Chapter

Developments in the International Exchange Rate and Restrictive Systems

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
August 1987
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I. Introduction

The period covered by this Report is 1986 and, for major developments, the first quarter of 1987. The Report draws on information available to the Fund from a number of sources, including that provided in the course of consultation visits to member countries, and it has been prepared in close collaboration with national authorities. The International Monetary Fund’s Articles of Agreement call for member countries to provide the Fund with a comprehensive description of their exchange rate arrangements and exchange controls, and changes in these as they occur. Measures modifying members’ restrictions on imports are also monitored by the Fund in the context of its function of surveillance over exchange rate policies of members. The Report focuses on exchange arrangements and exchange restrictions, but it also includes other external economic policy measures and intergovernmental arrangements that have direct balance of payments implications. As in previous Reports, in the descriptions of members’ systems, questions of definition and jurisdiction have not been raised; the description in the Report of a restrictive practice by a member does not mean that it is or is not being maintained consistently with the Fund’s Articles, or that, if subject to Article VIII, it has or has not been approved by the Fund.

Global Environment

In 1986 world output is estimated to have grown by 3 percent, marginally less than in 1985. The growth of world trade volume, however, picked up to 5 percent from 3 percent in the previous year, despite continuing protectionist pressures. The acceleration in the growth of trade volume in a period of weakening output growth was unusual, being only the second time in the last 15 years (the other was in 1979) that the two growth rates have moved in opposite directions (Chart 1).

Chart 1Growth of World Trade and Output, 1971–861

(Percent change in volume)

Sources: Data provided by national authorities; and staff estimates.

1 Trade (exports plus imports) and output (gross national product) are in volume terms. Prior to 1977, the People’s Republic of China is excluded.

The relative buoyancy of world trade in 1986 was not, however, broadly spread. While the volume of goods imported by the industrial countries rose by 9 percent, imports by the developing countries as a whole fell by 3 percent, with falling imports of fuel exporters more than offsetting rising imports of other developing countries. This pattern of trade growth was accounted for in part by the stimulus provided by a large shift in the terms of trade in favor of the industrial countries. A decline of almost one half in oil prices (in U.S. dollar terms) and continuing weakness in the prices of other primary commodities, which in relation to the prices of manufactures fell to their lowest level since at least the 1930s, were the major contributing factors. International prices of agricultural commodities remained depressed by short-term demand and supply factors, as well as structural influences, including restrictions and local price support policies that induced oversupply in the industrial economies. The large rise in industrial countries’ imports was reflected in the increases of 10 percent and 14 percent, respectively, in exports of fuel-exporting countries and manufactures by the developing country group. The latter increase reflected both real income gains in the industrial countries and the competitive positions of the exporters.

In the industrial countries, output growth slowed from 3 percent in 1985 to 2½ percent in 1986, the fourth year of recovery from the 1980–82 recession. The slowing occurred as a faster growth of domestic absorption was more than offset by an overall decline in industrial countries’ net exports. Although in real terms the industrial countries’ payments position weakened in 1986 and made a negative contribution to their output growth, their aggregate current account deficit narrowed markedly owing to the improvement in their terms of trade. Within the group of industrial countries, however, the distribution of external imbalances widened further. In particular, the current account deficit of the United States and the surpluses of the Federal Republic of Germany and Japan reached record levels, as the effects on trade of the large exchange rate adjustments in the period since the U.S. dollar peaked early in 1985 remained subject to the “J-curve.”

Inflation in the industrial countries declined further in 1986, and inflation differentials continued to narrow. Consumer prices rose by only 2½ percent, 1½ percentage points less than in 1985 and the lowest inflation rate since the early 1960s. Oil prices declined by almost one half. The continuing reduction of inflation and sustained output growth in industrial countries clearly distinguishes this from previous post-war recoveries, and is a particularly positive development. In contrast, unemployment again declined only marginally, to an average rate of 8 percent, compared with the peak of 8½ percent reached in 1983.

In the developing countries, output growth firmed slightly in 1986, to 3½ percent, wholly on account of a sharp increase in net exports; domestic demand in these economies was generally flat. However, experience varied widely among groups of countries. The fuel exporting countries suffered a deterioration of almost one half in their terms of trade. Partly owing to prompt adjustment measures, the volume of their imports fell by more than one fifth, while the volume of their exports grew by one tenth. Although the increase in export volume alleviated the contractionary effects on output of reduced domestic demand, output in this group of countries declined. In contrast, developing country exporters of manufactures benefited not only from cheaper oil and raw material imports, but also from the increase in demand in industrial country markets. The latter, together with exchange rate policies, helped generate a 14 percent rise in export volume in the group of manufactures-exporting countries in spite of an increased growth rate of domestic demand and increasing protectionist barriers abroad. For exporters of nonfuel primary products, the overall terms of trade were virtually unchanged on balance in 1986 and, notwithstanding an overall decline in export volume, these countries achieved an acceleration of output growth. Inflation performance in developing countries in 1986 was more satisfactory than for several years, but it remains a cause of concern in many cases.

The deterioration in developing countries’ terms of trade caused their aggregate current account deficit to widen in 1986 for the first time since the onset of the debt crisis in 1982. This deterioration was more than accounted for by the fuel exporters. The overall deterioration would have been much greater without the adjustment in the volume of exports relative to imports, which resulted in part from policy measures and which also reflected pressures arising from the reduced availability of external credit. In contrast, the aggregate deficit of the group of non-oil developing countries, in which most of the external debt difficulties are concentrated, narrowed further, from US$27 billion to US$18 billion, as exporters of manufactures improved their position substantially and moved into surplus.

The declining trend in interest rates observed since 1984 continued in 1986. Rates on U.S. dollar-denominated instruments have fallen particularly sharply. The three-month London Interbank Offered Rate (LIBOR) averaged 7 percent in 1986—its lowest level since 1977—compared with 8½ percent in 1985. Apart from the adjustment of their trade volumes and lower interest rates, developing countries’ financing requirements were restrained also by a curbing of capital outflows, again related to adjustment measures. In particular, the growing adoption by a number of developing countries of flexible exchange rate and interest rate policies helped them to stem capital outflows. Nevertheless, the aggregate debt service ratio increased in 1986 owing to higher amortization payments and the weak growth of export earnings. External payments arrears, which had declined in 1985 for the first time in seven years, are provisionally estimated to have increased again in 1986, although remaining below their previous peak level.

Developments in Exchange and Trade Policies

In 1986 protectionist pressures for trade restrictions in the industrial countries continued to be fueled by large and widening bilateral trade imbalances, persistently high levels of unemployment, and a widespread slowing of economic growth. In spite of continued resistance by some governments, quantitative restrictions were tightened in many industrial countries. There were nevertheless several positive developments in the trade and exchange system. First, agreement was reached to launch a new round of trade negotiations under GATT auspices. Second, in the developing countries the trend toward more liberal exchange and trade regimes continued as balance of payments pressures were addressed in a number of cases by exchange and trade reforms. Third, in both industrial and developing countries there were many reductions in restrictions on current invisible payments and unrequited transfers. Fourth, the trend in both groups of countries toward liberalization of international capital transfers continued (see earlier Reports).

In September 1986 trade ministers meeting in Punta del Este, Uruguay, agreed to launch the eighth round of multilateral trade negotiations to be held under GATT auspices. The Uruguay Round of negotiations will aim, among other things, to bring trade in agriculture and textiles within the framework of GATT principles, and will examine the possibility of establishing rules for international trade in services.

In 1986 there were few instances in the industrial countries of liberalization of quantitative trade restrictions. Meanwhile, voluntary export restraints continued to proliferate, mainly protecting the markets of the European Communities (EC) and the United States on a bilateral basis. The exporting country most affected by such restraints was Japan, while in sectoral terms the arrangements pertained mainly to steel products and automobiles. In the steel sector, the United States requested consultations with three suppliers with which restraint agreements had not previously been concluded, and one of these (Taiwan) adopted restrictions on its exports. Following an announcement by the United States in May 1986 of its intention to negotiate voluntary restraint agreements on machine tools with Germany, Japan, Switzerland, and Taiwan, such an agreement was concluded with Taiwan and limits introduced in December 1986. Also, a dispute between the EC and the United States was resolved by agreement on an annual quota on U.S. imports of semifinished steel from the EC. In the automobile sector, Japan set an unchanged limit on such exports to the United States and some member countries of the EC continued to maintain individual limits of various types on Japanese exports. Also, Canada reached agreement with Japan and Korea on supplies of automobiles from those countries. In the textiles sector, the Multifiber Arrangement (MFA) of GATT was extended in August 1986 for a further five years. The MFA is intended to regulate industrial country imports of textiles from developing countries, mainly through implementation of bilateral agreements. The new arrangement extends the coverage to fibers not previously included and appears to give room for more restrictive bilateral agreements. However, its restrictive or liberalizing impact will depend in the last analysis on the agreements negotiated by participating countries.

Developments in industrial countries’ tariff policies were more encouraging. The EC and Austria implemented, one year ahead of schedule, the remaining tariff reductions pledged under the Tokyo Round, and both Japan and New Zealand reduced or eliminated tariffs on a number of products in accordance with their liberalization programs. As in preceding years, industrial countries reduced the level and coverage of most-favored-nation (MFN) tariffs. The EC and the United States also settled two important trade disputes. The settlement of the first (the “pasta-citrus war”), which stemmed from a U.S. complaint in 1982 that the EC’s preferential access agreements with 12 Mediterranean countries unfairly discriminated against U.S. citrus exports, obviated a perceived need for planned tariff increases and other countermeasures. The settlement of the second, concerning the trade consequences of the accession of Portugal and Spain to the EC, led to the dismantling of certain retaliatory tariff measures. Tariff reductions greatly outnumbered increases in 1986, but strains in trade relations were evidenced in increases in assessments of antidumping duties and in the number of antidumping investigations initiated by industrial countries. These latter actions were taken, however, within the context of existing legislation and regulatory provisions.

In the developing countries, there was a further movement away from quantitative exchange and trade controls in 1986. Among countries floating their exchange rates, four virtually eliminated their import restrictive systems (The Gambia, Guinea, Nigeria, and Sierra Leone), while Ghana considerably narrowed the range of imports subject to prior authorization. Liberalizing measures also predominated in developing countries’ import taxation policies. Among the instruments used for the management of imports in developing countries, only advance import deposits were used in a generally more restrictive way in 1986, and in only a relatively small number of cases.

With regard to restrictions on exports other than the voluntary restraints referred to above, the United States imposed prohibitions on virtually all exports to the Socialist People’s Libyan Arab Jamahiriya and certain exports to South Africa, but abolished certain controls on crude oil exports and removed certain restrictions on trade with the U.S.S.R. and Spain. EC members also adopted various restrictions on exports to South Africa. Otherwise, there were few changes in 1986 in industrial countries’ export restrictions. In early 1987 the United States relaxed controls on high-technology exports maintained for security reasons. Some developing countries reduced quantitative export controls or lowered export taxes, while others increased incentives to export through fiscal measures or improved access to credit. Foreign exchange surrender requirements were liberalized in France, and also in some developing countries, but they were tightened in others. Countertrade arrangements as a means of balancing bilateral trade and promoting exports have continued to play a role in the commercial policies of a number of countries, both industrial and developing. Although the relative importance of trade conducted under such arrangements is difficult to gauge, there were tentative indications that recourse to countertrade, particularly with regard to oil, may have diminished in 1985–86.

A significant liberalization of restrictions on current invisible payments and unrequited transfers occurred in 1986—mainly in developing countries, as few industrial countries maintain restrictions in this category. Measures often took the form of increases in foreign exchange allocations for overseas travel or study, but a number of countries also removed or eased restrictions on investment income remittances.

Despite the reduced use of formal restrictions on exchange and trade flows in 1986, ad hoc restrictions giving rise to external payments arrears continued to be widespread. There were indications of a further increase in the number of developing countries maintaining such restrictions, and the value of total outstanding payments arrears, having declined in 1985, is estimated to have risen again in 1986, although remaining below the 1984 peak. Of the countries that reduced or eliminated arrears in 1985, the latest year for which complete data are available, seven did so entirely through cash payments and two entirely through rescheduling. In 1986, 18 Fund member countries with payments arrears outstanding concluded multilateral debt renegotiations with official and commercial creditors. In a further three cases, negotiations with creditors had been initiated but not concluded by the end of the year. In 1986 agreements signed to restructure members’ external debt obligations amounted to SDR 26 billion, compared with SDR 119 billion in 1985.

As in the two preceding years, developing countries’ reliance on multiple currency practices decreased in 1986. New multiple arrangements were introduced in seven countries, but two of these cases constituted transitional steps in exchange reform toward unification of the exchange rate system at a markedly more realistic level of the exchange rate. Meanwhile, 19 member countries either eliminated or simplified multiple currency practices.

The liberalization of exchange controls on capital transactions noted in recent Annual Reports continued in 1986, particularly in the industrial countries. This trend has reflected not only a greater reliance on exchange rate and interest rate policies as a means of influencing capital flows, but also reduced confidence in the effectiveness of exchange controls, given widespread capital flight from countries maintaining such controls. In some cases, the liberalization of capital controls has been undertaken in the wider context of financial deregulation. The liberalization of capital flows in recent years has contributed to a rapid expansion of international financial transactions. In 1986, apart from bans on investment in Libyan Arab Jamahiriya and South Africa by the United States, all reported modifications to rules governing outward portfolio and direct investment involved the elimination or liberalization of restrictions, predominantly by countries in Western Europe, notably France. There were changes in inward portfolio and direct investment in both industrial and developing countries, mostly entailing the elimination or easing of restrictions, or the introduction or expansion of incentives, such as the removal of impediments to debt-equity swaps. In general, rules governing commercial banks’ international transactions were liberalized in industrial countries in 1986, but tightened in developing countries, largely in response to balance of payments difficulties.

The general pattern of the main changes in restrictions in 1986 is indicated in Table 1, which shows the number of liberalizing and restrictive measures of different types (unweighted by the value of transactions affected by the measure) undertaken by industrial and developing countries. The table indicates a preponderance of liberalizing measures, both overall and in each of the main categories of measures other than those relating to exports. Particularly striking are the broad movement toward liberalization of exchange and trade controls in the developing countries and the further progress toward the dismantling of exchange controls on capital movements in the industrial countries. Developments in 1986 may be viewed in the context of developments over the previous decade, which are illustrated in Chart 2. This chart, updating that shown in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1982, shows the number of countries employing restrictions of various types at the end of each year between 1975 and 1985. Notable features shown are the general downward trend in the use of import surcharges and advance import deposits between the late 1970s and 1984–85, and the halt to the proliferation of external payments arrears and other current payments restrictions after 1982–83.

Table 1.Summary of Main Changes in Restrictions in 1986
Liberalizing

Changes
Restrictive

Changes
Industrial

Countries
Developing

Countries
Industrial

Countries
Developing

Countries
1. Imports
Quantitative controls10442823
Other14613638
2. Exports
Quantitative controls31185
Other446524
3. Current invisibles1331115
4. Capital463578
9022885113
Source: Appendix Table.
Source: Appendix Table.

Chart 2Incidence of Restrictive Practices by Fund Members, 1975–851

(Number of countries)

Source: Annual Report on Exchange Arrangements and Exchange Restrictions, various issues.

1 Data are for countries that were Fund members throughout the period shown.

In 1986 the total Fund membership increased from 149 to 151 with the accession of Kiribati on June 3 and the re-admission of Poland on June 12. Kiribati accepted the obligations of Article VIII, Sections 2, 3, and 4, of the Articles of Agreement on August 22, as did Spain on July 15, bringing to 62 the number of countries accepting the Article VIII obligations as of end-1986. On September 8, Poland became one of 89 members availing themselves of the transitional arrangements under Article XIV, Section 2. All members have notified the Fund of their decision regarding Article VIII or XIV status. Twenty-four countries availing themselves of the transitional arrangements under Article XIV maintain exchange systems that are free of restrictions on payments and transfers for current international transactions. Twelve of those countries are members of the West African Monetary Union or the Central African Monetary Area.

Exchange Rate Arrangement

The external value of the U.S. dollar, which had reached a peak in February 1985, continued to decline through 1986, by 13 percent in nominal effective terms. There was a corresponding appreciation of each of the currencies of the other major industrial countries, except for Canada and the United Kingdom. The depreciation of the dollar in 1986 reflected several factors. First, the widening of current account imbalances in the United States, Germany, and Japan encouraged perceptions that further exchange rate adjustment was necessary. Second, the decline in oil prices favored the currencies of Western Europe and Japan, countries that are relatively more dependent on oil imports than the United States. Third, movements in interest differentials between the United States and most other industrial countries generally favored the currencies of the latter countries, particularly in the second half of the year. In early 1987 the dollar depreciated again. By end-March 1987 the dollar’s nominal effective exchange rate, according to the Fund’s multilateral exchange rate model (MERM), was 36 percent depreciated with respect to its peak of February 1985.

Following the September 1985 Plaza Agreement among the Group of Five countries on the coordination of official action in foreign exchange markets, there were two rounds of coordinated monetary policy actions in the spring of 1986 entailing reductions in discount rates. These cuts were coordinated with the purpose of avoiding undesirable exchange rate fluctuations. Also, at the end of October a bilateral agreement was announced between the United States and Japan. This provided for an interest rate reduction and certain fiscal actions by Japan to lessen upward pressure on the yen, an undertaking by the United States to lower its federal fiscal deficit, and an affirmation by the two countries of their willingness to cooperate on exchange market matters. In February 1987 a further round of discussions took place in a group comprising the Group of Five countries and Canada, leading to the Louvre Agreement that policies should be coordinated with the aim of stabilizing the key exchange rates. In the European Monetary System (EMS), two realignments of currencies participating in the exchange rate mechanism were undertaken in 1986; another took place in January 1987. In April 1986 the central rates of the Danish krone, deutsche mark, Netherlands guilder, Belgian franc, and Luxembourg franc were revalued, while that of the French franc was devalued. A second realignment took place in August when the Irish pound was devalued. In the further realignment of January 1987, the central rates of the deutsche mark, the Netherlands guilder, the Belgian franc, and Luxembourg franc were again revalued.

Since 1985, and particularly following the Plaza Agreement of September 1985 and the Louvre Agreement of February 1987, the main industrial countries have adopted more active exchange rate policies, aimed not only at the avoidance of excessive short-run currency instability, but also at the correction of misalignments that had developed in the preceding years. At the heart of the Plaza and Louvre Agreements were macro policy commitments, but they have also entailed more active official intervention in exchange markets. This has been evident in much larger reserve movements in these countries in 1985–86, contrasting with the steady decline in such movements between 1979–80 and 1984, when exchange rate objectives played a less important role in monetary policy (Chart 3). The depreciation of the U.S. dollar and corresponding appreciations of most of the other principal currencies through 1985 and 1986 contributed to a greater variability in the principal exchange rates, as conventionally measured, than in the immediately preceding years.

Chart 3Industrial Countries: Indicators of Exchange Rate Variability and Official Foreign Exchange Market Intervention, 1976–86

(Index: 1980 = 100)

Source: Fund staff estimates.

1 For each individual country, currency variability in any year is measured by the average absolute monthly percentage change of its exchange rate in terms of the SDR. The measure of average currency variability shown here is the trade-weighted average of the individual country variability measures, expressed as an index.

2 Sum of means of monthly total absolute changes in gross foreign exchange reserves, expressed as an index.

In developing countries, the trend toward greater flexibility in exchange rate arrangements continued in 1986. In particular, there was a further increase in the number of countries allowing their exchange rates to be determined essentially by market forces. Five countries, all in Africa, switched to independently floating arrangements—two from single currency pegs (The Gambia and Ghana), two from SDR pegs (Guinea and Sierra Leone), and one from a managed floating arrangement (Nigeria). On the other hand, one country (Jamaica), whose exchange rate had been floating for two years, switched to a managed floating arrangement, while another (Uganda) switched from a floating system adopted in 1984 to a U.S. dollar peg. Taking into account these and other changes during 1986, the number of Fund members using single currency pegs increased from 50 to 51, the number using composite currency pegs fell from 44 to 40, while the number using more flexible arrangements increased from 54 to 59 (including 19 with market determined “independently” floating exchange rates).

As in 1985, a number of developing countries used exchange rate adjustments in 1986 to strengthen their external positions. This greater flexibility in exchange rate policy, together with the depreciation of the U.S. dollar—which remains the peg or key reference currency for many developing countries—is reflected in the composite index of developing countries’ real effective exchange rates. This index, which declined by some 13½ percent during 1985, fell by another 14 percent in 1986. The depreciations were quite widespread in those countries where exchange rate adjustments were most urgent—such as the capital-importing fuel exporters—or whose currencies were broadly linked to the U.S. dollar—including exporters of manufactures in the Asian region. During 1986 the average unweighted exchange rate of currencies with pegged arrangements that were adjusted against the respective foreign currency peg depreciated by 19 percent in nominal terms, with rates of depreciation ranging from 7 percent for the Norwegian krone to 81 percent for the Viet Nam dong exchange rate applicable to certain transactions. For members with flexible arrangements, the average (unweighted) nominal depreciation against the U.S. dollar amounted to 22 percent, ranging from 4 percent for the Dominican peso to 85 percent for the Sierra Leonean leone. Several such currencies appreciated in 1986, but by relatively small amounts.

II. Main Developments in Restrictive Exchange and Trade Practices

This chapter surveys major developments in members’ restrictive practices affecting international trade and financial transactions. These practices take the form either of quantitative restrictions or of price-related measures involving implicit or explicit taxes and subsidies affecting international transactions. Most of the practices are described in detail in the chronological sections of the individual country pages in Part Two of this Report. References to the detailed descriptions in Part Two may be obtained from the tables annexed to this chapter, which provide summary descriptions and evaluations and are organized on a subject basis, i.e., by the type of practices involved.

Quantitative Restrictions

The record of industrial countries in the area of quantitative exchange and trade restrictions was mixed during 1986 and early 1987. Agreement was reached to launch a new round of multilateral trade negotiations, and progress was achieved in reducing certain quantitative restrictions. In many other instances, however, industrial countries tightened quantitative restrictions, particularly by the wider use of voluntary export restraints.

Trade ministers meeting in Punta del Este, Uruguay in September 1986 agreed to initiate a new round of multilateral trade negotiations, the eighth to be held under GATT auspices. Among its goals, the new round is intended to bring trade in agriculture and textiles within the principles of the GATT and to examine the possibility of establishing rules on trade in services. The new round would also seek to reach a comprehensive agreement on safeguards (emergency measures invoked to protect industries facing injury from imports) and a strengthening of GATT dispute settlement procedures. To facilitate achievement of these goals, the Ministerial Declaration created a Trade Negotiating Committee (TNC), a Group of Negotiations on Goods (GNG), and a Group of Negotiations on Services (GNS). Upon entering the negotiations, countries would be expected to implement a standstill and rollback of any restrictive measures not consistent with existing provisions of the GATT. At a meeting in Geneva in January 1987, further agreement was reached on the structure and preliminary timetable for the new round of discussions, including the establishment of 14 negotiating groups within the Group of Negotiations on Goods. (In August 1986 Mexico became a contracting party to the GATT, and four other countries took steps toward membership during the year.)

Industrial countries took some steps to reduce the scope of quantitative import restrictions in 1986, although relatively few changes were recorded in this category. Japan replaced quantitative restrictions on imports of leather and leather footwear with tariff quota systems. The primary tariff quota for footwear in FY 1986 would cover more than twice the volume of FY 1985 imports. Spain also eliminated and liberalized a number of import restrictions in its accession to EC membership.

In contrast to these actions, industrial countries tightened quantitative trade restrictions further on a bilateral basis in 1986. Of particular importance was the proliferation of voluntary export restraints. A number of such arrangements were known to be in effect in late 1986, of which over one half protected the markets of the EC or its member states, one third, the U.S. market, and several, the Canadian market. Exports from Japan were restrained in about one quarter of all cases, the same as the number of cases for all other industrial countries combined. In sectoral terms, the largest number of arrangements pertained to steel products. Agreements negotiated by the EC with its 14 major suppliers allowed for a 3 percent increase in EC steel imports in 1986. In drawing up plans for its 1987 program, the EC planned to eliminate quota restrictions on four product categories, covering about 20 percent of production. The United States maintained agreements limiting steel imports from 18 countries, under a five-year program designed to reduce the share of imports from about 26 percent of domestic consumption in 1984 to a target of 18½ percent. In addition, the United States imposed an annual quota of 400,000 tons on imports of semifinished steel from the EC in January 1986, when the EC did not incorporate this limit in the new EC-U.S. agreement (December 1985) covering trade in other steel products. The EC retaliated with curbs on imports of fertilizer, coated paper, and beef tallow from the United States. However, a settlement of the dispute was reached in July 1986, whereby the United States agreed to raise the quota to 600,000 tons, and the EC lifted its retaliatory measures. In September 1986 the United States requested consultations with Canada, Sweden, and Taiwan, with a view to slowing steel imports from these sources, none of which had previously concluded export restraint arrangements with the United States. Taiwan responded with a “unilateral” restraint on steel exports to the United States for the remainder of 1986, but Sweden declined to make a formal commitment, on the grounds that it would be inconsistent with GATT provisions.

Export restraint agreements were also widespread in the automobile sector. Japan agreed to limit automobile exports to Canada to 240,000 units in FY 1986, representing an 18 percent increase over the FY 1985 quota. Canada also sought and obtained an agreement from Korea to hold exports to 100,000 units. Although the EC discontinued formal monitoring of auto imports in 1985, some member countries (France, Italy, Spain, and United Kingdom) maintained individual limits of various types. Moreover, following a surge of exports to the EC in early 1986, Japan’s Ministry of International Trade and Industry requested domestic auto manufacturers to restrain exports to that market. Japan, which had concluded five export restraint arrangements with the United States during 1981–85, unilaterally set a limit of 2.3 million units for the U.S. market in the year beginning April 1, 1986, the same as the previous year’s quota.

