- International Monetary Fund
- Published Date:
- September 1982
Principal Decisions of the Executive Board and Report by the Managing Director
A. Guidelines for Borrowing by the Fund
Quota subscriptions are and should remain the basic source of the Fund’s financing. However, borrowing by the Fund provides an important temporary supplement to its resources. In present circumstances, it facilitates the provision of balance of payments assistance to its members under the Fund’s policies of supplementary financing and enlarged access.
The confidence of present and potential creditors in the Fund will depend not only on the prudence and soundness of its financial policies but also on the effective performance of its various responsibilities, including, in particular, its success in promoting adjustment.
Against this background the Executive Board approves the following guidelines on borrowing by the Fund.
1. Fund borrowing shall remain subject to a process of continuous monitoring by the Executive Board in the light of the above considerations. For this purpose, the Executive Board will regularly review the Fund’s liquidity and financial position, taking into account all relevant factors of a quantitative and qualitative nature.
2. Subject to paragraph 4 below, the Fund will not allow the total of outstanding borrowing plus unused credit lines to exceed the range of 50-60 per cent of the total of Fund quotas. If the total of outstanding borrowing plus unused credit lines reaches the level of 50 per cent of quotas, the Executive Board shall assess the various technical factors that determine, at that time, the availability of balances of unused lines of credit. While this assessment is being made, the total of outstanding borrowing plus unused credit lines may rise, if necessary, beyond 50 per cent, but shall not exceed 60 per cent of total quotas.
3. Recognizing that the credit lines of all participants in the General Arrangements to Borrow (GAB) cannot be used at the same time and that the GAB can be activated only to finance purchases by a GAB participant, the total of outstanding borrowing plus unused credit lines under paragraph 2 above shall include, in respect of the GAB, either outstanding borrowing by the Fund under the GAB or one half of the total of credit lines under the GAB, whichever is the greater.
4. In the case of major developments, the Executive Board shall promptly review, and may adjust, the guidelines. In any event, the guidelines shall be reviewed when the Board of Governors has completed the Eighth General Review of Quotas, and may be adjusted as a result of that review of the guidelines.
5. The percentage limits specified in paragraph 2 above, or any other limits that may be adopted as a result of a review pursuant to paragraph 4 above, are not to be understood, at any time, as targets for borrowing by the Fund.
Decision No. 7040-(82/7)
January 13, 1982
B. Amendment of Stand-By and Extended Arrangements to Utilize Supplementary Financing
(a) Utilization of Supplementary Financing
The Executive Board approves the utilization of supplementary financing along the lines proposed by the Managing Director in his statement [below].
Decision No. 7047-(82/13)
February 5, 1982
Managing Director’s Statement
1. Members expected to conclude new stand-by or extended arrangements prior to February 22, 1982 will be asked to agree to the inclusion of a provision in the arrangement that would permit the Fund, at its discretion, to substitute any available SFF resources for EAR resources in amounts determined by the Managing Director at the time of the purchase. Commitments under arrangements likely to be concluded between now and February 22, 1982 are expected to be relatively small, and therefore members with existing arrangements under the EAR policy will also be asked to agree, before February 22, 1982, to the inclusion of the same clause in their respective arrangements in order to permit the Fund to substitute, at its discretion, SFF resources for EAR resources. At present, 15 members have concluded arrangements under the enlarged access policy for an amount totaling SDR 10.14 billion, of which SDR 5.86 billion is required to be financed with borrowed funds.
2. Each quarter, at the time of the operational budget, a review would be made (i) of the amount of SFF funds available because of canceled or expired arrangements (and toward the end of the disbursement period SFF resources might also be usable because country programs are irretrievably off track and the members would not be able to draw under their arrangements), and (ii) of the amount of SFF lines of credit that could be called upon.
3. If the Fund’s total obligations to supply SFF funds were less by a reasonable safety margin (to cover actually and potentially weak lenders) than the total of undisbursed usable SFF lines of credit, these lines of credit could be called upon to finance purchases in the forthcoming calendar quarter by those members that had agreed to permit the Fund to substitute SFF resources for EAR resources.
