Chapter

Developments in the International Exchange Rate and Restrictive Systems

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
August 1985
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I. Introduction

The period covered by this Report is 1984 and, for major developments, the first quarter of1985. 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 provide for notification by member countries to the Fund of a comprehensive description of their exchange controls and exchange rate arrangements, and changes in these as they occur. Measures intensifying 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 centers on exchange arrangements and exchange restrictions, but it is also more comprehensive in that it presents other external economic policy measures and intergovernmental arrangements that may 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

Global output and trade recovered strongly in 1984, as inflation in the industrial countries remained relatively subdued and further progress in the developing countries was made in tackling the problem of overindebtedness. The stalemate in trading relations nevertheless persisted, as official intervention in the international goods markets continued to be widespread, and pressures for further protectionist measures intensified. In financial markets, by contrast, industrial countries further liberalized capital controls, and developing countries on balance reduced the restrictiveness of their regulations affecting international payments.

The volume of world trade expanded by 9 percent in 1984, building on the incipient upturn in the previous year. Its cyclical pattern in relation to aggregate world output, which grew at 4 percent in 1984, was similar to that of the previous rapid trade expansions in 1973 and 1976 (Chart 1). From a longer-term perspective, comparing the developments in the last two decades, the ratio of global output growth to trade growth has also been quite stable. However, this stability of the trade elasticity has not necessarily meant that protectionism has been contained. First, the present recovery in trade has been much more concentrated on relatively open markets in the United States. In 1984 the United States accounted for over one half of growth in the value of world imports, compared to less than one fourth in 1976, and even less in 1973. Other industrial countries accounted for the other half of import expansion, while in the developing countries renewed growth of imports by non-oil exporters was offset by a continued contraction of imports of oil exporters (Chart 2). Second, the slower growth in world output over the past decade may itself have been partly attributable to the effects of protectionism on trade, through resulting supply inefficiencies, resource misallocation, and sluggishness in the transmission of growth of demand from more expansionary economies.

Chart 1.Growth of World Trade and Output, 1964–841

(Percent change in volumes)

1Trade (exports plus imports) and output (gross national product) are in volume terms. Changes for 1964–71 are annual compound percentage rates. Prior to 1977, the People’s Republic of China is excluded.

Chart 2.Shares of Major Country Groups in Change of World Imports, 1971–841

(In percent)

1Annual change in each group’s imports (in U.S. dollars on f.o.b. basis) are expressed as percentage of annual changes in global imports.

2 Algeria, Indonesia, Islamic Republic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.

From a sectoral perspective, more technologically advanced imports—which are the most difficult to subject effectively to protectionist measures owing to the changing nature of the products—expanded most rapidly in 1984. In descending order of growth were imports of electronics, automobiles, iron and steel, textiles and clothing, and agricultural products and minerals. Slower-growing and lower-value-added industries have tended to be most exposed to shifting exchange rates and comparative advantage, and therefore to pressure for official intervention to slow, or even reverse, the shifts and their effects on employment. Intervention has been particularly evident in textiles and clothing and, over a longer period of time, in agricultural trade. Employment effects have taken on special sensitivities as, since 1981, unemployment has remained at a relatively high level in most industrial countries, in excess of 8 percent on average, or about double the previous level in the period since the mid-1960s.

Strong industrial country demand in 1984, coupled with a modest improvement in the terms of trade, was reflected in a sharp increase (by 11 percent) in export receipts of the group of non-oil developing countries. Notwithstanding the implementation of measures aimed at bringing aggregate demand into line with available supply by several countries in this group, imports grew by 6 percent in volume terms, reversing an earlier decline. Assisted also by some easing of international interest rates in 1983–84, the current account deficit of non-oil developing countries narrowed markedly, to US$38 billion in 1984, compared with the peak of US$108 billion in 1981 and US$52 billion in 1983. The improved current account position was reflected in a further slowing of total debt accumulation by non-oil developing countries (by just over 5 percent to US$731 billion), down from an average 17 percent rate in 1980–82, and somewhat lower than in 1983. Short-term debt in particular has declined markedly in the past two years. Difficulties in obtaining short-term trade financing resulting from the presence of widespread payments arrears have provided a spur to the growth of less efficient barter and countertrade arrangements, by which exchange proceeds are in effect secured against import financing. Countertrade has also been used as a means of circumventing restrictive and cartel arrangements, and of applying an implicitly depreciated exchange rate to exports. Adjustment programs and multilateral debt restructuring aimed at normalizing relationships with creditors and eliminating arrears were adopted by a number of Fund members in 1984, or negotiations to these ends are presently underway. As grace periods following earlier debt restructurings expired, the decline in debt-servicing ratios observed in 1983 ceased.

Exchange Rate Arrangements

Exchange rate movements of major currencies were more volatile in 1984, in contrast to the reduced variability of real interest rate differentials. The increased exchange rate volatility, especially of the other major currencies vis-à-vis the U.S. dollar, reversed the tendency toward reduced short-term exchange rate variability that had emerged since 1980. A salient feature of exchange rate developments was the continued strength of the U.S. dollar against the currencies of most other member countries in the face of a mounting U.S. external current account imbalance. Factors involved, operating especially through capital movements, have been an increased preference for dollar assets arising from the relative vigor of the strength of the U.S. economy, differentials between real interest rates, political and economic uncertainties elsewhere in the world leading capital to seek a “safe haven” in the dollar, and rigidities, particularly in labor markets, which have made other currencies less attractive. Interest rate differentials, which have been bolstered by the effects on the attractiveness of the dollar as a store of value of the success of the U.S. Federal Reserve in countering inflationary pressures, have often favored U.S. dollar-denominated assets—although since August 1984 the differentials have narrowed substantially. Another factor was the greater mobility of savings permitted by the close, and increasing, integration of international financial markets. At times during the year, sizable official intervention to promote orderly markets was undertaken by some countries during episodes of high exchange rate volatility. Nevertheless, overall reliance on official intervention to counter exchange rate movements lessened in 1984, continuing the trend in recent years noted in earlier Reports.

Although no changes were introduced in the institutional arrangements of the European Monetary System (EMS), the currency composition of the European Currency Unit (ECU) was modified in 1984 by the inclusion of the Greek drachma and by readjustment of the weighting coefficients of the currencies in the ECU basket. The stability of exchange rates within the cooperative arrangement was assisted by increased convergence of fiscal and monetary policies and of inflation performance.

Since February 1973 the major industrial countries have maintained exchange arrangements under which rates have floated freely. The exchange rate arrangements of smaller industrial and developing countries have continued to evolve toward greater flexibility. A major development in these arrangements that took place in 1984 and in early 1985 was an acceleration of this process, as one smaller industrial country (New Zealand) and five developing countries (the Dominican Republic, Jamaica, the Philippines, Uganda, and Zaïre) adopted market-determined, independently floating exchange rates for their currencies. Previously, as of the end of 1983 only three developing countries (Lebanon, South Africa, and Uruguay) had such arrangements. In addition, the number of developing countries maintaining managed floating arrangements declined owing to the adoption of independent floats, while four countries adopted non-SDR currency basket pegs. Several developing countries continued to adjust their exchange rates regularly in response to relative price movements so as to improve or to maintain international competitiveness, and in other cases the frequency of discrete adjustments was increased, thereby lessening the possibility of significant overvaluation of the exchange rate. For members with pegged arrangements the average (unweighted) nominal devaluation in terms of the foreign currency to which the local currency was pegged was 21 percent, and for members with more flexible arrangements, the average (unweighted) nominal depreciation in 1984 amounted to 31 percent—ranging up to over 80 percent for the peso argentino and the Israel shekel. The practical effect of the continued evolution of exchange arrangements of the developing countries toward greater flexibility, as well as that of the discrete adjustments of the pegged currencies, was a substantial real depreciation of the overvalued currencies of a number of countries, many of which had adopted financial programs supported by the use of Fund resources. Nevertheless, in terms of inflation-adjusted performance, the exchange rates of non-oil exporting developing members appreciated somewhat in 1984, following real depreciations in the two preceding years.

Commercial and Exchange Policy Developments

Developments in members’ exchange and trade policies in 1984 and the first quarter of 1985 were mixed. Although liberalizing measures were taken affecting members’ exchange systems, pressures for protectionist trade policies intensified. Industrial countries maintained or hardened existing restrictions, without resorting on balance to major new restrictive actions. While voluntary restraints on steel exports to the United States were introduced and voluntary limits on certain imports from Japan to the European Community (EC) were reduced, restraints requested by the United States on automobile imports from Japan were eliminated in March 1985 and replaced by restraints announced by Japan with a higher overall ceiling. Despite the sharp recovery in world trade, tendencies toward further protectionist actions remained strong. Strengthened legislation to counter practices perceived to be unfair was enacted in Europe and North America.

In recent years there has been increasing recourse to bilateralism in response to the retention or tightening of trade barriers. A feature of these barriers is that they have most often lacked transparency, so that the costs and benefits have not been readily apparent to all affected parties, particularly to consumers. In some instances, the lack of transparency has been so pronounced that even the existence of the barrier being cited has been difficult to ascertain. Continuing the trend toward the maintenance of the outward appearance of a more open trading system and despite some relaxation in 1984 of the level of restrictiveness in the form of taxes and tariffs, quantitative controls or bilateral agreements of various forms aimed at limiting imports—including the particularly opaque “administrative guidance” and “voluntary” export restraints—continued largely unabated. Protectionist measures in the major trading countries tended to be focused on specific sectors, including agriculture, steel, textiles and clothing, automobiles and electronics, that have faced structural adjustment to technological and factor price shifts. In contrast, restrictive measures adopted in many of the developing countries were largely across the board, in response to a decline in revenues from oil exports in the case of oil exporting countries, and to still considerable, although reduced, balance of payments difficulties in many of the non-oil developing countries.

In the course of 1984, the need to reverse the protectionist drift was underscored in various national and international forums. Ranged against these official commitments have been concentrated protectionist pressures from organized interests, coupled with an insufficient recognition of the more diffuse costs to consumers and, ultimately, to national interests. The buildup of protectionist pressures, and the aim of not to be seen acceding to them, has also been accommodated during the last several years by a movement in emphasis away from trade policies based on direct price or cost-related measures that have a readily identifiable impact on costs and prices toward non-tariff measures that may include, among others, such practices as outright prohibitions or quotas, “voluntary” export restraints, and administrative impediments. Among other factors to which the failure to reverse the momentum toward protectionism has been attributed, the following have been cited most widely: recent exchange rate developments, the magnitude of bilateral trade imbalances, “unfair” foreign trade practices, special national characteristics of a sector (e.g., agriculture), and infant industry protection or the need for protection in “new” high-technology industries.

In many developing countries, there was a continued trend toward greater restrictiveness in the form of quantitative measures affecting the import transaction itself. Nonquantitative restrictions showed relatively little change in incidence on balance. In contrast to the trend in recent years, however, and to the current trend in trade policy, the movement in restrictive practices affecting payments and transfers for international transactions was on balance toward greater liberalization. This was evident particularly in measures relating to exports, capital transactions, and multiple exchange rates.

With respect to measures affecting exports, there was in 1984 a net liberalization of access to export credit facilities and of repatriation and surrender requirements for export proceeds, and little net change arising from fiscal and tax incentives for exports. Restrictions on current invisibles, maintained mainly by developing countries, on balance underwent little change overall, in contrast to a tightening noted in the 1984 Report. Travel abroad was seen as a luxury purchase or as a vehicle for capital flight, thus motivating its restriction in some countries.

The international system of capital transfers underwent overall liberalization in 1984. Measures affecting capital controls by developing countries were, on balance, in the direction of liberalization, following a tightening in recent years. The pace of the freeing up of the major international financial markets in industrial countries was also stepped up, particularly for nonbank transactions. The most significant aspect of liberalization by developing countries was in direct investment; enhanced arrangements for inward transfers of equity and portfolio capital into the developing countries assisted in substituting for excessive bank debt built up in recent years. In those countries that adopted them, more open exchange systems for current and capital transactions, coupled with flexible exchange rates, eliminated the overvaluation of the currency and diminished incentives for capital flows through illegal parallel exchange markets.

Restrictive exchange practices in the form of multiple exchange rates were substantially reduced in 1984. Maintenance by members of multiple exchange rate systems had been observed in the 1984 Report to have increased in 1981 and 1982. In early 1984, the Fund undertook a review of such practices which concluded that Fund policies with regard to multiple exchange rates were generally adequate, but that in their implementation greater attention would need to be paid to specific arrangements for assisting members to phase out the practices as quickly as possible, in order to contain their adverse effects on balance of payments adjustment and resource allocation. In 1983 and 1984, the long-term trend of reduced recourse to multiple currency practices was resumed, as a number of members eliminated and simplified such practices, while relatively few adopted them or made them more complex. A feature of the elimination of the practices was the adoption of relatively flexible unified exchange rate arrangements by members that had previously maintained dual or multiple markets; the unification was most often undertaken in the context of programs supported by use of the Fund’s financial resources.

Exchange restrictions giving rise to external payments arrears continued to be prominent in 1984, despite very large debt-restructuring operations. External payments arrears continued to increase in aggregate, to SDR 43 billion, as rescheduling arrangements were delayed for several of the largest members that had incurred sizable amounts of arrears. Nevertheless, for the first time since 1978, there was a reduction in the number of countries incurring arrears, and it is expected that the conclusion of several large restructuring exercises now underway will cause aggregate arrears to diminish sharply in 1985. The presence of these disorderly restrictions on provision of exchange was one factor that led the Fund in 1984 to review its role in the settlement of debt disputes, in addition to conducting its usual annual review of developments in members’ arrears. It is concluded in the reviews that the functioning of the international monetary system depended vitally on members’ fulfilling their financial obligations promptly, and according to the terms of those obligations, and that the Fund had a direct interest in the settlement of overdue obligations and a role to play in accordance with the Articles of Agreement. It was noted that the circumstances surrounding overdue financial obligations typically were complex, giving rise to important differences between individual cases. For this reason, the Fund has proceeded on a case-by-case basis and has shown caution in making judgments on issues involving disputed claims on such overdue obligations. One conclusion was that the Fund’s good offices in helping members engaged in the particular dispute over an external financing obligation were meant to bring the parties to a dispute together, and the Fund would act in such cases only if both parties wished to have the Fund provide its good offices. Arrangements for the settlement of payments arrears have, however, infrequently involved disputes and generally proceeded smoothly in an environment of multilateral cooperation.

Multilateral restructurings of obligations were very large in 1983, amounting to some SDR 60 billion, as compared with SDR 6 billion in 1982. In 1984, the total of restructuring completed declined to SDR 23 billion, pending completion of arrangements for some SDR 100 billion of restructuring agreed in principle. The elimination or reduction of external payments arrears, mainly by restructuring but involving some cash payments, continued to be an important objective of economic programs supported by use of Fund resources. The maintenance of payments arrears and the ensuing disorderliness in financial flows creates serious difficulties for debtor countries and is of substantial concern to foreign creditors. With the emergence of arrears, problems of external adjustment frequently intensify because the customary channels of external financing are disrupted. The elimination of external payments arrears in the course of a stabilization program therefore benefits the country through the reconstitution of financing streams.