After a year of negotiations, the GATT Textiles Committee took a decision, on August 1, 1986, to extend the Multifiber Arrangement (MFA) for a five-year period, from August 1, 1986 to July 31, 1991. This was the third renewal of the Arrangement, which first went into force on January 1, 1974. The MFA is a negotiated exception to GATT rules, which serves to regulate industrial country imports of textiles from developing countries, mainly through the implementation of individual bilateral agreements. However, the MFA also allows unilateral restrictions in some circumstances. Since its inception, the MFA has been explicitly regarded as a temporary arrangement. The extension protocol (MFA IV) widens the range of fabrics that may be covered by the Arrangement, and to this extent it may have a further restrictive impact on world textile trade. However, some other features of the new Arrangement would tend to reduce restrictiveness. These include an understanding that bilateral agreements should provide for increased market access to imports in overall terms, a recognition that findings of serious damage to local producers should not be based solely on the level or growth of imports, and an undertaking to provide more favorable treatment for least-developed countries, new entrants, and small suppliers. The actual impact of the new Arrangement will depend to a large extent on the nature of the bilateral agreements negotiated by participating countries.

As regards the use of quantitative restrictions in other sectors, Korea agreed, in January 1986, to regulate exports of men’s footwear to Canada. In January 1986 the EC agreed to eliminate a requirement that Portugal purchase at least 15 percent of its feed grain imports from other EC countries. The decision was part of the settlement of an EC-U.S. trade dispute concerning the accessions of Portugal and Spain to the EC. In May 1986 the United States requested the Federal Republic of Germany, Japan, Switzerland, and Taiwan to limit exports of certain types of machine tools to the United States for national security reasons; limits were introduced in all cases except Switzerland, which declined to negotiate such an agreement.

In other areas, a number of countries, including Canada, the EC and various member states, Finland, Japan, Sweden, and the United States, took steps to restrict trade with South Africa. By executive order, the President of the United States ordered an embargo on trade with the Socialist People’s Libyan Arab Jamahiriya effective February 1, 1986.

In the developing countries, most changes in import restrictions in 1986 were in the direction of liberalization. A number of countries undertook wide-ranging liberalizing reforms. The Gambia, Guinea, Nigeria, and Sierra Leone eliminated their specific licensing systems, in conjunction with the floating of their exchange rates. Also in Ghana, the introduction of an auction market in foreign exchange was followed by a reform of the import licensing system entailing the de-restriction, inter alia, of virtually all consumer goods. In Nepal, where licenses are required for imports from all countries other than India, an auction pricing system was introduced for the issuance of licenses, and a new scheme was also introduced to simplify the issuance of licenses for industrial raw materials.

A number of developing countries substantially narrowed the range of imports subject to prior authorization or prohibition. In Haiti the number of import items subject to license was reduced by two thirds, and most import quotas were eliminated. In Korea the number of unrestricted import items, as a proportion of total import items, was raised from 88 percent to 92 percent. Mexico reduced by one quarter the number of import items subject to licensing, while Morocco eliminated its list of prohibited imports and reduced the coverage of its licensing requirements. In Turkey the number of import items subject to prior approval was reduced by two thirds at the beginning of 1986, and halved again at the end of the year. Restrictions were also removed over a broad range of imports in Bangladesh (where, however, the limit on imports of fabrics was lowered), Mali (where the licensing system was simplified), Panama, the Philippines, Senegal, and Tunisia.

A number of other developing countries undertook liberalizing measures of narrower scope. In Grenada specific license requirements were removed for certain consumer goods, while India increased the number of items imported under open general license. Pakistan increased the maximum value of licenses for capital goods imports by the textile industry. Paraguay removed certain textile imports from its prohibited list. In Trinidad and Tobago procedures for granting licenses for imports from partner countries in Caricom were liberalized, and also specific license requirements were removed for certain imports of local concessionaire manufacturers. Yugoslavia liberalized imports of raw materials used for medical products.

The number of developing countries which intensified their import restrictions was relatively small. In Maldives a new licensing system was introduced, licenses being issued to each importer on the basis of the value of his imports in 1985, although additional licenses could be issued to earners of foreign exchange. (Maldives substantially liberalized these restrictions in early 1987.) Elsewhere, new restrictions affected a relatively narrow range of imports. Barbados extended its list of imports requiring licenses. In the People’s Republic of China steel and pesticides were made subject to licensing, while Egypt added products to a prohibited import list. Fiji added a narrow range of items to its prohibited and restricted lists. The Netherlands Antilles introduced quotas for certain imports having locally produced substitutes. In Thailand the import of semifinished garments and garment parts was prohibited and a number of other, more narrowly defined, measures were taken; the effect on balance was to increase the restrictiveness of the system. Imports of luxury goods were suspended in the Yemen Arab Republic for the second half of 1986.

Import Surcharges and Import Taxation

As in recent years, industrial countries made further reductions in the level and coverage of most-favored-nation (MFN) import tariffs in 1986 and early 1987. Industrial countries also dismantled certain retaliatory tariff measures, or agreed not to implement planned tariff increases, following settlement of several important bilateral trade disputes. Despite these encouraging developments, strains remained apparent in the trade relations between various countries, as evidenced by a growing number of investigations under existing legislation of alleged unfair trading practices and increased demands for compensation by domestic producers who claimed to be injured by imports.

On January 1, 1986 Austria and the EC implemented, one year ahead of schedule, the remaining tariff reductions pledged under the Tokyo Round negotiations. On the same date the EC reduced tariffs on semiconductors from 17 percent to 14 percent. Also on January 1, 1986, Japan reduced or eliminated tariffs on a large number of agricultural and industrial products in accordance with the government’s action program announced in July 1985. Following bilateral discussions, in January 1986, Japan and the United States agreed to eliminate import tariffs on certain computer parts and equipment. Japan further agreed to a phased tariff reduction on veneers in 1987 and 1988. Japan reduced tariffs on bottled wine and champagne in April 1986, one year ahead of the date originally envisaged in the action program. New Zealand reduced or eliminated import duties on many products, including imports for the manufacturing and service sectors and a wide range of consumer goods, as part of the government’s structural adjustment and trade liberalization program.

Tariffs were raised in a much smaller number of instances. On January 1, 1986 the EC increased tariffs on video receivers and players from 8 percent to 14 percent. In February 1986 the United States suspended MFN tariff treatment for Afghanistan. In June 1986 the United States imposed a tariff on Canadian cedar shingles and shakes, following a determination under Section 201 of the U.S. Trade Act (escape clause) that such imports were causing injury to the U.S. industry. Canada reacted by increasing tariffs on a number of products up to their bound GATT rates, and added cedar bolts to its list of products subject to export controls.

A number of changes in the Generalized System of Preferences (GSP) were introduced or were under consideration by industrial countries during 1986–87. On July 1, 1986 Australia applied a revised system of tariff preferences which provides beneficiaries with a uniform 5 percentage point preference on all dutiable items. Finland extended GSP coverage in 1986 to four new products for all beneficiaries and to four other products for the least-developed countries. In the United States GSP eligibility was extended in 1986 to 5 products from 3 countries, while 149 items from 11 countries were graduated from the scheme. In January 1987 the United States undertook a more extensive review of the GSP, as a result of which advanced developing countries will receive a smaller share of the program’s benefits, and several countries will lose benefits entirely on the basis of an evaluation of practices in the area of worker rights. In January 1986 the EC reimposed a 12½ percent duty on imports of a petrochemical product from Saudi Arabia after the ceiling set under the GSP was exceeded. For 1987 the Commission of the European Communities has proposed revisions to the GSP system, which would have the effect of shifting benefits in favor of less competitive suppliers.

Throughout 1986 the EC and the United States were engaged in negotiations concerning the trade consequences of the accession of Portugal and Spain to the EC. Early in the year the United States sought compensation from the EC for lost grain exports which it claimed would result from Spain’s adoption of the EC’s variable import tariff.1 The EC denied the U.S. claim, and the United States announced that, in the absence of a satisfactory solution, it would apply 200 percent import duties to a wide range of food and beverage products of interest to EC members from January 30, 1987. The EC then agreed to tariff quota concessions on 2.7 million tons of annual grain imports (from all sources) for a period of four years, as well as tariff reductions on a number of other agricultural and industrial products.

Among other actions concerning tariffs, the EC and the United States reached settlement of another dispute stemming from an earlier U.S. complaint that the EC’s preferential access agreements with 12 Mediterranean countries unfairly discriminated against U.S. citrus exports. In 1985 the United States imposed a special tax on pasta imports from the EC, charging that these were indirectly subsidized by the EC. In retaliation, the EC imposed special duties on imports of U.S. lemons and walnuts. On August 10, 1986 the two parties reached a settlement whereby the EC lifted the special duty on lemons and walnuts and agreed to tariff quota concessions on certain citrus products, and the United States lifted its special duty on pasta imports and agreed to tariff quota concessions for a number of agricultural products of interest to EC exporters.

The number of antidumping investigations initiated by industrial countries increased sharply during 1985–86, resulting in a rise in the number of assessments of provisional or definitive antidumping duties. While the iron and steel sector continued to account for more antidumping duties than any other sector, the number of investigations opened and the number of newly assessed duties in this sector declined in 1986, reflecting the proliferation of voluntary export restraint arrangements.

Among the antidumping duties applied by industrial countries (this listing is not exhaustive; recipients are listed in parentheses), Australia assessed provisional duties on passenger car tires (several developed and developing countries); Canada assessed provisional antidumping duties on certain products (EC, United States, Brazil), and definitive duties on a range of items (various countries). In the EC, provisional duties were assessed on photocopiers (Japan), housed ball bearings (Japan), potassium permanganate (various countries), and certain iron and steel sheets and plates (Yugoslavia); definitive duties were assessed on electric scales (Japan), and copper sulfate (Yugoslavia). The United States assessed provisional antidumping duties on imports of petroleum wax candles, certain cook-ware, and welded carbon steel pipes and tubes from various developing countries; definitive antidumping duties were assessed on offshore platform jackets and piles (Japan and Korea) and 64 k DRAM microchips (Japan). The United States suspended antidumping investigations of two other Japanese microchip products, following the Japanese Government’s agreement in July 1986 to monitor prices of these exports worldwide and to improve domestic market access for microchips manufactured in the United States. The agreement proved to be highly controversial, with the EC and other countries voicing strong concerns over its provisions. Moreover, in early 1987 U.S. manufacturers alleged that Japan was not abiding by the agreement, and they called on the U.S. Government to take compensating measures.

In 1986 changes in import taxation in the group of fuel-exporting developing countries were mixed, while in other developing countries liberalizing measures predominated.

Among the fuel exporters, Oman raised its general tariff rate, while Kuwait increased tariffs on a number of manufactured goods considered to be competitive with domestic products. Indonesia, on the other hand, reduced duties and taxes on a number of imported goods, and Nigeria abolished import surcharges. In Mexico tariff rates were reduced, while in Trinidad and Tobago the stamp duty on raw material imports was abolished.

A number of nonfuel exporting developing countries reduced taxes on broad ranges of imported goods. Costa Rica introduced a revised system of import surcharges, the effect of which was broadly neutral, but subsequently eliminated surcharges on consumer goods. Senegal initiated a three-year program of reforms to the system of import duties, with reductions in rates of “fiscal duty” applicable to manufactured products other than capital goods. In Sierra Leone the invoice entry and import licensing fees charged on all imports other than goods originating in other member countries of Ecowas and certain specific exemptions were both reduced. Togo reduced import duties on raw materials and semifinished goods, while Uruguay lowered import surcharges and exempted a number of goods from them.

Several other countries reduced duties on a narrower range of goods. Thus in Argentina producers of specified products in the electronics sector became eligible for exemptions or reductions in duties, and in addition, all inputs into the production of exports were exempted from tariffs and duties. In Brazil the financial transactions tax on the purchase of foreign exchange was either reduced or eliminated for various inputs into the electronics and computer industries; the same tax was also suspended or eliminated for certain other, generally narrow, ranges of imports. Also in Brazil tariff exemptions or reductions were introduced for certain selected imports. India reduced duties on certain imports, and also introduced a duty drawback and duty concessions for certain domestic producers. Duties on a narrow range of items were also reduced in Malaysia. Pakistan introduced a simplified structure of tariffs which entailed a halving of duties on certain raw materials, plant, and equipment. In South Africa surcharges on certain raw materials and intermediate goods were eliminated, while Zimbabwe reduced the import surcharge on certain machinery imports.

Certain other tariff reductions took place in the context of international or bilateral agreements. Greece reduced its regulatory tax on imports from other member countries of the EC; this tax is to be phased out by 1989. Also, Israel reduced tariffs on imports from the United States within the framework of the free trade agreement between the two countries.

In certain other countries, there were changes in the taxation system or in tariff rates, which were mixed, but which had a liberalizing effect on balance. Burundi introduced a simplified tariff structure with a narrower range of rates. Egypt introduced a new tariff structure with lower rates on average. Grenada eliminated its stamp tax, consumption duty, and international airport levy on imports, in conjunction with the introduction of a value-added tax system. Guinea introduced a simplified tariff structure, after introducing a value-added tax. Haiti replaced several specific taxes with ad valorem tariffs, while Korea made various adjustments to its tariffs and its duty refund system. A new tariff structure was also introduced in Zaïre.

Ten nonfuel exporting developing countries increased the restrictiveness of their import tax systems in 1986. Belize increased its fee on entrepot trade, while Bolivia introduced a new uniform tariff rate and narrowed the scope of duty exemptions. Dominica increased taxes on imports of petroleum and motor vehicles, and the Dominican Republic reinstated certain import taxes. Fiji raised import taxes on vehicles, petroleum products, and spirits. Madagascar imposed a new fee on import license applications, with exemptions allowed for exporters’ inputs. Nepal lowered the limit on duty-free imports by Nepalese traveling abroad, while Nicaragua imposed a new customs fee on certain imports. Seychelles replaced its customs duties with a new trade and services tax. In Turkey there was a reduction in tariff rates, on average; but this was more than offset by increases in levies, surcharges, and stamp duties.

Advance Import Deposits

In 1986 seven countries, all in the developing country group, introduced or increased advance deposit requirements; in only one case were such requirements made less restrictive.

El Salvador introduced prior deposit requirements for imports from outside Central America, and South Africa placed such requirements on re-exports to Zambia. Afghanistan, Guatemala, Turkey, and the Yemen Arab Republic increased their rates of advance import deposits, and Turkey also largely eliminated the exemptions to its scheme. Bangladesh broadened the scope of its margin deposit requirements to include palm oil imports. Meanwhile, in Western Samoa advance deposits against motor vehicle imports became eligible for interest.

Other Measures Affecting Import Payments

In 1986 some developing countries made modifications to the regulations governing the terms or procedures for import payments. As in the immediately preceding years, most of these changes were in the direction of liberalization.

Seven countries made changes easing the terms or procedures for import payments. In Guinea foreign exchange for imports was made available through the newly established auction market, the system of import licenses having been abolished. Both Madagascar and Morocco introduced schemes easing access to foreign exchange for import payments by exporters. In Madagascar a special system was introduced whereby the Central Bank would make available to exporters, for their import requirements, a portion of foreign exchange receipts from exports, while Morocco permitted exporters to finance imports directly from their foreign exchange receipts. In the Philippines minimum payments terms for certain imports under progressive manufacturing programs were reduced, and in addition, the foreign financing requirement for capital goods imports was eliminated. Israel removed the prohibition on prepayments of suppliers’ credits. In Bangladesh industrial firms were permitted to open deferred payments letters of credit for raw material imports, while finally, in the Yemen Arab Republic certain importers were permitted to use part of their foreign exchange deposits with commercial banks to open letters of credit.

Measures tightening terms or conditions for import payments were taken in five developing countries. The Dominican Republic introduced new minimum terms for import financing. In Sudan the use of balances in foreign currency accounts to pay for imports and trade-related invisibles was prohibited. The Syrian Arab Republic tightened restrictions on the unofficial exchange market. In Venezuela a new minimum financing requirement was introduced. In El Salvador the threshold above which central bank authorization is required for import payments was lowered substantially, and in addition imports from outside Central America exceeding certain limits were required to be financed by letters of credit with advance deposits.

State Trading

As in earlier years, there were few changes in members’ state trading practices in 1986. Four countries introduced changes in the direction of liberalization, and one country introduced a new restriction.

In Guinea-Bissau, Solomon Islands, and Togo the range of state monopoly trading was narrowed. Nigeria eliminated the boards which had been responsible for a number of agricultural exports. Meanwhile, in Sierra Leone exports of gold were restricted to the Government Gold and Diamonds Office (GGDO), established in 1985, and the Bank of Sierra Leone.

Exports and Export Proceeds

Relatively few industrial countries modified regulations governing exports in 1986. Among those that did, little discernible trend in the direction of either a tightening or easing in restrictions was apparent. In the group of developing countries, however, there was a noticeable shift toward a relaxation of controls and toward measures aimed at promoting export performance. A number of countries, for example, removed or eased export licensing requirements, improved fiscal incentives, and eliminated or reduced taxes on exported products. In addition, the provision of export credit to exporters was in general extended either through the implementation of new schemes or by increasing access under existing arrangements. The relaxation of export surrender requirements was also used by some countries as a means of improving export incentives. On the other hand, a number of countries faced with acute foreign exchange difficulties resorted to tightening surrender requirements in an attempt to stem capital flight.

No clear pattern among industrial countries emerged in 1986 with regard to quantitative export controls, although the developing countries in general adopted a less restrictive stance. The United States imposed prohibitions on exports to Libyan Arab Jamahiriya and South Africa; however, it abolished certain controls on crude oil exports and removed restrictions on exports to certain countries. Denmark also banned most exports to South Africa and Namibia, while Greece prohibited exports of crude oil and weapons. Japan announced a renewal of voluntary restraints on motor vehicle exports to the United States; it also announced new quotas on steel exports to the United States and introduced monitoring for certain exports to the EC. Norway tightened its export licensing requirements. Among the developing countries, individual country quotas on coffee exports established under the auspices of the International Coffee Organization were suspended. Thailand lifted the ban on a range of export products, shortened the list of prohibited exports, and introduced greater flexibility to the regulations governing garment exports. Licensing requirements for all exports except cereals were lifted in Mali, and for a range of exported products in Malaysia. Madagascar simplified its export control procedures, and eliminated prior authorizations for a range of exports. Nigeria removed all export bans and most export licensing requirements, while the Philippines lifted its ban on exports of copra. Jamaica reached an agreement with the United States that provided it with increased access to the U.S. textile market. On the other hand, limitations on exports under bilateral agreements were adopted by Hong Kong (textiles to the EC) and Nepal (textiles to the United States).

A number of industrial and developing countries introduced or strengthened fiscal incentives for exports. The United States adopted a new incentive program for the export of dairy products. Export subsidies or tax exemptions were introduced or applicable rates increased in Argentina, India, Indonesia, Malaysia, and Peru. Special foreign exchange incentives were introduced in Nicaragua, while Turkey extended the scope of the systems of rebates and premium payments on exports. On the other hand, incentives were removed or reduced in Bolivia, Colombia, Greece, Kenya, Pakistan, Senegal, and Tanzania, where export rebate schemes were either abolished or their coverage narrowed.

There was a general trend toward a reduction in the incidence of export taxes in developing countries during the review period. Ecuador and Grenada removed all duties on exports, and the Philippines eliminated duties on all exports other than logs. Export taxes were reduced or abolished on certain products in Argentina, Dominica, the Dominican Republic, Haiti, Honduras, Malawi, Thailand, Uruguay, and Togo. Export taxes were introduced in Guatemala and in Zaïre, which imposed an additional tax on coffee shipments.

Access of exporters to credit facilities was broadened in several industrial and developing countries. The United States expanded the availability of credit insurance and also established a special export credit facility for short-term transactions. In Argentina and Nepal access to export credits was increased, and in Tunisia the maturity of export credits lengthened. Zaïre introduced regulations aimed at streamlining procedures for obtaining export prefinancing.

The only major change relating to the provision of export or exchange guarantees during the period under review involved France, which removed a requirement of forward cover for exporters.

Requirements for the surrender of export proceeds were modified in a number of countries, often involving a reduction in the proportion of exports to be sold at an unrealistically appreciated official exchange rate. One industrial country, France, modified its export surrender regulations by extending the maximum permissible retention period. Requirements for the surrender of proceeds from all private sector exports were abolished in Ecuador and Nigeria and lowered in Honduras and Mexico. In Guinea-Bissau and Peru surrender requirements were eliminated for nontraditional exports and reduced for traditional exports. Exporters in Morocco were allowed to retain export proceeds for the purchase of imported inputs. Sierra Leone introduced regulations suspending all retention quotas, but requiring exporters to surrender fully export earnings to commercial banks. Elsewhere, surrender requirements were tightened in a few countries. Egypt reduced the repatriation period for export proceeds. Liberia introduced a 25 percent surrender requirement. Suriname required that all export proceeds be surrendered to the central bank rather than to commercial banks, and Yugoslavia raised the export surrender rate to 100 percent.

One country, Suriname, tightened administrative procedures by requiring all exports to be covered by letters of credit.

Current Invisibles and Transfers

During 1986 a marked trend emerged in both industrial and developing countries toward reduced recourse to restrictions on current invisible payments and unrequited transfers. Such liberalizations often took the form of increased foreign exchange allocations for overseas travel, but a number of countries also removed or eased restrictions on other invisible transactions, such as interest payments. A few countries, however, tightened controls on invisibles and transfers in response to mounting foreign exchange pressures.

Four industrial countries—Austria, Finland, France, and Iceland—raised foreign exchange allocations for purposes such as travel and gift remittances. Among the developing countries, Sierra Leone raised allowances for all invisibles, and allocations for travel were raised in Bangladesh, Chile, Guinea, Malta, Mauritius, Portugal, Syria, and Zambia. Israel increased allowances for gift payments and overseas study, Sri Lanka raised education allowances, and Cyprus increased allowances for study in certain European countries. Limits for travel, study, and medical remittances were introduced in El Salvador and reduced for travel in Algeria and the People’s Democratic Republic of Yemen.

Regulations governing outward transfers or payments for services rendered by nonresidents were liberalized in a number of industrial and developing countries. France removed restrictions on the transfer of assets by emigrants and raised ceilings on transfers, and Finland increased emigrant’s allowances. Controls on all current payments to nonresidents were eased in The Gambia, while restrictions on different types of investment income payments were removed in Greece and Yugoslavia and relaxed in Argentina, Botswana, and Burundi. Only a few developing countries intensified controls on outward transfers. In Iraq limits on the remittances of resident nonnational workers in the private sector were cut by nearly two thirds. Peru introduced a two-year suspension of foreign exchange sales for private sector debt service payments and the transfer of profits, and extended for a period of one year quantitative limits on official debt service payments.

Limits on the import or export of foreign and domestic currency by residents or nonresidents were raised in three industrial countries (Austria, France, Italy). One developing country (Bangladesh) increased the amount of foreign exchange nonresidents are permitted to export.

Other restrictive measures affecting current invisibles and transfers included restrictions by the United States on exports of services to Libyan Arab Jamahiriya, imposition of a tax on the sale of foreign exchange for travel (Brazil), and elimination of a preferential exchange rate for receipts of miners’ remittances (Mozambique). In Greece exchange control regulations were tightened by requiring the surrender of tourism receipts.

External Payments Arrears

The Fund’s data on members’ external payments arrears include arrears that have been caused by exchange restrictions on current payments or transfers, as well as arrears on financial obligations of which the obligor is the government or a resident in the country in question and which are overdue for balance of payments or fiscal reasons.2 An increase in arrears adversely affects the country’s creditworthiness, with the result that access to normal means of international financing is frequently curtailed. A further consequence is that the cost of international credit, as well as of imported goods and services, becomes higher than would otherwise be the case for most borrowers. In view of the particularly adverse consequences for the country maintaining arrears and for the international payments system, performance criteria for the elimination or substantial reduction of payments arrears in an orderly and nondiscriminatory manner constitute an important element of members’ economic programs supported by the use of the Fund’s resources.3 Moreover, the incurrence of arrears and related policies have been subject to careful scrutiny in the context of Article IV consultations with the Fund. The Fund has also consistently followed the practice of not approving under Article VIII, Section 2(a) of the Fund’s Articles of Agreement exchange restrictions evidenced by arrears on current international payments, except when a satisfactory program for the reduction or the elimination of arrears is in place.

From a peak of SDR 43 billion recorded at the end of 1984, external payments arrears of Fund members are estimated to have declined by SDR 3 billion to SDR 40 billion as of end–1986.4 However, on the basis of provisional data, arrears increased in 1986, and a total of 57 countries, equivalent to about two fifths of the Fund’s developing country membership had arrears outstanding at the end of 1986; this number has been rising continuously since 1976, emphasizing the difficulty of eliminating arrears once they have been incurred. From end-1985 to end-1986 existing arrears increased in 29 countries: Antigua and Barbuda, Benin, Brazil, Chad, Costa Rica, Dominican Republic, Egypt, Equatorial Guinea, The Gambia, Grenada, Guatemala, Guyana, Haiti, Jamaica, Liberia, Mali, Morocco, Mozambique, Nigeria, Peru, Poland, São Tomé and Principe, Sierra Leone, Somalia, South Africa, Sudan, Suriname, Tanzania, and Viet Nam. Arrears were eliminated in 3 countries only: St. Lucia, Senegal, and Yugoslavia; and were reduced in 15: Argentina, Bolivia, Central African Republic, Congo, El Salvador, Ghana, Guinea, Honduras, Madagascar, Paraguay, Uganda, Venezuela, Western Samoa, Zaïre, and Zambia.

Three countries—Cape Verde, Malawi, and Syria—incurred payments arrears for the first time; in Côte d’Ivoire and Gabon arrears emerged again after they had been eliminated. (In early 1987 Cape Verde made arrangements for the elimination of its arrears.) Two other countries (Iraq and Socialist People’s Libyan Arab Jamahiriya) are understood to have incurred arrears in 1985–86. Data are unavailable for six countries (Afghanistan, Burkino Faso, Comoros, Guinea-Bissau, Mauritania, and Nicaragua) that had payments arrears at the end of 1985, and it is unlikely that in any of these instances they were eliminated during the course of 1986.

In the case of those countries for which information is available, arrears incurred against official and multilateral creditors were estimated at just under one half of total external payments arrears in 1986. About two thirds of the arrears to official creditors was concentrated in four countries.