I would like to make four comments regarding this proposed scheme. First, I have stressed that the relevant arrangements must be approved or amended not later than February 22, 1982, because I do not believe we should attempt to renegotiate the SFF borrowing agreements to extend them beyond the terminal date originally agreed by the lenders. The proposal is aimed at maximizing the Fund’s use of the SFF and not at prolonging the SFF arrangements. I would like to assure the lenders, in particular, on that score.
Second, the proposal is not intended to commit the Fund to supply SFF resources beyond that which already exists. The Fund will not enter into any new commitments to supply SFF funds except in conformity with the existing decision, which allows the Fund to recommit SFF resources in those stand-by and extended arrangements that replace arrangements that at present provide for SFF funds. Beyond that, the Fund will use SFF borrowed funds in substitution for EAR funds only if and when SFF funds are available.
Thirdly, in disbursing SFF funds in substitution for EAR funds during a quarter, the aim “will be to prorate SFF substituted funds among purchasing members during the quarter in a manner that would take into account the availability of SFF funds during the quarter.
Finally, Directors are aware that SFF resources carry a subsidy element when used by eligible beneficiaries. Consequently, a release of SFF resources by members that are not eligible for the SFF subsidy to members that are eligible beneficiaries could increase the overall cost of the SFF subsidy. At present, we estimate the cost of the SFF subsidies at slightly less than SDR 600 million. On present indications, the bulk of SFF resources that are likely to be released because present arrangements are canceled or expire will be released by members that are already eligible for the SFF subsidy. We do not, therefore, anticipate any material change in the net cost of the SFF subsidy. It would also seem possible to accommodate under the existing financing arrangements for the SFF subsidy account a transfer of SFF resources to members that are eligible for a subsidy as a result of canceled or expired arrangements from members that are not eligible for a subsidy. For example, if SDR 1 billion of SFF funds were released from members that were not eligible for the SFF subsidy to eligible beneficiaries it is estimated that the increase in the overall cost of the SFF subsidy would amount to approximately SDR 125 million, i.e., the total cost would be within the SDR 750 million to be transferred from the Trust Fund, leaving aside bilateral contributions of SDR 67 million so far received or committed.
(b) Forms of Stand-By and Extended Arrangements
1. Paragraph 3 of stand-by and extended arrangements involving borrowed resources approved between February 5 and 22, 1982, shall, if the member consents, read as follows:
Purchases under this [stand-by] [extended] arrangement shall be made from [e.g., borrowed resources until purchases under this arrangement reach the equivalent of SDR________, then from ordinary and borrowed resources in the ratio of 1 to 1.2 until purchases under this arrangement reach the equivalent of SDR_________, and then from borrowed resources] provided that any modification by the Fund of the proportions of ordinary and borrowed resources shall apply to amounts that may be purchased after the date of modification; and provided further that amounts of supplementary financing may be substituted for borrowed resources as determined by the Managing Director at the time of a request by [member] for a purchase [prior to February 22, 1984].
2. Paragraph 3 or its equivalent of any stand-by or extended arrangement in effect involving borrowed resources, that was approved before February 5, 1982, shall be amended as set forth in paragraph 1 above if the Fund receives a request from the member to that effect on or before February 22, 1982.
Decision No. 7048-(82/13)
C. Treatment of Reserve Tranche: Attribution of Reductions in Fund’s Holdings of Currencies
(a) Amendment of Paragraph 1 of Executive Board Decision No. 6831-(81/65)
Paragraph 1 of the decision on attribution of reductions in Fund’s holdings of currencies (Executive Board Decision No. 6831-(81/65) 1), shall be amended to read:
“1. (a) Subject to paragraphs (b) and (c) below a member shall be free to attribute a reduction in the Fund’s holdings of its currency (i) to any of its obligations to repurchase, and (ii) to enlarge its reserve tranche.