The total Fund membership increased in 1984 to 148 countries as two countries, Mozambique (September 24, 1984) and St. Christopher and Nevis (August 15, 1984), joined the Fund. During the year, one country, St. Christopher and Nevis, accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Articles of Agreement (on December 3, 1984), raising to 60 the number of members that have accepted these obligations. Of the 9 new Fund members since 1980, 4 have accepted the obligations of Article VIII; as of end-March 1985, one member (Mozambique) had not yet formally notified the Fund of its decision regarding Article VIII or Article XIV (but has since opted for Article XIV). At the end of 1984, 87 countries were availing themselves of the transitional arrangements under Article XIV, Section 2. Twenty-eight countries availing themselves of the transitional arrangements of Article XIV have exchange systems that are free or virtually free of restrictions on payments and transfers for current international transactions. Thirteen of these countries are members of the West African Monetary Union or the Central African Monetary Area.

II. Main Developments in Exchange Arrangements and Exchange Rates

This section reports on major develoments in arrangements that Fund members have for determining their exchange rates, as notified to the Fund 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 notified to the Executive Board. Under the provisions of the amended Article IV, Fund members have the right to maintain exchange arrangements of their choice, as well as certain obligations regarding the communication of these arrangements to the Fund. To facilitate the implementation of the Fund’s surveillance over exchange rate policies, members’ exchange arrangements are classified under three broad headings, as follows: (1) currencies that are pegged to a single currency or to a composite of currencies (including the SDR); (2) currencies whose exchange rates, although not pegged, have displayed limited flexibility compared with either a single currency or a group of currencies; and (3) currencies whose exchange rates are more flexible. 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 the broad headings in Table 1.

Table 1.Exchange Rate Arrangements as of March 31, 19851
Flexibility Limited vis-à-visMore Flexible
Peggeda Single Currency or Group of CurrenciesAdjusted according to a set of indicatorsManaged floatingIndependently floating
Single currencyCurrency compositeSingle currency2Cooperative arrangements
U.S. dollarFrench francOtherSDROther
Antigua andLao People’sBeninBhutanBurmaAlgeria3Afghanistan3Belgium3BrazilArgentinaAustralia
BarbudaDemocraticBurkina Faso(IndianBurundiAustriaBahrain4DenmarkChile3CostaCanada
BahamasRep.3Cameroonrupee)Guinea3Bangladesh3GhanaFranceColombiaRica3Dominican
BarbadosLiberiaCentral AfricanGambia, TheIran, IslamicBotswanaMaldivesGermany, Fed.Peru3Ecuador3Republic
BelizeLibyaRep.(£ stg.)Rep. ofCape VerdeQatar4Rep. ofPortugalGreeceJamaica
BoliviaNicaragua3ChadJordanSaudi Arabia4IrelandSomalia3,5Japan
LesothoChina,
DjiboutiOmanComoros(SAR)Kenya7People’sUnited ArabItaly6Guinea-Lebanon
DominicaPanamaCongoSwazilandRwandaRep. ofEmirates4Luxembourg3BissauNew Zealand
Egypt3Paraguay3Equatorial(SAR)São Tomé andCyprusNetherlandsIcelandPhilippines
El Salvador3St. ChristopherGuineaPrincipeFijiIndia8South
Ethiopiaand NevisGabonSeychellesFinland7IndonesiaAfrica
GrenadaSt. LuciaIvory CoastIsraelUganda
SierraGuyana
Guatemala3St. Vincent andMaliLeone3HungaryKoreaUnited
Haitithe GrenadinesNigerVanuatuKuwaitMexico3Kingdom
HondurasSudan3SenegalViet NamMadagascarMoroccoUnited
IraqSurinameTogoMalawiNigeriaStates
Syrian Arab Rep.3MalaysiaPakistanUruguay
Trinidad andMaltaSpainZaïre
TobagoMauritaniaSri Lanka
Venezuela3MauritiusTurkey
Yemen Arab Rep.MozambiqueWestern
Yemen, People’sNepalSamoa
Democratic Rep.NorwayYugoslavia
Papua New Guinea
Romania
Singapore
Solomon
Islands
Sweden
Tanzania
Thailand
Tunisia
Zambia
Zimbabwe

No current information is available relating to Democratic Kampuchea.

All exchange rates have shown limited flexibility vis-à-vis the U.S. dollar.

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 overall margins of ± 7.5 percent about the fixed shilling/SDR relationship; the exchange rate is re-evaluated when indicative margins of ± 2.25 percent are exceeded.

Margins of ± 6 percent are maintained with respect to the currencies of other countries participating in the exchange rate mechanism of the European Monetary System.

The effective exchange rate, measured by a basket of currencies of the main trading partners, is maintained within margins of ± 2.25 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.

No current information is available relating to Democratic Kampuchea.

All exchange rates have shown limited flexibility vis-à-vis the U.S. dollar.

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 overall margins of ± 7.5 percent about the fixed shilling/SDR relationship; the exchange rate is re-evaluated when indicative margins of ± 2.25 percent are exceeded.

Margins of ± 6 percent are maintained with respect to the currencies of other countries participating in the exchange rate mechanism of the European Monetary System.

The effective exchange rate, measured by a basket of currencies of the main trading partners, is maintained within margins of ± 2.25 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.

In 1984, over 60 changes in exchange arrangements occurred and were notified by members to the Fund, including measures that resulted in a reclassification of the basic type of arrangement, discrete adjustments of the exchange rate in terms of the peg, and a number of changes in the form of composite pegs. Included also are large discrete changes in exchange rates classified in the “More Flexible” category. Developments in members’ effective exchange rates are also monitored continually on the basis of available data to facilitate the symmetry of treatment of pegged and flexible exchange rates, and changes on a “real” inflation-adjusted basis in excess of 10 percent are notified to the Executive Board when they occur. Nineteen such notifications of changes in real effective rates since the preceding consultation with the member (or previous notification) occurred in 1984;1 this compares with six such notifications in 1983 when the system was introduced.

Overall, the international exchange rate system continued to evolve toward greater flexibility of arrangements during 1984 and early 1985. All 12 reclassifications of arrangements in 1984 and the first quarter of 1985 were in this direction. A major new development in this period was the adoption of independently floating exchange rates by several developing countries. Six countries (the Dominican Republic, Jamaica, New Zealand, the Philippines, Uganda, and Zaïre) introduced exchange arrangements by which their exchange rates are determined by market forces. At the end of 1983, independently floating exchange rates had been maintained by only three developing country members: Lebanon, South Africa, and Uruguay. Another general development during this period was the movement by members away from “Limited Flexibility” arrangements of quasi-pegs to a single currency (in all instances the U.S. dollar) toward pegging to currency composites other than the SDR (Guyana, Malawi, and Thailand). One member (Sierra Leone) moved from the category “Pegged: U.S. Dollar” to the category “Pegged: SDR.” A number of discrete changes in the exchange rate vis-à-vis currency composites were implemented in this period, as described below. One member (Equatorial Guinea) was reclassified from “Pegged: Other Currency” to “Pegged: French Franc” when the ekwele was withdrawn from circulation and replaced by the CFA franc, effective January 1, 1985. Another member (Peru) moved from a managed preannounced float to an arrangement under which the currency is adjusted on the basis of a set of indicators.

In addition to these changes, two new members informed the Fund in 1984 of their exchange arrangements: St. Christopher and Nevis has been classified within the group of countries whose currencies are pegged to the U.S. dollar, and Mozambique within the group of countries whose currencies are pegged to a currency composite other than the SDR.

Since the inception of the present classification system in December 1981, the proportion of Fund members with “More Flexible” arrangements, including members maintaining a cooperative arrangement under the EMS, has risen from 28 percent to 32 percent in March 1985; and those with single currency pegs and “limited flexibility vis-à-vis a single currency” arrangement declined from 47 percent to 39 percent.2 As a consequence, the proportion of members with both types of currency composite arrangements increased from 25 percent to 29 percent (with the proportion of arrangements classified as “other currency composite” increasing from 16 percent to 21 percent). Reflecting these changes, the currencies of 50 members (including two new members) were pegged to a single currency at the end of March 1985 (32 to the U.S. dollar, 14 to the French franc, 2 to the South African rand, and 1 each to the Indian rupee and the pound sterling), compared with 51 members at the end of 1983. Twelve currencies remained pegged to the SDR, while “Other Composite” pegged arrangements increased from 27 to 31. Arrangements in the intermediate group of “Limited Flexibility” between pegged and flexible arrangements declined from 18 to 15. Of these 15 members, 7 were in the subclassification “Single Currency” (all against the U.S. dollar) as a result of having their exchange rate fluctuation within margins equivalent to 2¼ percent or less against an identifiable single currency of another member. Overall, 100 members, including two new members, had currencies classified under the “Pegged” category or the de facto pegged category of limited flexibility with respect to a single currency at the end of March 1985, as compared with 99 at the end of 1983. Another eight currencies in the “Limited Flexibility” category were those of countries maintaining cooperative arrangements within the EMS. Thirty-nine members maintained exchange arrangements in the “More Flexible” category; of those, 6 adjusted their exchange rates according to a set of indicators, 19 had managed floating arrangements, and the currencies of 14 members (of which 8 were developing countries) floated independently.

Developments Affecting the Classification of Exchange Arrangements

In 1984 eight members notified the Fund of changes in their exchange arrangements that involved a reclassification. (The end-March 1985 classification is shown in Table 1.)

The authorities of Malawi informed the Fund that with effect from January 17, 1984 the Malawi kwacha had been delinked from the SDR and pegged to a new basket of currencies reflecting Malawi’s trade with its major trading partners. Malawi was thus reclassified from the category “Pegged: SDR” to the category “Pegged: Other Composite.”

Two countries were reclassified from the category “Flexibility Limited vis-à-vis a Single Currency” to the category “Pegged: Other Composite.” Guyana notified the Fund that, effective October 6, 1984, the exchange rate for the Guyana dollar would be changed periodically in accordance with movements against the U.S. dollar of a basket of currencies consisting of the pound sterling, the deutsche mark, the Japanese yen, the French franc, and the Netherlands guilder. The composition of the basket had been changed on January 11, when the exchange rate had been devalued by 20 percent and the U.S. dollar and the Trinidad and Tobago dollar had been omitted from the basket. The U.S. dollar continues to be the intervention currency, and rates for the Guyana dollar in terms of the U.S. dollar are announced every week. For the week beginning October 6, the midpoint exchange rate against the U.S. dollar was set at G$4.12 = US$1, representing a 9 percent depreciation against the previous rate of G$3.75 = US$1. The authorities of Thailand advised the Fund that, with effect from November 5, 1984, the baht was adjusted from B 23 = US$1 to B 27 = US$1, representing a 14.8 percent devaluation against the intervention currency, the U.S. dollar, and the rate was henceforth linked to a basket of currencies. The composition of the basket reflects Thailand’s trade with its major partners.

During the period under review, there were five reclassifications within the “More Flexible” group. Four countries instituted changes in their respective exchange arrangements which led to their reclassification from the category “Managed Floating” to that of “Independently Floating.” The authorities of Jamaica notified the Fund that with effect from November 29, 1984 the exchange rate was to be permitted to float freely. The band, which had constrained the U.S. dollar/Jamaica dollar rate set in the auction market introduced on March 20, 1984 and which was periodically adjusted to offset persistent demand pressures for foreign exchange, was removed. Jamaica had instituted on March 20, 1984 a new exchange rate system by which the rate was determined at biweekly auctions, and was limited to within an adjustable band of J$0.30, which was adjusted whenever there existed a persistent excess demand for foreign exchange at the auctions. The band was adjusted on several occasions, and the Jamaica dollar depreciated by 15.4 percent against the U.S. dollar between October 2 and November 20, from J$4.11 = US$1 to J$4.86 = US$1. The Philippine authorities informed the Fund that, effective October 15, 1984, the practice of publishing a “guiding” exchange rate permitting the rate to be determined only partly on the basis of supply and demand in the foreign exchange market was abandoned. The rate is now to be determined freely by market forces. In conjunction with the float of the Philippine peso, the requirement for surrender of foreign exchange to the Central Bank imposed on authorized agent banks was eliminated and the foreign exchange allocation scheme was abolished. In addition, the 10 percent excise tax on foreign exchange sold by the Central Bank and authorized agent banks for payments other than for imports was eliminated; on the other hand, a 1 percent tax was imposed on all foreign exchange transactions other than interbank operations in the foreign exchange market. Uganda unified the previous dual exchange rate system on June 15, 1984, and the exchange rate is now determined in a weekly auction administered by the Bank of Uganda. As indicated by the relative stability of net foreign exchange reserves, the Bank of Uganda has not intervened in the foreign exchange market to a significant extent, and the exchange arrangement has been reclassified as “Independently Floating.” In Zaïre, the official and free market exchange rates of the Zaire were unified on February 24, 1984, at a rate equivalent to Z 1 = SDR 0.02869. The parallel exchange market has since been virtually eliminated as a result of the measures, and the Bank of Zaïre intervenes in the exchange market in order to influence the speed of adjustment and to smooth any erratic movements. Zaïre has been reclassified as having an “Independently Floating” exchange arrangement.

One country was reclassified from the category “Managed Floating” to the category “More Flexible: Adjusted According to a Set of Indicators.” As of February 29, 1984, Peru abandoned its policy of preannouncing the exchange rate and announced that henceforth the exchange rate would be frequently adjusted by small amounts corresponding to at least the rate of domestic inflation.

Two countries entered the Fund as new members in 1984. The exchange arrangement of St. Christopher and Nevis was classified as “Pegged: U.S. Dollar” as the country’s currency, the Eastern Caribbean dollar, is pegged to the U.S. dollar at a midpoint rate of EC$2.70 = US$1. The exchange arrangement of Mozambique was classified as “Pegged: Other Composite” in light of the fact that the metical is pegged to a weighted basket of six currencies.

In early 1985, two countries were reclassified within the group of “Pegged” currencies. Equatorial Guinea informed the Fund that with effect from January 1, 1985 the ekwele was replaced as the national currency by the CFA franc, issued by the Bank of Central African States (BEAC). The CFA franc is pegged to the French franc at the fixed rate of CFAF 1 = F 0.02. Sierra Leone notified the Fund that, with effect from February 21, 1985 the official exchange rate for the leone was depreciated by 58.3 percent against the U.S. dollar, from Le 2.5 = US$1 to Le 6.0 = US$1. At the same time, the peg for the leone was changed from the U.S. dollar to the SDR, with the Bank of Sierra Leone issuing daily equivalent exchange rates for the leone in terms of all major currencies.