Payments arrears are a manifestation of a broader phenomenon of deviations from scheduled external payments obligations. The magnitude of these deviations at a point in time, which may be viewed as overall deferrals of payments obligations, may be measured by aggregating arrears and rescheduled debt service payments that remain to be paid at that time. Reliable data for overall deferrals are not available for 1986; however, for 1985 they show almost a twofold increase to SDR 215 billion following a 13 percent rise in 1984.

The proportion of members’ external payments arrears settled through cash payments has varied in accordance with foreign exchange liquidity requirements as determined by anticipated cash needs for import payments and, more generally, by medium-term balance of payments projections. In cases where international reserve positions and medium-term balance of payments projections have been relatively strong or improving, the liquidation of arrears through cash payments has at times been significant in relation to total arrears reduction. In others, smaller cash payments have reflected the authorities’ intention of meeting overdue obligations despite depleted reserve levels and a weak balance of payments outlook. Of the countries that eliminated or reduced arrears in 1985, the latest year for which data are available, seven did so entirely through cash payments and two entirely through rescheduling. In those countries that relied on a mix of cash payments and rescheduling, cash payments generally represented between one quarter and one half of the total.

In 1986, 18 Fund member countries that had payments arrears outstanding concluded multilateral debt renegotiations with official and commercial creditors. In a further three cases, negotiations with creditors had been initiated but not concluded by the end of the year.

The Executive Board review of the Fund’s policies with respect to members’ external payments arrears undertaken in November 1986 noted that, as of mid-1986, 21 countries had adjustment programs supported by stand-by arrangements in effect, all of which were in the upper credit tranches. Of these 21 countries, 13 had external payments arrears at the time of program approval. In all cases, these 13 programs provided for a phased elimination (10 programs) or reduction (3 programs) of payments arrears during the program period through a combination of rescheduling and cash payments. In eight of the former cases, arrears were required to be eliminated in the first year of the program period. In four of the countries with arrangements, a counterpart deposit requirement in local currency was introduced as a means of providing more comprehensive information on arrears and sterilizing the liquidity impact associated with the incurrence of arrears.

Multiple Currency Practices

Article VIII, Section 3 of the Fund’s Articles of Agreement prohibits a member from engaging in, or permitting its fiscal agencies to engage in, any discriminatory currency arrangements or multiple currency practices without the approval of the Fund. Such practices may involve the existence of separate exchange rates, the application of exchange rate taxes or subsidies, inadequate payment of interest on advance import deposits and counterpart deposits against payments arrears, significant exchange rate spreads, and broken cross rates. The Fund approves multiple currency practices only when a well-conceived plan is in place to bring about their elimination during a specified and relatively short period of time. In many instances, the staff assists the authorities in formulating such a plan, usually in the context of adjustment programs supported by the use of Fund resources. The Executive Board most recently conducted a review of the Fund’s experience and policies with respect to multiple exchange rate regimes in April 1984 and February 1985.5

The trend that emerged in 1985 toward reduced reliance on multiple currency practices continued in 1986. During this period, 19 member countries either eliminated or simplified multiple currency practices. New multiple currency practices were introduced in seven countries, but in two of these cases, they were for a transitional period only and were intended to formalize multiple currency practices that had existed but had not previously been officially recognized.

Multiple currency practices were eliminated in seven countries, although in some of these cases other multiple currency practices were retained. Chile removed the subsidy on most debt service payments, and the Dominican Republic abolished exchange surcharges on both traditional and non-traditional exports. Egypt eliminated the commercial bank rate, while Guatemala abolished the exchange tax on certain trade and invisible transactions. The dual exchange rate systems in Guinea and Uganda were virtually unified, and Tanzania abolished an export rebate scheme.

During the course of 1986, a number of countries made progress in either simplifying multiple currency practices or reducing the distortions associated with them. Afghanistan depreciated the exchange rate for coverting karakul export proceeds. In Ecuador surrender requirements for private sector export proceeds were abolished and private sector transactions transferred to the free market. Public sector transactions, including petroleum exports and public debt service payments continued to be conducted at the intervention market rate. This rate was adjusted in accordance with movements in the free market rate; and the spread between the two rates was less than 2 percent in the period October–December 1986. A prior import deposit scheme was introduced in March 1986 but subsequently abolished in August 1986. In addition to the measure described above, Guatemala restructured its three-tier exchange rate system by replacing the auction market with a regulated market; it transferred to this and the banking market all transactions from the official market, except service payments on registered debt and certain drug imports. El Salvador unified the official and parallel markets, but as a transitional arrangement, certain export proceeds and specified import and arrears payments continued to be transacted at the previous official exchange rate. In Grenada, the tax levied on sales of foreign exchange was reduced from 5 percent to 2 percent. Guyana depreciated the exchange rates applicable to gold and rice exports. South Africa extended eligibility for investment in “financial rand” balances by nonresidents to cover nonquoted securities and the acquisition of property. In Nicaragua the official exchange rate was devalued by 60 percent in local currency terms, although interest payments on debt already contracted continued to be made at previous exchange rates; in addition, “mixed” rates were established by allowing a portion of the proceeds from nontraditional exports and certain invisible transactions to be surrendered at the free market rate. Paraguay allowed a large proportion of export receipts to be moved to the free market by reducing minimum export surrender requirements. In Peru a range of transactions (including import payments, profit remittances, and travel expenses) were transferred from the official to the parallel market; in addition, surrender requirements were eliminated for nontraditional exports and reduced for traditional exports. Sudan announced that 30 percent of all convertible currency export proceeds except those from cotton and gum arabic exports were to be surrendered at the commercial bank rate; previously, all such proceeds had to be sold in the official market. Venezuela simplified its multiple exchange rate system by transferring a wide range of trade and debt service transactions to a common exchange rate.

One other country modified an existing multiple currency practice during the course of 1986. Turkey increased the proportion of foreign exchange requests for imports subject to prior deposit requirements and eliminated most of the preferential provisions that were in force.

During 1986 multiple currency practices were introduced in the following countries. In Egypt, a new exchange rate for the sale of USAID funds to the private sector was formally established; previously, these funds had been converted at the central bank rate. Syria established new multiple currency practices: a “promotion” exchange rate for a range of transactions, including travel and medical expenses, a rate for airline tickets, and another rate for transfers abroad by airline companies. Venezuela announced an optional exchange rate guarantee scheme for the servicing of certain registered private debts. Two countries introduced multiple currency practices as a transitional step toward major exchange reform that involved unification of the exchange rate system. Ghana adopted a dual exchange market in which all transactions, except exports of cocoa and refined oil, petroleum imports, and specified official service payments, were conducted in an auction market. Nigeria introduced a transitional dual exchange system that involved establishment of a “second-tier” foreign exchange market for handling all transactions except debt service payments and a portion of the proceeds from oil exports.

Bilateral Payments Arrangements and Countertrade Practices

At the end of 1986, the total number of bilateral payments arrangements maintained between Fund members was 69, compared with 50 at the end of 1985.6 A total of 72 bilateral payments arrangements were maintained between Fund and non-Fund members, compared with 89 at the end of 1985. The changes during 1986 are attributable primarily to the accession of Poland to the membership of the Fund. At the end of 1986, Poland maintained 11 bilateral payments arrangements with Fund members and an additional two with non-Fund members; during the year it terminated an agreement with Viet Nam. Excluding those involving Poland, the number of bilateral payments arrangements increased by three in 1986. This increase consisted of six new bilateral payments arrangements concluded between Fund members. Mozambique entered into arrangements with Malawi, Swaziland, and Zimbabwe; Argentina with Colombia; and Madagascar with Mauritius. In addition, Nepal, a Fund member, concluded an arrangement with Czechoslovakia, a non-Fund member. A total of three bilateral payments arrangements, all involving Romania and other Fund members (Malta, Nepal, and Viet Nam), were terminated in 1986.

Detailed information on the value of trade conducted under bilateral payments arrangements is not available for most Fund members maintaining such arrangements. On the assumption that the value of trade between Fund members maintaining bilateral payments agreements represents the maximum value of trade conducted under bilateral payments arrangements, the total value of such trade was equivalent to about ⅙ of 1 percent of the value of world trade of Fund members in 1986. It is, however, most likely that the value of trade conducted under bilateral payments arrangements is lower than the above ratio suggests, because all trade between Fund members maintaining bilateral payments arrangements is not usually settled under the arrangements; in many instances, only the trade of a group of products specified in an accompanying trade agreement is settled under bilateral payments arrangements. On the other hand, in some cases nontrade transactions are also effected through the bilateral clearing accounts.

In recent years, there has been increased resort in some countries to trading practices known as countertrade arrangements.7 These arrangements have taken a variety of forms, but basically they involve barter or quasi-barter arrangements between private firms and/or government entities, such as foreign trade organizations, under which the seller is obligated to accept specified goods or services from the buyer. Even though countertrade arrangements are for the most part carried out by private firms without official sanction, several countries have recently issued guidelines to be followed by individual entities while engaging in countertrade, or regulations making countertrade mandatory for certain international transactions. The more common countertrade arrangements are known to have involved exchange of crude oil and military equipment for manufactured goods, including military equipment. Developing countries that have engaged in countertrade arrangements at the private and public sector levels include Argentina, Brazil, China, Colombia, Greece, Guyana, Indonesia, the Islamic Republic of Iran, Iraq, Jamaica, Socialist People’s Libyan Arab Jamahiriya, Malaysia, Mexico, Nigeria, Turkey, Uganda, Venezuela, and Viet Nam. These countries have concluded countertrade arrangements with private firms in the industrial countries or centrally planned Eastern European countries aimed at promoting exports of primary products (including crude oil), and in some instances, servicing of external debt. Official requirements for private sector participation in countertrade giving rise to exchange or trade restrictions are known to exist in a few developing countries.

The emergence and growth of countertrade since the late 1970s may be attributed to several factors. Balance of payments difficulties and the scarcity of foreign exchange have led a number of developing countries to seek new financing techniques. The pressures to find markets for surplus goods and difficulties experienced in gaining access to the markets of the industrial countries for certain primary and manufactured products have also prompted these countries to enter into countertrade arrangements that commit industrial country exporters to purchasing a given quantity of products over a specified period. In certain cases, countertrade in the form of buy-back arrangements is seen—by both industrial and the more advanced developing countries—as a means of securing reliable sources of essential raw materials while exporting equipment and technology that have become outdated at home.

In the centrally planned Eastern European countries, countertrade is often seen as underpinning the planning process by reducing the uncertainties in the domestic production plan that result from difficulties in forecasting foreign demand precisely. It is also a means of achieving bilateral balancing of trade, which is an objective of foreign trade policy in most of these countries. Shortages of convertible foreign exchange and the desire to stimulate the inflow of technology from abroad have provided further incentive for Eastern European countries to enter into countertrade arrangements. For exporters engaging in trade with centrally planned Eastern European countries, including those in industrial countries, countertrade may represent the only means to guarantee payment for goods delivered, or to overcome protective trade policies in those countries. Countertrade agreements involving petroleum exports have become particularly common in recent years, especially during periods of weak price conditions in the international oil market and when countries are experiencing difficulties in servicing debt. However, oil exported under countertrade arrangements is now included in individual OPEC member quotas, and recourse to such arrangements is likely to have been reduced as a consequence.

Although the volume of trade conducted under countertrade arrangements does not appear to be large in relation to world trade, the proliferation of such practices is detrimental to the maintenance of the multilateral system of trade and payments. Countertrade practices may entail many of the undesirable restrictive and discriminatory practices traditionally associated with bilateralism. Where countertrade practices result from a direct governmental limitation on the use, availability, or transfer of exchange as such, they may entail exchange restrictions and multiple currency practices subject to approval under Article VIII of the Fund’s Articles of Agreement.8

Capital Controls

The trend toward greater liberalization of capital controls among the industrial countries that had been evident for several years continued in 1986, albeit at a slower pace. This trend has, by and large, reflected greater reliance on price-related measures, particularly the use of exchange rate and interest rate policies, as a means of curbing capital outflows. It has also been indicative of the growing awareness that controls tend to become increasingly susceptible to evasion over time, as is evidenced in large-scale capital outflows, and that their effectiveness is thereby diminished. In some cases, the dismantling of capital controls has been undertaken in the wider context of deregulation of the domestic financial system. For the group of developing countries, there was on balance a slight shift toward a liberalization of capital controls for these reasons, despite the continuation of balance of payments difficulties.

In 1986 changes to regulations affecting capital transactions among both industrial and developing countries typically involved modification of rules governing foreign transactions of commercial banks, the relaxation of controls on resident and nonresident foreign currency accounts, and the removal or easing of controls on portfolio investment. In addition, reflecting the greater appreciation of the potential benefits from attracting direct investment, a number of countries, relaxed restrictions on, or provided greater incentives for, foreign participation in domestic enterprises.

In general, the rules governing international capital transactions undertaken by commercial banks were liberalized in industrial countries, but tightened in developing countries. Austria, Finland, France, Italy, and Sweden relaxed regulations limiting the availability of either foreign credit to residents or foreign or domestic credit to nonresidents. Switzerland removed all taxes on interest earned on medium-term interbank deposits. Ceilings on banks’ “spot-against-forward” foreign currency positions were raised in Italy, but in Ireland limits on banks’ forward positions were effectively lowered. The United States prohibited banks and others from undertaking certain transactions in the Socialist People’s Libyan Arab Jamahiriya and with South African government agencies. Among the developing countries, access to foreign credits was restricted in El Salvador and Korea; Korea also reduced the maximum allowable maturity for deferred payments letters of credit. Limits were placed on the foreign currency positions of commercial banks in The Gambia, Honduras, and Turkey; such limits were eliminated or reduced in the Dominican Republic and Indonesia.

A number of countries (Bangladesh, China, Egypt, Finland, India, Italy, Mexico, and Spain) eased restrictions on foreign exchange and nonresident accounts. On the other hand, El Salvador required that certain foreign currency accounts be liquidated.

Almost all the modifications to rules governing portfolio investment reported by both industrial and developing countries during the review period involved the elimination or liberalization of existing restrictions. With regard to portfolio investments overseas by residents, Austria, Finland, France, the Netherlands, the Netherlands Antilles, and Switzerland removed certain controls on purchases of foreign securities, while France, Italy, Portugal, Spain, and Sweden eased restrictions on transactions in cash loans and certain financial instruments, such as foreign securities and currency options. In Switzerland the stamp tax on new foreign bond issues was reduced and certain of these issues were exempted from withholding tax. Argentina removed controls on amortization payments on debt contracted for investment projects that were deemed to increase exports. With regard to capital inflows arising from portfolio investment by nonresidents, restrictions were lifted in Chile and the Netherlands and eased in Australia. India eased controls on remittances of dividends payable on equity investments in Indian companies, and Pakistan eased controls on underwriting by foreign banks. Meanwhile, Norway imposed restrictions both on residents’ purchases of unquoted investment funds and equities, and on the opening by nonresidents of krone accounts.

The trend evident in 1985 toward the liberalization of direct investment regulations continued during the period under review. Three industrial countries, Australia, Austria, and Spain, eased restrictions on inward direct investment. France eliminated certain controls on outward foreign investment, although it also placed limits on foreign participation in newly privatized companies. Sweden removed certain impediments to the financing of direct investment overseas. A ban on investment in South Africa was imposed by the United States. Ten developing countries (China, Hungary, Malaysia, Netherlands Antilles, Philippines, Poland, Portugal, São Tomé and Principe, Syria, and Venezuela) introduced or expanded incentives for specific types of direct investment.

Various measures involving exchange rate guarantees and forward cover facilities were implemented during the review period. The Netherlands abolished licensing requirements for forward transactions not conducted through banks. The exchange rate guarantee scheme in Argentina was modified to allow for the early cancellation of contracts, while a similar arrangment in Pakistan was broadened to cover certain debt service payments.

Gold

As in recent years, few Fund members introduced new regulations concerning procedures for the export and import of gold or for dealings in domestic holdings of gold. On March 27 Bangladesh allowed the exportation of gold jewelry under the Jewelry Export Scheme. The exportation of gold was restricted in June by Sierra Leone to the GGDO and the Bank of Sierra Leone. On October 27 the United States prohibited the importation of gold coins minted in South Africa under the Comprehensive Anti-Apartheid Act of 1986.

III. Developments in Exchange Arrangements and Exchange Rates

Fund members are required to notify the Fund of changes in their arrangements for determining their exchange rates, in accordance with members’ obligations under Article IV, Section 2(a), of the Articles of Agreement. Surveillance of exchange arrangements of members by the Fund, as required under Article IV, Section 3, is conducted in the context of regular consultations with members and during the intervening period between consultations, as changes in such arrangements are assessed by the staff and communicated to the Executive Board. Under the provisions of Article IV, Fund members have the right to maintain exchange arrangements of their choice; members also have certain obligations regarding the communication of these arrangements to the Fund.

To facilitate implementation of the Fund’s surveillance over exchange rate policies, members’ exchange arrangements are classified under three broad groupings, as follows: (1) pegged arrangements, comprising currencies that are pegged either to another currency or to a currency composite, including the SDR, and currencies that display limited flexibility against another currency (quasi-pegs); (2) a middle group of managed flexibility, comprising currencies whose values are adjusted according to a set of indicators other than partner country exchange rates alone, or are maintained under a system of managed floating; and (3) floating (essentially market determined) arrangements, including cooperative arrangements in the European Monetary System, and independently floating regimes. The basic rationale for the classification of members’ exchange arrangements is the extent and form of the flexibility that these arrangements permit, and this criterion is also applied to subcategorize each of these broad groupings in Table 2.

Table 2.Exchange Rate Arrangements as of March 31, 19871
Flexibility Limited vis-à-visMore Flexible
a Single Currency orAdjusted
PeggedGroup of Currenciesaccording
Single currencyCurrency compositeSingleCooperativeto a set ofManagedIndependently
U.S. dollarFrench francOtherSDROthercurrency2arrangements3indicatorsfloatingfloating
Antigua andLao People’sBeninBhutanBurmaAlgeria4Afghanistan4Belgium4BrazilArgentinaAustralia
BarbudaDemocratic Rep.4Burkina Faso(IndianBurundiAustriaBahrain5DenmarkChile4China,Bolivia
The Bahamas4LiberiaCameroonrupee)Iran, IslamicBangladesh4Qatar5FranceColombiaPeople’sCanada
BarbadosMozambiqueCentralKiribatiRep. ofBotswanaSaudi Arabia5GermanyMadagascarRep. ofDominican
BelizeNicaragua4African Rep.(AustralianJordanCape VerdeUnited ArabIrelandPortugalCosta Rica4Republic
Omandollar)Emirates5Ecuador
DjiboutiChadKenya6CyprusItalySomalia4The Gambia
DominicaPanamaComorosLesotho4Libya7FijiLuxembourg4GreeceGhana
Egypt4Paraguay4Congo(SAR)RwandaFinland6NetherlandsGuinea-Guinea
El SalvadorSt. Kitts and NevisCôte d’IvoireSwazilandSão Tomé andHungaryBissauJapan
Ethiopia(SAR)PrincipeIsraelIcelandLebanon
St. LuciaIndia8
GrenadaSt. Vincent andEquatorialTongaSeychellesKuwaitMaldives
Guatemala4the GrenadinesGuinea(AustralianVanatuMalawiIndonesiaNew Zealand
Guyana4SurinameGabondollar)Malaysia6JamaicaNigeria4
HaitiSyrian Arab Rep.4MaliMaltaKoreaPhilippines
HondurasNigerMauritiusMauritaniaSierra Leone
Trinidad andMexico4,9
IraqTobagoSenegalNepalSouth Africa4
UgandaTogoNorwayMoroccoUnited
Venezuela4Papua NewPakistanKingdom
Viet Nam4GuineaPeru10
Yemen Arab Rep.PolandSpain
Yemen People’sSri LankaUnited States
Democratic Rep.RomaniaTunisiaUruguay
SingaporeZaïre
SolomonTurkey11Zambia
IslandsWestern
Sudan4Samoa
Yugoslavia
Sweden12
Tanzania
Thailand
Zimbabwe

No current information is available relating to Democratic Kampuchea.

In all cases listed in this column, the U.S. dollar was the currency against which exchange rates showed limited flexibility.

This category consists of countries participating in the exchange rate mechanism of the European Monetary System. In each case, the exchange rate is maintained within a margin of 2.25 percent around the bilateral central rates against other participating currencies, with the exception of Italy, in which case the exchange rate is maintained within a margin of 6 percent.

Member maintains dual exchange markets involving multiple exchange arrangements. The arrangement shown is that maintained in the major market.

Exchange rates are determined on the basis of a fixed relationship to the SDR, within margins of up to ± 7.25 percent. However, because of the maintenance of a relatively stable relationship with the U.S. dollar, these margins are not always observed.

The exchange rate is maintained within margins of ± 2.25 percent.

The exchange rate is maintained within margins of ± 7.5 percent.

The exchange rate is maintained within margins of ± 5 percent on either side of a weighted composite of the currencies of the main trading partners.

As of March 31, 1987 the spread between the two exchange rates was less than 1 percent.

Member maintains a system of advance announcement of exchange rates.

The Central Bank establishes its selling rate daily and the buying rate is set at ½ percent below the selling rate. Commercial banks must use the Central Bank’s selling rate, but are free to set their own buying rate.

The exchange rate is maintained within margins of ± 1.5 percent.

No current information is available relating to Democratic Kampuchea.

In all cases listed in this column, the U.S. dollar was the currency against which exchange rates showed limited flexibility.

This category consists of countries participating in the exchange rate mechanism of the European Monetary System. In each case, the exchange rate is maintained within a margin of 2.25 percent around the bilateral central rates against other participating currencies, with the exception of Italy, in which case the exchange rate is maintained within a margin of 6 percent.

Member maintains dual exchange markets involving multiple exchange arrangements. The arrangement shown is that maintained in the major market.

Exchange rates are determined on the basis of a fixed relationship to the SDR, within margins of up to ± 7.25 percent. However, because of the maintenance of a relatively stable relationship with the U.S. dollar, these margins are not always observed.

The exchange rate is maintained within margins of ± 2.25 percent.

The exchange rate is maintained within margins of ± 7.5 percent.

The exchange rate is maintained within margins of ± 5 percent on either side of a weighted composite of the currencies of the main trading partners.

As of March 31, 1987 the spread between the two exchange rates was less than 1 percent.

Member maintains a system of advance announcement of exchange rates.

The Central Bank establishes its selling rate daily and the buying rate is set at ½ percent below the selling rate. Commercial banks must use the Central Bank’s selling rate, but are free to set their own buying rate.

The exchange rate is maintained within margins of ± 1.5 percent.

In 1986, 62 changes in exchange arrangements occurred and were communicated by members to the Fund, including measures that resulted in adjustments in exchange rates, and a number of changes in the form of composite pegs. In addition, developments in members’ effective (trade-weighted) exchange rates are monitored continually on the basis of available data to facilitate the symmetry of treatment of pegged and flexible exchange rates; the Executive Board is notified of changes in excess of 10 percent on a “real” inflation-adjusted basis when they occur. Fifty-three such notifications of changes in real effective rates since the preceding consultation with the member (or previous notification) were made in 1986,9 compared with 30 notifications in 1985.

Of a total of 13 reclassifications of arrangements in 1986, 9 were in the direction of greater flexibility. A major new development in this period was the adoption of independently floating exchange rates by developing countries. Five developing countries (Ghana, Nigeria, The Gambia, Guinea, and Sierra Leone) introduced exchange arrangements by which their exchange rates are essentially determined by market forces. Uganda and Jamaica, on the other hand, ceased to maintain a freely floating system. At the end of 1986, independently floating exchange rates were therefore maintained by 13 developing country members: Bolivia, Dominican Republic, The Gambia, Ghana, Guinea, Lebanon, Nigeria, Philippines, Sierra Leone, South Africa, Uruguay, Zaïre, and Zambia. In addition, four other countries adopted more flexible arrangements: one moved from a peg to the U.S. dollar to a peg to the SDR (Socialist People’s Libyan Arab Jamahiriya), and three moved from a peg to a currency composite to a system of managed flexibility (People’s Republic of China, Madagascar, and Tunisia). Only four members moved to reduced flexibility: Jamaica moved from an independent float to a managed float; El Salvador from a managed float to a U.S. dollar peg; Viet Nam from an SDR peg to a U.S. dollar peg; and Uganda ceased floating independently and pegged its currency to the U.S. dollar. In addition to these changes, two new members informed the Fund in 1986 of their exchange arrangements: Kiribati was classified within the group of countries whose currencies are pegged to a single currency (the Australian dollar is the official currency of Kiribati), and Poland within the group of countries whose currencies are pegged to a currency composite other than the SDR. At the end of 1986, 96 (98) members had pegged or quasi-pegged exchange arrangements, 27 (25) members had managed flexibility, and the remaining 27 (25) members had arrangements under which most or all of their currency relationships were independently floating (including the EMS currencies).10 (Positions as of end-1985 are shown in parentheses.)

From the inception of the present classification system in December 1981 to December 1986, the proportion of Fund members with “More Flexible” arrangements and those members maintaining a cooperative arrangement under the EMS rose from 28 percent to 36 percent; those with single currency pegs and “Flexibility Limited vis-à-vis a Single Currency” arrangements declined from 47 percent to 37 percent, and those with both currency composite arrangements increased from 25 percent to 26 percent (although the use of the SDR peg declined somewhat).

Developments Affecting the Classification of Exchange Arrangements

In 1986, 13 members notified the Fund of changes in their exchange arrangements that involved reclassification. Nine countries instituted changes in their exchange arrangements that resulted in increased flexibility.11

With effect from January 1, 1986, China informed the Fund that, in view of the substantial adjustments of the yuan since 1984, and also on account of price and wage reforms currently in progress, the original peg of the yuan to a basket of currencies was replaced by a system of managed floating. Since then, the exchange rate of the yuan has been adjusted frequently, including a change on July 5 from Y 3.1983 = US$1 to Y 3.7036 = US$1, representing a depreciation of 13.6 percent in terms of the U.S. dollar. The exchange arrangements of China were thus reclassified from the category “Pegged: Currency Composite” to the category “More Flexible: Managed Floating.”