“(b) If the reduction results from the sale of a member’s currency or from operational payments by the Fund, an attribution may not be made to an obligation to repurchase financed from borrowed resources unless the Fund is obligated or entitled immediately to repay the lender on the occasion of such attribution. A member would be able to combine an attribution under this decision to an obligation to repurchase financed with ordinary resources with a repurchase of an outstanding obligation financed with borrowed resources provided this repurchase and the attribution would result in a joint reduction of repurchase obligations as required under Decision Nos. 5508-(77/127)2 and 6783-(81/40).3
“(c) An attribution to create a reserve tranche may only be made if the reduction results from the sale of the member’s currency or from operational payments by the Fund in that currency and if the member’s obligations to repurchase do not include an obligation relating to a purchase financed through borrowing under the GAB.”
Decision No. 7059-(82/23)
(b) Balances Held in Administrative Accounts
The balances held in the administrative accounts of the Fund, to the extent that they are not in excess of 0.1 per cent of a member’s quota, shall not be considered as part of the Fund’s holdings of a member’s currency for the purpose of determining a member’s reserve tranche position in the Fund and for the calculation of holdings for the purposes of charges (Article V, Section S(b)(ii)); remuneration (Article V, Section 9 (a)); and the determination of a member’s entitlement to appoint an Executive Director (Article XII, Section 3(c)).
Decision No. 7060-(82/23)
D. Value Dates and Exchange Rates in Fund Transactions—Amendment of Rule G-4
Effective February 24, 1982, Rule G-4(b) and (c) shall read as follows:
(b) The value date for purchases involving resources borrowed by the Fund under the policy on enlarged access will normally be either the fifteenth or the last day of the month, or the next business day thereafter if the day selected is not a business day. If requests for purchases are not received in the Fund in time for its instructions to be issued for these value dates in accordance with (a) above, the purchases will be executed at the next value date.
(c) Repurchases in respect of a purchase financed with resources borrowed under the policy on enlarged access should be made normally with a value date of either the sixth day or twenty-second day of the month, or the next business day if the day selected is not a business day, provided that repurchase will be completed not later than seven years from the date of the purchase.
Decision No. 7061-(82/24)
February 24, 1982
E. Surveillance over Exchange Rate Policies
(1) The Executive Board has reviewed the document “Surveillance over Exchange Rate Policies” as provided in paragraph 2 of Executive Board Decision No. 5392-(77/63), adopted April 29, 1977,4 and will review it again at an appropriate time not later than April 1, 1984.
(2) The Executive Board has also reviewed the procedures relating to the general implementation of the Fund’s surveillance over members’ exchange rate policies, as required by paragraph VI of Procedures for Surveillance in the document “Surveillance over Exchange Rate Policies” referred to in (1) above, including the procedures for the conduct of consultations under Article IV, which consultations shall comprehend the consultations under Article VIII and Article XIV, and approves the continuation of the procedures as described in SM/82/37,5 in the light of the attached Managing Director’s summing up, until the next annual review, which shall be conducted not later than April 1, 1983.
Decision No. 7088-(82/44)
April 9, 1982
Attachment to Decision No. 7088-(82/44) Managing Director’s Summing Up
The Board agreed that the principles embodied in the 1977 document on surveillance over exchange rate policies are not at this time in need of revision or reformulation.
Directors considered that, on the whole, the basic surveillance issues outlined in SM/82/37 6—particularly the references to the interrelationships and interactions of financial policies and to intervention—were addressed in a balanced manner.
A number of Directors considered that the surveillance function had not yet matured and was not as effective as it could be. There was a strong endorsement of the management’s efforts to strengthen surveillance by the Fund, but it was recognized that full cooperation of members is essential if this function is to be made more effective. It is my understanding that the Board believes that cooperation between members should take place on three distinct levels:
a. It is important first to reach a common view or understanding on the analytical framework within which exchange rate issues and requirements can be discussed. In this respect, several speakers pointed to the need to look for ways of improving our appraisal—both quantitative and qualitative—of competitiveness and of the role of exchange rates in the adjustment process, of better assessing the adequacy or appropriateness of different exchange rate regimes, and of adjusting those regimes when warranted.