Two countries adopted independently floating exchange arrangements in early 1985. Following the easing of a number of exchange controls affecting capital flows in late 1984, the authorities of New Zealand have since March 4, 1985 ceased to quote buying and selling rates for the New Zealand dollar against foreign currencies, and have allowed the exchange rate to be determined by market forces; as a result, New Zealand has been reclassified from the category “More Flexible: Managed Floating” to “More Flexible: Independently Floating.” The Dominican Republic informed the Fund that, with effect from January 23, 1985 the previously existing dual exchange markets were unified, and all official foreign exchange transactions carried out by the Central Bank now take place at the average market-determined exchange rate during the preceding five working days, except those for which the peso counterpart of the obligations in foreign exchange had already been deposited with the Central Bank and certain other transactions that had already been authorized by the Monetary Board. All other transactions take place at the free market rate of the day. A major step toward the unification of the exchange system had been taken on April 17, 1984 when a number of transactions were transferred to the parallel market and an exchange incentive of RD$0.48 per U.S. dollar was introduced for exports of traditional commodities, services (except tourism), and value added by industrial free zones. As a result of the unification and float of the exchange rate, the Dominican Republic has been reclassified from the category “Pegged: U.S. dollar” to the category “More Flexible: Independently Floating.”

Developments in Currencies of Industrial Countries3

Few changes took place in the EMS during 1984. The currency composition of the European Currency Unit (ECU) was changed, effective September 17, 1984, by a readjustment of the weighting coefficients of currencies in the ECU basket, and by the inclusion of the Greek drachma in the ECU for the first time. The amounts of currencies in the basket that had depreciated in recent years (French franc and Italian lira) were increased at the expense of those currencies that had appreciated (deutsche mark and Netherlands guilder), returning the percentage weights close to their initial values at the time the EMS was established in 1979. On September 17, the amounts of the currencies were fixed using the following weighting coefficients: deutsche mark, 23 percent; French franc, 19 percent; pound sterling, 15 percent; Italian lira, 10.2 percent; Netherlands guilder, 10.1 percent; Belgian franc, 8.2 percent; Danish krone, 2.7 percent; Greek drachma, 1.3 percent; Irish pound, 1.2 percent; and Luxembourg franc, 0.3 percent. The central rates of the currencies participating in the exchange rate mechanism and the bilateral parities within the EMS remained unchanged. The readjustment of the coefficients had only a minor effect on the divergence indicators of the participating currencies, which at the time of the change were well within their thresholds.

A striking feature of exchange market developments during 1984 was the continued strength of the U.S. dollar, as shown in its bilateral appreciations against all other currencies of the industrial countries, ranging from 6 to 20 percent (Table 2).4 The pound sterling had the largest depreciation against the U.S. dollar in 1984 (20.3 percent on an end-year basis) while the Canadian dollar had the smallest depreciation against the U.S. dollar (5.8 percent). Since 1970, the earliest observation for the MERM index, the dollar had appreciated by 21 percent as of end-1984. After having appreciated by 9.4 percent in nominal effective terms in 1983, the U.S. dollar rose by a further 10.1 percent in 1984 while demand for dollar-denominated assets continued to be strong, as reflected in continuing large inflows of capital.

Table 2.Exchange Rate Movements of Currencies of Industrial Countries with “Cooperative” or “Independently Floating” Arrangements(December 31, 1983-December 31, 1984)
Exchange Rate

(Currency Units

per U.S. dollar)

End of Period)
MERM

Index

(1980 = 100)
Percentage

Appreciation (+)/

Depreciation(−)
In terms

of U.S. dollar
MERM
AustraliaDec. 31, 19831.1204100.3−7.2+ 0.8
(dollar)Dec. 31, 19841.208099.5
Belgium/LuxembourgDec. 31, 198355.6478.2−11.8−1.0
(franc)Dec. 31, 198463.0877.4
CanadaDec. 31, 19831.2444109.0−5.8−1.8
(dollar)Dec. 31, 19841.3214107.0
DenmarkDec. 31, 19839.87580.0−12.3−2.4
(krone)Dec. 31, 198411.2678.1
FranceDec. 31, 19838.347570.6−13.0−3.7
(franc)Dec. 31, 19849.59268.0
Germany, Fed. Rep. ofDec. 31, 19832.723896.4−13.5−3.0
(deutsche mark)Dec. 31, 19843.14893.5
IrelandDec. 31, 19830.881177.4−12.6−4.0
(pound)Dec. 31, 19841.008674.2
ItalyDec. 31, 19831,659.572.8−14.3−4.7
(lira)Dec. 31, 19841,935.8869.4
JapanDec. 31, 1983232.2123.1−7.5+ 0.4
(yen)Dec. 30, 1984251.1123.7
NetherlandsDec. 31, 19833.064595.6−13.7−3.5
(guilder)Dec. 31, 19843.549592.3
United KingdomDec. 31, 19830.689485.8−20.3−10.3
(pound sterling)Dec. 31, 19840.864777.0
United StatesDec. 31, 1983138.8+ 10.1
(dollar)Dec. 31, 1984152.8
Source: International Monetary Fund, International Financial Statistics.
Source: International Monetary Fund, International Financial Statistics.

As in 1983, there were sizable movements in the nominal effective exchange rates of the currencies of most industrial countries in 1984. In effective (MERM) end-of-year terms, the largest exchange rate appreciation was that of the U.S. dollar (10.1 percent). The Japanese yen appreciated by 0.4 percent, while the currencies of all other industrial countries registered depreciations in effective terms during 1984. The largest depreciations in effective terms were those of the pound sterling (10.3 percent), the Italian lira (4.7 percent), and the Irish pound (4.0 percent).

Other Developments in Exchange Rate Arrangements

Notifications describing modifications to exchange arrangements that did not entail any change in the Fund’s classification of exchange arrangements were received on more than 40 occasions in 1984. As in 1983, most of the changes took the form of discrete adjustments in the exchange value of pegged and flexibly determined currencies; other changes included new methods for determining exchange values, and details of new currency and exchange arrangements.

As in 1982 and 1983, virtually all Fund members with pegged arrangements that adjusted their exchange rates devalued against the peg or intervention currency. Among the countries with pegged arrangements that altered their exchange rates, only four revaluations were effected against currency baskets, including one against the SDR. However, in two of these instances, the amount of the revaluation was small, and in another, the amount of revaluation did not offset the prior and subsequent devaluations over the year as a whole. Only one member (Vanuatu) therefore revalued its exchange rate by a sizable amount (Table 3). One member (Western Samoa) in the “More Flexible” category revalued its currency in response to a sizable devaluation of the intervention currency.

Table 3.Changes in Exchange Rates of Currencies Pegged to Single Currency or Currency Composites, 1984
Domestic Currency

Units per U.S.

Dollar or per SDR1
Percentage Appreciation (+)/

Depreciation (−) (in Terms

of U.S. Dollar, SDR, or Currency

Composite)1
Country (Currency)Date of

Change
PegOld rateNew rate
Bolivia (peso)2April 13U.S. dollar505.102,020.00−75.00
June 11U.S. dollar2,020.002,050.00−1.50
August 17U.S. dollar2,050.005,125.003−60.00
November 23U.S. dollar5,125.0038,785.50−41.70
Botswana (pula)July 7Other composite−5.10
El Salvador (colón)December 3U.S. dollar2.503.254−23.10
Finland (markka)March 27Other composite+ 1.00
Gambia, The (dalasi)February 25Single currency4.005.005−20.00
Guatemala (quetzal)November 16U.S. dollar1.001.456−31.00
Hungary (forint)February 7Other composite−3.00
June 26Other composite−5.00
Kenya (shilling)May 15SDR14.5614.78−1.50
Madagascar (franc)March 17Other composite−13.00
June 21Other composite−2.00
July 2Other composite−2.00
September 24Other composite+ 1.10
Malawi (kwacha)January 17Other composite7−3.40
Mali (CFA franc)June 1French franc471.05471.05
Paraguay (guaraní)February 22U.S. dollar160.008300.008−47.00
March 9U.S. dollar163.009208.0010−21.60
May 24U.S. dollar208.00240.0011−13.30
Romania (leu)November 1Other composite23.5012
Sudan (pound)October 21U.S. dollar1.80132.1013−14.30
Tanzania (shilling)June 15Other composite12.591417.00−25.90
Vanuatu (vatu)March 12SDR106.20100.60+ 5.60
Venezuela (bolivar)February 24U.S. dollar6.007.50−20.00
Yemen, Arab Rep. (rial)February 15U.S. dollar4.674.98−6.20
May 20U.S. dollar4.985.41−7.90
August 15U.S. dollar5.415.74−5.75
November 4U.S. dollar5.745.86−2.05

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

Midpoint rates.

“Complementary” rate. The exchange rate system in effect from August 17, 1984 to November 23, 1984 also envisaged four additional exchange rates.

Mixed rate between official rate and parallel rate. Parallel rate was about C 4 = US$1 in December 1984.

In terms of pound sterling.

Introduction of a multiple exchange rate system comprised of an official rate and a secondary rate, determined by market forces, which applies to most invisibles.

Peg changed from SDR to other currency composite.

Rate used for the transfer abroad of proceeds from air freight charges and domestic sales of air transportation tickets. Since May 24, 1984, these transfers have been effected in the parallel exchange market.

Average rate applicable to export receipts.

Sixty percent of the value of export receipts calculated on the basis of the minimum export price (aforo) was to be converted at rate of G 160 per US$1, and the remainder at G 280 per US$1. The weighted average exchange rate applicable to export receipts was thus G 208 per US$1.

Rate applicable to export receipts, certain registered private sector capital transactions, and specified import payments. Nonspecified import payments are to be made through the parallel exchange market.

Commercial exchange rate; appreciation shown against the U.S. dollar.

Commercial bank exchange rate.

Devaluation against the U.S. dollar, the intervention currency.

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

Midpoint rates.

“Complementary” rate. The exchange rate system in effect from August 17, 1984 to November 23, 1984 also envisaged four additional exchange rates.

Mixed rate between official rate and parallel rate. Parallel rate was about C 4 = US$1 in December 1984.

In terms of pound sterling.

Introduction of a multiple exchange rate system comprised of an official rate and a secondary rate, determined by market forces, which applies to most invisibles.

Peg changed from SDR to other currency composite.

Rate used for the transfer abroad of proceeds from air freight charges and domestic sales of air transportation tickets. Since May 24, 1984, these transfers have been effected in the parallel exchange market.

Average rate applicable to export receipts.

Sixty percent of the value of export receipts calculated on the basis of the minimum export price (aforo) was to be converted at rate of G 160 per US$1, and the remainder at G 280 per US$1. The weighted average exchange rate applicable to export receipts was thus G 208 per US$1.

Rate applicable to export receipts, certain registered private sector capital transactions, and specified import payments. Nonspecified import payments are to be made through the parallel exchange market.

Commercial exchange rate; appreciation shown against the U.S. dollar.

Commercial bank exchange rate.

Devaluation against the U.S. dollar, the intervention currency.

Among the six countries that revalued their currencies in the course of 1984, Finland changed the index which is used to calculate the external value of the markka on January 1, omitting the Soviet ruble from the index and redistributing its 25 percent share among the 12 remaining currencies. The former base year of 1974 used to calculate the index was replaced by a moving reference year. The largest weights in the index are presently (from July 1) those of the deutsche mark (19.5 percent), the Swedish krona (18.2 percent), the pound sterling (15.6 percent), and the U.S. dollar (9.4 percent); as from March 15, 1985, the weights are adjusted quarterly. Also, with effect from March 27, the Bank of Finland revalued the markka by about 1 percent within the range of fluctuation of the currency index. Madagascar revalued the Malagasy franc by 1.1 percent against its currency composite on September 24, but this appreciation of the currency was more than offset by the three devaluations which occurred during the year that are noted below. Romania revalued the commercial exchange rate at which most transactions take place by 32.5 percent against the U.S. dollar with effect from November 1. At the same time, the noncommercial rate, which is used for private tourism and is pegged to the same basket as the commercial rate, was revalued by 20.8 percent against the U.S. dollar. The official rate, which is used only for statistical purposes, was revalued by 11.8 percent against the U.S. dollar. Vanuatu revalued the midpoint exchange rate of the vatu by 5.6 percent on March 12, from VT 106.20 = SDR 1 to VT 100.60 = SDR 1. Western Samoa appreciated the exchange rate of the tala by 11 percent against the New Zealand dollar, at the time of a 20 percent depreciation of the New Zealand dollar on July 18, 1984.

Among those currencies that were devalued, some members reduced the international value of the currencies on a regular periodic basis, while others were guided by an explicit or implicit set of economic indicators. The magnitudes of the devaluations tended to be smaller for countries with composite currency pegs.

Among those members with currencies pegged to the U.S. dollar that devalued in 1984, Bolivia, El Salvador, Guatemala, Paraguay, Sudan, and Venezuela in effect devalued their currencies by modifications to multiple exchange rate regimes that are described in the section below dealing with multiple currency practices. In the instances of Bolivia and Paraguay, several changes were made in the course of the year. The Yemen Arab Republic devalued four times during the year. The midpoint rate against the U.S. dollar was devalued by 6.2 percent on February 15 from YRls 4.67 = US$1, by 7.8 percent on May 20, by 5.75 percent on August 15, and by 2.05 percent on November 4, to reach a midpoint rate of YRls 5.86 = US$1. Only one other country in the category “Pegged: Other Single Currency” devalued. The Gambia adjusted the exchange rate of the dalasi against the pound sterling on February 25, from D 4 = £1 to D 5 = £1, representing a 20 percent devaluation. Among those countries with arrangements classified as “Pegged: SDR,” Kenya adjusted its exchange rate against the SDR on May 15, from a rate of K Sh 14.562464 = SDR 1 to K Sh 14.786818 = SDR 1, representing a 1.5 percent devaluation. Four countries pegged to other currency composites depreciated their exchange rate in 1984. Botswana depreciated the pula by 5.1 percent against the currency basket to which the pula is pegged, effective July 7. On January 10, 1985, the pula was depreciated by a further 15 percent, and at the same time the weight of the South African rand in the pula basket was increased from 50 to 75 percent. Hungary devalued the forint by 3 percent against the basket to which it is pegged on February 7, and again by 5 percent on June 26. In Madagascar the exchange rate of the Malagasy franc was devalued in terms of its composite basket three times in 1984; by 13 percent on March 17, by 2 percent on June 21, by a further 2 percent on July 2, although this latter devaluation was partly offset by a 1.1 percent appreciation of the exchange rate against the basket on September 24, and by an appreciation of 3.2 percent on January 2, 1985. On June 15, Tanzania devalued the shilling by 25.9 percent against its intervention currency, the U.S. dollar, from T Sh 12.59 = US$1 to T Sh 17 = US$1. Among the countries classified as having exchange rates showing “Limited Flexibility vis-à-vis a Single Currency,” Ghana devalued the cedi vis-à-vis the U.S. dollar on three occasions in 1984: by 14.3 percent on March 26, by 10 percent on August 23, and by 23 percent on November 30, at which time the exchange rate stood at Ȼ 50 = US$1. On January 11, Guyana announced that the exchange rate of its currency against the U.S. dollar, which remained the intervention currency, was devalued by 20 percent from G$3 = US$1 to G$3.75 = US$1. On the same date, a change in the composition of currencies making up the basket was also announced, whereby the U.S. dollar and the Trinidad and Tobago dollar were replaced in the basket by the French franc and Netherlands guilder.