The Gambia introduced a floating exchange rate system effective January 20. During the first month of operation of the new system, the official exchange rate was set at 7.45 dalasi per pound sterling, representing a depreciation of 49 percent relative to the official rate prevailing prior to January 20. During most of this period, the parallel market exchange rate was reportedly in the order of D 10-11 per pound sterling. Since end-February 1986, the official exchange rate has depreciated further. The parallel exchange rate is only slightly more depreciated than the official rate, and the volume of exchange transactions carried out in the parallel market appears to have been reduced significantly, with an accompanying increase in transactions effected through the commercial banks. While initially the official exchange rate was set weekly at the average of exchange rates quoted by commercial banks for customer transactions during the preceding week, more recently some actual interbank transactions have begun to take place at the weekly fixing session. Under the new system, the authorities announced the removal of existing exchange restrictions applied by the Central Bank. The exchange arrangements of The Gambia were thus reclassified from the category “Pegged: Other Currency” to the category “More Flexible: Independently Floating.”

Ghana instituted a foreign exchange auction system in which the exchange rate for most transactions is freely determined by supply and demand at a second window. Transactions settled at the first window fixed exchange rate of Ȼ 90 = US$1 for a temporary period are, on the supply side, surrender of foreign exchange earnings from exports of cocoa and residual oil, and, on the demand side, provision of foreign exchange for imports of petroleum and essential drugs and for debt service payments on official debt contracted before January 1, 1986. In addition, new “A” licenses will henceforth be issued, derestricting virtually all nonconsumer goods imports for which foreign exchange is available in the auction. The first auction on Friday, September 19, resulted in a depreciation of 29.7 percent in terms of the U.S. dollar, from Ȼ 90 = US$1 to Ȼ 128 = US$1. The exchange arrangements of Ghana were thus reclassified from the category “Pegged: U.S. Dollar” to the category “More Flexible: Independently Floating.”

Guinea introduced changes in the exchange arrangement that yielded two separate reclassifications in 1986. The first change coincided with the introduction of a new monetary unit, the Guinean franc, which replaced the syli at par with effect from January 6. It was possible to exchange sylis for Guinean francs until March 31, 1986. Also with effect from January 6, the official exchange rate, previously pegged at 24.69 sylis to SDR 1, was changed to a fixed relationship to the U.S. dollar at the rate of GF 300 = US$1. This represented a depreciation of 92.5 percent in terms of the U.S. dollar. The official exchange rate applied to public sector and mining company transactions. All other transactions were effected at the second window exchange rate (the marginal bid rate) set at weekly auctions. This action resulted in the reclassification at that time of Guinea’s exchange arrangements from the category “Pegged: SDR” to the category “Pegged: U.S. Dollar.” With effect from June 1, the dual exchange rates were unified at the level of the auction rate, and the franc now floats at a unified level determined through weekly auctions. In order to maintain a small spread between the parallel market rate and the official rate, the authorities abolished the import licensing system and took measures to facilitate access to the auction market. The exclusion of alcoholic beverages and tobacco was lifted, and the opening of uncovered letters of credit is now authorized. Furthermore, the coverage of private sector service transactions eligible for foreign exchange purchases in the auction market was extended from October 1 to purchases for debt service, travel, and the transfer of dividends. In addition, the Central Bank took steps to ensure that payments for locally supplied goods and services are made in domestic currency. The exchange arrangements of Guinea were thus reclassified from the category “Pegged: U.S. Dollar” to the category “More Flexible: Independently Floating.”

The Socialist People’s Libyan Arab Jamahiriya informed the Fund that, with effect from March 18, the Libyan dinar is pegged to the SDR at the rate of LD 1 = SDR 2.80. The buying and selling exchange rates of the Libyan dinar are, also with effect from March 18, determined on the basis of the daily calculations of the rates of exchange for the SDR against major currencies. The new exchange rate represented a devaluation of the Libyan dinar of 4.2 percent against the U.S. dollar. The exchange arrangements of the Socialist People’s Libyan Arab Jamahiriya were thus reclassified from the category “Pegged: U.S. Dollar” to the category “Pegged: SDR.”

Madagascar notified the Fund that, with effect from August 11, the exchange rate of the Malagasy franc was devalued by 20 percent in foreign currency terms against the basket of currencies to which it is pegged. Against the U.S. dollar, the new rate established on August 11 was FMG 755.53 = US$1, representing a depreciation of 20.1 percent from the previous rate of FMG 603.44 = US$1. Subsequently, the exchange rate has been adjusted quarterly by the change in the consumer price index for low-income households over the previous quarter; the first adjustment took place by end-December on the basis of the price movements between July 1 and September 30. In the month of December, the Malagasy franc was, on five separate occasions, devalued by a cumulative 5.2 percent in local currency terms. In terms of the U.S. dollar, the exchange rate on December 5, the day before the first devaluation, was FMG 742.11 = US$1, and on January 2, the first business day following the last adjustment, FMG 769.81 = US$1, representing a cumulative depreciation of 3.6 percent in the month of December. As a result, the exchange arrangements of Madagascar were reclassified from the category “Pegged: Currency Composite” to the category “More Flexible: Adjusted According to a Set of Indicators.”

Nigeria informed the Fund of the adoption, with effect from September 29, of a package of reform measures that involved floating of the exchange rate for most transactions and exchange and trade liberalization. The exchange rate of the naira is, for a transitional period, determined under a dual exchange rate system. The official exchange rate, which is managed flexibly against the U.S. dollar, has been retained in this period for the servicing of external obligations incurred prior to the enactment of the new exchange market, and for official payments and transfers to multilateral institutions and Nigerian embassies abroad. The corresponding supply of foreign exchange to this market is from official sources and from a portion of oil receipts. On September 26 the official (first-tier) exchange rate was changed to ₦ 1.54 = US$1 from ₦ 1.33 = US$1, representing a depreciation of 13.6 percent in terms of the U.S. dollar. In the transitional period, the Nigerian authorities intend to continue this policy of depreciating the official exchange rate in order to achieve convergence with the exchange rate in the second-tier market, following which all external transactions will take place at a market-determined exchange rate.

In the second-tier foreign exchange market (SFEM), introduced concurrently, transactions not eligible for the official exchange rate (some 70 percent of all foreign exchange transactions) take place at market-determined exchange rates. The major source of foreign exchange in this market is that part of oil receipts not required for the payments described above that take place in the first-tier market. Oil receipts enter the SFEM through the medium of a weekly auction organized by the Central Bank of Nigeria in which the authorized foreign exchange dealers and the Central Bank of Nigeria participate. The Government and government agencies also bid in this market for their foreign exchange needs other than the servicing of debt incurred up to September 29. The second-tier market combines the weekly price-setting in the auction with the operation during the week of interbank and customer exchange markets, in which the exchange rate is also determined by supply and demand. To assist in ensuring the competitiveness of the market in the initial stages, limits are specified on the foreign exchange positions of individual dealers, and there is a 1 percent maximum spread between buying and selling exchange rates for customer and interbank transactions.

Private sector foreign exchange receipts may be sold freely in the SFEM; all previous requirements for surrender to the Central Bank have been abolished. In addition, exporters may retain their foreign exchange receipts in domiciliary accounts which are not then subject to exchange controls. For foreign exchange transactions other than export receipts, all exchange controls other than those relating to capital outflows were abolished. For the purpose of administering the system of capital controls on outflows, certain limits have been established up to which exchange is automatically provided for invisibles payments. Purchases within these limits are subject to verification by foreign exchange dealers as agents of the Nigerian Government that they are for bona fide current transactions. As with imports, verification is on an “ex post” basis, i.e., depending on the payments arrangements, based upon documentation obtained after the purchase of foreign exchange. In addition, amounts beyond the limits are approved by the Minister of Finance if he is satisfied that they are not for the purpose of transferring capital abroad. Beyond the specified limits, applications for capital transfers abroad may also be authorized if they are judged not to be destabilizing to the SFEM.

During the first quarter of 1987, in the weekly auction about US$50 million on average was tendered for sale by the Central Bank, and the average market-clearing (marginal) exchange rate was approximately N 3.7 = US$1. Forward exchange transactions at market-determined rates are permitted between foreign exchange dealers and their customers, with the proviso that these transactions are the counterpart of an underlying import transaction, and that the maturity of the cover does not extend beyond six months. As of September 29, Nigeria also undertook a wide-ranging liberalization of its trade and price control systems. Import licensing, the 30 percent import surcharge, export bans and duties, and the systems of price controls operating at the factory gate have all been abolished, and other restrictive practices have been relaxed. The exchange arrangements of Nigeria were thus reclassified from the category “More Flexible: Managed Floating” to the category “More Flexible: Independently Floating.”

Sierra Leone notified the Fund that, with effect from June 27, the exchange rate of the leone was floated, and commercial banks are able to buy and sell foreign exchange on a freely negotiable basis. The Bank of Sierra Leone holds weekly sessions with the commercial banks at which weekly indicative exchange rates are determined, to be applied during the following week for all official transactions, including valuation for customs duty. The first weekly fixing under the new system took place on July 11. The benchmark rate (which was replaced by the freely floating rate, beginning with the first week’s fixing) was set at Le 14 = US$1, representing an initial depreciation of 65 percent in foreign currency terms relative to the average of the previous official fixed rate of Le 5.7 = US$1 and the parallel market rate of about Le 18–20 = US$1, which prevailed before the float. At the same time, provisions for foreign exchange retention privileges and restrictions on current account transactions and inward remittances of capital were abolished. The exchange arrangements of Sierra Leone were thus reclassified from the category “Pegged: SDR” to the category “More Flexible: Independently Floating.”

Tunisia informed the Fund that it would follow a flexible exchange rate policy, with a view to at least maintaining the real effective value of the dinar at its end-August level. The depreciation of the dinar was accelerated in the first half of 1986, and on August 19 an additional depreciation of 10 percent was effected. The exchange arrangements of Tunisia were thus reclassified from the category “Pegged: Currency Composite” to the category “More Flexible: Managed Floating.”

Four countries instituted changes in their exchange arrangements that resulted in reduced flexibility.

El Salvador has notified the Fund that, with effect from January 22, the official exchange system has been unified, and the colón has been pegged to the U.S. dollar at a rate of Ȼ 5 = US$1. This represents a devaluation of 50 percent against the U.S. dollar, the intervention currency, from the previous rate of Ȼ 2.5 = US$1. The exchange rate of the colón has remained unchanged since then. The weighted average value of the colón during the first half of January was about Ȼ 3.80 = US$1, and thus, the exchange rate adjustment of January 22 involved a depreciation of about 24 percent in both nominal and real effective terms. In the accompanying Monetary Board resolution, the Central Reserve Bank was instructed to maintain the real effective exchange rate unchanged during 1986. As a transitional arrangement, the following export proceeds continue to be surrendered at the previous exchange rates: (1) export proceeds which were not surrendered to the Central Reserve Bank prior to January 1, 1986, as stipulated in the corresponding export permit; and (2) proceeds of coffee exports from harvests prior to October 1, 1985.12 The previous official exchange rate also continues to apply to the following payments: (1) external arrears on all payments with other Central American countries accumulated prior to January 21, 1986, external arrears on service payments outside Central America accumulated up to December 31, 1985, and arrears on payments outside Central America related to confirmed or expired letters of credit up to January 21, 1986; (2) payment obligations for approved imports of medicine financed by letters of credit or by cash payment and imports of capital goods which were cleared through customs prior to January 21, 1986; (3) payments for all capital goods for which letters of credit were opened and authorized by the Central Reserve Bank prior to January 22, 1986, and which were funded from sources other than the Central Reserve Bank’s foreign lines of credit; and (4) payments for all other imports with letters of credit or by cash payment which were cleared through customs prior to November 1, 1985. The commission charged for sales of foreign exchange by the Central Reserve Bank to the Government and commercial banks was lowered, while those charged to the public were more than doubled. The new commissions are as follows: (1) 0.5 percent (or Ȼ 0.025 = US$1) on sales of bank notes to the Government and commercial banks; (2) 1 percent (or Ȼ 0.05 = US$1) on sales of checks and 1.5 percent (or Ȼ 0.075 = US$1) on sales of bank notes to the public. Import controls were intensified, and the authorities also adopted a number of complementary fiscal, monetary, and wage measures. The Central Reserve Bank continued to authorize foreign exchange and to issue import permits on the basis of the availability of foreign exchange in accordance with the following list of priorities: (1) basic foods, medicines, raw materials for the production of medicines, and oil products; (2) raw materials and other intermediate goods needed for production, including machinery, equipment, and replacement parts; (3) payments for medical expenses abroad, foreign study, travel, and pensions; (4) debt service; and (5) all other goods, services, transfers, and movements of capital. Specific monthly allocations of foreign exchange are set for the import items listed in categories (1) and (2) above and for the cash payment of certain imports of less than US$5,000; the other items listed above are satisfied on the basis of available foreign exchange.

Special foreign currency accounts opened prior to January 21, 1986 are not permitted to be increased (except in the case of nonresidents and industrial firms exporting to countries outside the Central American Common Market), but they may be maintained for a period of up to one year. The Monetary Board instructed the Central Reserve Bank to set ceilings on the utilization of foreign credit by the commercial banks and the mortgage bank. Also, the Central Reserve Bank was authorized to establish a fund in U.S. dollars for servicing external public debt, which is to be supplied with receipts from export proceeds. In light of these measures, the exchange arrangements of El Salvador were reclassified from the category “More Flexible: Managed Floating” to the category “Pegged: U.S. Dollar.”

Since November 1985, the Jamaican dollar has been effectively pegged to the U.S. dollar at a rate of J$5.5 = US$1. The authorities of Jamaica have informed the Fund that they will manage the exchange rate flexibly, with a view to preventing a significant erosion of Jamaica’s international competitiveness. As a result of this information, the exchange arrangements of Jamaica have been reclassified from the category “Independently Floating” to the category “Managed Floating.”

In the context of the presentation of the FY 1986/87 budget on August 23, and with effect from that date, the dual exchange rate system of Uganda introduced on May 28 was abolished, and the exchange rate system unified at the pegged rate of U Sh 1,400 = US$1. Under the previous dual exchange rate system, a more appreciated (“priority”) exchange rate of U Sh 1,400 = US$1 was applicable to most import transactions, to payments of external debt service obligations, and to traditional export items, and a more depreciated (“market”) exchange rate of U Sh 5,000 = US$1 was applicable to foreign exchange purchases to finance nonbasic consumer items and to the export of services and nontraditional commodities.13 Foreign exchange continues to be allocated on an administrative basis. In light of this information, the exchange arrangements of Uganda were reclassified from the category “More Flexible: Managed Floating” to the category “Pegged: U.S. Dollar.”

Viet Nam informed the Fund that the exchange rate of the dong against the U.S. dollar for certain invisible transactions (primarily inward remittances and tourism) was changed on November 1, from D 15 = US$1 to D 80 = US$1. For other transactions the rate of D 15 = US$1 was maintained. The November 1 adjustment represents a devaluation of 81.3 percent in terms of the U.S. dollar, and was the third to take place since the currencies of the north and south were unified in 1978. Since that time the dong has been devalued vis-à-vis the U.S. dollar by a cumulative 99 percent. The exchange arrangements of Viet Nam were thus reclassified from the category “Pegged: SDR” to the category “Pegged: U.S. Dollar.”

Developments in the Exchange Rates of Industrial Countries

Adjustments of the central rates within the European Monetary System were implemented on two separate occasions in 1986. With effect from April 7, the bilateral central rates of the deutsche mark and the Netherlands guilder were revalued by 3.0 percent each; those of the Belgian franc, the Luxembourg franc, and the Danish krone were revalued by 1.0 percent each; and that of the French franc was devalued by 3.0 percent.14 The bilateral central rates of the Irish pound and the Italian lira remained unchanged. The notional ECU rates for the pound sterling and the Greek drachma were lower by 11.9 percent and 28.5 percent, respectively, reflecting developments in the market rates of the currencies since the last realignment of July 22, 1985. The central rates were realigned again with effect from August 4, entailing a downward adjustment (depreciation) of 8 percent in the bilateral central rates of the Irish pound vis-à-vis the currencies of the other countries that participate in the EMS. All other bilateral central rates remained unchanged from the levels set in the realignment of April 7. The notional ECU central rates for the pound sterling and the Greek drachma were lower by 7.2 percent and 1 percent, respectively, reflecting developments in the market rates of the currencies since the April 7 realignment. As a result of these adjustments, the central rate of the Irish pound in terms of the ECU declined by 6.8 percent while the central rates of the other EMS currencies increased by about 1.3 percent in terms of the ECU. A further realignment took place on January 12, 1987, entailing an upward adjustment of the bilateral central rates of the deutsche mark and the Netherlands guilder of 3 percent, as well as an upward adjustment of the central rates of the Belgian and Luxembourg francs of 2 percent. On this occasion, the notional ECU rates for the pound sterling and the Greek drachma were lower by 8.2 percent and 9.1 percent, respectively, reflecting developments in the market rates of the currencies since the realignment of August 4, 1986.

The U.S. dollar depreciated sharply in the first quarter of 1986 in effective MERM terms.15 Following a 4 percent depreciation in February, the U.S. dollar leveled off in March and April, then gradually depreciated further to a level 13 percent below that of December 1985 by end-year. From end-1985 to end-1986 only the Australian dollar depreciated in terms of the U.S. dollar (2.4 percent on an end-year basis) (Table 3). Over the same period, the deutsche mark had the largest appreciation against the U.S. dollar in 1986 (26.8 percent), while the Canadian dollar had the smallest appreciation (1.2 percent).

Table 3.Exchange Rate Movements of Currencies of Industrial Countries with “Cooperative” or “Independently Floating” Arrangements(December 31, 1985-December 31, 1986)
Percentage
Exchange rateAppreciation (+)/
Currency UnitsMERMDepreciation (-)
per U.S. dollarIndexIn terms
(End of Period)(1980 = 100)of U.S. dollarMERM
AustraliaDec. 31, 19851.468673.8
(dollar)Dec. 31, 19861.504265.0−2.4−11.9
Belgium - LuxembourgDec. 31, 198550.3680.9
(franc)Dec. 31, 198640.4185.4+ 24.6+ 5.6
CanadaDec. 31, 19851.397596.2
(dollar)Dec. 31, 19861.380591.8+ 1.2−4.6
DenmarkDec. 31, 19858.969085.0
(krone)Dec. 31, 19867.342592.2+ 22.2+ 8.5
FranceDec. 31, 19857.561074.2
(franc)Dec. 31, 19866.455075.5+ 17.1+ 1.8
Germany, Fed. Rep. ofDec. 31, 19852.4613100.8
(deutsche mark)Dec. 31, 19861.9408111.2+ 26.8+ 10.3
IrelandDec. 31, 19850.804281.9
(pound)Dec. 31, 19860.714582.0+ 12.5+ 0.1
ItalyDec. 31, 19851,678.566.7
(lira)Dec. 31, 19861,358.171.9+ 23.6+ 7.8
JapanDec. 31, 1985200.5140.2
(yen)Dec. 31, 1986159.1162.2+ 26.0+ 15.7
NetherlandsDec. 31, 19852.7720100.4
(guilder)Dec. 31, 19862.1920109.7+ 26.5+ 9.3
New ZealandDec. 31, 19852.006072.71
(dollar)Dec. 31, 19861.910265.0+ 5.0−10.61
United KingdomDec. 31, 19850.692382.5
(sterling)Dec. 31, 19860.678271.3+ 2.1−13.6
United StatesDec. 31, 1984135.6
(dollar)Dec. 31, 1985117.8−13.1
Source: International Monetary Fund, International Financial Statistics.

Nominal effective exchange rate.

Source: International Monetary Fund, International Financial Statistics.

Nominal effective exchange rate.

As in 1985, there were sizable movements in the nominal effective exchange rates of the currencies of most industrial countries in 1986. In effective (MERM) end-of-year terms, the largest exchange rate appreciation was that of the Japanese yen (15.7 percent). Other appreciations ranged from 10.3 percent (Federal Republic of Germany) to 1.8 percent (France), while the currencies of the following five countries depreciated: Australia (11.3 percent), Canada (4.8 percent), New Zealand (10.6 percent), United Kingdom (13.6 percent), and United States (13.1 percent).

Developments in Exchange Rate Arrangements in Other Countries

Among those members whose currencies are pegged to the U.S. dollar, eight countries implemented changes in their exchange arrangements or in their exchange rates during the period under review (Table 4).

Table 4.Changes in Exchange Rates of Currencies Pegged to Single Currency, SDR, or other Currency Composites, 1986
Domestic Currency

Units per U.S.

Dollar or

per SDR1
Percentage

Appreciation (+)/

Depreciation (−)

(in Terms of

U.S. Dollar, SDR,

or Currency

Composite)
Country (Currency)Date of

Change
PegOld rateNew rate
Botswana (pula)January 20Other composite+ 1.00
Burundi (franc)2July 10SDR122.70141.00−13.00
August 8141.00144.40− 2.40
Guyana (dollar)September 3Other composite6.03314.00−56.93
Hungary (forint)February 28Other composite− 3.00
September 23Other composite− 8.00
Kenya (shilling)February 28SDR17.7418.58− 4.52
June 3018.5819.14− 2.93
Libyan Arab Jamahiriya (dinar)4May 1SDR0.360.38− 7.0
Malawi (kwacha)August 16Other composite1.8052.00−10.00
Norway (krone)May 12Other composite6.9257.43− 6.86
Oman (rial)January 25U.S. dollar0.34540.3845−10.17
Paraguay (guaraní)December 10U.S. dollar6320.00550.00−41.82
December 10U.S. dollar7240.00400.00−40.00
December 10U.S. dollar8240.00400.00−40.00
December 10U.S. dollar9160.00240.00−33.33
Poland (zloty)September 1Other composite161.235200.00−19.39
September 191.001095.00− 4.21
Romania (leu)July 1Other composite17.4116.00+ 8.8111
12.4311.00+ 13.0012
Tanzania (shilling)June 20Other composite30.00540.00−25.00
Vanuatu (vatu)February 13SDR110.00122.00− 9.84
October 23SDR122.00142.00−14.08
Viet Nam (dong)13November 1U.S. dollar15.0080.00−81.25
Yemen Arab Republic (rial)January 7U.S. dollar6.497.24−10.43
November 26U.S. dollar7.248.99−19.47

The currency units and magnitude of devaluations are expressed in terms of the currency peg.

In addition, four devaluations of 1.2 percent each were effected monthly through December 1986.

Exchange rate in terms of the U.S. dollar which is applicable only to official purchases of gold.

The exchange arrangements of Libyan Arab Jamahiriya were reclassified with effect from March 18 from the category “Pegged: U.S. dollar” to the category “Pegged: SDR.”

Exchange rate and percentage change expressed in terms of the U.S. dollar.

Exchange rate applies to minimum surrender of export proceeds to the Central Bank.

Exchange rate applies to imports of petroleum and petroleum products.

Exchange rate applies to public sector purchases of goods and nonfactor services, with certain exceptions.

Exchange rate applies to external debt service and capital transactions of the public sector.

Exchange rate for the transferable ruble.

Commercial rate.

Noncommercial rate, which applies to a small share of external transactions.

Exchange rate for certain invisible transactions. The exchange arrangements of Viet Nam were reclassified in the second quarter of 1986 from the category “Pegged: SDR” to the category “Pegged: U.S. dollar.”

The currency units and magnitude of devaluations are expressed in terms of the currency peg.

In addition, four devaluations of 1.2 percent each were effected monthly through December 1986.

Exchange rate in terms of the U.S. dollar which is applicable only to official purchases of gold.

The exchange arrangements of Libyan Arab Jamahiriya were reclassified with effect from March 18 from the category “Pegged: U.S. dollar” to the category “Pegged: SDR.”

Exchange rate and percentage change expressed in terms of the U.S. dollar.

Exchange rate applies to minimum surrender of export proceeds to the Central Bank.

Exchange rate applies to imports of petroleum and petroleum products.

Exchange rate applies to public sector purchases of goods and nonfactor services, with certain exceptions.

Exchange rate applies to external debt service and capital transactions of the public sector.

Exchange rate for the transferable ruble.

Commercial rate.

Noncommercial rate, which applies to a small share of external transactions.

Exchange rate for certain invisible transactions. The exchange arrangements of Viet Nam were reclassified in the second quarter of 1986 from the category “Pegged: SDR” to the category “Pegged: U.S. dollar.”

Egypt informed the Fund that some transactions were taking place through the central bank pool at rates differing from LE 0.7 = US$1, which was the rate previously applicable to all such transactions and had been unchanged since January 1, 1979. The exchange system was simplified in July 1986 when the official commercial bank rate (buying: LE 0.83 = US$1) was eliminated. By July relatively few transactions were taking place at that rate, as most transactions in the commercial bank pool had been officially designated to take place at the more depreciated premium commercial bank rate, which fluctuated narrowly around LE 1.35 = US$1. After the elimination of the official commercial bank rate, the premium rate was renamed the authorized commercial bank rate, and all transactions in the commercial bank pool were stipulated to take place at the authorized rate. However, the public sector banks are now allowed, from time to time, to purchase foreign exchange from remittance agents abroad at a more depreciated rate approved by the Minister of Economy and Foreign Trade (in the range of LE 1.60−1.65 = US$1) and to sell the receipts to the public sector at a rate reflecting their purchase rate.

On June 5 Guatemala restructured the three-tier exchange rate system that had been in effect since November 1984. At the same time, the authorities eliminated the exchange tax that applied to certain current transactions, and introduced a variable export tax and other economic measures.

From November 1984 to June 4, 1986, Guatemala maintained a three-tier exchange rate system involving an official market for traditional exports, essential imports, and official transactions in which the quetzal was pegged at Q 1 = US$1; an auction market for certain priority imports and invisibles, in which the value of the quetzal was determined by a bidding process; and a banking market for all other transactions, in which the quetzal fluctuated within a band set by the Bank of Guatemala. In addition, there were a number of mixed exchange rates for export proceeds, and as of August 1985 an exchange tax of 3.5 percent was applied to certain current account transactions.