I have also noted the interesting comments on the need to do more analytical work on these issues. The staff and management have been working toward this goal in recent months, but more needs to be done to improve our understanding of the interrelationships between balance of payments deficits, budgetary policies, interest rates, and exchange rates. It has also been suggested that we need to better understand the functioning of the European Monetary System, the currency intervention that it entails, and the relationships between EMS members and other countries.
b. The second level of cooperation is the agreement by members to discuss with the Fund, and in the Fund, the aspects of individual policy choices that have or can have an adverse impact on other countries.
c. Third, it is important for members to cooperate by taking seriously into account, in their national process of decision making, the views expressed and conclusions reached by the Board in the form of “a” and “b” above.
Such cooperation is in fact what surveillance is all about. Things are not as simple as they were under the fixed exchange rate system. We have to reach common views on matters that are very difficult to assess scientifically; and we know very well that it is a conceptual difference of approach among a number of member countries with respect to exchange rate relationships which presently makes the exercise of surveillance particularly difficult. If there was a convergence of views on the role of the exchange rate in the adjustment process, some of the problems would be alleviated, but I believe that the needed cooperation would be made possible by a more objective approach to issues that lend themselves to objective analysis.
A number of Directors felt that there remains some asymmetry in the exercise of surveillance between members that use Fund resources and those that do not, or between small countries and major industrial countries. Those Directors considered that there was a need to move toward a more symmetrical treatment. I should note that we are very vigilant in this regard and attach great importance to treating members on a uniform basis. Indeed, a reading of the language employed in the staff reports for more recent Article IV consultations with industrial countries will show that the formulation of policy recommendations has tended to be more candid and more precise than in the past. And, in the spirit of the comments made today, I shall be continuing my efforts to be frank and forthcoming in my summing up statements on all consultation discussions. Of course, an evenhanded approach does not mean that consultations will be perfectly symmetrical. The situations of countries themselves are not symmetrical; and we know that a country that is dependent on Fund resources is de facto more likely to be the object of active surveillance by the Fund than one not in need of the Fund’s assistance. Given that natural distinction, we try especially hard to treat the appraisals and recommendations for different categories of countries in a uniform and evenhanded way.
While we have reaffirmed today that the basic framework within which surveillance should be exercised is the individual Article IV consultation, we have also agreed that, for the exercise of surveillance to be really effective, it must be looked at in a multilateral context. One idea mentioned in this regard was the possibility, within the framework of the Fund, of holding informal discussions with or on the industrial countries as a group or those whose currencies make up the SDR basket. Directors also referred to the World Economic Outlook exercise as a very helpful method of integrating the individual judgments or assessments into a more collective framework. In this respect, the forthcoming April 19th discussion on the World Economic Outlook is particularly timely and should provide us with the opportunity to study in very practical terms the effects of the economic policies of industrial countries on one another and on the rest of the world. We should devote the first day’s discussion of the Outlook to these interactions. The staff will be providing Executive Directors with a list of illustrative questions to facilitate such a discussion, which should be a helpful element in our approach to surveillance.
Role of the Managing Director in Surveillance
A number of Directors stressed the role of the Managing Director in the surveillance process in conducting personal consultations with member countries and making public statements in this regard. In my own view, there are three levels to this role. First, the Managing Director must make every effort to keep abreast of the work of the staff and its assessment of world developments in order to come to conclusions about where and when surveillance needs to be exercised.
Second, he must keep in close contact with the countries that play an important role in the international monetary system, either through the Executive Directors or through direct contact with the officials of the countries themselves. In the course of such discussions, the Managing Director should focus on the concerns of individual countries with respect to the surveillance process so that he can take the “pulse” of the membership as a whole.