Changes in exchange rates in 1984 of currencies subject to “More Flexible” arrangements are shown in Table 4. Among the countries with exchange arrangements classified as “More Flexible,” two countries adjusted their exchange rates “According to a Set of Indicators.” Chile depreciated the exchange rate of the peso vis-à-vis the U.S. dollar by 19.1 percent on September 18 from Ch$93 = US$1 to Ch$115 = US$1. On December 8, 1984 the peso was devalued by 3.6 percent, from Ch$122.33 per U.S. dollar to Ch$126.92 per U.S. dollar. Thereafter, the peso has been depreciated on a daily basis at a rate reflecting domestic inflation in the previous month less an adjustment for external inflation. The cumulative rate of depreciation for the year was 31.7 percent (Table 4). On September 15, Somalia devalued the Somali shilling against the U.S. dollar by 32.5 percent, from the midpoint rate of So. Sh. 17.5556 = US$1 to So. Sh. 26 = US$1. The cumulative rate of depreciation for the year was 41.3 percent. Other countries that follow an explicit set of indicators in managing their exchange rates flexibly effected the following cumulative rates of depreciation in 1984 against their intervention currency, the U.S. dollar: Brazil, 69.1 percent; Colombia, 22.1 percent; Peru, 60.1 percent; and Portugal, 22.3 percent.

Table 4.Changes in Exchange Rates of Currencies Subject to “More Flexible” Arrangements1(December 31, 1983–December 31, 1984)
Currency Units per U.S.

Dollar2

(End of Period)
Percentage Appreciation

(+)/Depreciation (−) (in

Terms of U.S. Dollars

per Currency Unit)
Dec. 31, 1983Dec. 31, 1984
Argentina (peso)23.261178.735−87.0
Brazil (cruzeiro)984.03,184.0−69.1
Chile (peso)87.53128.24−31.7
Colombia (peso)88.77113.89−22.1
Costa Rica (colón)43.4047.75−9.1
Ecuador (sucre)54.1067.175−19.5
Greece (drachma)98.67128.48−23.2
Guinea-Bissau (peso)84.05127.6−34.1
Iceland (krona)28.6740.545−29.3
India (rupee)10.49312.3609−15.1
Indonesia (rupiah)994.01,074.0−7.4
Israel (shekel)107.77638.71−83.1
Jamaica (dollar)3.27754.93−33.5
Korea (won)795.5827.4−3.8
Lebanon (pound)5.498.89−38.2
Mexico (peso)143.8192.29−25.2
Morocco (dirham)8.0619.5512−15.6
New Zealand (dollar)1.5282.0938−27.0
Nigeria (naira)0.74860.8082−7.4
Pakistan (rupee)13.5015.36−12.1
Peru (sol)2,271.165,695.98−60.1
Philippines (peso)14.00219.759−29.1
Portugal (escudo)131.45169.28−22.3
Somalia (shilling)15.26126.0−41.3
South Africa (rand)1.22191.9841−38.4
Spain (peseta)156.7173.4−9.6
Sri Lanka (rupee)25.026.28−4.9
Turkey (lira)282.8444.735−36.4
Uganda/(shilling)240.0590.0−59.3
Uruguay (new peso)43.12574.825−42.4
Western Samoa (tala)1.62032.1789−25.6
Yugoslavia (dinar)125.673211.749−40.6
Zaïre (zaïre)30.1240.45−25.5

The information presented in this table relates to those members not included in Table 3 whose arrangements are classified in the category “More Flexible” as of December 31, 1984. 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.

The information presented in this table relates to those members not included in Table 3 whose arrangements are classified in the category “More Flexible” as of December 31, 1984. 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.

Eight countries classified as “Managed Floating” adjusted their exchange rates in discrete fashion on occasions during 1984. Costa Rica depreciated the colón against the U.S. dollar on four occasions during the year. On August 31, Iceland ceased using an average of trade and payments weights in the currency basket determining the exchange rate of the króna, and opted for using trade weights only. As a result, the weight of the U.S. dollar in the reference basket was reduced from 46 percent to 30 percent. The change was made retroactive to May 27, 1983 and resulted in a 3 percent devaluation of the króna. This change was within the limits which had been set by the government for exchange rate adjustment for the second half of 1983 and for 1984. Following sharp increases in domestic costs, the Icelandic króna was devalued on November 20 by an average of 12 percent against a basket consisting of the country’s main trading partners, and by 12.5 percent against the U.S. dollar, the principal reserve and trading currency, from ISK 34.35 = US$1 to ISK 39.246 = US$1. Israel adjusted the representative rate of the shekel on September 17 as part of a series of economic measures. The rate was depreciated by 8 percent against the U.S. dollar, from IS 364.09 = US$1 to IS 395.79 = US$1, in addition to the regular depreciations reflecting inflation differentials. New Zealand devalued its currency by 20 percent on July 18, as part of a set of economic measures taken in the wake of the general election held on July 14. The Philippines changed the “guiding rate” of the peso on June 6, from ₱ 14.002 = US$1 to ₱ 18.002 = US$1, representing a 22.2 percent devaluation.

In early January, Turkey announced that commercial banks could henceforth set their own buying and selling rates for foreign exchange within a band of 6 percent (8 percent for transactions in bank notes) around the official rate, although the spread between the buying and selling rates could not exceed 2 percent. The Central Bank announces the interbank buying and selling rates several times a day within a maximum spread of 1 percent, and transactions between the Central Bank and commercial banks serve as indicators for transactions between commercial banks. The above modification led to an effective one-step depreciation of the Turkish lira of about 6 percent early in 1984, since the banks depreciated their rates by the maximum amount permitted by the new margin. Uganda unified its two-tier exchange market on June 15, at a midpoint rate of U Sh 320 = US$1 determined by the new weekly auction system. This represented an 8.2 percent depreciation of the previously existing “Window One” midpoint rate, and a 3.1 percent appreciation of the “Window Two” midpoint rate. Western Samoa adjusted the exchange rate of the tala on three occasions during 1984. The midpoint rate against the New Zealand dollar was devalued by 4.3 percent from WS$1.06 = $NZ 1 to WS$1.1071 = $NZ 1 on May 7, and by 3.9 percent from WS$1.1071 = $NZ 1 to WS$1.1520 = $NZ 1 on May 31. Following the 20 percent devaluation of the New Zealand dollar on July 18 the midpoint rate was appreciated by 10.8 percent from WS$1.1520 = $NZ 1 to WS$1.04 = $NZ 1 on July 19. In terms of the currencies of Western Samoa’s major trading partners, this last adjustment represented an effective depreciation of the tala of 4 percent.

Two countries abandoned their policy of preannouncing their exchange rates during the period under review. In addition to the case of Peru mentioned above, Ecuador discontinued its policy of depreciating the official exchange rate by S/. 0.05 per U.S. dollar each calendar day and fixed the midpoint rate on September 4 at S/. 67.175 = US$1, although the authorities stand ready to change the rate from time to time. In addition, the amount of transactions in the official market was sharply reduced as half of nonpetroleum exports, certain imports, and service on external debt disbursed on or after September 4, 1984 were shifted to the intervention market of the Central Bank, where the exchange rate was fixed on September 4 at S/. 96.5 = US$1. The exchange rate in the free exchange market has meanwhile continued to be determined by market forces.

Two changes in members’ exchange arrangements, other than the discrete changes in exchange rates and reclassifications of arrangements noted above, took place in 1984. One country classified as “Pegged: French franc” changed its exchange arrangements during the period under review. Following Mali’s entry into the West African Monetary Union (WAMU) on June 1, the CFA franc issued by the Central Bank of West African States (BCEAO) replaced the Mali franc as Mali’s currency unit. Mali francs could be exchanged for CFA francs for a three-month period starting June 1 at a rate of MF 2 = CFAF 1. Norway changed the method for calculating the basket index for the Norwegian krone on July 2. The new index is based on a geometric average of changes in individual exchange rates from their base values, rather than on the previously used arithmetic average. The base exchange rates and weights for the basket remained unchanged.

The following changes occurred in the first quarter of 1985. Among the countries pegged to the U.S. dollar, the Yemen Arab Republic devalued the midpoint rate against the U.S. dollar by 9.6 percent on February 11 from YRls 5.86 = US$1 to YRls 6.485 = US$1. Three countries pegged to a currency composite modified their respective exchange arrangements. On January 10, Botswana depreciated the pula by 15 percent against the currency basket to which it is pegged, and the weight of the rand in the pula basket was increased from 50 to 75 percent. Hungary decided that effective January 3 the National Bank would quote the official exchange rate of foreign currencies five times per week, as against the previous once a week, except for notes and checks. Mauritania devalued the ouguiya by 16 percent against the U.S. dollar, effective February 15 as the exchange rate was adjusted from UM 67.15 = US$1 to UM 80 = US$1. In addition, all broken cross rates were eliminated. Among the countries whose currencies are adjusted according to a set of indicators, Chile adjusted the exchange rate of the peso from Ch$132.17 = US$1 to Ch$144.07 = US$1 effective February 27, representing an 8.2 percent devaluation. On January 1, 1985 Somalia adopted a market-determined exchange rate applicable to most private sector transactions and simultaneously adjusted the exchange rate in the official market from So. Sh. 26.0 = US$1 to So. Sh. 36.0 = US$1, representing a 28 percent devaluation. During a six-month period, the official exchange rate, which now applies to external transactions of the Central Government and to the surrendered portion of exports, will continue to be adjusted in accordance with the present system of pegging to the SDR in real terms, and, in addition, depreciated by So. Sh. 0.5 per U.S. dollar a month until end-June 1985. Although these measures imply a dual exchange rate arrangement, the authorities of Somalia intend to unify the official exchange rate with the market rate. Also, effective January 1, 1985 the franco valuta system was abolished and foreign exchange can be bought and sold freely by both residents and nonresidents. In the category “More Flexible: Managed Floating,” Western Samoa discontinued the link between the tala and the New Zealand dollar with effect from March 1. The exchange rate is now determined with reference to a weighted basket of currencies and other factors considered important by the authorities. As a result of the change, the midpoint exchange rate of the tala was adjusted from WS$2.338 = US$1 to WS$2.342 = US$1, representing an 0.2 percent devaluation against the U.S. dollar, which has replaced the New Zealand dollar as the intervention currency.

III. Main Developments in Restrictive Practices

Imports and Import Payments

Although world trade increased rapidly in 1984 and early 1985, protectionist pressures continued to be strong. Imports of manufactures in particular continued to be subject to actions of a broadly countervailing nature in response to perceived unfair trade practices in other countries, although the extent to which actions and reactions were matched was unclear, because in many instances there was a lack of transparency of the initiating action abroad. Major actions extending protectionism took place in the textile and steel industries. Trade in automobiles and electronics continued to be subject to much the same limits in 1984, although markets in these products grew rapidly, and the limits tended to be expressed in absolute terms. In early 1985, significant action was taken to liberalize U.S. imports of automobiles from Japan. There were relatively few new measures introduced in the period under review affecting trade in agricultural products, although protection in this area and the corresponding budgetary costs were already intense, and discussions were underway of retaliatory subsidies for cereal exports by the United States. Continuing the trend of recent years, nonquantitative actions imposing tariffs and surcharges on imports were relatively few by comparison with the large number of quantitative restrictions that were either introduced or intensified; this has marked the evolution of exchange and trade systems in both the developed and the developing countries. One exception in the latter group of countries was the recourse by several countries to minimum financing terms for certain imports. This represented a response to the difficulties experienced by a number of countries in obtaining trade credits, while they were in arrears on these or other international payments obligations.

Major trade legislation aimed particularly at foreign competition perceived to be unfair was passed during 1984 by Canada, the EC, and the United States. Canada implemented the Special Import Measures Act in December 1984, intended to deal with unfair competitive practices of foreign producers. In August 1984 new EC legislation relating to dumped or subsidized imports from countries outside the area also became effective. In addition, the EC adopted in September 1984 the New Commercial Policy Instrument, which is intended to enable the Community to respond more rapidly to unfair trading practices by other countries. The United States Trade and Tariff Act, signed into law on October 30, 1984, while extending the General System of Preferences (GSP) as noted below, also extended the reach of antidumping and countervailing duty laws in some areas.

Protectionism in the agricultural sectors of industrial countries remained intense, although there were some encouraging developments toward checking the more extreme practices. On March 31, 1984, the EC took steps to reform the Community’s common agricultural policy, with a view to containing budgetary expenditures on agriculture. The agreement provided for an average cut of 0.5 percent (in terms of European Currency Units) in the community-wide level of support prices, the first reduction in the history of the EC; within the general agreement, some members were authorized to introduce compensatory national actions. The Community also introduced milk production quotas with a view to controlling dairy production and agreed to dismantle progressively the complex system of border taxes and subsidies (monetary compensation accounts). At various times during the year Japan announced increases in imports of a number of agricultural products.

A number of developing countries adopted comprehensive adjustment programs with realistic exchange rates and improved their external positions, while at the same time liberalizing their exchange and trade systems. However, comprehensive foreign exchange restrictions remained or continued to be introduced in other countries. Among the developing countries there was a continuing although gradual movement toward substitution of tariffs by import quotas. The oil exporting developing countries suffered declining revenues as a result of the stagnation or weakening of international oil prices; in some of these countries import restrictions were intensified.

In contrast to the restrictive legislation in the trade field noted above, all countries granting the GSP took actions in 1984 to extend their implementation of the preferences beyond 1985. Canada broadened the coverage of its GSP scheme and extended it for ten years. The EC reduced GSP rates for some 50 products. The United States extended the arrangement for eight and a half years, while adding several factors to be considered in determining a country’s eligibility for GSP benefits, and providing for a gradual phasing out of benefits over a two-year period when a country’s annual GNP per capita reached a certain level. Among other countries, Austria reduced GSP tariff rates on some 1,900 tariff lines, and Hungary, Japan, Norway, and Switzerland also enhanced their GSP treatment.

In addition to the regular tariff cuts scheduled for 1985 under the Tokyo Round of Multilateral Trade Negotiations (MTN), some countries planned to implement in 1985 the scheduled 1986 reductions and possibly also the 1987 reductions. The member countries of the European Free Trade Association (EFTA) took a decision to this effect, and the EC announced, conditionally, similar actions with respect to products of interest to developing countries. All industrial countries supported acceleration of MTN tariff cuts. Japan undertook to reduce or eliminate tariffs on some 1,300 nonagricultural items in the fiscal year through March 1985. Norway and Sweden announced that the final three of eight agreed tariff reductions under the Tokyo Round would be implemented two years earlier than originally planned.