Under the new exchange arrangements, which were approved by the National Congress on May 6, the scope of the official market was reduced, and the previous auction market was replaced with a regulated market having substantially wide coverage; also the previous mixed rates for export surrender were eliminated. The new exchange arrangements, which remain complex, involved a depreciation of the transactions weighted average value of the quetzal to around Q 2.3 = US$1 from about Q 1.9 = US$1 under the previous system. In the case of exports, the value of the quetzal depreciated from about Q 1.95 = US$1 to Q 2.53 = US$1; however, if account is taken of the variable export tax that was introduced together with the new exchange arrangements, the exchange rate for exports moved from about Q 1.95 = US$1 under the previous system to Q 2.15 = US$1. The official market, which previously handled about 55 percent of total exports and about 35 percent of total imports, now applies only to the service of external public debt and private debt (registered with or guaranteed by the Bank of Guatemala) disbursed before the new arrangements came into effect, and to certain imports for the manufacture of generic drugs. No exchange proceeds are surrendered in the official market. The official exchange rate continues to be fixed at Q 1 = US$1. The newly established regulated market handles most trade and capital transactions. All exchange receipts from exports outside of Central America, official inflows, and inflows from registered private borrowing are channeled through the regulated market. In the case of exports destined to the Central American region, about 60 percent of such export proceeds must be surrendered in the regulated market, while the rest may be channeled through the banking market.

On the payments side, all imports that previously were paid in the official and auction markets and service payments on public and registered private debt disbursed after the new arrangements came into effect are channeled through the regulated market. The exchange rate in the regulated market was initially set at Q 2.5 = US$1 (buying), and is adjusted from time to time by the Monetary Board, taking into consideration, inter alia, developments in the net international reserves of the Bank of Guatemala and movements of the exchange rate in the banking market. The banking market is maintained for imports considered to be of relatively low priority, and the exchange rate continues to fluctuate to a maximum and minimum band established by the Monetary Board. In May the exchange rate in the banking market averaged around Q 2.97 = US$1 and had moved within a band of Q 2.70 and Q 3.00 = US$1 set by the Bank of Guatemala.

In the case of trade transactions not required to be channeled through the regulated market, payments and receipts can be negotiated either in the banking market or through other channels outside the banking system. This decision of the Monetary Board effectively allows traders to operate private markets for other Central American currencies, which may give rise to exchange rates for the quetzal different from those in the other three exchange markets. With the introduction of the new exchange arrangements, the authorities eliminated the 3½ percent exchange tax that applied to certain trade and invisible transactions, and a tax on all exports except petroleum was introduced. The export tax is applied to the gross value of export sales, with different rates for nine categories of exports, which vary in proportion to international prices; tax rates for bananas and meat are set in specific terms. The export tax is assessed on the local currency value of exports as determined at the time of exportation, and is to be paid at the latest when the exchange receipts are surrendered in the banking system. The export tax is to be maintained for 1 year and then phased out over a period of 34 months by cumulative reductions in the applicable tax rates of 3 percentage points a month.

Nicaragua notified the Fund that, with effect from February 1, a more depreciated official rate was adopted for most transactions, along with the establishment of mixed exchange rates for certain export proceeds and invisible receipts.16 Most exchange transactions are conducted at an official exchange rate of the córdoba of C$70 = US$1, with the following exceptions: (1) 25 percent of proceeds from nontraditional exports (exports other than coffee, cotton, sugar, sesame, and beef) and 50 percent of certain invisible receipts (not directly linked to trade) and cash transfers from abroad can be used for approved imports of goods and payments for medical expenses, travel, student, or similar expenditures abroad, or can be converted at the “free” rate;17 (2) imports of petroleum are to be handled at C$28 = US$1; (3) the servicing of external debt disbursed prior to February 8, 1985 is to be made at C$10 = US$1; (4) the servicing of foreign debt disbursed during the period February 8, 1985 to May 31, 1986 is to be made at the exchange rate applicable to imports and services financed with the proceeds of the loans; and (5) transactions not included or not satisfied in the official market will be handled at the “free” rate. It is estimated that these changes involved an implicit nominal devaluation of the córdoba of about 64 percent on average (in foreign currency terms). Foreign exchange receipts transferred from the official to the “free” market are estimated to amount to US$30–40 million on an annual basis. Including foreign exchange payments, the share of the “free” market in total current account transactions is estimated to increase to 3–4 percent.

Oman notified the Fund that, with effect from January 25, the peg of the rial Omani for the U.S. dollar was changed from RO 0.3454 = US$1 to RO 0.3845 = US$1. The new buying and selling rates for the U.S. dollar are RO 0.384 and RO 0.385, respectively. This adjustment of the exchange rate for the U.S. dollar, which had been maintained unchanged since 1973, represents a 10.2 percent depreciation of the rial Omani vis-à-vis the U.S. dollar. The authorities indicated that the decision to change the exchange rate was taken in view of declining international oil prices and their impact on the balance of payments.

Following an announcement on September 22 of changes which were to be made in the exchange rate system, the Central Bank of Paraguay on December 10 effected a change in the official exchange rate for the minimum surrender of export proceeds to the Central Bank from (₲ 320 = US$1 to (₲ 550 = US$1; in the exchange rate for the imports of petroleum and petroleum products from (₲ 240 = US$1 to (₲ 400 = US$1; in the exchange rate for public sector purchases of goods and nonfactor services, with certain exceptions, from(₲ 400 = US$1; and in the exchange rate for external debt service and capital transactions of the public sector, from (₲ 160 = US$1 to (₲ 240 = US$1.

Peru informed the Fund that, with effect from July 25 and November 27, several new regulations affecting the parallel market for foreign exchange have been introduced. A large number of merchandise trade transactions were transferred from the official foreign exchange market to the controlled financial market for foreign exchange on July 25, with additional transfers on August 27 and November 27. They also announced on November 27 that the inti would be depreciated by a minimum of 2.2 percent per month against the U.S. dollar, starting in 1987. The Central Reserve Bank remained committed to maintaining in the controlled financial markets a premium on the official exchange rate of at least 25 percent. The surrender requirement in the official exchange market was reduced from 70 percent to 60 percent for nontraditional exports on July 25 and eliminated on November 27. For mineral exports by small- and medium-sized mines, it was reduced from 90 percent to 70 percent on July 25 and to 45 percent on November 27. The surrender requirement for other traditional exports (excluding oil) was temporarily increased from 90 percent to 95 percent on July 25 but then lowered to 65 percent on November 27. For oil exports it was raised from 90 percent to 100 percent on July 25 and again lowered to 90 percent on November 27.

Under the existing exchange control system, export proceeds are required to be surrendered to the Central Reserve Bank, which issues exchange certificates with a maturity often days for the full value of the exchange surrendered. Prior to July 25, exchange certificates were issued for 90 percent of the value of receipts from traditional exports and for 70 percent of the value of receipts from nontraditional exports. In addition, with effect from November 27, if exporters of most nontraditional exports choose to convert their foreign exchange receipts into intis instead of holding exchange certificates, they are entitled to a subsidy of 10 percent of the amount being converted. The subsidy amounts to 20 percent for certain nontraditional exports. As a result of the new regulations, the exchange rate system now involves an official rate, a controlled financial market rate, three mixing rates associated with the surrender requirements of 45 percent, 65 percent, and 90 percent for certain transactions, and two new rates associated with the subsidies of 10 percent and 20 percent for nontraditional exports.

Venezuela implemented changes in its exchange arrangements on two separate occasions in 1986. With effect from January 1, foreign exchange transactions comprising payments for a limited number of essential imports and related services and certain remittances to students abroad, which had access to the exchange rate of the Venezuelan bolívar of Bs 4.30 = US$1 exchange rate, and all current and capital transactions of the national petroleum and iron ore companies, which had been effected at Bs 6.00 = US$1, were to be effected at the Bs 7.50 = US$1 exchange rate. As a result, Venezuela’s exchange system comprised several rates. The first exchange rate, of Bs 7.50 = US$1, was applicable to most trade and other current transactions, to capital inflows of the public sector, and to external debt service of the Central Government. Central Bank sales of foreign exchange at this rate must be approved by the Exchange Control Agency (Recadi). A second exchange rate, of Bs 4.30 = US$1, was applicable to amortization payments of certain public and private external debts, and to interest payments on such debts that had accrued before December 31, 1983 and had not been paid. Public debts eligible for this exchange rate comprised all debts of the decentralized public sector outstanding as of February 18, 1983, excluding those debts that had been assumed by the Central Government. Private sector debts eligible for this exchange rate were defined as the net foreign liability position of the debtor as of February 18, 1983 and comprised those debts outstanding which had been registered by Recadi. The third rate was the free market exchange rate applicable to all other transactions including tourism, imports for which exchange authorization had not been issued by Recadi, exports other than oil and iron ore, payments of interest and amortization of nonregistered private debt, and new private capital inflows. In December 1985 the free market exchange rate fluctuated around the monthly average of Bs 14.75 = US$1.

With effect from December 6, 1986, the system was modified, moving the weighted average rate from Bs 8.82 = US$1 to about Bs 12.40 = US$1, a depreciation of close to 30 percent. This step restored the exchange rate of the bolívar in real effective terms to the level of the mid-1970s, completing the reversal of the appreciation that took place until early 1983. The new exchange system consists of the following rates: (1) A new rate of Bs 14.50 = US$1 is now applicable to most commercial and financial transactions, including most imports previously effected at the exchange rate of Bs 7.50 = US$1, and exports and imports that were previously channeled through the free exchange market; i.e., the new rate applies to about 70 percent of imports and nonfactor services and all exports other than oil and iron ore. This rate also applies to government and capital transactions and to new private capital flows.18 (2) The existing Bs 7.50 = US$1 exchange rate remains applicable to “essential” imports and related services, amounting to 25 percent of imports, or about US$1.5 billion, and to trade and services of the state-controlled oil and iron ore sectors. Essential imports include food and medicines, imports for the agricultural sector, textiles and footwear, and paper products. This exchange rate also applies to the payment of import credits outstanding as of December 8, 1986, estimated at about US$1.2 billion, and to the servicing of the external debt of public enterprises and of registered private debt, provided an exchange rate guarantee premium is paid. (3) The coverage of the free market rate was sharply reduced, as it now applies only to tourism and nonregistered private capital flows. Transactions in the free market are now estimated to represent about 5 percent of all foreign exchange transactions, compared with about 15 percent, previously. In the weeks following these modifications to the exchange system, the free market exchange rate appreciated to around Bs 20–22 = US$1, then depreciated to the Bs 25 = US$1 level of November 1986.

The Yemen Arab Republic informed the Fund that, with effect from January 7, the midpoint exchange rate of the Yemeni rial against the U.S. dollar in the official market was changed from YRls 6.485 = US$1 to YRls 7.24 = US$1, representing a 10.4 percent depreciation against the U.S. dollar. Reflecting continued pressure on the external payments position, the differential between the official exchange rate and the exchange rate in the free market had widened to 23 percent during the month immediately preceding the January 7 devaluation. The Yemen rial was further depreciated on November 26 from YRls 7.24 = US$1 to YRls 8.99 = US$1, representing a 19½ percent depreciation against the U.S. dollar.

Among those members whose currencies are pegged to the SDR, three countries implemented changes in their exchange arrangements or exchange rates.

Kenya notified the Fund that, with effect from February 28, the central exchange rate of the Kenya shilling was changed from KSh 17.74 = SDR 1 to KSh 18.58 = SDR 1, representing a devaluation of 4.5 percent. With effect from June 30, the shilling was further adjusted from KSh 18.58 = SDR 1 to KSh 19.14 = SDR 1, representing a devaluation of 2.9 percent. The Kenya shilling is pegged to the SDR within margins of 2.25 percent on either side of the central rate.

With effect from May 1, the Central Bank of Libya introduced margins of ±7.5 percent within which the exchange rate of the Libyan dinar may fluctuate around the fixed relationship to the SDR. Also with effect from that date, the exchange rate was depreciated to the maximum extent permissible within the new margins, i.e., to LD 1 = SDR 2.60465. The official buying and selling exchange rates of the Libyan dinar for U.S. dollars and other currencies are determined on the basis of the Fund’s daily calculation of the U.S. dollar/SDR rate.

Vanuatu implemented changes in its exchange arrangements on two separate occasions in 1986. With effect from February 13, the vatu was devalued from VT 110 = SDR 1 to VT 122 = SDR 1, representing a devaluation of 9.8 percent. With effect from October 23, the vatu was further devalued from VT 122 = SDR 1 to VT 142 = SDR 1, representing a devaluation of 14.1 percent. Both actions were taken to reverse appreciation of the vatu against a number of currencies, in particular, the Australian dollar, the New Zealand dollar, and the U.S. dollar.

Among those members whose currencies are pegged to a currency composite other than the SDR, ten countries implemented changes in their exchange rates or exchange arrangements.

Botswana notified the Fund that with effect from January 20, the relative weight of the rand in the pula basket was reduced to 65 percent, while that of the SDR was increased to 35 percent. Since January 9, 1985, the pula had been pegged to a currency basket in which a weight of 75 percent was assigned to the rand and 25 percent to the composite of currencies included in the SDR. The exchange rate of the pula was revalued by 1 percent against the old basket before the new basket took effect. The Botswana authorities took these measures in view of their assessment of the strength of the balance of payments position of Botswana, and the need for some appreciation of the pula vis-à-vis the rand in order to moderate the impact of the acceleration of inflation in South Africa on the cost of living in Botswana.

With effect from September 3, Guyana devalued the implicit exchange rate applicable to official purchases of gold from G$6.03 = US$1 to G$14 = US$1, a devaluation of 56 percent. The official exchange rate remained at G$4.30 = US$1.

Hungary introduced, with effect from January 24, a modification in the composition and the calculation of the basket of currencies on the basis of which the exchange rate of the Hungarian forint against convertible currencies (currencies other than those of the member countries of the Council for Mutual Economic Assistance, Albania, and the Democratic People’s Republic of Korea) is derived. The elements of the modification can be detailed as follows: (1) the basic method of a weighted basket, which had been applied up to the above date, remains unchanged; (2) weights attached to each of the currencies in the basket are calculated under the new system on the basis of the currency composition of Hungary’s export and import payments in convertible currencies; (3) the basket consists of those ten convertible currencies that have a share of more than 1 percent in Hungary’s export and import payments in convertible currencies (i.e., Austrian schilling, deutsche mark, French franc, Italian lira, Japanese yen, Netherlands guilder, pound sterling, Swedish krona, Swiss franc, and U.S. dollar). It is expected by the Hungarian authorities that, as a result of the modification of the currency basket, future movements in the foreign exchange rate will reflect more closely the behavior in the foreign exchange markets of the currencies of Hungary’s major trading partners. With effect from February 28, the forint was devalued by 3 percent in terms of the basket. In addition, with effect from September 23, the forint was further devalued by 8 percent vis-à-vis the basket.

With effect from August 16, the exchange rate of the Malawi kwacha was devalued by 9.9 percent, from MK 1.8045 = US$1 to MK 2.0031 = US$1.

Mozambique notified the Fund that the premium buying rate previously fixed for Mozambican miners working in South Africa has ceased to be applied since March 1.

Norway notified the Fund that, with effect from May 12, the krone was devalued as a result of a change in the central value of the Norwegian exchange rate index from 100 to 112 with a margin of 2.25 percent on either side of the central value. In terms of the U.S. dollar, the exchange rate was changed from NKr 6.9175 = US$1 to NKr 7.4275 = US$1, representing a depreciation of 6.9 percent.

Poland notified the Fund that, with effect from September 1, the value of the zloty was depreciated against the basket of currencies to which it is pegged for purposes of determining exchange rates against convertible currencies. In terms of the U.S. dollar, the exchange rate was changed from Zl 161.23 = US$1 (the rate effective at end-August) to Zl 200 = US$1, representing a depreciation of 19.4 percent. At the same time, the exchange rate for the transferable ruble was changed from Zl 91 = TR 1 to Zl 95 = TR 1, representing a depreciation of the zloty of 4.2 percent. (All references to exchange rates are to the midpoint of the relevant buying and selling rates quoted by the National Bank of Poland for spot transactions.)

Romania informed the Fund that on July 1, the commercial exchange rate of the leu was appreciated by 8.8 percent against the basket of currencies to which it is pegged. At the same time, the noncommercial exchange rate, which applies to a small share of external transactions (notably individual tourism) was appreciated by 13 percent against the same basket of currencies. Against the U.S. dollar, the new rates established on July 1 were lei 16.00 = US$1 (commercial rate) and lei 11.00 = US$1 (noncommercial rate), maintaining the absolute difference between the two rates at roughly the level it had held before the appreciation. The last rates quoted prior to the change, on June 30, were lei 17.42 = US$1 (commercial rate) and lei 12.43 = US$1 (noncommercial rate). No changes were made in the structure of the basket of six currencies to which the leu is pegged, or in the system of determining bilateral commercial and noncommercial exchange rates on a weekly basis.

Sudan informed the Fund that, with effect from January 31, a new system was implemented whereby the commercial bank rate of the Sudanese pound is set by the Bankers’ Association. The Association will also pool all foreign exchange acquired in the market and allocate it among the commercial banks for the financing of imports in line with the priorities set by the import licensing authorities. Although the commercial bank rate is to be set flexibly and is intended to reflect underlying market conditions, the initial decision of the Bankers’ Association was to maintain the rate of LSd 3.3 = US$1, as compared with the “dealer rate” of about LSd 5 = US$1, at which most of the transactions were in effect taking place. The commercial bank rate was subsequently adjusted, and is LSd 4.05 = US$1. In addition, there is an official exchange rate of LSd 2.5 = US$1 and an effective export rate, which represents a mix of the official and commercial bank rates.

With effect from June 20, the midpoint exchange rate of the Tanzanian shilling against the U.S. dollar, the intervention currency, was adjusted to TSh 40 = US$1. This adjustment represents a 25 percent devaluation against the U.S. dollar. The Tanzanian authorities began to depreciate the shilling in March; the exchange rate against the U.S. dollar was depreciated gradually from TSh 16.0 = US$1 at the end of March to TSh 19.95 = US$1 by the end of April, TSh 26.0 = US$1 by the end of May, and TSh 30.0 = US$1 by June 19. By end-November the rate was TSh 49.2 = US$1.19

Two members whose exchange arrangements are classified as “More Flexible: Adjusted According to a Set of Indicators” implemented changes in the period under review (Table 5).

Table 5.Changes in Exchange Rates of Currencies Subject to “More Flexible” Arrangements1(December 31, 1985–December 31, 1986)
Currency Units per U.S. Dollar2

(End of Period)
Percentage Appreciation (+)/

Depreciation (−) (in

Terms of U.S. Dollars
Dec. 31, 1985Dec. 31, 1986per Currency Unit)
Argentina (austral).80051.2570−36.3
Bolivia (peso)1,692,000.01,923,000.0−12.0
Brazil (cruzeiro)310,490.014.94−29.8
Chile (peso)183.86204.73−10.2
China (yuan)3.20153.7221−14.0
Colombia (peso)172.2219.0−21.4
Costa Rica (colón)53.758.9−8.8
Dominican Republic (peso)2.94003.0766−4.4
Ecuador (sucre)95.75146.50−34.6
Gambia, The (dalasi)3.46147.4261−53.8
Ghana (cedi)59.8802152.00−60.6
Greece (drachma)147.76138.76+ 6.5
Guinea-Bissau (peso)173.607238.980−27.4
Iceland (krona)42.0640.24+ 4.5
India (rupee)12.165513.1220−7.3
Indonesia (rupiah)1,125.01,641.0−31.4
Israel (new sheqel)1.49951.4864+ 0.9
Jamaica (dollar)5.485.48
Korea (won)890.2861.4+ 3.3
Lebanon (pound)18.187.0−79.2
Madagascar (franc)635.79769.81−17.4
Mexico (peso)371.7923.5−59.8
Morocco (dirham)9.62138.7117+ 10.4
Nigeria (naira)0.99963.3167−69.9
Pakistan (rupee)15.9817.25−7.4
Philippines (peso)19.03220.53−7.3
Portugal (escudo)157.487146.117+ 7.8
Sierra Leone (leone)5.208335.5872−85.4
Somalia (shilling)42.590.5−53.0
South Africa (rand)2.55752.1834+ 17.1
Spain (peseta)154.15132.40+16.4
Sri Lanka (rupee)27.40828.520−3.9
Tunisia (dinar).7570.8402−9.9
Turkey (lira)576.855757.790−23.9
Uruguay (new peso)125.0181.0−30.9
Western Samoa (tala)2.30632.1978+ 4.9
Yugoslavia (dinar)312.805457.180−31.6
Zaïre (zaïre)55.792571.1000−21.5
Zambia (kwacha)5.7012.7097−55.2

The information presented in this table relates to those members not included in Table 4 whose arrangements are classified in the category “More Flexible” as of December 31, 1986. Exchange rates shown are midpoints of buying and selling rates.

For those countries which maintain multiple rates, the rate shown is either that quoted by the authorities as the official rate or that used most widely in the country’s international transactions.

Brazil introduced a new currency with effect from February 27, 1986, the “cruzado,” replacing the cruzeiro at the rate of 1,000 cruzeiros per cruzado.

The information presented in this table relates to those members not included in Table 4 whose arrangements are classified in the category “More Flexible” as of December 31, 1986. Exchange rates shown are midpoints of buying and selling rates.

For those countries which maintain multiple rates, the rate shown is either that quoted by the authorities as the official rate or that used most widely in the country’s international transactions.

Brazil introduced a new currency with effect from February 27, 1986, the “cruzado,” replacing the cruzeiro at the rate of 1,000 cruzeiros per cruzado.

Brazil informed the Fund that, with effect from February 27, the cruzeiro was replaced by a new currency called the “cruzado” (cruzados in the plural) at the rate of 1,000 cruzeiros per cruzado. The abbreviation for this new currency is “CZ$.” A subsidiary unit for the cruzado was also introduced, the “centavo.” The value of one centavo is CZ$0.01. The cruzado was devalued by 1.8 percent in terms of the U.S. dollar with effect from October 15, from CZ$13.84 = US$1 to CZ$14.09 = US$1. In addition, with effect from July 17, 1986 through December 31, 1987, monetary payment of the following ad valorem taxes on international travel is required: (1) 25 percent on the issue, in Brazil, of international air and sea tickets; (2) 25 percent on orders originating in Brazil for the issue of tickets abroad; and (3) 25 percent on the sales of foreign exchange for expenses related to foreign travel. Since November 21, 1986 the cruzado has been devalued daily, for a total of 5.7 percent, to CZ$14.44 = US$1 by year-end.

Somalia devalued the official exchange rate of the Somali shilling by 22 percent with respect to the U.S. dollar, effective January 21, from So. Sh. 42.50 = US$1 to So. Sh. 54.50 = US$1. A further devaluation of 6.8 percent to So. Sh. 58.50 = US$1 was carried out on March 1; subsequently, the official exchange rate was adjusted by So. Sh. 4 per month to So. Sh. 90.5 = US$1 by end-December. In addition, in September a foreign exchange auction was introduced for imports financed by the World Bank. A predetermined amount of funds from the IDA credit for the Agriculture Sector Adjustment Program is disbursed through auctions which are held twice a month, and successful bidders are allowed to open letters of credit to import products that are not on the “negative list.” The auction-determined exchange rate is not being applied to most commodity import programs and other donor financial programs.

A commercial bank rate had existed between April 1985 and September 1986, and most commodity and other donor-assisted programs were negotiated at this rate. As the commercial bank rate was not depreciated in line with the free market rate, being held constant at So. Sh. 84.4 = US$1, a third exchange rate emerged. In September 1986 the commercial rate was merged with the official rate. Under the present exchange system, separate market-determined exchange rates, which averaged So. Sh. 140 = US$1 in December 1986, apply to most private transactions except for export receipts surrendered to the Central Bank. The official exchange rate is maintained on a transitional basis for the surrendered export proceeds, for most government transactions, and for the undisbursed portion of the 1985 commodity import program. The authorities had previously liberalized and simplified the exchange and trade system in early 1985. In practice, residents and nonresidents continue to be free to buy and sell foreign exchange, and practically all formal controls with respect to trade and current payments have been removed, including licensing requirements for virtually all import and export transactions.

Six countries classified as “Managed Floating” implemented changes in their exchange arrangements in 1986.

Ecuador adjusted the exchange rate of the Ecuadoran sucre applicable to all foreign exchange transactions from S/. 95 = US$1 (buying) to S/. 108.5 = US$1 with effect from January 29. The rate of S/. 95 = US$1 was retained as an official rate to be used only for the Central Bank’s own accounting purposes; there are no transactions at this rate. This action was intended to assist the implementation of a flexible exchange rate policy, as the intervention rate could henceforth be adjusted administratively by the Monetary Board. In addition, with effect from August 12, the surrender requirement for private sector foreign exchange was abolished, leaving the exchange rate for private sector transactions to be determined freely by market forces. Public sector transactions, including oil transactions, continue to be conducted in the central bank intervention market.

Current transactions of the private sector, as well as all public sector transactions, were previously carried out in the central bank intervention market at the rate of S/. 108.50 = US$1 (buying rate), which was subject to changes by the Monetary Board. The value of the sucre in the free exchange market, which was S/. 169.00 = US$1 (buying) on August 12, subsequently appreciated to S/. 146.00 = US$1 by the end of the year. Since August 20, 1986, the authorities have adjusted the intervention rate regularly so as to maintain a narrow spread between this rate and the free rate. From end-1985 to end-1986, the sucre depreciated by almost 24 percent in real effective terms against the U.S. dollar.

With effect from September 12, the exchange rate of the Indonesian rupiah was changed from Rp 1,134 = US$1 to Rp 1,644 = US$1, representing a depreciation of 31 percent in terms of the U.S. dollar, the intervention currency. This adjustment brought the real effective exchange rate to 46 percent below the level prevailing after the March 30, 1983 devaluation of 27.6 percent.

On April 15 Israel notified the Fund that the name of Israel’s new currency is to be recorded as “new sheqel” in the singular and “new sheqalim” in the plural.20 (The previous spelling of Israel’s currency was shekel(s)). The adjective “Israeli” should be used when describing the currency, and the abbreviation is “NIS.” The subsidiary unit for the new Israeli sheqel is “agora” in the singular and “ago-rot” in the plural. The word “new” is not part of the name of the subsidiary unit. The value of one agora is NIS 0.01. With effect from August 1, the value of the new Israeli sheqel is determined in accordance with a weighted basket of currencies reflecting the composition of Israel’s exports and imports with its main trading partners. Under the modified arrangements, the weights are as follows: U.S. dollar, 60 percent; deutsche mark, 20 percent; pound sterling, 10 percent; French franc and Japanese yen, 5 percent each. The Bank of Israel plans to stabilize the exchange rate of the new sheqel against the basket, with due regard to developments in wages and other economic factors. The value of the currency basket on August 1 was set at one U.S. dollar, and its representative rate was NIS 1.4923. Small movements in the exchange rate around its present level are considered possible.