With the above information in hand, the Managing Director must then formulate proposals to the Executive Board about how surveillance or adjustment should be conducted. At this level, he must not serve simply as a conduit for the views of the membership—which are often divergent—but must exercise some independence in synthesizing these views and making proposals that, in his view, will best serve the membership as a whole. It is understood, of course, that such proposals must be expressed in a way that does not impinge on the sovereign right of members to make policy.
Consultation and Surveillance Procedures
Before turning to specific points on procedure, I feel it is appropriate to acknowledge, as the staff has already done, the broad support given by Directors to the staff’s efforts to intensify and improve the content of the reports. It is encouraging to know that we are moving in the right direction in taking account of the views of the Board as we prepare material for discussion.
Frequency and Scheduling of Missions
A number of Directors endorsed the present frequency of consultations, but some of them stressed that any further fall in frequency should be avoided if possible. Several Directors could accept the staff’s suggestion of a somewhat reduced frequency of consultations for members whose economies are small, whose underlying economic situations remain basically unchanged, and who are not using Fund resources. Several Directors stressed that visits by that adequate advance notice of such visits should continue to be given to the Executive Directors concerned in order to permit them to play their proper role in relation to their constituent countries. Two Directors stressed that the outer time limit for consultations should not exceed two years; increased frequency and better synchronization of consultations with major currency countries were also advocated. Several Directors suggested that updated reports on Recent Economic Developments (REDs) be issued in cases in which a fairly long time lag between consultations was developing.
Several Directors stressed the desirability of coordination in the timing of Board consideration of consultations with major member countries a matter which relates to the importance of taking a global view of the effects of economic policies of members on one another in conducting the Fund’s surveillance procedures. Some speakers suggested grouping consultations with members participating in a currency union, while others underlined certain difficulties—both practical and otherwise—that may arise if such a course were to be adopted.
Role of the Executive Director in Consultations
A number of Directors, either directly or indirectly, requested clarification of the role of Executive Directors in the consultation process and about the role of Executive Directors and perhaps of the Board itself in the briefing stage. The role of the Executive Board in the consultation process is clearly defined in the Articles, which provide that the Managing Director and the staff shall conduct the ordinary business of the Fund, including consultation missions, under the direction of the Board. The Board has the power and the responsibility to adopt policies and establish procedures for the conduct of consultations and negotiations with member countries, but the actual consultation discussions and negotiations are the responsibility of the management and staff.
The individual Executive Director plays a different but very important role in the consultation process. He is obviously responsible for presenting and explaining the views of his countries during Board discussions; but there are also many ways in which he can play a particularly useful intermediary role at an earlier stage by helping the staff mission to understand the policies and views of his countries and vice versa, and I wish to take this opportunity to express the appreciation of management and staff for the efforts made over the years by individual Directors in this regard.
Combining Consultation and Use of Fund Resources Missions
Most Directors preferred, in principle, to have the Article IV consultations precede negotiations on, and Board consideration of, requests for use of Fund resources. When it is possible to arrange an Article IV mission before a negotiation—especially when a long time has elapsed since the prior Article IV consultation with the member—it would probably be best to follow such a procedure, particularly since the guidance given to the staff in the course of an Article IV consultation discussion in the Board can be very helpful in the conduct of further negotiations with the member country. Several speakers believed that this was the ideal scheme, but added that it would not always be practical in view of countries’ sometimes urgent need for Fund resources. One Director felt that, in cases of urgent need for Fund resources, there should be no presumption that an Article IV consultation would precede discussions on use of Fund resources. Generally the Board felt that flexibility had to be employed in this regard. The Board’s views on this matter will of course be carefully considered; but, in a number of cases, it may be a good idea to maintain the current practice of arranging the schedule of missions and discussions in such a way as to obtain maximum benefit from combining Article IV consultations with missions on the use of Fund resources.
Size and Duration of Missions
Many Directors stressed the heavy burden of country missions on the staff in area departments. The current duration and size of missions was broadly endorsed. The view was also put forward that technical assistance departments in the Fund—especially the Fiscal Affairs Department—should be more actively involved in Article IV consultation missions where their participation was relevant. Several Directors suggested that the present strain on the staff might be eased by additional recruitment; this matter will be considered further by the Board during the forthcoming discussion of the financial year 1983 administrative budget.