On December 31, 1983, the EFTA and the EC completed the process of liberalization of virtually all tariff barriers and import restrictions on their intraregional trade in industrial products. The two groups agreed in April on a joint declaration aimed at eliminating remaining barriers to free trade: specifically, harmonization of standards, elimination of technical barriers, simplification of border facilities, elimination of unfair trading practices, controls in state aid which might give rise to trade distortions, and the liberalization of government contracts. The United States in January 1984 provided duty-free access to the U.S. market for ten years on all products (with certain exceptions such as textiles and footwear) from Caribbean countries qualifying under the Caribbean Basin Initiative. On July 1, 1984, the Preferential Trade Area for East, Central and Southern African States (PTA) reduced tariffs on certain items. The list of items is to be expanded every three years until 1992, when the regional common market will be fully established.

Quantitative Import Controls

There were few changes in the restrictive measures applied to agriculture. The EC decided to continue quota access for imports of butter from New Zealand at specified gradually declining levels for a further five years. The EC quota for imports of cheese from Finland was raised. Japan increased quota levels on imports of beef and citrus.

Trade in textiles again became more restrictive in 1984. In May agreement was reached within the context of the Treaty of Rome in the Benelux countries to suspend for six months the EC treatment for imports of trousers, shirts, and divided skirts from the Philippines. At various times during the year, Canada acted to expand the coverage of bilateral clothing restraint agreements with the People’s Republic of China, Indonesia, Malaysia, Mauritius, Sri Lanka, and Thailand. In March the EC concluded a bilateral trade agreement with the People’s Republic of China, extending the list of products subject to restriction; it also imposed quotas on specified clothing items from Hong Kong, the Philippines, Turkey, and Yugoslavia. At various times in 1984, Ireland restricted imports of specified textiles arriving from the rest of the EC, but originating in Hong Kong, India, the Republic of Korea, Macao, Pakistan, the Philippines, Poland, Romania, Taiwan, Turkey, and Yugoslavia. All of these restrictions had expired by end-December 1984. New Zealand increased import license allocations in 1984. Norway extended its 1978 system of global quotas on various textile items and joined the Multifiber Arrangement (MFA). The United States introduced new customs regulations to apply more strict guidelines for determining the country of origin of textile items. The United States also intensified quantitative restrictions on imports of textiles and textile products. Among developing countries, the People’s Republic of China acceded in January to the MFA, and in August Panama applied to accede to the MFA.

A number of new quantitative restrictions were introduced in the steel sector. Following the imposition of safeguard measures on specialty steels by the United States in July 1983, Canada and the EC suspended equivalent concessions. The EC adopted, as of January 1984, a monitoring system to ensure that traditional trade patterns in steel products were not disturbed. The EC, in negotiating steel import ceilings with several other countries on the basis of 1980 performance, imposed reductions of 12.5 percent in 1984, as in 1983. The EC has bilateral agreements on steel imports into the EC with Australia, Brazil, Bulgaria, Czechoslovakia, Hungary, Japan, the Republic of Korea, Poland, Romania, South Africa, and Spain. Reciprocal arrangements exist with Austria, Finland, Norway, and Sweden. In the United States the International Trade Commission reported a finding that certain carbon and alloy steel products were being imported into the United States in amounts such that imports had been a substantial cause of serious injury to the domestic industries. In response, a decision was made to negotiate “surge control” arrangements with major suppliers. In December, the United States announced bilateral agreements, covering a period of five years and restricting shares in the U.S. steel market to specified proportions, with Australia, Brazil, Japan, the Republic of Korea, Mexico, South Africa, and Spain. Under an agreement concluded in 1982 with the EC, exports of specified steel products to the United States are to be limited to about 5½ percent of the U.S. market. In late November, the United States banned imports of steel pipes and tubes from the EC until December 31, 1984, because such imports exceeded the level set in a letter of understanding between the United States and the EC. In response to European protests against the U.S. action, a formal bilateral agreement between the United States and the EC was reached in early 1985 regarding restraints on the Community’s exports of pipes and tubes to the United States. Bilateral agreements to limit exports of specialty steels to the United States were concluded in 1984 by Argentina, Austria, Canada, Japan, Poland, Spain, and Sweden; an agreement with Brazil continued under negotiation as of the end of the year. In April, South Africa announced unilateral limits on steel exports to the United States.

Trade in automobiles is subject to “voluntary” restraints in a number of industrial countries. Japan limited exports of passenger cars to the United States to 1.85 million units in the year ended March 1985, compared with 1.68 million units per year in the previous three years. Japanese car exports to Canada are also restrained. As in 1983, sales of Japanese cars were limited in the United Kingdom to 11 percent of the market, in France to 3 percent of the market, and in Italy to 2,200 units. In addition, Japan continued to exercise moderation in its automobile exports to the European Community as a whole.

On March 1, 1985, the Government of the United States announced that following the expiration of restraints on March 31, 1985, it would not ask Japan to extend its voluntary restraints on exports of automobiles from Japan to the United States. Subsequently, Japan announced that the growth of exports of automobiles to the United States in the year April 1985-March 1986 would be limited to 24 percent in volume terms over the limit of the preceding 12 months.

In the field of electronics, Japan restrained in 1984 exports to the EC of video tape recorders and color television tubes to specified amounts and exercised moderation in exports of color television sets, numerically controlled lathes, and machine tools, as well as light commercial vehicles, fork lift trucks, motorcycles, audio equipment, and quartz watches. The quota for exports of television sets by the Republic of Korea to the United Kingdom was increased in 1984.

Canada extended global import quotas on leather and nonleather footwear from the original expiry date of November 30, 1984 to November 30, 1985; the quotas were raised by 3 percent.

Among the developing countries, a number of countries made progress during 1984 in reducing import restrictions and simplifying import regimes. In July, Bangladesh eliminated the requirement that imports under the Wage Earners’ Scheme requiring a letter of credit also obtain an Import Registration Certificate. In September, Brazil more than halved the list of items subject to suspension of import licenses. In Ecuador and in El Salvador, the maximum limits on the size of automobiles that could be imported were raised. Hungary reduced the coverage of quota restrictions on imports by 25 percent in terms of local currency, and the reference limits for individual importing companies handling large and frequent transactions were reduced and subsequently abolished, along with the previous practice of discretionary approval of import licenses for all other imports not covered by quotas. In addition, import quotas on certain categories of raw materials were abolished. In India, imports of a number of items were liberalized under the open general license scheme. In April, there was an increase in the number and scope of special import licenses issued against certain exports. In addition, industries producing exclusively for export were given some added flexibility in importing items required for export production. Limits on imports of certain items for manufacturer-exporters and other specified importers were also raised, as were limits on some advance remittances of authorized dealers.

Korea removed some import restrictions, and stated that in future the annual list of imports to be freed from restrictions would be announced two or three years in advance, to enable domestic manufacturers to prepare for increased foreign competition; advance notice was given to free 546 items in 1985–86, and to reduce the proportion of total imports that are restricted to below 5 percent by 1988. In Mauritius quota restrictions maintained for either balance of payments reasons or for the protection of local industries were removed during the year for goods carrying customs duty of 30 percent or more, and import quotas were imposed for a number of goods whose importation was previously prohibited. In Mexico, regulations concerning import permits were liberalized, and a number of tariff items were exempted from permit requirements. In August, some additional imported items were exempted from import permits and in October the Government announced a calendar for the total elimination of import permits by 1990, with a gradual dismantling starting in 1987. Morocco liberalized certain aspects of its general import program and specified investment goods that could be imported directly in accordance with industrial investment programs. In Niger, import applications for raw materials and certain consumer electronic components were exempted from prior clearance in February, subject to certain conditions. This exemption was extended in March to imports of yarn, threads, and polybags for use by garment exporters, and to synthetic resin and derivatives thereof; also, permission to import completely knocked-down trucks, motorcycles, and raw materials or components was granted under specified terms and conditions. Restrictions on imports of equipment by exporters were eased somewhat in June, and authorization was granted in September for all cereal derivatives to be imported without licenses, and without payment of import taxes and duties. The priority system for allocation of foreign exchange for imports was abolished in October, and imports were reclassified as follows: freely importable, prohibited, banned, regulated, and liberalized. In South Africa, import controls were abolished on 90 different categories of goods, including pharmaceuticals, hand tools, toys, and carpets. In Tanzania, textile goods, electrical appliances, certain building materials, certain vehicles, children’s wear, and shoes were allowed to be imported without use of official foreign exchange, and regulations restricting the import of soap, cooking oil, and vehicles were relaxed. In Thailand, manufacturers and traders specifically commissioned by manufacturers were allowed in February to import heavy-duty vehicles, and authorizations were granted throughout the year to import a variety of items. Tunisia in August eased restrictions on the importation of cars by Tunisians residing abroad. Western Samoa abolished the foreign exchange allocation system for private imports, except for allocations for motor vehicles, durable capital equipment valued in excess of US$10,000, beer, cigarettes, timber, veneer, matches, and cigarette lighters.

Quantitative import restrictions were introduced or intensified, and import regimes were tightened, in a number of developing countries during 1984. In Argentina the scope of the import licensing requirement introduced at the end of 1983 was extended early in 1984 to public sector imports, and the list of prohibited imports was expanded significantly in August; in addition, the Secretary of Commerce was empowered to reject license applications for imports from countries that adopted discriminatory measures against Argentine exports or violated international agreements in a manner prejudicial to Argentine exports. On the other hand, the licensing requirement was eliminated in April for imports valued at less than US$500, up to an annual total of US$6,000 per tariff item, and in December an overall annual limit of US$24,000 per importer was established for licensing requirement exemptions. The lists of imports subject to license were enlarged at various times during the year by Barbados and by Fiji. In February, the People’s Republic of China issued new regulations requiring prior inspection by relevant authorities of all imports before their release by the General Administration of Customs. Colombia transferred a number of tariff items from the free import category to licensing in February, and prohibited the importation of a wide variety of products the following month. Greece extended to December 1985 the quantitative restrictions on selected imports from the EC. In Grenada, certain items of clothing were made subject to import licensing at the end of October; in November specified automotive items and steel and timber products were placed on the negative list of imports. India shifted a number of items from the Open General License scheme to more restriced import lists in the first half of the year. In October, Israel imposed a temporary ban on imports of certain luxury items. Malta restricted all imports from Italy at the end of October. In Nepal, the Government tightened in March regulations concerning imports by returning citizens. Early in the year, Nigeria discontinued the issuance of open general licenses, subjected all permitted imports to specific import licenses, and lowered the threshold value of imports subject to preshipment inspection; at the same time, prepayment for imports by the private sector and public corporations was prohibited, and a system of foreign exchange allocations to authorized dealers was established. Peru in July imposed prior licensing requirements and a temporary ban on the importation of a number of product categories not originating in other Andean Pact countries. In December the import prohibition list was expanded and temporary prohibitions were made permanent. The Philippines required that all applications for the importation of specified types of chemicals obtain prior clearance. In addition, various regulations monitoring or tightening reporting requirements of authorized agent banks were introduced throughout the year. In early 1984 a scheme of safeguard clauses affecting certain imports was introduced in Portugal. In the course of 1984 Rwanda temporarily suspended import licenses for toilet and powdered soap, candles, and insecticides. Thailand, meanwhile, imposed licensing requirements on imports of numerous items, prohibited the importation of specified garments, and regulated the importation of palm oil. In the first half of the year, Trinidad and Tobago indefinitely suspended imports of aerated beverages and beer, introduced specific import licenses for certain electric and consumer goods, and placed imports of steel products on the negative list. In the context of changes in the management of the weekly foreign exchange system, a regulation was introduced in Uganda in November whereby successful bidders were required to obtain approved import entry forms and import licenses issued by the Ugandan Advisory Board of Trade; for imports in excess of US$20,000 pro forma invoices from three different suppliers were to be submitted before the import entry form could be provided. In Western Samoa all imports in excess of WS$10,000, other than imports of petroleum products, were required to be made under letter of credit arrangements, commencing in July.

With effect from January 1, 1985 all import restrictions were removed in Niger, with the exception of specific products whose importation remained either prohibited or subject to prior approval. On the same date, Nigeria abolished the system of foreign exchange allocations to authorized dealers which had been introduced at the beginning of 1984. On the other hand, an embargo on trade with Nicaragua became effective in the United States on May 7, 1985, along with restrictions on dealings with Nicaraguan air carriers and Nicaraguan-registry vessels.

Import Surcharges and Import Taxation

Among the non-oil developing countries there were several reductions in import duties, but on the whole they were balanced by increases. Argentina eliminated in February the import duty on certain agricultural fertilizers. Brazil adopted a revised tariff schedule in September that replaced the previous surcharges of 30 percent and 100 percent on imports with additions of 10–30 percent to the basic tariff rates, thereby lowering substantially the average nominal rate of tariff protection. Colombia reduced duties in March and June on a number of items from Argentina, Chile, Costa Rica, El Salvador, Guatemala, Mexico, Nicaragua, and Paraguay; also in March the value of items that could be imported duty-free from the free trade zone of San Andrés and Providencia was increased, and in October, procedures for payment of import duties were simplified. Grenada in January reduced the stamp duty on imports. Hungary lowered in February the fee for license imports settled in convertible currencies, which was followed in April by the elimination of the 20 percent surcharge on imports of component parts, and in December by the reduction of customs duty rates for imports by Hungarian travelers and other individuals. As part of the import policy announced in April, India continued a duty exemption scheme and in October extended a concessional rate of duty to specified components of fuel-efficient vehicles. After a lowering in July of customs duties for imports of viscose fiber, further duty reductions were enacted in November for imports of computers, computer peripherals, software, and other electronic items. In the Socialist People’s Libyan Arab Jamahiriya agreement was reached in January to exempt certain Moroccan goods from import duties, and similar action was taken in December with respect to all Tunisian products. Korea in June reduced the number of items subject to an “emergency” tariff. Also in June Mauritius lowered the customs duty on imports of computers and components. Mexico modified import tariffs at various times during the year, with reductions outweighing increases. In January, Morocco reduced the special import tax from 15 percent to 10 percent. Nicaragua in December replaced an exchange tax with a special import duty applicable to additional items, but at a considerably lower rate. Niger granted permission in August-September for cereals and their derivatives to be imported without payment of import taxes and duties. Early in 1984 Peru reduced import tariffs on vegetable oil products, fish oil, and automobile parts, followed in May by tariff reductions for imports of certain paper products and in July for imports of marine motors and spares. Exemptions from the import surcharge were granted in January for specified food items and in April for certain medical products. The Philippines reduced the additional import duty for petroleum products from 10 percent to 5 percent in October; the reduction was to be extended to all other imports from January 1985. In March Portugal reduced the import surcharge from 30 percent to 10 percent and exempted a number of items from the surcharge. At the beginning of 1984 Saudi Arabia and Iraq agreed to exempt the trade of a number of products from taxes and tariffs. Thailand reduced in October import duties on computers; in November duties were lowered for petroleum products and the import surcharge was lifted on a number of items. Uruguay in January replaced all existing surcharges and taxes on imports of parts and accessories of capital goods and agricultural machinery not competing with Uruguayan products with a global tariff rate of 10 percent; in July a ten-year exemption from all tariffs and taxes for imports of new fishing boats was granted.