Tunisia devalued the dinar by 10 percent with effect from August 19. In terms of the U.S. dollar, the rate was adjusted from D 0.777 = US$1 on August 18 to D 0.860 = US$1 on August 19, representing a depreciation of 9.7 percent.21

The Fund was informed by Turkey that the exchange rate of the lira had been devalued by 5 percent effective March 15. Also at that time, as a temporary measure, limits were reintroduced on the exchange rate that the commercial banks quote, with the maximum margins around the Central Bank’s buying and selling rates set at 1 percent. This margin requirement was subsequently reduced in October. Since then, the Central Bank establishes its selling rate daily and the buying rate is set at 0.5 percent below the selling rate. The banks must use the Central Bank’s selling rate, but are free to set their own buying rate.

Among those members that are classified as “Independently Floating,” three countries implemented changes in their exchange arrangements.

The Dominican Republic eliminated an exchange surcharge and a departure tax. In the context of unification and flotation of the exchange rates on June 23, 1985, the Dominican Republic had introduced a temporary exchange tax of 36 percent for traditional exports and certain services receipts, and 5 percent for nontraditional goods. On January 19 the exchange surcharge on traditional exports was reduced to 18 percent and the 5 percent surcharge on nontraditional exports was eliminated. The remaining exchange surcharge on exports was eliminated as of June 17. With effect also from June 17, the Dominican Republic eliminated a US$20 departure tax applied to tourists and Dominicans traveling abroad.

Ghana informed the Fund that, with effect from the close of business on January 10, the exchange rate of the cedi in terms of the U.S. dollar was adjusted from Ȼ 60 = US$1 to Ȼ 90 = US$1, representing a depreciation of 33.3 percent in terms of the U.S. dollar.22

In August Zambia introduced a “Dutch” auction system, replacing the original system in which all successful bidders purchased foreign exchange at the marginal (market-clearing) rate. Earlier in July, however, certain additional documentation requirements for access to the auction had been introduced which were intended to monitor compliance by participants and utilization of foreign exchange disbursed through the auction. These developments, combined with increased sales of foreign exchange, yielded a sharp appreciation of the kwacha in terms of the U.S. dollar to the range of K 5–K 6.25 = US$1 by end-August despite excess liquidity in the economy. During the fourth quarter of 1986, the supply of foreign exchange was reduced in line with available resources, “speculative” pressures began to build up as uncertainty arose with the erosion of the resource base of the auction, and the kwacha depreciated to K 12.71 = US$1 by the end of the year, a depreciation against the U.S. dollar of 54 percent since August.

IV. Main Developments in Regional Arrangements

A number of new steps were taken to foster regional cooperation in 1986. Prominent among these were the accession of Portugal and Spain to the European Communities (EC)23 on January 1, 1986. Economic integration of the two new members with the rest of the region is being governed by a series of transitional arrangements. For industrial products, the enlarged membership is implementing a phased, reciprocal dismantling of internal tariffs and alignment of external tariffs according to a seven-year timetable. Portugal’s adoption of the EC’s Common Agricultural Policy (CAP) is being phased over a ten-year period, while Spain’s implementation of the CAP is expected to be largely completed over a period of seven years.24

During 1986, the EC held discussions with a number of countries to ensure that trade relations would not be disrupted as a result of the enlargement. Toward this end, a new trade protocol was signed between the EC and the European Free Trade Association (EFTA)25 on July 14. Negotiations between the EC and nonmember Mediterranean countries26 were also carried out throughout the year, with the aim of concluding a new, preferential trade agreement that would preserve traditional trade levels and patterns.

At a meeting in Reykjavik, Iceland, in June 1986 members of the EC Commission and EFTA ministers agreed in principle to introduce a simplified customs system throughout the two areas from January 1, 1988. Toward this end, discussions were initiated to simplify rules of origin and to create uniform customs documentation for all member states. Among other topics discussed at the meeting were ways to enhance cooperation in the field of research and development.

On May 1, 1986 the third ACP-EC Convention (Lomé III) entered into force, following its ratification by the ten EC member state signatories of the Convention and two thirds of the 66 participating African, Caribbean, and Pacific states.27 Lomé III has provisions similar to its predecessor agreement for development aid, special trading arrangements (including duty-free access for virtually all ACP country exports to the EC, except those covered by the CAP), and a system for stabilizing export earnings. The new convention emphasizes the development of specific sectors, particularly agriculture, and the promotion of investment.

In January 1986 representatives of the EC and the Southern African Development Coordination Conference (SADCC)28 signed a memorandum of understanding for a development program that would provide the Southern African states with financial assistance of ECU 110 million over a period of four to five years. The program, which is the first regional agreement to be concluded under the ACP-EC arrangements, will emphasize regional development of transportation, communications, food security, and agriculture.

Following preliminary contacts in 1985, representatives of the EC and the Council for Mutual Economic Assistance (CMEA)29 held further talks in 1986 aimed at the normalization of relations between the EC and individual CMEA members and the establishment of official relations between the two country groups. Discussions also continued in 1986 between the EC and the Gulf Cooperation Council which would lead to the eventual signing of a cooperation agreement in fields such as trade, energy, industrial cooperation, investment, technology transfer, and training. In October the EC concluded its first economic cooperation agreement with a group of six Central American states30 committing the EC to a substantial increase in aid flows.

A ministerial meeting of the Organization for Economic Cooperation and Development (OECD)31 was held in April 1986 to discuss the world economic situation and outlook, including relations with developing countries in the context of a growth-oriented adjustment strategy, freer access to markets, and adequate financial flows.

The twenty-first summit of the Customs and Economic Union of Central African States (UDEAC)32 was held in January 1986 in Libreville, Gabon. The discussions focused on the subject of free circulation of goods and services throughout the region, the institution of a value-added tax, and interstate cooperation in agriculture.

On March 14–15, 1986 representatives of African regional organizations and of the various specialized agencies of the United Nations attended a preparatory meeting in Addis Ababa, Ethiopia, for the Special Session of the General Assembly of the United Nations on Africa. The deliberations were based on an “African Position Document,” which had been elaborated on the basis of the “African Priority Program for Economic Recovery, 1986–90,” adopted by OAU heads of states at a summit meeting in Addis Ababa in July 1985.

The eleventh Conference of Heads of State of the West African Economic Community (WAEC)33 took place on March 26–27, 1986 in Ouagadougou, Burkina Faso. A committee was established to examine proposals for the restructuring of the WAEC and for the strengthening of its administration. The conference led to the announcement of plans to establish a Regional Information and Commercial Documentation Center, in Abidjan, Côte d’Ivoire. The summit also adopted a Protocol concerning the cooperation in the field of computerization, and a regional program on the use of renewable energy resources.

An extraordinary summit of the heads of state of the Preferential Trade Area of Eastern and Southern African States (PTA)34 was held on May 27-28, 1986 in Bujumbura, Burundi. Several understandings were reached to further the members’ objective of establishing a common market by 1990. Among these, a decision was adopted to suspend, for a period of five years, a requirement that goods must have at least 51 percent local content in order to qualify for preferential treatment. It was also decided to accelerate a study on economic disparities among member states and on compensation mechanisms that could promote a better distribution of costs and benefits related to the treaty. The Comoros and Ethiopia joined the PTA Trade and Development Bank, which was established in 1985 and started operations in 1986. It was agreed that all financial transactions among member states would be settled through the Bank’s clearinghouse.

On June 30-July 2, 1986 the 16 member states of the Economic Community of West African States (Ecowas) held their ninth annual summit in Abuja, Nigeria.35 The heads of states and government representatives formally adopted a decision to begin with the implementation of the second phase of the 1979 Movement of People Protocol, which had been delayed by one year at the 1985 annual summit. When fully implemented, the Protocol will grant residential rights to individuals anywhere in the Ecowas for a period of five years. Implementation of the Economic Recovery Program, adopted at the organization’s 1985 summit, was also discussed, with members calling for greater attention to the strategy of collective self-reliance and cooperation among member states. Ecowas members also asked Nigeria and Guinea to mediate a dispute between Liberia and Sierra Leone.

The twenty-second summit of heads of states of the Organization of African Unity (OAU) took place on July 28–30, 1986 in Addis Ababa, Ethiopia. The summit was primarily devoted to the situation in South Africa, and it was decided to create a committee which would follow developments in the region.

The Planning Ministries of the Sahel countries36 met on October 30–31, 1986 in Praia, Cape Verde, with representatives of the Commission of the European Communities to determine priorities for regional aid granted by the European Communities to West African countries under the Lomé Convention (Lomé III). In order to maximize the effectiveness of regional cooperation, it was agreed that priority be given to desertification control.

The thirteenth conference of heads of states of francophone African countries and France was held on November 13–15, 1986 in Lomé, Togo. Major issues of discussions were security, the hostilities in Chad, external debt, and the situation in South Africa.

In February the Gulf Cooperation Council, which is in the process of moving toward the creation of a free-trade area and a customs union, requested observer status in the GATT. This was granted in March.

The thirteenth session of the Economic and Social Commission for Western Asia (ESCWA) was held April 19–24 in Baghdad, Iraq.37 The first part of the session was devoted to deliberations of the Commission’s Technical Committee on international economic issues. The secretariat considered a strengthening of the Trust Fund for ESCWA’s regional activities, and efforts to expand areas of cooperation and coordination with various regional and Arab organizations were noted.

The nineteenth annual meeting of the Board of Governors of the Asian Development Bank was held April 30-May 2 in Manila, the Philippines.38

In June the members of the Association of Southeast Asian Nations (ASEAN)39 concluded an emergency petroleum sharing agreement. The agreement is effective pending ratification by each of the six ASEAN members. Also in June ASEAN ministers met in Manila with their counterparts from Australia, Canada, Japan, New Zealand, and the United States (“dialogue partners”). Matters discussed at the meeting included the need to reduce barriers to trade and investment, the international economic situation in the wake of the Tokyo summit, the new GATT Round, the Multifiber Arrangement, and problems associated with the decline in commodity prices.40 The sixth ASEAN/EC ministerial meeting was held on October 20–21, 1986. Foreign ministers from both sides agreed on the need for increased foreign investment in the region. ASEAN ministers called upon the EC to take further steps to reduce barriers to imports from the region, while the EC urged the ASEAN states to accelerate efforts to establish a common market.

In July Japan and ASEAN agreed in principle to create a symposium to promote investment and technology transfers. The creation of a South East Asian common market was also considered at the meeting.

In December the heads of state of the South Asian Association for Regional Cooperation41 reached agreement on a number of issues, including a decision to work toward the formation of a common view with respect to the North-South dialogue and on policy with respect to GATT.

With effect from January 1, 1986, the Central American Common Market42 introduced a new tariff. The new schedule, which is based on the Customs Cooperation Council nomenclature, consists of three parts: (1) items subject to the common external tariff; (2) tariff headings that are in the process of being harmonized; and (3) a small number of tariff headings which will not be harmonized and which are free to be adapted by each country.

In February the United States announced a new policy regarding garment imports from countries participating in the Caribbean Basin Initiative (CBI). Under the new policy, each country is eligible for a guaranteed level of access to the U.S. garment market, which will be determined according to the country’s existing plant capacity and potential for expansion. On January 1, 1986 Aruba became the twenty-first beneficiary country.

The Eleventh Senior Committee of High Level Government Experts (CEGAN) convened March 3–6 in Bogota, Colombia. Main agenda items included implementation of the international development strategy and prospects of Latin America and the Caribbean for the rest of the 1980s, and external debt of Latin America and the Caribbean.

The twenty-first session of the Economic Commission for Latin America and the Caribbean43 (ECLAC) convened April 17–22 in Mexico City to discuss regional economic developments.

The Permanent Executive Committee of the Inter-American Economic and Social Council, under the Organization of American States, held a meeting July 22–25, entitled “Technical Meeting on Promotion of Economic Development by Strengthening Direct and Indirect Private Investment in Latin America and the Caribbean.”

Also in July heads of government of the Caribbean Economic Community (Caricom) agreed to the creation of a US$75 million trade credit facility to help stimulate trade within the 13-nation organization.44

The new facility provides preshipment financing for a maximum of five years, and covers most nontraditional exports. The facility is made up of equity subscribed by participating countries (US$15 million) and loans (US$60 million). Also contributing is the Caribbean Development Bank, which is managing the scheme. The project is also intended to stimulate countertrade between members of Caricom.

Agreement was reached on a range of regional projects in the Caribbean to be funded with the estimated US$100 million expected from the EC under the terms of the Lomé Convention.