Reporting on Consultations
Several Directors acknowledged improvements in the analytical quality of staff papers on country matters, although a number of speakers wished to see further efforts with respect to external competitiveness, the exchange rate setting, the appropriateness of the exchange rate regime, external reserves, reserves policies, and the interrelationships between monetary, fiscal, exchange rate, and incomes policies. It was also stressed that staff reports on industrial countries should focus more precisely on clearly identifiable issues in order to facilitate the conduct of the discussion.
Several Directors endorsed the techniques developed by the staff for reporting on the sensitive subject of the exchange rate, but others cautioned against too explicit a discussion of exchange rate policies in the reports, in view of the great sensitivity of the subject. Some Directors, while agreeing that exchange rate questions must be treated carefully in the reports, considered that in cases of inappropriate exchange rate policy or maintenance of an unrealistic exchange rate level, the staff reports should treat the issues sufficiently forthrightly.
There was general agreement that staff reports should continue to cover trade issues in supporting the efforts of the GATT, keeping in mind, of course, the respective jurisdictions of the two organizations. One Director noted that progress by members toward acceptance of Article VIII had been inadequate.
The staff was encouraged to improve the form and usefulness of RED reports, inter alia, by regularly updating the reports when warranted and feasible. One Director questioned the need to have an RED report with each consultation, and several cautioned against including judgmental material in REDs.
Timing of Article IV Discussions
Directors endorsed the existing three-month rule, while generally agreeing on the four weeks’ delay given to the Board for consideration of the report before the discussion. One Director suggested that the staff or management should report to the Board if a consultation was not completed within, say, six months from the discussion.
Special Papers and Seminars
There was a strong endorsement by Executive Directors of the current and prospective range of special papers and seminars on exchange rates or exchange rate policies in certain groups of countries, on economic policies of oil producing countries, and on the Fund’s approach to centrally planned economies. A number of Executive Directors called for further consideration of the matter of exchange rate policies in LDCs.
Supplemental Consultations and Informal Visits
Directors generally endorsed existing procedures on supplemental consultations, although some of them wished to have more precise reporting on such consultations. The staff will keep this suggestion in mind in the preparation of World Economic Outlook papers.
On the subject of exchange arrangements maintained by members, Directors expressed agreement with the staff recommendations regarding the need for prompt notification of changes in exchange rate regimes and improvements in the Fund’s classification of regimes. It is important that the international community, through the Fund, should be provided with timely and meaningful information in this area. The staff and management agree with the suggestion of Directors that the general rule for ensuring prompt notification would be notification within three days of the date of change in arrangements. The information also needs to be comprehensive and provided on an evenhanded basis, including intervention policies of members with flexible exchange rate regimes as well as developments in pegged or managed arrangements. The Fund must be kept up to date on policies conducted by members or actions taken by them affecting their exchange markets. This information plays an essential role in ensuring that the surveillance process keeps abreast of developments; and the need to be current is a concern that has been widely voiced today. Directors have thus reaffirmed their commitment to ensuring that the provisions of the Article IV, Section 2(b) regarding notification of exchange arrangements are implemented effectively. The staff will be continuing its work on this area, including, as was suggested by some Directors, the policy implications of exchange regimes. When the staff can elaborate on the categories of different groups of countries pursuing exchange arrangements of different types, it will do so.
F. General Resources Account: Acquisition of SDRs for Payment of Charges
1. A member whose holdings of SDRs are insufficient for the payment of the total of estimated charges due and payable by it within the next thirty days may:
(a) obtain SDRs from the General Resources Account up to the estimated amount of the balance of SDRs needed for the payment; or
(b) pay the balance of the charges in the currencies of other members.
2. A member that is unable to pay charges in SDRs because it is not a participant in the Special Drawing Rights Department and has not been prescribed as an other holder may pay all charges payable under Article V, Section 8 in the currencies of other members.