Across-the-board surcharges were introduced in 1984 by Mauritius and the Philippines. There were also several instances of selective increases in duties and surcharges. In July Chile imposed a 15 percent import surcharge on a wide range of items. In September all surcharges were eliminated and basic import duties were raised to a uniform level of 35 percent; in December the Government announced a plan to roll back the tariff level to 30 percent by end-June 1985, and to 25 percent before mid-1986. Costa Rica in January replaced a stamp tax with an import duty, which was increased in September. Colombia increased duties on several tariff items in July, and the Ivory Coast in November replaced quantitative restrictions with temporary surcharges on imports, which would be reduced gradually over a period of five years. Also in July, The Gambia raised import duties and taxes on a wide range of items. In the 1984/85 budget introduced in April, India increased import duties on a wide range of products. Malawi in March raised the import levy, increased import duties on a selective basis and raised the surtax on luxury imports, and Mauritius introduced in June a surcharge on customs duty and on stamp duty. In July Peru imposed comprehensive increases in import tariffs at varying rates. The Philippines introduced in June, with a few exceptions, an additional duty to be added to all other duties, taxes, and charges on imports. In August Qatar raised the minimum customs duty on general goods. Rwanda raised import duties and taxes on a range of items in May. Saudi Arabia imposed in October a customs duty on imports of electric cables, and South Africa in July increased the general sales tax applicable on locally produced and imported goods, with certain exemptions. In March–April Thailand imposed import surcharges on a number of chemical products, and in October import duties and surcharges on a range of items were raised. In July Zimbabwe increased the duty on imports of motor spirits.

At the beginning of March 1985, the People’s Republic of China announced changes in import duties which, on average, lowered tariffs by 10 percent.

Advance Import Deposits

During 1984 six countries eliminated, reduced or liberalized the scope of their deposit requirements, whereas eight countries introduced new schemes or extended existing ones. Greece eliminated at the beginning of the year a cash deposit requirement applicable to specified imports. In January Morocco reduced its advance import deposit requirement from 15 percent to 10 percent of the f.o.b. value of imports, and abolished the requirement in July. Pakistan abolished in September the minimum margin deposit requirement against import letters of credit for industrial raw materials. In July Rwanda exempted from advance deposit requirement import items on which import duty increases had been imposed in May, and authorization was granted for the remaining items for payment of interest at prevailing rates on the deposits. Suriname abolished the deposit requirement for imports in April. In the Syrian Arab Republic, certain private imports financed with foreign currency obtained abroad were exempted from the payment of an advance import deposit, provided that the deposit had been held for at least three months in a local bank and that the account holder had resided for at least one year in the country before opening such an account.

Argentina introduced in January a 90-day prior import deposit requirement equivalent to the f.o.b. import value plus the relevant import duty rate or 5 percent, whichever was higher, to be lodged before the issuance of the import license; this amount could be drawn down before 90 days only for payment of associated import duties. In addition, for import payments requiring prior central bank approval, importers were required beginning in March to deposit the peso equivalent of the respective payment at the time of requesting the foreign exchange. Both types of advance import deposit were indexed to the U.S. dollar, and the national petroleum company was exempted in December from the 90-day deposit requirement with respect to purchases under a special accord with the U.S.S.R. In November Colombia established that prior exchange license deposits for imports must be lodged at least 20 calendar days before the date for which the corresponding exchange license was required. Costa Rica, in June, doubled the deposit requirement in local currency to accompany foreign exchange requests, while Ecuador required in October that 100 percent advance deposits be paid in sucres for the amount of the import value financed abroad. In Israel, the one-year non-interest-bearing import deposit requirement of 15 percent of the value of specified imports first introduced in June 1983, and then renewed in December 1983, was extended again for a further six-month period until December 1, 1984 and then renewed again until May 31, 1985. In October, imports of recently banned items (mostly luxury goods) stored in bonded warehouses, or en route to Israel on October 3, were subjected to a compulsory one-year deposit of 25 percent (not indexed to domestic prices and payable upon release from customs), in addition to the 15 percent import deposit requirement. Between January and May, Nigeria extended the advance import deposit requirement to cover all imports other than rice and petroleum, whether or not they were financed with credit facilities of over six months. In March, the Bank of Zaïre introduced a formal requirement of a minimum mandatory deposit of 50 percent in zaïres for the opening of uncovered letters of credit by importers. The deposit was raised to 65 percent in May and reduced back to 50 percent in November. One country increased advance import deposit requirements but subsequently proceeded to reduce them again; in February, the Yemen Arab Republic raised the amount of margin deposits against import letters of credit from a uniform rate of 20 percent of cost to 25 percent of cost for foodstuffs and fuel, 30 percent for raw materials, and 50 percent for other commodities. In May, the two latter rates were reduced to 25 percent and 40 percent, respectively.

In January 1985 Egypt reduced advance import deposit requirements from a range of 25 percent to 100 percent of the f.o.b. import value to one of 15 percent to 50 percent. In addition, deposits were required to be made in domestic currency, rather than in foreign currency, as had been the case previously.

Other Measures Affecting Import Payments

During 1984 a number of modifications were made to the regulations governing the terms or procedures for import payments. As in 1983, most of these changes involved easing of the terms of, or the procedures for, import payments.

Among industrial countries, France raised the threshold level of individual import transactions subject to a requirement of registration with an authorized bank from F 150,000 to F 250,000 in July. Among developing countries, in April Brazil relaxed the operation of the requirement that import payments be financed on certain terms ranging from 3 years to 8 years in cases involving financing or guarantees by foreign governments, bilateral, or multilateral agencies. In September, the requirement that the licensing authority (Cacex) provide a statement that Brazilian firms were unable to supply a similar product was abolished for imports financed abroad. In Greece, all imports were exempted from bank approval requirements, and all restrictions on permissible methods of import payments were lifted in January. At the same time, however, a time limit of 60 days from the arrival date at the first Greek port was imposed for settling import payments. Grenada liberalized payments for documented imports, first from Caricom countries and later from non-Caricom countries. India liberalized its import procedures in September and granted permission to authorized dealers to remit in advance, if necessary, the full value of any commercial imports up to the equivalent of US$1,000, subject to import control regulations. The limits on advance remittances were raised for certain other imports also. In Jamaica, the right of importers to bid in the foreign exchange auction to fulfill commercial bank requirements that prior deposits be made before letters of credit could be opened was given in May, withdrawn in August, and reinstated in September. In addition, importers were granted permission in December to buy foreign exchange one to six months forward from the date of shipment of the goods in question. In Mozambique, private companies were permitted in May to retain up to 20 percent of their export earnings to finance their own imports of materials. In the Philippines, permission was granted in January for certain establishments and tourist duty-free shops acting as authorized foreign exchange dealers to make import applications up to 15 percent and 65 percent, respectively, of their foreign exchange earnings surrendered to the Central Bank during the year immediately preceding. In May, it was announced that certain essential consumer products could be imported on a prepaid letter of credit basis without limitations as to the amount, while certain other essential consumer products could be imported on the same basis, subject to a US$50,000 limit per bank per month with prior approval. In March, the Philippines extended the facility for the importation of producer items under prepaid letters of credit; foreign exchange payments for opening letters of credit were to be in the form of telegraphic transfers or financed from foreign currency deposits; this facility was terminated in October. In the Syrian Arab Republic, permission was granted in February for imports of raw materials, production inputs, and agricultural and industrial equipment and spare parts to be financed with foreign currency obtained abroad, and private exporters were authorized in August to use up to 50 percent of their export proceeds to finance their raw material imports. Thailand allowed authorized agents to approve, on behalf of the exchange control officer, certain forms submitted by importers who paid by means other than opening letters of credit, provided that such importers had purchased the same goods from the same sellers with payments made in other means since the previous year. In Uganda, authorization was granted for importers to import specified types of capital goods on a consignment basis, subject to prior approval by the Bank of Uganda. In the Yemen Arab Republic, authorization was granted in February for importers to use their foreign currency balances with commercial banks before August 9, 1983 to finance import letters of credit. In Yugoslavia, it was determined in January that 10 percent of an enterprise’s foreign exchange entitlement could be used as a downpayment on imports of equipment or for payments for spare parts.

In Argentina, minimum financing terms were established in February for imports destined to the Special Customs Area of Tierra del Fuego, which were previously exempt from these requirements; on the other hand, imports from Peru and Brazil, and certain imports from Uruguay, were exempted from minimum financing requirements later in the year. Colombia reduced in November the minimum financing periods for imports of intermediate products to 18 months with the exception of completely knocked-down parts, to which a one-year minimum financing period continued to apply. Other minimum financing periods for imports were established as follows: (i) 6 months after lading for raw material and consumption goods; (ii) for all remaining goods, up to 15 percent of the import value could be canceled within the first 6 months after lading; up to 30 percent within one year after lading; up to 60 percent within two years of lading; and the remaining amount thereafter. In Ecuador, minimum financing periods for the value of imports for which the importer had obtained foreign financing were reduced to 120 days for certain items in September, at the same time that prepayment of imports was prohibited, except for medicines. In Israel, provision of foreign exchange for import payments was permitted only against bills of lading and letters of credit, or for repayment of suppliers’ credit. Imports of investment goods and motor vehicles were made subject until November 1—and later until August 1, 1985—to a foreign financing requirement covering at least 75 percent of the f.o.b. value of the imported item and of average maturity of not less than 30 months. Imports valued at less than US$10,000 and certain investment goods and motor vehicles for commercial use were subsequently exempted from this requirement. Korea shortened in July the maximum period for import payments on a deferred basis from 120 to 90 days. Rwanda in July introduced a maximum financing term of 180 days from the date of shipment of the import. In February, the Yemen Arab Republic prohibited commercial banks from accepting foreign exchange deposits from individuals for the purpose of financing imports and from processing import documents unless payment was made through a particular bank. In addition, the customs authorities were prohibited from releasing goods unless the appropriate import documents were presented and stamped by a local bank. In May, a regulation was introduced specifying that before applying for an import license, importers should obtain prior endorsement by a commercial bank certifying that foreign exchange would be available to cover the associated letter of credit.

Effective January 1, 1985, the franco valuta import system in Somalia, whereby imports were financed with foreign exchange held abroad, was discontinued and importers were required to process import documents through the domestic banking system.

State Trading

As in recent years, there were few changes in members’ state-trading practices in the period under review, including in one case a major decentralization of foreign trade operations. In the People’s Republic of China, a reform of the foreign trade system was approved in September whereby exporters and importers would be able to choose freely, for all but a few commodities, their agents among licensed foreign trade entities other than the 14 national foreign trade corporations. In addition, the Ministry of Foreign Economic Relations and Trade (MOFERT) would no longer be involved in actual transactions, but would concentrate on the design, implementation, and monitoring of overall policies; it is intended that the national foreign trade corporations will become increasingly independent accounting units. This reform became effective as of January 1, 1985. In Guinea, following the dissolution in May of Importex, a state-trading enterprise, private sector importers were authorized to import commodities for which Importex had previously enjoyed a monopoly. During 1984, Hungary granted permanent trading rights to seven additional enterprises, raising the total to 218 by the end of the year. In October Morocco abolished the monopoly held by the Office of Marketing and Exports on exports of canned foods, while in February Pakistan allowed the exportation of rock salt by the private sector. On the other hand, in July India required that in future exports of steel produced by integrated steel plants, alloy steel plants, and secondary producers and manufacturers be channeled through the Steel Authority of India.

Exports and Export Proceeds

Measures taken in 1984 affecting exports and export proceeds generally reflected the persistence of difficulties in trade relations among industrial countries as well as continued efforts by developing countries to stimulate exports. Nevertheless, there was a tendency among the latter group of countries toward actions aimed at reducing special financial incentives.

There were no major modifications in 1984 in the stance of the major trading countries as regards quantitative restrictions on exports. Quotas, bans, or embargoes on exports were abolished or relaxed in some countries. Among industrial countries, Japan announced in August a lowering of the minimum price permitted for exports of video tape recorders to the EC, which had been subject to restrictions since February 1983. The United States abolished in April controls on exports of measuring instruments equipped with microprocessors, except for certain destinations, and modified in September regulations governing exports of high-technology goods to the U.S.S.R. Among other countries, Korea removed in May controls on exports of herring roe, frozen mushrooms, crude oil and some oil derivatives, aluminum ingots, and amplifiers. India removed controls on exports of semiprecious stones in February and on exports of most precious stones in August; restrictions on exports of a number of other goods were relaxed in April. Early in the year, Pakistan authorized, subject to quotas, exports of some food products, and Peru abolished export prohibitions for certain vegetables. Thailand lifted in March controls on exports of steel bars to Democratic Kampuchea, the Lao People’s Democratic Republic, and Viet Nam; later in the year, it relaxed controls on exports of iron rods, wildlife, brown sugar, maize, and teak products.

A number of countries imposed new or tightened existing quantitative controls on exports. Japan agreed in June to add four more items to the list of textile exports to the United States subject to restrictions during 1984–85, and agreed in December to limit the share in the U.S. market of Japanese steel producers to 5.8 percent; also in December, and in the context of the export restraint arrangement with the EC, it was agreed that exports of video tape recorders to that area were to be reduced to 2.25 million units in 1985, from 3.95 million units in 1984. In September the United States widened the scope of controls on exports of aircraft to the Islamic Republic of Iran. Among developing countries, Colombia imposed a ban on cocoa exports in May but abolished it in August. In India controls were tightened for a number of export products; in February quartz exports were prohibited and restrictions were imposed on exports of silk waste and other silk products; in April exports of forestry seeds, tallow fat or oil of animal origin, chloroquine sulphate, and some varieties of plants and derivatives were banned, and exports of synthethic musk, shells, and ambergris were restricted. Later in the year, bans were imposed on exports of some rough precious stones, rock crystal quartz and some magnesite products, and sugarcane and other sugar products. In Indonesia quotas for exports of certain types of textile products to specified countries were allocated in March among registered textile exporters, and in April exports of tobacco were restricted to those effected by registered tobacco exporters. Malaysia announced in June a ban on exports of timber logs from Peninsular Malaysia starting in 1985. South Africa imposed in April voluntary restraints on certain steel exports to the United States; early in 1985 these restraints were redefined, with effect from October 1, 1984, in the form of a five-year agreement between the two countries. Thailand imposed in October a temporary ban on jute exports.

There were a few changes in regulations affecting export licensing. Among countries which relaxed export licensing requirements, Colombia issued in October simplified procedures for registration of exports. In the context of a program to liberalize exports in Morocco, the number of goods whose exportation remained subject to control was reduced in October. Somalia abolished at the beginning of 1985 licensing requirements and other controls on exports with the exception of those on specified items; in the latter case, exports were made subject to prior approval or became state monopolies. In some other countries, measures were aimed at tightening export registration procedures. The United States imposed in March, under the International Emergency Economic Powers Act, licensing requirements for security reasons on exports and re-exports of a number of commodities as well as of certain technical data.