Appendix: Summary of Measures Affecting Members’ Exchange and Trade Systems, 1986
MemberDateDirectionMeasures
Quantitative Import Controls
Industrial countries
Canada1/1/86TighteningItems added to bilateral clothing restraint agreement with Indonesia.
1/1/86TighteningItems added to bilateral clothing restraint agreement with Brazil.
2/28/86TighteningAgreement concluded with Turkey on imports of pants.
3/7/86TighteningOne-year import quota placed on tailored collar shirts from Viet Nam.
3/14/86TighteningAgreement concluded with Maldives on imports of certain textile items.
3/21/86TighteningItems added to bilateral clothing restraint agreement with Mauritius.
4/1/86TighteningPants added to bilateral clothing restraint agreement with Bangladesh.
6/23/86TighteningQuota imposed on certain clothing imports from Democratic People’s Republic of Korea.
7/22/86TighteningBilateral clothing restraint agreement concluded with Viet Nam.
8/5/86TighteningUnderstanding reached with Japan on restraint of Japanese car exports to Canada.
8/23/86TighteningQuota extended to all clothing imports from Democratic People’s Republic of Korea.
Denmark12/1/86IntroductionImports from South Africa and Namibia banned.
Japan4/1/86LiberalizationQuantitative restrictions on leather footwear eliminated.
Spain1/1/86LiberalizationQuantitative import restrictions eliminated or liberalized in accordance with provision of accession to European Communities (EC).
Sweden7/1/86TighteningAll imports from South Africa subjected to licensing.
United Kingdom1/1/86LiberalizationImports of the following liberalized: tableware and other articles of a kind commonly used for domestic or toilet purposes, and stoneware originating in the Republic of Korea; matches and certain aluminum goods originating in Romania.
1/1/86EliminationDiscontinuance of Community surveillance of handkerchiefs originating in Portugal; and of surveillance licensing of certain iron and steel goods originating in Brazil and Spain.
1/1/86IntroductionIn the context of regulations of the EC, Community surveillance licensing was introduced of certain yarns of synthetic textile fibers and stockings and socks originating in Turkey. Imposition of restrictions on importations into Northern Ireland of certain air guns, air rifles, air pistols, and other ammunition originating in all third countries.
2/15/86TighteningQuotas imposed on certain animal fats, certain fertilizers, and certain bleached paper and paperboard originating in the United States.
2/21/86IntroductionA quota was imposed on certain iron and steel goods originating in Democratic People’s Republic of Korea.
3/1/86LiberalizationImports were liberalized of styrene, certain polyethelyne products, sporting and target shooting guns, rifles and carbines, gymnasium and athletic equipment, and snow skis originating in the United States.
5/24/86IntroductionA ban was imposed on gold coins originating in South Africa.
6/10/86TighteningCommunity surveillance licensing introduced on track suits originating in Turkey. Double control surveillance licensing introduced for certain goods originating in Turkey previously subject to either quota restriction or Community surveillance licensing.
6/20/86LiberalizationImports of certain iron and steel rails originating in Czechoslovakia liberalized.
9/20/86LiberalizationImport quota measures of 2/15/86 taken against United States liberalized.
9/26/86IntroductionIntra-Community surveillance licensing introduced for certain iron and steel goods originating in Bulgaria, Czechoslovakia, Hungary, Poland, and Romania.
9/26/86EliminationIntra-Community surveillance licensing lifted on certain other iron and steel goods originating in Czechoslovakia.
9/27/86IntroductionA ban imposed on certain iron and steel goods originating in South Africa.
12/16/86TighteningIntra-Community surveillance licensing introduced for color television receivers originating in Taiwan.
12/20/86TighteningQuotas imposed on imports of urea originating in certain countries of Eastern Europe and the U.S.S.R.
United States1/1/86IntroductionQuotas imposed on semifinished steel imports from the EC.
1/7/86IntroductionTrade embargo on Libya imposed.
7/1/86EliminationProhibition of importation of certain categories of books (manufacturing clause) expired.
7/31/86IntroductionAgreement on trade in semiconductors with Japan concluded.
9/7/86LiberalizationQuotas on semifinished steel imports from the EC increased.
10/2/86TighteningImports of certain goods from South Africa prohibited.
12/9/86IntroductionAgreement on voluntary limits on exports of machine tools by Taiwan concluded.
12/15/86TighteningQuotas on sugar imports reduced.
Developing countries—fuel exporters
Indonesia3/25/86TighteningImports of used paper restricted to paper producers.
Mexico10/31/86LiberalizationImport license requirements for 201 tariff lines eliminated.
Nigeria9/29/86LiberalizationImport licensing abolished, and items subject to import prohibition reduced.
Trinidad and Tobago5/16/86LiberalizationIntroduction of general import licenses to be issued in conjunction with duty-free licenses granted to local concessionaire manufacturers for importing certain inputs.
9/1/86LiberalizationProcedures for granting of licenses for imports from Caricom countries liberalized.
Tunisia10/14/86LiberalizationTransfer of items from licensing to the (free) system of import certificate.
Developing countries—other
Bangladesh7/1/86LiberalizationNumber of items on Negative and Restricted Import Lists deleted.
7/16/86TighteningLimit on imports of fabrics reduced.
Barbados1/15/86TighteningItems added to list of goods requiring import licenses.
3/14/86TighteningItems added to list of goods requiring import licenses.
7/14/86TighteningItems added to list of goods requiring import licenses.
China, People’s Republic of1/3/86IntroductionSteel and pesticides imports made subject to import licensing.
Colombia2/25/86LiberalizationRange of tax credit certificates system narrowed from 5–35 percent with seven rates to 5–14 percent with three rates.
Feb.–May 1986LiberalizationA few items transferred to free import list.
May–July 1986TighteningItems transferred for prior import license list and subjected to prior approval.
Dominican Republic5/24/86IntroductionImports of wine and other grape-related alcoholic beverages and spirits banned.
7/7/86EliminationImport ban on automobiles and heavy machinery lifted.
7/11/86IntroductionImport ban on automobiles and heavy machinery reintroduced.
7/12/86IntroductionImport ban on various goods and equipment used in the production of electricity introduced.
10/1/86LiberalizationImport ban on wine and other grape-related spirits lifted.
Egypt8/21/86TighteningAdministrative controls over import licensing tightened.
FijiVarious datesTighteningAdditions of a number of items to the list of prohibited or restricted imports.
The Gambia1/20/86LiberalizationAll imports permitted under open general licenses.
Ghana10/6/86LiberalizationImport licensing procedures simplified with introduction of foreign exchange auction system.
Grenada1/10/86LiberalizationImport licensing removed for 20 consumer goods.
Guinea1/6/86LiberalizationImport licenses abolished; foreign exchange for imports made available through auction.
Haiti8/10/86LiberalizationNumber of import items subject to licenses reduced from 111 to 35. Quotas eliminated for all items except cement, rice, sugar, and wheat.
Hungary8/1/86TighteningCustoms regulations affecting individuals tightened.
India3/3/86LiberalizationTwenty-nine machine tool items placed under open general license.
10/8/86 and 10/29/86TighteningNine items removed from open general license list.
11/13/86LiberalizationForty-three items of machinery placed under open general license.
Korea7/1/86LiberalizationIncrease in number of automatically approved import items.
9/1/86LiberalizationImportation of foreign cigarettes permitted up to 1 percent of domestic consumption.
Madagascar1/2/87LiberalizationImport regime for essential goods liberalized through provision of monthly allocation of foreign exchange.
Maldives1/1/86TighteningA new import license system adopted placing a limit on imports based primarily on the value of their 1985 imports.
Mali2/13/86LiberalizationImport licensing system simplified.
Mauritius12/22/86LiberalizationCommercial banks granted authority to effect import payments without prior authorization by the central bank.
Morocco2/86LiberalizationList of prohibited goods abolished, and coverage of licensing requirements reduced.
Nepal7/7/86LiberalizationIntroduction of auction system for licenses for imports of certain goods (from countries other than India) whose licensing is administered by the Ministry of Commerce.
8/11/86IntroductionIntroduction of passbook system for the import of industrial raw materials.
12/7/86LiberalizationExtension of auction system for import licenses to all goods whose licensing is administered by the Ministry of Commerce.
Netherlands Antilles10/14/86IntroductionQuotas introduced for certain items having locally produced substitutes.
Pakistan6/30/86LiberalizationMaximum value of import licenses for capital goods imports by textile industry increased.
Panama8/86LiberalizationImport quotas on certain products replaced by tariffs; many tariffs to be reduced gradually over the medium term.
Paraguay3/19/86LiberalizationRemoval of a variety of cotton and wool textiles from the list of prohibited imports.
Philippines3/4/86EliminationPrior approval requirement for a list of regulated imports eliminated.
4/30/86EliminationPrior approval requirement for a list of regulated imports eliminated.
6/6/86EliminationPrior approval requirement for a list of regulated imports eliminated.
7/26/86EliminationRemoval of restriction on import of capital goods exceeding US$50,000.
9/26/86EliminationPrior approval requirement for a list of regulated imports eliminated.
Portugal1/1/86LiberalizationQuantitative restrictions liberalized in accordance with accession to the EC.
Senegal2/28/86LiberalizationQuantitative restrictions on all items not produced locally removed.
8/4/86LiberalizationQuantitative restrictions on most products produced locally removed.
10/1/86LiberalizationQuantitative restrictions on imports of packing papers and cardboard removed.
Sierra Leone6/86LiberalizationAll goods, with the exception of prohibited items, permitted to be imported under open general licenses; the Specific Import License abolished. Authority for approving transactions delegated to commercial banks.
South Africa6/1/86IntroductionImports from Sweden subjected to license.
8/6/86IntroductionImports from Zimbabwe subjected to license.
Thailand2/27/86TighteningImports of semifinished and parts of garments prohibited.
3/7/86LiberalizationTemporary permission for certain imports.
7/3/86TighteningA ban imposed on imports of certain single-cylinder diesel engines.
7/16/86LiberalizationPermission granted for limited import of kenaf.
11/14/86TighteningThe permitted ratio of local purchase to import for soybean meal set at 1:1, with a maximum import allowance of 120,000 tons.
Turkey1/1/86LiberalizationNumber of items subject to prior approval reduced.
9/1/86LiberalizationProcedures for granting licenses for imports from Caricom countries made more liberal.
12/17/86LiberalizationNumber of items subject to prior approval reduced.
Yemen Arab Republic3/30/86TighteningImports of luxury goods suspended for the rest of the year.
Yugoslavia11/20/86LiberalizationRaw materials for medical products moved from quota category to free category.
Import Surcharges and Import Taxation
Industrial countries
Canada1/10/86TighteningWithdrawal of duty-free rate under GPT on color television receiving sets made final, and withdrawal of duty-free GPT rate on rubber footwear other than sandals and riding boots extended up to end-1988.
1/20/86EliminationRemoval of duties on computer parts and certain semiconductors.
2/86-12/86TighteningDefinitive antidumping duties were applied to various items imported from certain countries.
3/27/86TighteningProvisional countervailing duties imposed on imports of boneless manufacturing beef from the EC.
6/6/86TighteningMFN tariff rates on imports of certain books, maps, charts, and printed music from the United States increased, and tariffs on imports of computer parts and certain semiconductor devices from the United States restored.
6/15/86LiberalizationImports from Commonwealth countries in the Caribbean exempted from duties under Caribcan agreement.
7/25/86TighteningProvisional countervailing duties maintained on imports of boneless manufactured beef from EC.
9/30/86TighteningProvisional countervailing duties imposed on imports of dry pasta from the EC.
11/7/86TighteningProvisional countervailing duties imposed on corn imports from the United States.
11/10/86TighteningProvisional countervailing duties imposed on imports of carbon steel stainless pipe from Brazil.
12/1/86LiberalizationAnnual quota on women’s and girls’ footwear imports increased.
Iceland3/1/86LiberalizationCustoms duties on certain goods reduced.
Ireland1/1/86LiberalizationTariffs on imports from certain countries reduced.
Japan1/1/86LiberalizationCoverage of Generalized System of Preferences extended and GSP rates reduced on some items.
1/20/86LiberalizationTariffs on imports of computer peripherals and parts, and computer-related equipment reduced.
New Zealand1/1/86EliminationTariffs on finished goods not produced domestically eliminated.
Spain3/1/86LiberalizationImport tariffs reduced in accordance with provision of accession to EC.
United States1/6/86TighteningAntidumping duties imposed on certain goods from South Africa.
1/27/86TighteningCountervailing duties imposed on certain goods from Brazil.
2/5/86TighteningMost favored nation (MFN) treatment suspended for Afghanistan.
2/17/86TighteningAntidumping duties imposed on certain goods from Canada.
3/6/86TighteningCountervailing duties imposed on certain goods from Islamic Republic of Iran.
3/7/86TighteningCountervailing duties imposed on certain goods from New Zealand.
3/14/86TighteningCountervailing duties imposed on certain goods from Canada.
3/18/86TighteningDuties raised on certain products from Canada under the escape clause.
3/31/86TighteningCountervailing duties imposed on certain goods from Japan and Korea.
4/2/86TighteningCountervailing duties imposed on certain goods from Thailand.
4/21/86TighteningAntidumping duties imposed on certain goods from China.
4/29/86TighteningAntidumping duties imposed on certain goods from Canada.
5/5/86TighteningAntidumping duties imposed on certain goods from Brazil, Korea, and Taiwan.
5/27/86TighteningAntidumping duties imposed on certain goods from Japan.
6/3/86TighteningAntidumping duties imposed on certain goods from Canada.
7/2/86TighteningAntidumping duties imposed on certain goods from Islamic Republic of Iran.
8/11/86TighteningCountervailing duties imposed on certain goods from Zimbabwe.
8/13/86TighteningAntidumping duties imposed on certain goods from China.
8/25/86TighteningCountervailing duties imposed on certain goods from New Zealand.
10/21/86IntroductionCustoms user fee.
10/23/86TighteningAntidumping duties imposed on certain imports from Singapore.
11/3/86TighteningCountervailing duties imposed on certain imports from Brazil and Korea.
11/5/86TighteningAntidumping duties imposed on certain goods from Mexico, China, and Taiwan.
11/19/86TighteningCountervailing duties imposed on certain goods from Korea and Taiwan.
11/21/86TighteningCountervailing duties imposed on certain goods from El Salvador.
12/8/86TighteningAntidumping duties imposed on certain goods from Brazil and Taiwan.
Developing countries—fuel exporters
Indonesia2/25/86LiberalizationMachines, equipment, software, and basic materials not produced domestically exempted from import duties and sales tax.
7/11/86LiberalizationImports connected with production of certain motor sailboats exempted from import duties, value-added tax, and luxury goods sales tax.
7/12/86LiberalizationImports of cars in completely knocked-down condition for taxi business exempted from import duties and value-added tax.
7/28/86LiberalizationCertain imports needed for construction of shopping centers, supermarkets, and department stores exempted from import duties.
8/13/86TighteningImport duties on copra, palm oil, and their processed products increased.
8/13/86LiberalizationValue-added tax and sales tax on luxury goods on the import of capital goods for certain companies suspended for a period of not more than five years.
9/2/86LiberalizationShrimp feed exempted from import duties.
9/2/86LiberalizationBasic materials for the manufacture of certain bearings exempted from import duties.
9/13/86LiberalizationImport duties on sewing machines for industrial use made uniform.
9/13/86LiberalizationImport duties on tire cord fabrics reduced.
10/16/86LiberalizationImports of certain types of steel bars for industrial use exempted from import duties, and import duties on certain other types of steel bars decreased.
10/16/86TighteningImport duties on certain types of steel bars increased.
10/25/86IntroductionImport surcharges imposed on 36 items.
Kuwait3/1/86TighteningIncreased customs duty on certain products considered to be similar to those produced domestically.
Nigeria1/1/86IntroductionImport surcharges introduced.
9/29/86LiberalizationImport surcharge and import licensing abolished.
Mexico4/30/86LiberalizationMaximum import tariff reduced from 50 percent to 45 percent. Rates below 45 percent reduced by 2.5 percentage points, except that the 5 percent rate abolished.
Oman1/1/86TighteningGeneral tariff rate raised from 4 percent to 5 percent.
Trinidad and Tobago1/14/86LiberalizationThe 12 percent stamp duty on imports of raw materials abolished.
Developing countries—other
Argentina5/6/86LiberalizationProducers of specified products in the electronics sector made eligible for exemptions or reductions in duties.
9/4/86LiberalizationInputs into exported products exempted from all tariffs and duties.
Belize1/25/86TighteningFee on entrepot trade increased.
Bolivia8/15/86TighteningNumber of items exempted from import duties reduced.
8/15/86TighteningA uniform tariff rate of 20 percent introduced.
Brazil7/24/86EliminationFinancial transaction tax eliminated on importation of selected computer goods, selected inputs to the computer goods industry, and selected payments on transfer of technology.
7/24/86EliminationFinancial transaction tax eliminated on machinery and capital equipment imported by the leather processing industry, and on imports of additives, vitamins, and raw materials used as inputs in the production of animal food.
7/26/86LiberalizationFinancial transaction tax on certain imports used in the production of electronic equipment reduced to: 75 percent on all processed raw materials; 50 percent on semi-manufactured products; 25 percent on manufactured products.
11/24/86EliminationFinancial transaction tax eliminated on importation of machines, equipment, parts, and components for production of gelatinous capsules for pharmaceutical use when no similar national product exists.
Various datesLiberalizationTariff exceptions or reductions introduced for certain products.
Costa Rica6/11/86NeutralSystem of import surcharges amended; new definition of categories and rates established.
9/1/86LiberalizationReduction of surcharges on luxury goods (from 30 percent to 15 percent) and nonluxury goods (from 7 percent to 3.5 percent). (These surcharges subsequently eliminated at end of year.)
Dominica7/1/86TighteningTaxes on imports of petroleum and motor vehicles increased.
Dominican Republic9/8/86IntroductionImport taxes or fees on imports entering the country after certain date reinstated.
Egypt8/21/86LiberalizationNew tariff structure with lower average rate introduced.
Fiji11/4/86TighteningIncrease in import taxes on vehicles, petroleum products, and spirits.
Greece7/1/86LiberalizationRegulatory tax on imports reduced.
Grenada3/13/86EliminationThe 15 percent stamp tax on imports removed. The 10-45 percent consumption duty on imports removed. The 5 percent international airport levy on imports removed.
Guinea3/13/86IntroductionA 20 percent value-added tax on imports enacted.
1/5/86LiberalizationTariff structure simplified.
Haiti8/10/86LiberalizationMany specific tariffs replaced by ad valorem tariffs averaging 20 percent.
India6/16/86LiberalizationCustoms duty rates on parts and components for electronic goods, capital goods for electronic goods, and computers reduced.
7/29/86LiberalizationImport and excise duty concessions granted for computerized numerically controlled systems, leather, chemicals, coffee, materials for television sets, ambulances, auto-rickshaws, fertilizer inputs, specific rubber products, and polypropylene yarn.
Israel1/1/86LiberalizationTariff rates reduced within the framework of U.S.-Israel free trade agreement.
Kenya7/1/86LiberalizationDuties on certain imports eliminated or reduced.
TighteningDuties on certain imports introduced or raised.
2/27/86, 4/4/86, and 6/5/86TighteningTariff rate on crude oil imports raised.
Korea7/1/86LiberalizationAdjustment tariffs removed from the two items previously subject to them and added to five other newly liberalized items (net increase of three items); emergency tariff removed from one item, leaving two items subject to it.
7/1/86LiberalizationReduction in number of items ineligible under the customs duty refunding system.
Madagascar1/2/87TighteningFee of 10 percent imposed on import license applications, with exemptions for exports’ inputs.
Malaysia3/27/86EliminationImport duties on travel posters, brochures, leaflets, and other printed materials abolished.
Maldives4/1/86NeutralA new tariff schedule with duty rates ranging from 5 percent to 200 percent on c.i.f. value of imports adopted.
Nepal2/22/86TighteningLimit on duty-free imports by Nepalese traveling abroad reduced from NRs 2,000 to NRs 1,000.
Nicaragua1/1/86NeutralReform of Central American Common External Tariff introduced.
4/24/86TighteningCustoms duties and other charges on imports financed through own foreign exchange and “free” exchange market to be levied on basis of free exchange rate, with certain exemptions.
5/14/86TighteningCustoms fee introduced on certain imports.
5/31/86TighteningCustoms storage fees raised.
Pakistan6/86LiberalizationReduction in import duty on certain imports of plant and machinery and industrial raw materials from 40 percent to 20 percent.
Senegal8/14/86Liberalization“Normal fiscal tariff” reduced from 40 percent to 30 percent; the “increased fiscal tariff” reduced from 50 percent to 35 percent; and the “special fiscal tariff” reduced from 75 percent to 65 percent.
Seychelles11/1/86TighteningCustoms duties replaced by a trade and service tax ranging from 10 percent to 350 percent.
Sierra Leone6/86LiberalizationAn invoice entry fee and an import licensing fee reduced to 10 percent of the c.i.f. value.
South Africa7/1/86LiberalizationImport surcharges on certain raw materials and intermediate goods eliminated.
Thailand1/21/86LiberalizationReduction of import duty on polyvinyl and glass tubes for use in manufacturing of syringes and for use as vials.
12/18/86TighteningReintroduction of tariffs on several items.
12/18/86LiberalizationCustoms tariffs on a number of items reduced or eliminated.
Togo4/9/86LiberalizationImport duties on raw materials and semiprocessed goods reduced.
Turkey4/11/86LiberalizationImport duties on oil (one type), new tires, batteries, tobacco, and hurricane lanterns reduced.
10/9/86TighteningThe number of items whose importation is subject to dollar-denominated levies increased, and levies raised on other items.
12/13/86TighteningSurcharge on imports levied for support and price stabilization fund raised from 2 percent to 4 percent.
12/23/86TighteningStamp duty on imports raised from 4 percent to 6 percent.
Uruguay4/23/86LiberalizationA number of products exempted from the import surcharge.
8/20/86LiberalizationImport surcharges reduced by uniform 5 percentage points.
Zaïre8/1/86LiberalizationNew tariff structure introduced.
Zimbabwe8/1/86LiberalizationReduction from 20 percent to 15 percent of import surcharge on machinery imports for manufacturing mining and agricultural industries.
Advance Import Deposits
Developing countries—fuel exporters
Ecuador3/21/86IntroductionAdvance deposits against foreign loans contracted for import financing introduced.
8/11/86EliminationAdvance deposits against foreign loans contracted for import financing eliminated.
Developing countries—other
Afghanistan11/2/86TighteningHigher rates set for advance import deposits.
Bangladesh2/16/86IntroductionMargin deposit requirement for letters of credit for palm oil imports introduced.
El Salvador1/22/86IntroductionPrior deposit requirement introduced for imports from outside Central America.
Guatemala6/5/86TighteningRate of guarantee deposit requirement for import prepayment not involving letters of credit raised.
South Africa8/6/86IntroductionGoods imported by Zambia through South African ports subjected to a cash deposit scheme.
Turkey7/1/86TighteningRate on advance import deposits raised from 3 percent to 9 percent. Schedule published for reduction to 3 percent by November 1986.
10/26/86LiberalizationThe rate of advance import deposits was lowered from 9 percent to 7 percent, but exemptions to deposit requirements largely eliminated.
Western Samoa3/19/86LiberalizationAdvance deposits against motor vehicle imports permitted to be made at any commercial bank and interest paid on them.
Yemen Arab Republic7/8/86TighteningRates of margin deposits raised.
Other Import Measures
Industrial countries
Canada9/1/86IntroductionCarbon steel products added to import control list for monitoring purposes.
France4/15/86LiberalizationForward import cover for goods invoiced in foreign currency permitted up to three months.
5/15/86LiberalizationPeriod of allowable forward cover for purchase of goods invoiced in foreign exchange extended to six months.
5/22/86LiberalizationCompanies allowed to hedge their currency exposure by using forward foreign exchange contracts of up to six months for imports of goods.
Finland5/16/86LiberalizationLimit on amount of foreign financing credit for imports mediated by banks abolished.
Italy1/16/86TighteningProhibition of import payments ahead of contractual terms.
4/14/86LiberalizationAbolition of prohibition of import payments ahead of contractual terms.
Norway7/21/86NeutralRequirement that imports financed in a foreign currency and capital imports financed for between one and five years be licensed.
Developing countries—oil exporters
Indonesia10/25/86LiberalizationImport licensing procedures applying to 321 categories of imports concentrated in mechanical and electrical equipment, motor vehicles, chemicals, paper and paperboard, rubber tires and tubes, and basic iron and steel liberalized.
Qatar3/1/86LiberalizationCompanies operating in member states of the Gulf Cooperation Council allowed to export to country without maintaining a local agency.
Syrian Arab Republic9/2/86TighteningTightening of restrictions on acquisition of foreign exchange through the unofficial market, thus eliminating an avenue for import financing.
Venezuela5/26/86TighteningMinimum financing requirement of at least 120 days for the equivalent of 80 percent of the f.o.b. introduced.
Developing countries—other
Bangladesh1/1/86LiberalizationIndustrial firms allowed to open deferred payments letters of credit for raw material imports.
Dominican Republic12/18/86TighteningMinimum term of import financing from 180 days to 5 years established.
El Salvador1/22/86TighteningAuthorization of the central bank required for imports exceeding US$300.
1/22/86IntroductionLetters of credit with guarantee deposits required for imports from outside Central America exceeding certain limits.
Hungary1/1/86LiberalizationForeign trading rights vis-à-vis the convertible currency area liberalized.
Israel8/1/86EliminationProhibition on prepayments of suppliers’ credits removed.
Madagascar8/4/86LiberalizationSpecial import system for exporting enterprises provided.
Morocco7/7/86LiberalizationImports used for production of export goods may be financed directly by export receipts of same exporter.
Philippines1/27/86LiberalizationMinimum import payments terms reduced from 180 to 60 days for certain imports under progressive manufacturing programs.
8/1/86EliminationForeign financing requirement for capital goods imports eliminated.
Sudan1/20/86TighteningUse of balances in foreign currency accounts to pay for import and trade-related invisibles prohibited.
Uruguay8/21/86LiberalizationMost reference prices reduced.
State Trading
Developing countries
Guinea-Bissau8/13/86LiberalizationPrivate sector permitted to engage in all merchandise trade, except imports of cereals, petroleum products, and pesticides.
Nigeria9/29/86EliminationBoards responsible for export of cocoa, cotton, groundnuts, and palm kernels abolished.
Sierra Leone6/86TighteningExports of gold restricted to the GGDO and the Bank of Sierra Leone.
Solomon Islands5/27/86LiberalizationState monopoly over rice imports terminated.
Togo5/1/86LiberalizationImport monopoly of the Société Nationale de Commerce (Sonacom) terminated for salt and soap.
7/1/86LiberalizationImport monopoly of Sonacom terminated for corrugated iron products and concrete reinforcement rods.
Exports and Export Proceeds
Quantitative Restrictions and Control on Exports
Industrial countries
Canada6/27/86TighteningCedar bolts added to Export Control List and exports of cedar bolts and logs to the United States prohibited.
Denmark12/1/86TighteningExports to South Africa and Namibia, except exports of medicine, banned.
Japan2/13/86ExtensionVoluntary restraint on motor vehicle exports to the United States for one-year period starting April 1986 announced.
12/11/86TighteningQuantities of certain products exported to EC to be monitored: motor vehicles, television sets, and related equipment.
Sweden6/1/86TighteningRe-exports of certain high-tech products to require prior approval from country of origin.
United States1/7/86IntroductionProhibition of exports to Libya.
6/4/86EliminationProhibition of exports of crude oil from certain parts of the country discontinued.
6/5/86TighteningExports of helicopters to certain countries made subject to control.
7/14/86EliminationLicensing requirements for exports of certain goods to certain countries removed.
8/11/86LiberalizationRestrictions on certain exports to Spain relaxed.
10/2/86IntroductionProhibition of certain exports to South Africa.
Developing countries—fuel exporters
Indonesia3/26/86TighteningExports of nutmeg limited to companies that are members of the Indonesian Nutmeg Association.
9/9/86LiberalizationExport ban on pure gold and silver lifted.
10/8/86IntroductionExports of raw material rattan prohibited.
Nigeria1/1/86EliminationBan on food exports lifted.
9/29/86EliminationExport bans (and most export licensing requirements) eliminated.
Developing countries—other
China, People’s

Republic of
1/86LiberalizationJoint ventures permitted to export domestic products produced under state monopoly or requiring export licenses.
Greece2/13/86IntroductionExports of crude oil and arms to South Africa prohibited.
Nepal1/4/86LiberalizationExport of 80 percent of pulses allowed without permission.
1/24/86IntroductionNepal and the United States signed an agreement limiting the volume growth for exports to the United States of four major categories of ready-made garments to 6 percent per annum.
Philippines3/10/86LiberalizationTermination of export ban on copra.
Thailand1/14/86LiberalizationPermissible ratio of coffee exports between nonmember and member countries of the ICO changed from 1.1:1 to 2.76:1.
1/16/86LiberalizationProhibition on exports of rice bran temporarily lifted.
5/17/86LiberalizationMore flexible regulations governing exports of garments to countries setting import quotas announced.
7/1/86LiberalizationThe free export policy for maize continued and extended to cover Japan and Taiwan.
3/18/86LiberalizationList of prohibited exports shortened.
Uruguay2/26/86TighteningExports of certain hides prohibited.
Export Licensing
Industrial countries
Norway7/21/86NeutralNew regulations issued for licensing requirements for trade financing.
Sweden7/1/86TighteningAll exports to South Africa subjected to licensing.
Developing countries
Madagascar8/29/86LiberalizationRegulations and controls governing exports simplified.
Malaysia6/27/86EliminationExport licenses for cement, metals (excluding scrap), sugar, flour, diesel, and premium petroleum (except naphtha) abolished.
Mali11/18/86EliminationExport licensing system abolished, with the exception of cereals.
Nigeria9/29/86LiberalizationMost export licensing abolished.
Thailand2/2/86TighteningLicensing requirements imposed on exports of certain types of wildlife animals and carcasses.
Togo11/19/86LiberalizationMechanism established to grant licenses for cereal exports.
Fiscal and Other Incentives
Industrial countries
United States3/3/86IntroductionNew incentive program for dairy products.
Developing countries
Argentina2/4/86IntroductionSpecial payments of up to 15 percent of increase in export value and access to central bank prefinancing provided to certain products.
9/4/86IntroductionExporters of specified manufactured products granted payments equivalent to 10, 12.5, and 15 percent of export value as estimated drawback of indirect taxes on production.
Bolivia8/13/86EliminationCertex system of incentives for nontraditional exports suspended.
Colombia2/25/86LiberalizationRange of tax credit certificates system narrowed from 5–35 percent with seven rates to 5–14 percent with three rates.
Greece6/5/86LiberalizationInterest subsidies for exports reduced from 6 percent of value to 5 percent.
India7/1/86IntroductionA cash compensatory support scheme for exporters for the period up to March 1989 (for textiles, for the period January 1986–December 1988) announced for 229 items.
7/1/86TighteningRates of cash compensatory support scheme for fruit and vegetables increased.
10/86IntroductionExport promotion measures involving supply of raw materials at international prices, utilization of up to 10 percent of foreign exchange earnings for export promotion, imports of machinery free of duty or at low rates, and full remission of excise duties and domestic taxes introduced for 14 sectors.
3/1/86IntroductionDuty drawback of 10 percent granted for garment exporters.
12/86IntroductionMeasures to promote drug exports involving concessional import duty on raw materials, supply of materials at international prices for export production, and removal of capacity restrictions for export units introduced.
Indonesia5/6/86LiberalizationImport duties and surcharges on products used to manufacture exports refunded.
6/4/86LiberalizationImports by export producers that are exempted from import duty exempted from value-added tax.
Kenya7/1/86LiberalizationCoverage of export compensation scheme narrowed and penalties on fraudulent claims increased.
Malaysia10/24/86LiberalizationExport incentives based on value added replaced by export incentives based on export values; abatement of adjusted income of up to 50 percent based on export performance provided; export allowance of 5 percent granted to trading companies exporting manufactured products.
Nicaragua1/7/86IntroductionSpecial foreign exchange incentive for cotton production introduced; subsequently amended, 5/2/86.
5/2/86IntroductionSpecial foreign exchange incentive for coffee introduced; subsequently amended, 10/22/86.
Pakistan6/18/86LiberalizationCompensatory export rebate scheme abolished.
Peru11/27/86IntroductionSubsidy granted to nontraditional exporters at two different rates depending on commodity.
Senegal8/4/86LiberalizationExport subsidy rate decreased.
Tanzania7/1/86LiberalizationExport tax rebate scheme abolished.
2/1/86LiberalizationRetention rate for nontraditional exports raised and Own Foreign Exchange Import List expanded.
9/1/86
Turkey12/13/86TighteningThe system of premium payments for certain categories of exports expanded.
4/2/86LiberalizationList of products eligible for rebates of indirect taxes widened.
Export Taxation
Industrial countries
Canada12/30/86TighteningTax imposed on lumber exports to the United States.
Iceland5/14/86LiberalizationExport levies on fish products abolished.
Developing countries—oil exporters
Ecuador8/12/86EliminationAll export taxes eliminated.
Indonesia4/19/86LiberalizationExport tax on natural sands, except metalbearing sands, lowered.
5/12/86TighteningAdditional export tax on coffee raised.
6/20/86EliminationExport tax on crude palm oil removed.
11/4/86TighteningExport taxes on certain types of sawn timber and on undressed and dressed leather increased.
Developing countries—other
Argentina2/19/86

8/29/86
LiberalizationExport taxes reduced or eliminated on specified products.
Dominica7/1/86EliminationExport taxes and stamp taxes on export sales abolished.
Dominican Republic1/19/86LiberalizationExport surcharges on traditional exports and certain services reduced and their applicability extended to end of year.
6/17/86LiberalizationExport surcharges on all exports realized after this date eliminated.
Grenada3/13/86EliminationThe duty on exports removed.
Guatemala6/5/86IntroductionExport taxes ranging from 0 to 27 percent introduced.
Haiti10/24/86LiberalizationExport duties on coffee reduced.
Honduras7/18/86LiberalizationExport taxes on coffee applicable in 1985/86 harvest and unpaid outstanding export tax obligations reduced or deferred for up to two years.
Malawi4/3/86EliminationExport levy on tea and tobacco removed.
Philippines7/1/86EliminationExport duties on all products except logs abolished.
Thailand1/21/86EliminationExport taxes on eucalyptus, pinewood, and bamboo removed.
Togo4/9/86EliminationExport duties on domestically manufactured goods eliminated.
Uruguay6/13/86LiberalizationExports of unskinned beef exempted from export tax.
Zaïre3/86IntroductionTax on coffee exports introduced.
Special Credit Facilities
Industrial countries
Italy1/16/86IntroductionIntroduction of foreign financing requirement of 75 percent for exports on a deferred payments basis.
4/14/86EliminationElimination of 75 percent foreign financing requirement for exports on a deferred payments basis.
United States10/7/86ExtensionAvailability of credit insurance cover expanded.
10/16/86IntroductionSpecial credit facility created.
Developing countries
Argentina2/4/86IntroductionAccess to central bank prefinancing of exports introduced.
India8/1/86LiberalizationScheduled commercial banks’ lending rates for export credits and interest rate on Reserve Bank export refinance to scheduled commercial banks reduced.
Nepal1/24/86LiberalizationCommercial banks permitted to grant pre-export credit of up to 70 percent of f.o.b. value of products to holders of letters of credit.
Suriname9/17/86TighteningAll exports required to be covered by letters of credit opened by importers abroad.
Tunisia5/5/86LiberalizationPeriod for which export credits can be extended without prior authorization lengthened.
Zaïre6/6/86LiberalizationProcedure for exporters to obtain prefinancing improved.
Export or Exchange Guarantees
Industrial countries
France7/4/86EliminationElimination of requirement of forward cover for exports.
Repatriation and Surrender of Export Proceeds and Surrender Requirements
Industrial countries
France5/22/86LiberalizationExporters allowed to retain export proceeds for up to one month.
Developing countries
Ecuador8/12/86EliminationSurrender requirement for private foreign exchange abolished.
Egypt8/13/86TighteningRepatriation period of export proceeds tightened.
Guinea-Bissau8/13/86LiberalizationPrivate sector exporters permitted to retain up to 50 percent of the total value of traditional export proceeds and up to the total value of nontraditional export proceeds (net of export duty) to finance their imports.
Honduras5/15/86LiberalizationAll exporters permitted to retain up to 30 percent of export proceeds to finance imports.
Liberia5/28/86TighteningIntroduction of 25 percent surrender requirement for export proceeds.
Mexico9/5/86LiberalizationFines applicable to extemporaneous surrender of foreign exchange reduced.
9/5/86LiberalizationSurrender requirement for exporters and for their domestic suppliers liberalized.
Morocco7/7/86LiberalizationImports used for production of export goods may be financed directly by export receipts of same exporter.
Nigeria1/1/86LiberalizationNon-oil exporters allowed to retain 25 percent of proceeds.
9/29/86LiberalizationNon-oil exporters granted full retention rights.
Peru7/25/86

11/27/86
LiberalizationSurrender requirements for export proceeds in the official market reduced.
Philippines1/3/86TighteningResidents required to surrender foreign exchange earnings from professional services within three days. Philippine corporations required to repatriate and surrender foreign exchange earnings within three days.
1/3/86LiberalizationEnterprises not engaged in production of import substitutes permitted to repatriate capital in three equal annual installments after year of liquidation.
Sierra Leone6/27/86TighteningAll retention quotas abolished and all exporters required to fully surrender exchange earnings to the commercial banking system.
Suriname5/31/86TighteningAll export proceeds required to be surrendered to the Central Bank.
Yugoslavia1/1/86TighteningSurrender requirement raised to 100 percent.
Current Invisibles
Foreign Exchange Allocations for Travel, Medical Expenses, or Studying Abroad
Industrial countries
Austria11/1/86LiberalizationIncrease in foreign exchange allocation residents can purchase for travel purposes.
Finland1/1/86LiberalizationLimit on remittances for gift purposes increased.
1/1/86LiberalizationLimit on travel allowances abolished.
France1/27/86LiberalizationTravel allocation for residents increased from F 5,000 to F 12,000.
Iceland1/1/86LiberalizationBasic allocation for tourist travel raised.
Developing countries
Algeria2/86TighteningTravel allowance reduced from DA 1,000 per person per year to DA 1,000 per person every two years.
Bangladesh10/18/86LiberalizationAnnual exchange allowance for air travel to neighboring countries increased.
Brazil7/23/86TighteningTax levied on sale of foreign exchange for travel purposes at the rate of 25 percent.
Chile6/30/86LiberalizationIncrease in basic travel allowance.
12/31/86LiberalizationIncrease in basic travel allowance.
Cyprus10/11/86LiberalizationResident employees of offshore companies allowed to carry abroad on person unlimited foreign exchange debited from external or foreign currency accounts of offshore enterprise.
12/29/86LiberalizationLiving allowance for students studying in certain European countries raised.
El Salvador2/6/86IntroductionLimits on foreign exchange allowances for medical treatment and study and travel abroad introduced.
Guinea1/6/86LiberalizationForeign exchange made available for payment of airline tickets.
Israel8/1/86LiberalizationSupport and gift payments abroad permitted up to US$300 a year.
8/1/86LiberalizationExchange allocation for study abroad raised from US$200 to US$300 per month.
Malta2/11/86LiberalizationExchange allowances for business and tourist travel increased.
Mauritius6/18/86LiberalizationPersonal and business travel allowances increased; limits on gift payments abroad increased.
Portugal1/1/86LiberalizationForeign currency allowance for tourist travel per person per year increased to Esc 150,000.
12/9/86LiberalizationForeign currency allowance for tourist travel per person per trip fixed at Esc 150,000.
Sierra Leone6/86LiberalizationThe amounts of foreign exchange that can be purchased for legitimate expenses left to the discretion of commercial banks, and commercial banks can sell freely up to US$100 per individual per month.
Sri Lanka8/26/86LiberalizationAnnual exchange allocations for education abroad increased.
Syrian Arab