3. The currencies for which the SDRs would be sold under Paragraph 1(a) or that would be paid under Paragraph 1(b) and Paragraph 2 shall be selected by the Fund from those currencies that the Fund would receive in accordance with the operational budget in effect at the time.
Decision No. 5702-(78/39) G/S
March 22, 1978, effective April 1, 1978,
as amended by
Decision No. 7096-(82/57) G/S
G. Definition of “Promptly”—Amendment of Rule 1-2
The Fund shall notify each member by cable, as soon as possible after July 31, October 31, January 31, and April 30, of the charges it owes to the Fund pursuant to Article V, Section 8(b) or (c) for the three calendar months ending on each such date, except that in respect of charges pursuant to Rule 1-6(3), (5), and (10), the notifications shall be sent as soon as possible after June 30 and December 31, and shall relate to the six calendar months ending on each such date. The charges shall be payable on the third business day following the dispatch of the notification.
Decision No. 7097-(82/57)
April 23, 1982
H. Review of the Fund’s Income Position for the Financial Years 1982 and 1983
(a) Amendment to Rule 1-6(4)
In order to facilitate the achievement of the objective of the 3 per cent increase in the Fund’s reserves referred to in subparagraph (a) of Rule 1-6(4) of the Fund’s Rules and Regulations, that Rule shall be amended as follows:
1. Subparagraph (a) should read as follows:
(a) The rate of charge shall be determined at the beginning of each financial year on the basis of the estimated income and expense of the Fund during the year and the target amount of net income for the year. The latter shall be 3 per cent of the Fund’s reserves at the beginning of the year or such other percentage as the Executive Board may determine particularly in the light of the results in the previous financialyear.
2. The following subparagraph (d) should be added:
(d) If the Fund’s net income for a financial year is in excess of the target amount for that year, the Executive Board may for the purposes of the determinations and estimates referred to in (a) and (b) above in respect of the immediately subsequent financial year, decide to deem any part of the excess over the target amount that has been placed to reserve as income for that subsequent financial year.
Decision No. 7128-(82/80)
June 9, 1982
(b) Net Income for the Financial Year Ending April 30, 1982
The net income for the financial year ending April 30, 1982 shall be placed in the Fund’s special reserve.
Decision No. 7129-(82/80)
June 9, 1982
(c) Income for Financial Year Ending April 30, 1983 and Rate of Charge Effective May 1, 1982
(a) Pursuant to Rule 1-6(4) (d), it is decided that for the purposes of the determinations and estimates referred to in (a) and (b) of the same Rule in respect of the financial year 1983, an amount equal to SDR 92 million that has been placed to reserve at the end of the financial year ending on April 30, 1982, shall be deemed as income for the financial year ending April 30, 1983.
(b) Pursuant to Rule 1-6(4)(a), it is decided that, effective May 1, 1982, the rate of charge shall be 6.6 per cent per annum.
Decision No. 7130-(82/80)
June 9, 1982
I. Level of Fund SDR Holdings
The amounts of SDRs the Fund will transfer to members in purchases shall be guided by the aim of maintaining, so far as feasible, the Fund’s SDR holdings at a level that will average approximately SDR 4.25 billion over the period from May 1, 1982 to end-May 1983, with the level of holdings being reduced to about SDR 4.0 billion by the end of the period. The Executive Board shall review the level of the Fund’s SDR holdings not later than May 15, 1983.
Decision No. 7131-(82/80) S
June 9, 1982
J. Allocation of Special Drawing Rights
Report of the Managing Director to the Board of Governors and to the Executive Board Pursuant to Article XVIII, Section 4(c)
This report is submitted pursuant to Article XVIII, Section 4(c) of the Articles of Agreement which provides, in part, as follows:
The Managing Director shall make proposals:
(i) not later than six months before the end of each basic period;
provided that, if under (i) … above the Managing Director ascertains that there is no proposal which he considers to be consistent with the provisions of Section 1 of this Article that has broad support among participants in accordance with (b) above, he shall report to the Board of Governors and to the Executive Board.