Among developing countries, Bangladesh introduced registration requirements for jute exports in November. In the People’s Republic of China licensing requirements were extended to a number of textile exports in April, and a prior inspection requirement was introduced in March for all exports. In September Colombia limited the validity of coffee export contracts for the 1984/85 crop to not more than 45 calendar days, and Costa Rica began to restrict the issuance of licenses for exports to Nicaragua. In June Haiti subjected approval of exports to prior clearance of documentary drafts by the Bank of the Republic of Haiti (the central bank).

There was a decline last year in the reliance on fiscal and other incentives as a means of promoting exports. In a few countries, however, the level of export subsidization rose noticeably. In August New Zealand extended the coverage of the Export Performance Taxation Incentive to all export destinations, although it was also announced that the system would be phased out by April 1, 1987. Argentina granted in October a tax rebate of 5 percent to exports to Equatorial Guinea. In March Colombia increased the maximum rate on tax reimbursement certificates granted to exporters from 20 percent to 25 percent of total export earnings, at the same time that a rate reduction was enacted for flower exports to the United States and Puerto Rico; in April the structure of rates on tax reimbursement certificates was raised from 5–25 percent to 15–35 percent in the case of exports to member countries of the Latin American Integration Association (LAIA); although the rate applicable to cocoa exports was reduced in August, this measure was accompanied by further increases in rates applicable to some exports to the LAIA. India increased in January cash compensatory support for exports of leather garments and petrol kerosene engines. Later in the year, cash compensation was granted for exports of sodium cyanide and sail savers, and increased for exports of processed food items, marine products and marine freight containers, various jute products, guar gum, and frozen meat. In Peru export subsidies were extended to a number of agricultural products in January, and requirements for access to export subsidies were relaxed in May. While certain textile exports to the United States were removed in June from the list of products eligible for tax and credit subsidies, soon afterwards an overall increase in the level of export subsidization was enacted. A couple of countries adopted regulations reducing or eliminating fiscal subsidies on exports. Brazil adopted in September a schedule for phasing out the export tax credit scheme by end-April 1985, and Thailand in May excluded certain items from the export tax scheme.

Changes in export taxation were implemented by a number of countries. However, there was no general trend toward lowering or increasing the tax burden on exports, and most of the measures were aimed at shifting rates of taxation on specific commodities. Among countries in which export taxes were reduced in 1984, Canada enacted lower export levies on light crude oil in September. Among developing countries, Argentina lowered early in the year the tax on exports of wheat flour and uncorded cotton and eliminated the tax on exports of onions and citrus fruits. Haiti reduced the duty on coffee exports. In January Indonesia abolished the MPO tax on exports, a special tax which could be credited against the individual’s or corporation’s domestic income tax liability, and the 10 percent export tax on bauxite and its concentrate; this action was followed by the elimination in July of local government charges on exports of 11 different items and the export tax on unwrought tin. In Seychelles a 10 percent tax on exports and a special fee charged per package checked by customs officials were abolished in March. In Thailand the export levy on molasses was abolished in August, and later in the year exemptions from export duties were granted for a number of products. Uruguay reduced the rate of taxation of traditional export products from 10 percent to 8 percent in May and to 5 percent in October.

Several developing countries imposed or increased taxes on specific export products in 1984. In Argentina, the tax rates on exports of soybean oil and meal, sunflower oil and other sunflower products, and unprocessed tobacco were raised during the year, although they were later reduced in the case of soybean meal and sunflower seed. Also, an additional export tax of 6 percent was imposed in October on all products subject to export tax; this tax was eliminated in December for wheat and wheat products and in early 1985 for most agricultural products. Brazil in March imposed export taxes on certain steel exports to the United States. The Gambia raised export duties on groundnut products in July. During the first half of the year India raised minimum export prices for tobacco, a number of food items, and sandalwood. In January, Indonesia raised the rate of the additional tax on exports of crude palm oil and crude stearin, subjected exports of treated stearin to the additional tax, and imposed a 5 percent export tax for crude palm oil and crude and treated stearin; later in the year, however, the additional export tax on crude palm oil was reduced back to nearly the rate prevailing in 1983, while the additional export tax on crude and treated stearin was first reduced and later eliminated. In addition, Indonesia imposed a tax on exports of wild animals and subjected exports of robusta and arabica coffee to the additional export tax. In the Philippines an economic stabilization tax on all exports was introduced in June, but was abolished in October. Sri Lanka raised in February the duty on exports of tea.

A few countries increased access of exporters to special credit facilities. Among industrial countries, France announced in July the establishment of two export funds, one for export loans and the other for the development of export firms. Within the group of developing countries, Argentina extended during the year the duration of special central bank credit lines to finance exports to a number of countries, increased available amounts under some of those lines, and opened a new credit line to finance exports to Guyana; in addition, a special refinancing regime established in late 1983 for meat packing firms which export more than 30 percent of their production was extended several times during the year. Colombia established in February a compensatory financing facility for cotton exports, and opened in April a special credit line for exports to Mexico; in September, a credit line was opened to finance training abroad of personnel in export-oriented firms, and debt relief was allowed under certain circumstances for export-oriented agricultural firms. In Greece, domestic banks were allowed to provide financing for exports in foreign exchange. In Jamaica exporters were allowed in December to sell foreign exchange forward, and in the Philippines commercial banks were authorized since April to engage in export financing within guidelines. Reductions in the scope of credit facilities for exports were also limited. In New Zealand a government announcement in August that several suspensory loan schemes, including the Export Programme Suspensory Loan Scheme, would be terminated on March 31, 1985 was followed in September by the elimination of credit facilities aimed at assisting trading banks in the financing of postshipment requirements of exporters. In January Sweden raised lending interest rates for export credits extended in domestic currency by the national export credit agency. Within developing countries, Brazil raised the preferential interest rate applicable to preshipment credits in August, and Colombia reduced the scope of a special financing facility for flower exports. In Pakistan, a number of commodities became ineligible for concessionary export financing during the year.

In the area of export or exchange guarantees, three countries modified regulations involving these schemes. In September, Japan relaxed for exports to some countries conditions for accepting export insurance. Argentina abolished in February the requirement of central bank approval for the provision of guarantees by financial institutions in the case of exports to foreign public sector entities. In India the Reserve Bank was authorized in April to allow exporters to substitute export orders in fulfillment of forward exchange contracts, provided that they were for the same commodity or commodities specified in the original export order, and only when the original order could not be executed for reasons beyond the control of the exporter. At the same time, the limit beyond which the cancellation of unutilized portions of forward exchange sale or purchase contracts by authorized dealers should be reported to the Reserve Bank was raised from the equivalent of US$500 to US$5,000.

Requirements for the repatriation and surrender of export proceeds were modified in several countries, mostly in the direction of reducing official control over those receipts. Among countries in which repatriation or surrender requirements were reduced, Italy extended in July the maximum period for deferred payment of exports without approval from the Italian Exchange Office to five years for exports to OECD countries (from 120 days in the case of non-EC countries), and to 360 days for exports to other countries. In addition, the maximum period permitted for residents to hold foreign exchange proceeds was increased in December from 7 days to 15 days, and from 15 to 30 days in the case of proceeds posted to so-called ordinary waiting accounts. Within developing countries, Algeria in April authorized private exporters, as a means of promoting non-oil exports, to deposit in special accounts up to the equivalent of 4 percent of the repatriated value of exports. In March Colombia raised the maximum period for the repatriation of noncoffee export receipts from Chile, Ecuador, Peru, and Venezuela by one year for exports registered prior to December 31, 1982, with the possibility of further one-year extensions when applicable. In Ecuador, the State Petroleum Corporation was exempted, beginning in June, from surrendering oil export proceeds up to an amount equivalent to payments abroad for services rendered by foreign oil companies. In El Salvador the Coffee Institute and the Association of Cotton Producers were authorized in February and May to sell part of coffee and cotton export proceeds at the parallel exchange rate; in addition, proceeds from exports of tuna fish to countries outside Central America were allowed to be converted at the parallel rate since May, and similar authorizations were granted in June and July for 80 percent of proceeds from shrimp exports and for exchange earnings by nontraditional exporters marketing part of their production outside Central America. In the context of the establishment of a three-tier exchange rate system in November, Guatemala allowed exchange proceeds of certain exports to be surrendered at the banking market rate; at the same time, the maximum period allowed for the surrender of export proceeds was extended from three to six months. In March Mexico increased the maximum period allowed for surrendering export proceeds converted through the controlled market from 30 days to 75 days; also, the share of export proceeds which exporters were authorized to use for the settlement of obligations to foreign suppliers for debts contracted before December 20, 1982 was raised from 20 percent to 100 percent. In November the period allowed for surrendering export proceeds was extended to 90 days and the scope of exemptions from surrender requirements was expanded. Mozambique in May permitted private exporters to retain up to 20 percent of export earnings to finance their own imports of materials. On a number of occasions during the year, Nicaragua and Paraguay modified surrender requirements affecting exchange proceeds from specified exports by raising the share of such proceeds that could be converted at a more depreciated rate. In the Syrian Arab Republic a number of export items were permitted to be surrendered at the parallel rate. In both the Syrian Arab Republic and Zambia exporters were allowed to use up to 50 percent of export proceeds to finance their own import needs.

A few countries intensified surrender requirements in 1984. In Argentina it was established in April that the surrender of export proceeds corresponding to exports effected on a deferred payments basis should include the amount charged as interest. Colombia increased the retention quota on coffee exports twice during the year. In addition, the period for surrendering exchange proceeds from noncoffee exports was reduced in October to five months from the date of shipment. Ecuador in September reduced the period for surrendering export proceeds from 45 days to 30 days after shipment for exports of coffee beans, bananas and other fruits, and unprocessed seafood products; from 75 to 60 days for exports of any remaining primary product; and from 360 to 180 days for all other exports. Commercial banks in Haiti were required in June to commence surrendering to the central bank 50 percent of exchange proceeds from all exports, instead of proceeds from major exports only, as was required previously. Paraguay shortened in June the period within which export proceeds should be surrendered, from 180 days to 120 days. In October exporters of traditional products in Peru ceased to be eligible to receive freely convertible exchange certificates for a portion of their foreign exchange earnings. In Sri Lanka exporters availing themselves of subsidized credit from the Central Bank were required in March to surrender their export proceeds on a forward basis at a freely determined rate; the maximum allowed duration of the forward contract, originally set at six months without exception, was reduced in April to 21 days in the case of export payments with sight bills or letters of credit; finally, in May it was specified that all export proceeds exceeding the equivalent of SL Rs 500,000 were to be sold on a forward basis. Authorization to export in Venezuela became subject in February to the agreement to sell proceeds to authorized banks within a specified period. In Yugoslavia surrender requirements were slightly increased at the beginning of 1984; from 40.0 percent of export proceeds in the first half of 1983 and about 52.7 percent after June, the statutory surrender requirements were raised to 54.1 percent of export proceeds in January 1984. Within this total, the portion allocated to the National Bank of Yugoslavia was raised considerably, while that allocated to republics and autonomous provinces was curtailed.

With effect from the beginning of 1985, exporters in the People’s Republic of China were permitted to retain a higher portion of their foreign currency earnings. Also, at the beginning of 1985 Somalia granted authorization to exporters to retain up to 65 percent of their proceeds in special accounts.

Various other measures were implemented by countries in the period under review, generally with the intention of expanding exports or improving administrative procedures. In Finland, part of the proceeds from exports of pine sawn wood became subject in January to temporary deposit of 2.5 percent in the Suomen Pankki, earning interest at a rate of 8.75 percent per year; these requirements were extended in June to a deposit of 3 percent for pulp exports, but in November they were discontinued for pine sawn wood exports. France in October simplified reporting requirements for exports with a value lower than the minimum amount subject to statistical recording (F 2,000). Among developing countries, Afghanistan began to require in January that 30 percent of proceeds from exports of raisins to the U.S.S.R. be obtained in U.S. dollars. Colombia in February modified regulations governing free trade zones both with the aim of promoting exports and in order to avoid the misuse of the zones as illegal ports of entry. Guinea in May transferred from Importex to the Ministry of Foreign Trade the power to issue export licenses and to establish annual export programs. In India, regulations governing forward exchange contracts and related export documentation were eased in April, and controls on foreign exchange spot transactions were relaxed later in the year. In Indonesia, the collection of export taxes was transferred in May from the foreign exchange banks to the Customs Office. In January Paraguay began to require exporters to liquidate their exchange proceeds in authorized banks in which the export documentation was completed or from which financing was obtained.

Current Invisibles

Regulations governing current invisibles were little changed on balance in 1984. As in previous years, most of the measures related to foreign exchange allocations for tourism and other travel abroad. Measures were also taken to some extent to affect payments for services performed by nonresidents such as remittances of royalties, consultancy fees, and expatriates’ income, as well as imports and exports of bank notes and coins. All changes in regulations tightening current invisible transactions were undertaken by developing countries, while modifications in industrial countries reduced or eliminated existing restrictions. Nevertheless, there were a number of developing countries that reduced or eliminated restrictions on foreign exchange allocations for travel, medical expenses, or study abroad.

Among industrial countries, France lifted in August prohibitions on residents’ use of credit cards abroad that had been previously limited to business travel only. Iceland raised in April the basic foreign exchange allocation for tourist travel from the equivalent of US$1,350 to US$1,500 per person per year. In May, Italy replaced the annual limit on foreign exchange allocation for tourist travel (which was the equivalent of Lit 1.6 million per person per year), by a limit allowing residents the equivalent of up to Lit 1.6 million per trip; in addition, residents traveling abroad were permitted to take with them up to Lit 200,000 per trip in local currency, or larger sums in the form of bank transfers in the case of duly documented expenditures. In December, the limit on the amount of domestic bank notes that tourists are allowed to take abroad was raised to Lit 400,000, and that of foreign bank notes, within the limit of foreign exchange allocation, was increased from Lit 300,000 to ECU 700. In addition, the use of credit cards to pay for tourist services was liberalized; previously not more than Lit 1.6 million could be charged on credit cards. In June, New Zealand increased the limits on sales of foreign exchange by banks without reference to the Reserve Bank from $NZ 1,000 to $NZ 3,000 per person per month; the limit for any 12-month period was also raised from $NZ 4,000 to $NZ 10,000 per person. In December these limits were abolished as part of a general relaxation of exchange controls. Norway abolished in June the limit of NKr 10,000 on purchases of foreign exchange for individual trips abroad. Among developing countries, Brazil raised in December the limit on sales of foreign exchange for travel abroad to US$1,000 per person, except for trips to, or initial stopovers in, Central America, in which case the limit is US$300 per person. Cyprus increased in August the foreign exchange allowance for studies abroad. In May, Ghana abolished the foreign exchange foreign travel taxes and applied a processing fee of 5 percent ad valorem to purchases of airline tickets, and to purchases of foreign exchange for travel, medical expenses, education, and other private transfers, dues and subscriptions. Grenada raised, in October, the limits on foreign exchange sales for tourist and business travel from EC$3,000 and EC$7,000, respectively, to EC$5,000 and EC$10,000, respectively. In April India raised from the equivalent of Rs 200 to US$20 the limit on foreign exchange sales at airports and seaports to persons traveling to countries other than Bangladesh, Bhutan, and Nepal, and in June allowed persons holding official or diplomatic passports to avail themselves of special travel schemes. In Hungary the foreign exchange allowance for travel outside the CMEA countries was raised in February and June; the amount of foreign currency that visitors could purchase was also raised. In June, Morocco raised the daily foreign exchange allowance for certain business travel from DH 750 to DH 1,000, and the overall limit from DH 10,000 to DH 15,000; in July, monthly and quarterly foreign exchange allocations for various categories of studies abroad were also increased. Pakistan increased, in January, travel allowances for business purposes to countries other than Afghanistan and India from US$130 to US$150 a day, raised the maximum limit per trip from US$3,900 to US$4,500, and increased the maximum amount of the annual education allowance from US$6,843 to US$7,073, while the minimum amount remained at US$4,199. In Portugal the foreign currency allowance for tourist travel was increased in August, and in October the Central Bank raised the ceilings on amounts of foreign exchange which authorized banks and licensing centers may sell without prior authorization. With effect from the beginning of 1985, Somalia raised foreign exchange allowances for travel and other purposes. Tunisia raised, in February, the annual ceilings on payments for travel expenditures from D 2,000 to D 4,000 a year for exporters of goods and services, and permitted such payments to be made by debiting foreign exchange retention accounts; in addition, provision was granted for accumulating annual allocations for two consecutive years. In March, Tunisia eliminated the suspension applied since December 1976 to exchange allocations for residents traveling to Sicily. Western Samoa raised in December the daily limit of foreign exchange allowance from US$50 to US$100 for private travel by residents and expatriates, and to US$200 for business travel; the yearly ceiling of US$2,000 for private travel and of US$4,000 for business travel remained unchanged. In addition, the amount of foreign bank notes that residents could take out of the country as part of their overall travel allowances was set at the equivalent of US$500. In October, Yugoslavia increased the amount of local currency usable for travel abroad from Din 1,500 to Din 2,500 for first trips, and from Din 200 to Din 500 for subsequent trips during a year.