Republic
8/13/86LiberalizationTravel allocation for most countries (other than Jordan and Lebanon) increased.
Tunisia2/25/86TighteningSpecial travel allowance for travel to Morocco suspended.
10/20/86LiberalizationForeign exchange allowances for study abroad increased.
Yemen, People’s Democratic Republic4/2/86TighteningForeign exchange allocation for tourist travel reduced.
Zambia1/8/86LiberalizationTravel allowance granted for children returning to school overseas.
8/9/86TighteningHoliday travel allowance suspended.
9/8/86LiberalizationBusiness travel allowance increased.
11/4/86LiberalizationSuspension of holiday travel allowance lifted, and US$500 an adult a year reinstated.
Outward Transfers or Payments for Services Rendered by Nonresidents
Industrial countries
Finland1/1/86LiberalizationForeign exchange allowance for emigrants increased.
France4/15/86LiberalizationCeiling on small transfers increased from F 3,000 per person per month to F 3,000 per transaction, and ceiling on cash advances through the use of credit cards abroad raised from F 2,000 to F 6,000 per week.
5/22/86LiberalizationIndividuals permitted to transfer their assets when they settle abroad, and to make donations to nonresidents.
11/27/86EliminationElimination of ceiling on cash advances through use of credit cards abroad.
Developing countries
Argentina1/2/86LiberalizationBorrowers in public and private sector allowed to purchase foreign exchange for effecting certain debt service payments.
1/14/86LiberalizationInterest payments on financial loans by private sector permitted.
7/7/86LiberalizationSale of foreign exchange to effect certain invisible payments incurred after January 7, 1986 permitted under certain conditions.
7/7/86LiberalizationCertain suppliers’ credits permitted to be settled under specified conditions.
Bangladesh1/5/86LiberalizationTransfers of earnings by foreign export and inspection agents allowed through SEM (more favorable market rate).
Botswana3/10/86LiberalizationAnnual limit on directors’ fees and dividend remittances to nonresidents increased.
Burundi9/2/86LiberalizationCeilings on transfer of rental income, profits, and dividends raised and the period of mandatory deposits with domestic banks prior to transfer shortened in certain cases.
The Gambia1/20/86LiberalizationPayments to nonresidents for current transactions liberalized.
Greece5/19/86EliminationRestrictions on repatriation of profits and dividends by residents of EC abolished.
Iraq3/19/86TighteningLimit on remittances allowed for foreign workers employed without contract reduced.
7/31/86LiberalizationForeign insurance companies granted increased access to domestic market.
Peru7/29/86TighteningTwo-year suspension of foreign exchange remittance for private sector debt service payments, dividends, profits (including depreciation allowances), royalties, patent fees, and technical assistance fees by enterprises operating in Peru.
7/29/86ExtensionOne-year extension of limit on servicing of external public debt, equivalent to 10 percent of export earnings.
Venezuela7/7/86TighteningAmortization schedule for most registered private debt lengthened and interest rate limited to 5 percent for service payments at preferential rate of Bs 7.50 per US$1.
12/6/86LiberalizationTerms and schedules for private registered debt service payments at preferential exchange rate redefined and made eligible for exchange rate guarantee.
Yugoslavia1/1/86LiberalizationForeign exchange for debt service provided automatically.
Import and Export of Foreign and Domestic Currency Notes, and Holdings of Foreign Currency Domestically
Industrial countries
Austria11/1/86LiberalizationLimit on Austrian bank notes and coin which residents can take out abolished, leaving only a reporting requirement for amounts above a certain sum.
France1/27/86LiberalizationLimit on exports of bank notes increased.
Italy4/14/86LiberalizationLimit on re-export of bank notes by nonresidents increased.
8/8/86LiberalizationImport of Italian bank notes from foreign banks by resident banks liberalized.
Developing countries
Bangladesh5/29/86LiberalizationNonresidents allowed to take out up to US$150 of undeclared foreign exchange.
Hungary4/15/86TighteningReduction in the amount of domestic currency nonresidents may bring into or take out of the country.
Yemen Arab Republic7/8/86TighteningAll visitors (with some exceptions) required to exchange the equivalent of US$150 upon arrival.
Other
Industrial countries
United States1/7/86IntroductionRestrictions on services exports to Libya.
Developing countries
Brazil7/23/86TighteningTax levied on sale of foreign exchange for travel purposes at rate of 25 percent.
Dominican Republic8/8/86IntroductionExport surrender requirement extended to foreign exchange proceeds from credit operations using international credit cards.
Greece1/86IntroductionTourism receipts required to be surrendered.
Mozambique3/1/86TighteningAbolition of the preferential rate of exchange for inward miners’ remittances from South Africa.
Capital Controls
Commercial Banks’ International Transactions
Industrial countries
Austria11/1/86LiberalizationMajor banks permitted to borrow from nonresidents in foreign currency in medium and long term.
Finland5/13/86LiberalizationAuthorized banks permitted to use foreign banks to finance long-term export receivables.
France11/18/86LiberalizationFrench banks allowed to make loans in francs to nonresidents, up to the amounts of francs at their disposal from nonresident deposits and Euro-franc borrowings.
Ireland4/4/86TighteningRemoval of certain offsets against limits on banks’ forward transactions.
Italy4/14/86LiberalizationFor the settlement of Italian exports, resident banks allowed to grant credits denominated in lira to foreign banks for a maximum period of ten days.
4/11/86LiberalizationThe “spot against forward” ceiling on sales and purchases of foreign exchange, applying to resident banks, increased from Lit. 1.8 trillion to Lit. 2.2 trillion. The maximum maturity for forward transactions extended from 12 to 18 months.
Sweden3/25/86LiberalizationRestrictions on foreign currency lending by Swedish banks to nonresidents and residents liberalized.
Switzerland10/1/86LiberalizationWithholding tax on interest earned on interbank deposits with maturity exceeding 12 months abolished.
United States1/7/86IntroductionRestrictions on investments in Libya.
10/27/86TighteningProhibition on making credits to or taking deposits from certain South African agencies.
Developing countries
Dominican Republic10/22/86LiberalizationLimitations on commercial banks’ net foreign position removed.
El Salvador1/22/86TighteningCeilings on the utilization of foreign credits by commercial banks established.
The Gambia7/86TighteningWorking balance limits placed on the banks, and any amounts held in excess of the limits required to be sold in the interbank market or offered to the Central Bank.
Honduras9/25/86TighteningCommercial banks required to sell 50 percent of foreign exchange proceeds from exports to the Central Bank.
Indonesia10/25/86LiberalizationCeiling on foreign currency swaps between commercial banks and Bank Indonesia lifted; amount of swap, however, must not exceed foreign loan received by the commercial bank.
Korea7/10/86TighteningReduction in maximum allowable maturity for deferred payment letters of credit.
8/7/86TighteningTightening of eligibility requirements on new foreign commercial borrowing.
8/22/86TighteningFurther tightening of eligibility requirements on new foreign commercial borrowing.
Pakistan11/18/86LiberalizationAuthorized dealers permitted to issue traveler’s checks against encashment of foreign exchange bearer certificates.
Portugal5/1/86LiberalizationCredit institutions authorized to deal in foreign exchange among themselves and with their foreign correspondents.
Turkey11/1/86IntroductionSome limitations placed on the foreign asset position of banks.
Nonresidents’ Accounts and Residents’ Foreign Exchange Accounts
Industrial countries
Finland1/1/86LiberalizationRestricted accounts abolished.
Italy4/14/86LiberalizationExtension of limit on balances held by residents in Foreign Exchange Accounts for foreign exchange resulting from exports and foreign exchange purchased to make payments abroad.
Spain1/1/86LiberalizationNonresidents’ accounts simplified and their number reduced.
Developing countries
Bangladesh6/23/86LiberalizationForeign nationals and foreign firms allowed to maintain time deposits.
China, People’s Republic of1/86LiberalizationRegulations relating to joint venture companies implemented.
Egypt7/3/86LiberalizationLimits on use of balances in nonresidents’ accounts increased.
El Salvador1/22/86TighteningForeign currency accounts opened prior to 1/21/86 not allowed to be increased and must be liquidated or sold to banking system by 1/1/87.
India7/29/86LiberalizationNonresident Indian nationals allowed to transfer abroad up to Rs 1 million in one lump sum and Rs 250,000 annually of remaining balance thereafter; foreign nationals leaving India after retirement and foreign-born widows of Indian nationals allowed to transfer abroad up to Rs 500,000 in one lump sum and Rs 250,000 annually thereafter; persons who never were Indian residents allowed to transfer abroad up to Rs 500,000 in one lump sum of inheritance, legacies, and bequests, and Rs 250,000 annually thereafter.
Mexico9/11/86LiberalizationFinancial institutions in areas bordering the United States authorized to open dollar-denominated foreign accounts.
Portfolio Investment
Industrial countries
Australia11/5/86LiberalizationRelaxation of rules governing interest-bearing investments of foreign monetary authorities and international organizations in Australia.
Austria11/1/86LiberalizationFree purchase of quoted securities extended to cover all securities quoted on a recognized exchange.
Finland1/1/86LiberalizationLimit on loans by residents to nonresidents through nonresident markka accounts increased.
1/1/86LiberalizationResidents authorized to invest in foreign-listed securities.
1/1/86LiberalizationLimit on purchases of real estate abroad by residents increased.
6/16/86LiberalizationProhibition on sales of Finnish bonds and debentures to residents lifted if sales proceeds from Finnish bonds and debentures used for purchases.
6/16/86LiberalizationAuthorized banks and securities agencies permitted to sell foreign securities from their own portfolios to residents within limits.
France5/22/86EliminationDevise-titre system abolished.
Italy4/14/86LiberalizationResidents permitted to buy currency options from authorized banks for all transactions concerning goods and services.
4/14/86LiberalizationWith effect from 6/30/86, the amount domestic trust funds are allowed to invest abroad in exemption from compulsory non-interest-bearing deposit to be calculated with reference to their subscribed capital of the preceding three months, instead of the preceding six months.
8/8/86LiberalizationEasing of constraints on borrowing by Italian residents from abroad.
8/8/86LiberalizationThe non-interest-bearing deposits that Italian residents are required to hold as a counterpart for the acquisition of foreign securities reduced from 25 to 15 percent.
Japan4/1/86LiberalizationQualification standards for issuance of Euro-yen bonds relaxed.
4/1/86LiberalizationResidents allowed to issue currency conversion and floating rate Euro-yen bonds.
4/1/86LiberalizationMaximum maturity of Euro-yen CDs increased.
4/1/86Liberalization“Seasoning period” for sale of Euro-yen bonds to residents reduced.
Netherlands1/1/86LiberalizationDeregulation of capital markets, including removal of prior approval requirement for resident and nonresident bond transactions.
Norway8/5/86TighteningLimitations imposed on residents’ purchases of unquoted investment funds and equities.
10/3/86TighteningOpening of krone accounts by nonresidents limited to authorized foreign exchange banks.
Spain4/1/86LiberalizationNegotiations of financial loans by resident borrowers liberalized up to Ptas 750 million.
6/13/86

9/1/86
LiberalizationScope substantially expanded, and procedures simplified.
Sweden2/18/86LiberalizationSwedish parent companies freely permitted to guarantee borrowing by foreign subsidiaries.
3/25/86LiberalizationResidents permitted to switch existing portfolio investments into put and call options.
3/25/86LiberalizationResidents permitted to repay certain foreign loans ahead of schedule, on a voluntary basis.
Switzerland5/29/86EliminationRegulations on early redemption of foreign bonds and notes abolished.
5/29/86EliminationMinimum limit on issue of foreign bonds and notes abolished.
10/1/86LiberalizationStamp tax on new Eurobonds issued by foreigners reduced.
10/1/86LiberalizationSales of foreign currency-denominated bonds floated by Swiss corporation subsidiaries exempted from withholding tax; quotations of such issues in Switzerland permitted.
Developing countries
Argentina1/14/86LiberalizationAmortization of loans for investment projects which increase exports permitted as scheduled and under certain conditions through exchange market in which related export proceeds are repatriated.
Chile5/6/86EliminationElimination of restrictions on use of peso assets obtained under “debt-equity swap” arrangement.
India7/31/86LiberalizationCommercial banks allowed to remit dividends payable on equity dividends in cases in which nonresident interest in Indian companies paying dividends does not exceed 40 percent.
Netherlands Antilles11/1/86LiberalizationResidents allowed to deposit in accounts with nonresident banks and to invest in officially listed foreign securities, up to annual maxima; trust offices allowed to transfer shares in offshore companies to nonresidents without prior authorization.
Pakistan1/22/86LiberalizationPermission granted to public limited companies whose shares are quoted on stock exchange in Pakistan to transfer shares to nonresident Pakistanis.
5/7/86LiberalizationForeign banks operating in Pakistan permitted to underwrite share issues of companies incorporated in Pakistan.
Philippines7/24/86LiberalizationProgram for conversion of external debt into equity investments introduced.
Portugal1/1/86LiberalizationSubscription of securities issued by European Investment Bank or EC up to ECU 15 million not subject to restriction.
Direct Investment
Industrial countries
Australia7/28/86LiberalizationSuspension of 50 percent Australian participation requirement in foreign direct investment in manufacturing, rural properties, and real estate for development and for the services industry; lifting of prohibition on foreign acquisition of developed commercial properties, subject to a 50 percent Australian equity guideline.
Austria11/1/86LiberalizationLong-term borrowing by domestic enterprises from nonresidents liberalized.
France4/16/86EliminationRequirement for prior authorization for foreign investment exceeding F 15 million per year per investor eliminated.
5/22/86LiberalizationRestrictions on purchases of secondary residences abroad lifted.
7/23/86IntroductionForeign participation in newly privatized companies restricted to a maximum of 20 percent.
Spain9/1/86LiberalizationDirect investment restrictions substantially eased; prior authorization in most sectors of the economy no longer required.
Sweden4/14/86LiberalizationSwedish parent companies permitted to establish holding companies for their foreign direct investment.
6/24/86EliminationRequirement that certain Swedish direct investments abroad be financed by foreign loans abolished.
6/24/86LiberalizationAmount residents allowed to transfer abroad to purchase recreational dwelling raised.
United States10/2/86TighteningProhibition of investments by U.S. nationals in South Africa.
Developing countries
Botswana3/10/86LiberalizationAnnual limit on directors’ fees and dividend remittances to nonresidents increased.
China1/15/86LiberalizationForeign partners permitted to invest renminbi earnings in other joint ventures earning foreign exchange.
5/15/86LiberalizationChina-U.K. investment agreement signed.
10/11/86LiberalizationInvestment incentives for ventures and 100 percent wholly owned companies introduced.
Greece7/25/86LiberalizationDirect investments by non-EC residents in Greece given same treatment as those by EC residents.
Hungary1/1/86LiberalizationRegulations concerning joint ventures aimed at stimulating direct investment inflows modified.
Malaysia10/1/86LiberalizationNew guidelines on foreign equity ownership announced.
10/24/86LiberalizationPromotion of Investments Act, 1986 amended.
Netherlands Antilles11/1/86LiberalizationGeneral licenses to be issued to residents for transactions in domestic real estate with nonresidents.
Philippines8/4/86LiberalizationDebt/equity conversion scheme introduced.
11/7/86LiberalizationForeign direct investment in tourism-related projects liberalized.
Poland7/1/86LiberalizationJoint ventures between Polish firms and foreign partners permitted under certain conditions.
Portugal1/1/86LiberalizationAutomatic approval of new foreign direct investment by EC residents up to ECU 1.5 million.
São Tomé and Principe4/1/86LiberalizationA new foreign investment code was approved.
Syrian Arab Republic2/26/86LiberalizationNew incentives for foreign investment in agriculture introduced.
Venezuela9/29/86LiberalizationForeign investment code amended resulting in a substantial liberalization of the regime.
Other
Industrial countries
France11/18/86EliminationRequirement for exporters to maintain record of their foreign exchange transactions at banks abolished.
Netherlands10/1/86LiberalizationAbolition of licensing for forward transactions in foreign currencies against guilders through intermediaries other than banks.
Developing countries
Argentina1/12/86LiberalizationEarly cancellation of contracts with exchange rate guarantee of Central Bank permitted.
Pakistan6/24/86LiberalizationExchange rate guarantee scheme broadened to include debt service on loans contracted under Pay As You Earn (PAYE) Scheme.
Source:

See Explanatory Note on Coverage of Part Two, page 65.

Source:

See Explanatory Note on Coverage of Part Two, page 65.

See Explanatory Note on Coverage of Part Two, page 65.

See Explanatory Note on Coverage of Part Two, page 65.

At 1986 prices the variable duty would raise Spain’s tariff on non-EC grain imports to about 200 percent, from 20 percent before accession.

Payments arrears evidence an exchange restriction under the Fund’s Article VIII, Section 2(a) or Article XIV, Section 2, when the authorities of a country are responsible for undue delays in approving applications or in meeting bona fide requests for foreign exchange for current international transactions as defined in Article XXX (d). Accordingly, when a government or a government entity, whose financial operations form part of the budgetary process, fails to meet an external payments obligation due to a lack of domestic currency resources, the resulting arrears are considered to evidence defaults by the government rather than exchange restrictions. Similarly, arrears incurred by governments participating in a common central bank are treated as defaults when they are due to the government’s inability to obtain domestic currency with which to purchase needed foreign exchange from the common central bank. Although these distinctions are relevant for the purposes of Articles VIII and XIV, in the context of the Fund’s policies on the uses of its resources, defaults and other forms of arrears involving current and capital payments are viewed as having the same broad macroeconomic character and consequences, and are therefore treated in the same manner. All references to payments arrears in this section relate to arrears as defined in the broadest sense.

A review of the implementation of Fund policies on members’ external payments arrears was undertaken by the Executive Board in November 1986, the major conclusions of which are reported below in this section. The conclusions of earlier reviews of Fund policies were summarized in Annual Report on Exchange Arrangements and Exchange Restrictions, 1983 and 1985.

Recent data on arrears are subject to considerable revision.

For a detailed discussion of this review, see Annual Report on Exchange Arrangements and Exchange Restrictions, 1986, page 30. See also IMF Survey, Vol. 14, No. 13, June 24, 1985.

Bilateral payments arrangements maintained between Fund members constitute practices subject to Article VIII of the Fund’s Articles of Agreement when they involve exchange restrictions or multiple currency practices. The jurisdictional implications of bilateral payments arrangements are summarized in Annual Report on Exchange Arrangements and Exchange Restrictions, 1985, page 40.

In September 1982, the Executive Board reviewed the Fund’s policy with respect to bilateral payments and countertrade arrangements. The conclusions of that review were summarized in Annual Report on Exchange Arrangements and Exchange Restrictions, 1983, pages 44–45.

Further discussion of the types and consequences of countertrade practices may be found in Annual Report on Exchange Arrangements and Exchange Restrictions, 1986, pages 33–34.

Australia, Bahrain, Bolivia, Canada, Chile, Colombia, Djibouti, El Salvador, Ethiopia, Gabon, The Gambia, Guatemala, India, Indonesia, Japan, Jordan, Kuwait, Lao People’s Democratic Republic, Liberia, Malawi, Malaysia, Mexico, Mozambique, New Zealand, Nicaragua, Nigeria, Pakistan, Peru, Philippines, Saudi Arabia, Seychelles, Sierra Leone, Singapore, Solomon Islands, South Africa, Sri Lanka, Sudan, Swaziland, Tanzania, Thailand, Tunisia, Turkey, Uganda, United Arab Emirates, United States, Viet Nam, Western Samoa, Zambia. More than one notification was made in a number of these countries.

Excluding the arrangements of Democratic Kampuchea, for which information is not available.

In the first quarter of 1987 there was a continued trend toward more flexible arrangements. Maldives and Mauritania changed from pegging to a currency basket to a market-determined float and a managed float, respectively, and Peru adopted a managed float with pre-announcement of the exchange rate. Guyana and Mozambique altered the form of their currency pegs, adopting pegs to the U.S. dollar. Israel’s arrangements were reclassified as less flexible.

The proceeds of coffee exports for the 1985/86 harvest will be surrendered at the new official rate, even if these exports were shipped prior to January 21, 1986.

The “priority” exchange rate of U Sh 1,400 = US$1, introduced on May 28, represented a 5 percent appreciation in U.S. dollar terms over the previous single rate of U Sh 1,470 = US$1, which had superceded the foreign exchange auction system in February 1986.

Calculated as the percentage change against the group of currencies whose bilateral parities remained unchanged in the realignment.

Based on the Fund’s multilateral exchange rate model (MERM), in which the implicit weighting structure takes account of the relative importance of the country’s trading partners in its direct bilateral relationships with them, competitive relationships with “third” countries in particular markets, and estimated elasticities affecting trade flows.

Mixed exchange rates were applied to the surrender of certain export proceeds in 1984, but were eliminated in February 1985.

Until used for approved foreign payments or converted at the “free” rate, the funds in question are deposited in a special U.S. dollar current account in the recipient’s name. Alternatively, a document can be issued by the central bank for the relevant amount of foreign exchange.

Previously, only the domestic value added of nominal exports as estimated by the Foreign Trade Institute (ICE) was channeled through the free exchange market.

The authorities of Tanzania effected several changes in the exchange rate throughout 1986, yielding a cumulative depreciation of 68.1 percent vis-à-vis the U.S. dollar.

Israel introduced the new currency with effect from September 4, 1985. The value of the new sheqel is equal to 1,000 of the former shekel.

The exchange arrangements of Tunisia were reclassified from the category “Pegged: Currency Composite” in the fourth quarter of 1986. See the section above describing “Changes Affecting the Classification of Exchange Arrangements.”

The exchange arrangements of Ghana were reclassified from the category “Pegged: U.S. Dollar” in the third quarter of 1986. See the section above describing “Changes Affecting the Classification of Exchange Arrangements.”

With the January 1, 1986 enlargement, EC membership comprised Belgium, Denmark, France, the Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, and the United Kingdom.

For further information on the transitional arrangements, see the 1986 Annual Report on Exchange Arrangements and Exchange Restrictions.

EFTA membership comprises Austria, Finland, Iceland, Norway, Sweden, and Switzerland. As a result of its accession to the EC, Portugal withdrew from the EFTA on December 31, 1985.

Maghreb countries: Algeria, Morocco, and Tunisia; Mashreq countries: Egypt, Jordan, Lebanon, and Syria; and Cyprus, Israel, Malta, and Yugoslavia.

The 66 ACP states associated with the EC are divided into the following categories by Lomé III: (1) the least-developed countries—Angola, Benin, Botswana, Burkina Faso, Burundi, Cape Verde, Central African Republic, Chad, Comoros, Djibouti, Dominica, Ethiopia, The Gambia, Grenada, Guinea, Guinea—Bissau, Kiribati, Lesotho, Malawi, Mali, Mauritania, Niger, Rwanda, St. Lucia, São Tomé and Principe, Seychelles, Sierra Leone, Solomon Islands, Somalia, Sudan, Swaziland, Tanzania, Togo, Tonga, Tuvalu, Uganda, and Western Samoa; (2) the island and landlocked countries—Antigua and Barbuda, The Bahamas, Barbados, Equatorial Guinea, Fiji, Jamaica, Madagascar, Mauritius, Papua New Guinea, St. Kitts and Nevis, St. Vincent and the Grenadines, Trinidad and Tobago, Vanuatu, Zaïre, Zambia, and Zimbabwe; (3) others—Belize, Cameroon, People’s Republic of the Congo, Côte d’Ivoire, Gabon, Ghana, Guyana, Kenya, Liberia, Mozambique, Nigeria, Senegal, and Suriname.

SADCC membership comprises Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe.

CMEA membership comprises Bulgaria, Cuba, Czechoslovakia, the German Democratic Republic, Hungary, Mongolia, Poland, Romania, the U.S.S.R., and Viet Nam.

Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

The 24 members of the OECD are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Yugoslavia participates in the work of the Organization with a special status.

UDEAC member states are the Congo, the Central African Republic, Gabon, Chad, Cameroon, and Equatorial Guinea.

WAEC member states are Benin, Burkina Faso, Côte d’Ivoire, Mali, Mauritania, Niger, and Senegal.

Members are Burundi, the Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Rwanda, Somalia, Swaziland, Uganda, Zambia, and Zimbabwe. Angola, Mozambique, and Tanzania have observer status.

The members of Ecowas are Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

The group of Sahel countries includes Burkina Faso, Cape Verde, The Gambia, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, and Chad.

Members are: Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Palestine Liberation Organization, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates, Yemen Arab Republic, and People’s Democratic Republic of Yemen.

Members are Afghanistan, Australia, Bangladesh, Bhutan, Burma, Taiwan (see Explanatory Note on Coverage of Part Two, page 65), Cook Islands, Fiji, Hong Kong, India, Indonesia, Japan, Democratic Kampuchea, Kiribati, Korea, the Lao People’s Democratic Republic, Malaysia, Maldives, Nepal, New Zealand, Pakistan, Papua New Guinea, the Philippines, Singapore, Solomon Islands, Sri Lanka, Thailand, Tonga, Vanuatu, Viet Nam, and Western Samoa. Also participating are Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland, the United Kingdom, and the United States.

Members of ASEAN are Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

An agreement governing ASEAN textile and clothing sales to the EEC in the period 1987–90 was initialed in Brussels, Belgium on June 28.

Members are Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

Costa Rica, El Salvador, Guatemala, and Nicaragua.

Members are Antigua and Barbuda, Argentina, The Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Cuba, Dominica, the Dominican Republic, Ecuador, El Salvador, France, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, the Netherlands, Nicaragua, Panama, Paraguay, Peru, Portugal, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Spain, Suriname, Trinidad and Tobago, the United Kingdom, the United States, Uruguay, and Venezuela. Associate members are the British Virgin Islands, Montserrat, the Netherlands Antilles, and the U.S. Virgin Islands. Switzerland and the Vatican participate in a consultative capacity in the work of the Commission. Other members of the United Nations may participate in a consultative capacity in discussions of matters of particular concern to them.

Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago.

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