–83.

The Trust Fund, like the Subsidy Account, is an arrangement that falls outside the Fund’s own accounts and resources. For a description of the modalities of the Trust Fund and the list of eligible members, see Annual Report, 1976, pages 60 and 111–17.

Brazil, Canada, Egypt, France, the Federal Republic of Germany, Indonesia, Iran, Italy, Japan, Kenya, Pakistan, Saudi Arabia, Singapore, the United Kingdom, the United States, Uruguay, Venezuela, Yugoslavia, and Zambia.

Executive Board Decision No. 5392-(77/63), adopted April 29, 1977 and reproduced in Appendix II.

The communiqués and announcements issued after the meetings are reproduced in Appendix III.

These arrangements were described in the Interim Committee communiqué of August 31, 1975. See Annual Report, 1976, pages 120–21.

Seychelles became a member of the Fund on June 30, 1977.

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