The present basic period, which is the third one, began on January 1, 1978 and will end on December 31, 1981. In view of the provision in Article XVIII, Section 4 quoted above, the Managing Director must submit his proposal, or his report if he is unable to make a proposal, not later than June 30, 1981. As stated in that provision, he must submit a proposal to the Board of Governors if he is satisfied that a proposal could be made which, in his view, would be (i) consistent with the provisions of Section 1(a) of Article XVIII and (ii) would have broad support among participants in accordance with Section 4(b) of the same Article. He must report to the Board of Governors and to the Executive Board if he is not so satisfied. Section 1(a) and the relevant part of Section 4(b) provide as follows:
In all its decisions with respect to the allocation and cancellation of special drawing rights the Fund shall seek to meet the long-term global need, as and when it arises, to supplement existing reserve assets in such manner as will promote the attainment of its purposes and will avoid economic stagnation and deflation as well as excess demand and inflation in the world.
Before making any proposal, the Managing Director, after having satisfied himself that it will be consistent with the provisions of Section 1(a) of this Article, shall conduct such consultations as will enable him to ascertain that there is broad support among participants for the proposal ....
Under Article XVIII, Section 4(d), and Article XXI(a)(i) decisions of the Board of Governors approving proposals of the Managing Director require an eighty-five per cent majority of the total voting power of participants in the Special Drawing Rights Department. As all members of the Fund are now participants in the Special Drawing Rights Department, this means eighty-five per cent of the total voting power in the Fund.
The question of allocations of SDRs in the fourth basic period has been under discussion in the Executive Board, which considered the matter in meetings in January and April 1981. The consideration by the Executive Board was on the basis of staff memoranda providing background material and discussing the considerations relevant to the determination of the existence of a global need to supplement existing reserves and the size of the SDR allocation in the next basic period, including the objective under the Articles of Agreement of making the SDR the principal reserve asset in the international monetary system. During the discussions in the Executive Board, many Executive Directors expressed support for allocations in the fourth basic period, while some Directors were not prepared to support any allocations, and there was a wide range of views about possible amounts. These discussions, therefore, did not lead to a conclusion on the part of the Executive Board on the matter of allocations.
The question of allocations during the fourth basic period was considered by the Interim Committee at its meeting in Libreville, Gabon, on May 21, 1981. The communiqué issued by the Committee at the conclusion of that meeting contained the following paragraph:
“The members of the Committee considered the question of allocations of SDRs in the next, i.e., the fourth, basic period, which is scheduled to begin on January 1, 1982. The members of the Committee discussed this matter on the basis of the provisions of the Fund’s Articles of Agreement and in the light of the various relevant factors, including the importance of strengthening the role of the SDR as a reserve asset and the need to avoid an undue increase in international liquidity. Many members supported the continuation of allocations in the fourth basic period and expressed the view that every effort should be made to achieve a consensus on this matter. Some other members considered that no case had been established in accordance with the principles laid down in the Articles of Agreement for an allocation in the near future. The Committee urged the Executive Board to continue its deliberations on the subject to enable the Managing Director to submit to the Board of Governors at the earliest possible date a proposal that would command the necessary support among members.”
On the basis of discussions that have taken place, I have concluded that I am not in a position to make, by June 30 of this year, a proposal for allocations of SDRs in the fourth basic period that would command a broad support among the members of the Fund in accordance with the Articles. As provided in Article XVIII, Section 4(c)(ii), however, it remains incumbent upon me to make a proposal regarding the fourth basic period as soon as I am satisfied that the requirements of Article XVIII, Section 4(b) are fulfilled. I shall, therefore, submit a proposal for allocations of SDRs in the fourth basic period as soon as further discussions and consultations lead me to the conclusion that there is broad support for a proposal that would be consistent with the Articles. In this connection, it is of importance that the Executive Board will, as requested by the Interim Committee, continue its deliberations on the subject with a view to arriving at conclusions that would enable me to make a proposal as soon as possible.
June 9, 1981