Some developing countries tightened regulations governing foreign exchange allocations for travel, medical purposes, and studies abroad. In August, Bolivia prohibited residents from buying airline tickets directly and instead required the use of U.S. dollar checks made out to the order of airline companies; foreign exchange allowances for travel abroad were reduced, but the limits on sales of foreign exchange for medical expenses abroad were raised. Colombia reduced in March the foreign exchange allowance for travel abroad and increased the advance deposit on purchases of foreign exchange for travel purposes. Costa Rica raised in March the travel exit tax for all nationals or resident foreigners to the domestic currency equivalent of US$10. In November, Guatemala reduced the foreign exchange allocation for tourist travel and prohibited its use other than to cover transportation costs. These restrictions were later abolished in the context of the establishment of a three-tier exchange rate system; at that time, foreign exchange requests for invisible payments other than official payments and registered private debt payments were authorized through the banking market. Israel introduced several regulations affecting travel abroad. The foreign exchange allowance for residents traveling abroad was reduced from US$3,000 to US$2,000 per trip in January and to US$1,000 in October. In addition, the tax on citizens traveling abroad was doubled in March. The 15 percent value-added tax, which was replaced by the imported service tax of 15 percent in November, was extended to purchases of foreign exchange for foreign travel in July, and a compulsory one-year deposit of 15 percent payable in local currency was required in October on that part of foreign package tours covering payments for hotels, land transport, and other related services. The temporary suspension on the use of credit cards abroad by residents—announced in October 1984 as effective from January 1, 1985—was ended on February 10, 1985. While allowing tourists departing the country to exchange local currency obtained from conversion at the time of entry, the Socialist People’s Libyan Arab Jamahiriya required in April that a minimum of US$50 be spent for each day in the country. In July the transfer allowance for pilgrims was set at LD 700. In October the Central Bank of Malta announced that applications for foreign currency for leisure travel to Italy were to be refused. In January Nigeria reduced basic travel allowances, suspended foreign exchange allocations for business travel, abolished foreign exchange allocations for medical purposes, except in certain circumstances, and discontinued the provision of foreign exchange for certain studies abroad. Moreover, in July the distribution of traveler’s checks in Nigeria was centralized at the Central Bank of Nigeria. Peru placed in March a limit of US$300 per trip on foreign exchange requests for travel abroad. Additional sums, up to an annual limit of US$8,000, could be provided in the form of documents drawn on a correspondent bank in the country of destination. Regulations were tightened further in October, when access to the unified exchange market for tourism and business travel as well as for student and personal remittances was canceled. In December, the cancellation was extended to a number of other invisible payments. In June the Philippines imposed a travel tax of the equivalent in pesos of US$200 and US$120 each on first and economy class passengers, respectively; various reduced rates were imposed on certain special categories of travelers which included, inter alia, contract workers, their spouses, and dependents aged 21 years or less. The travel tax on contract workers, their spouses, and dependents was reduced in September and was finally abolished in October. In addition, the travel tax was redefined in October as ₱ 2,700 and ₱ 1,620 for first and economy class passengers, respectively; reduced rates of ₱ 1,350 for first class passengers and ₱ 810 for economy class passengers were to apply to special categories of travelers. São Tomé and Principe in January tightened regulations on purchases of airline tickets for travel abroad and reduced foreign exchange allowances for medical purposes. Suriname reduced, in June and December, foreign exchange allowances for travel abroad. In March, Tunisia levied on residents traveling abroad by sea or air a new travel tax of D 30 a trip, but exempted nonresidents, students, pilgrims to Mecca, and travelers for medical reasons from the tax. In March, Zaïre required that nonresident travelers take out, on departure, the amount declared on entry less the equivalent of the expenses incurred during their stay in Zaïre. Zimbabwe introduced in July a fee of 20 percent on the provision of foreign exchange for vacation purposes.

Regulations governing outward transfers by residents or payments for services rendered by nonresidents were changed in a few countries. Finland raised in January the maximum amount of foreign exchange allowed for individual Finnish emigrants from Fmk 250,000 to Fmk 300,000. In November, France raised the limit on outward transfers without supporting documents from F 1,500 per person per quarter to F 1,500 per person per month. Among developing countries, the People’s Republic of China in January permitted foreign and overseas Chinese staff members and workers as well as those from the Hong Kong and Macao regions to remit abroad more than 50 percent of their after-tax income. Colombia abolished, in September, the advance deposit on payments of import freight. In September Grenada liberalized regulations governing outward remittances for medical, educational, gift, and family maintenance purposes. Restrictions on outward remittances of profits, dividends, and insurance premiums were relaxed in October, and outward remittances of proceeds from sales of local property and legacies, royalties, and management fees were similarly relaxed in November. Hungary raised in April the limit on the market value of gifts transferable abroad by residents without licensing to Ft 800 and the ceiling on gifts from nonresidents without being subject to licensing to Ft 25,000. In July, India increased limits on outward remittances of foreign exchange for certain services performed by nonresidents, including patent, trademark, or other fees, and Mexico permitted royalty payments to be made through the controlled exchange market. In April, Pakistan allowed foreign nationals working in Pakistan to remit abroad for family maintenance up to 50 percent of net income, or US$750 a month, whichever was higher. Western Samoa raised in December the limit on the amount that authorized banks could approve for transfer abroad as gifts to relatives and dependents from US$200 to US$250 per person per year. In Yugoslavia the limit on the remittance of profits by foreign partners in joint enterprises was raised at the end of 1984, from the equivalent of one half of the enterprise’s foreign exchange earnings from exports of goods and services to the total of such earnings.

A number of developing countries tightened regulations governing outward transfers by residents and payments for services rendered by nonresidents. Argentina tightened in June and November regulations governing transfers abroad by foreign transportation firms or their agents for transportation services and ticket sales or excess baggage charges paid in pesos argentinos. In August, the surrender requirement for proceeds from freight and transportation services by Argentine carriers was extended to cover net services income by local enterprises with foreign flag or foreign-registered carriers. Colombia introduced exchange licensing requirements for payments of commissions relating to certain exports, and limited in June freight and insurance payments eligible for foreign exchange; in addition, barter, clearing, and triangular trade requirements were extended to payments abroad for services. In July, Israel suspended the previous allowance of up to the equivalent of US$2,000 per person per year for transfers by residents as gifts and support payments, and suspended until November 1, 1984, and again until August 1, 1985, permission for voluntary prepayment of foreign obligations by residents. The Socialist People’s Libyan Arab Jamahiriya reduced in January the transfer of income abroad by nonresident employees of the state, state-owned enterprises, and foreign companies from 90 percent to 75 percent of net monthly salary in the case of those with provisions for free lodging and board, and from 60 to 50 percent for those without such provisions. In addition, nonresidents employed in the private sector were allowed to remit abroad up to 50 percent of their earnings subject to a monthly limit of LD 40 for those engaged in agricultural activities, and LD 60 for others. In January, Nigeria prohibited payments abroad for technical services or management fees except in certain circumstances, reduced allowances for remittances of consultancy fees, and tightened regulations governing remittances of proceeds from the sale of assets by expatriates; in addition, the proportion of expatriates’ income that can be remitted was reduced from 50 percent to 25 percent in May. Suriname abolished in January outward transfers of gifts by residents, and tightened in February regulations governing outward remittances by residents for support of family members. The Syrian Arab Republic adopted in March regulations requiring Syrian Arab nationals working inside the country and paid in foreign currencies to convert all such earnings at the official exchange rate. Syrian Government employees working abroad were also required from that date to repatriate and convert at the tourist market rate at least 25 percent of their annual pay and allowances. In addition, foreign visitors were, with few exceptions, required to convert at least US$100 into local currency upon entry at the tourist exchange rate, and to settle their hotel bills with the counterpart of foreign currency exchanged at the tourist exchange rate. In March, Zimbabwe suspended all remittances of rental income, all remittances of dividends, branches and partnership profits, and income remittances from blocked funds, with the exception of dividends and profit remittances on venture capital that came in after September 1, 1979, and reduced the maximum settling-in allowance to be remitted abroad by emigrants to Z$1,000 per family unit; furthermore, in July a nonresidents’ tax of 20 percent on royalties was introduced.

Regulations affecting the import and export of foreign and domestic currency notes were changed in some countries. Finland lifted in January the prohibition on the import and export of 500 markkaa notes, and raised the value of foreign exchange that can be freely exported from 5,000 markkaa to 10,000 markkaa per person per trip. In March Iceland raised the limit on export or import of Icelandic bank notes and coins, in denominations not exceeding ISK 100, by resident and nonresident travelers from ISK 2,100 to ISK 3,000. In June Norway abolished the previous limit of NKr 10,000 on Norwegian notes that travelers abroad could take with them. In March, Bangladesh raised the limit on the amount of foreign currency notes that could be imported without declaration to US$1,000 for nonresidents, and to US$750 for residents. In Barbados exports of foreign currency notes and Barbados dollar notes were limited to the equivalent of BDS$500 and BDS$200, respectively. Cyprus abolished in June the limit on the amount of foreign currency notes that could be exported by residents traveling abroad. In India permission was given to residents in January to acquire foreign exchange from nonresidents visiting India in payment for goods and services, as long as holdings of foreign currency do not exceed the equivalent of US$100 and are surrendered to the Reserve Bank within seven days of acquisition. In some countries, regulations governing currency notes were tightened. In July, Israel limited the export of domestic bank notes by residents traveling abroad to the equivalent of US$50 per person per trip. Nigeria reduced in May the amount of naira that may be imported or exported from ₦ 50 to ₦ 20. The Philippines established in May a limit of US$1,000 per person for the amount of foreign currency notes which outgoing residents may take with them. In September, Suriname required nonresident travelers to exchange convertible currency in an amount equivalent to Sf 500 when entering the country by air and Sf 200 when entering by road. The local currency so purchased could be reconverted under certain conditions. The Syrian Arab Republic required since March that nonresident visitors settle their bills at certain hotels with the counterpart of foreign exchange exchanged at local banks, and also required non-Arab visitors to convert, upon entry into the country, US$100 into local currency. Finally, in May, the Yemen Arab Republic reduced the maximum limit on domestic bank notes that could be taken out of the country from YRls 100,000 to YRls 50,000 and that of foreign currency notes from US$30,000 to US$15,000.

Payments Arrears

Payments arrears are attributable to a variety of causes; the Fund’s data on members’ payments arrears cover 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.5 An increase in arrears adversely affects the country’s creditworthiness, with the result that access to normal means of 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.6 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 elimination of the arrears is in place.

In June 1984 the Fund’s Executive Board discussed the role of the Fund in the settlement of disputes between members relating to external financial obligations. Also in the course of this discussion, aspects of Fund policies concerning external payments arrears were analyzed. The general conclusions of this review and of the review of developments in members’ arrears, which took place in July 1984, were the following:

(1) Policies and practices followed by the Fund with respect to its direct interest in members’ overdue financial obligations stemming from the Fund’s jurisdiction under Article VIII and Article XIV of the Fund’s Articles of Agreement were reaffirmed. In exercising its functions under Article VIII and Article XIV, the Fund must examine the context in which the nonpayment of a financial obligation has occurred in order to determine whether or not it involves an exchange restriction and, as such, is subject to Fund approval, and members are obliged to provide the information the Fund requires to make such a determination at the time that the nonpayments occur.

(2) Existing Fund policies and practices for dealing with the identification and treatment of payments obligations in arrears will also be continued. This includes the treatment of some categories of payments arrears that are not the result of exchange restrictions, such as payments arrears concerning capital transactions, as well as certain nonpayments by the member in the nature of defaults. In this respect, the Fund has come to expect that, at the time of approval of arrangements, there should be a reasonable assurance that the amount of external financing necessary to make the program sustainable would be available. This requirement is intended to ensure, as far as practicable, that available external financing will be adequate to support the member’s balance of payments adjustment program, so that the targeted reduction in outstanding arrears as well as the avoidance of new ones can be realized. Normally, this requirement has implied that the member had to approach its creditors to consolidate its existing payments arrears and to reschedule its maturing debt service obligations before Fund approval of the arrangement.

(3) For purposes associated with the financial aspects of adjustment programs, the Fund’s approach of regarding the multilateral Agreed Minutes of the Paris Club as satisfying the requirement for debt relief from official creditors and as a basis for considering associated payments arrears as eliminated will continue. Since the Paris Club now stipulates a final date for concluding the bilateral agreements, the Fund would normally regard the failure to conclude the bilateral agreement by the stipulated date as entailing payments arrears for purposes of the member’s Fund-supported program; however, the debtor’s right to make further purchases under an arrangement would not be interrupted if, in the judgment of the Fund, the delay in reaching an agreement occurred despite exercise of the debtor’s best efforts. The Fund will continue to approach these matters on a case-by-case basis.

(4) In the light of the importance which the prompt fulfillment by members of their international financial obligations has for the functioning of the international monetary system, the Fund has a direct interest in the settlement of overdue obligations and a role to play in accordance with the Articles of Agreement. The Fund will continue to help members to improve their statistical base and to increase the supply of information on their external financial obligations, particularly with respect to overdue claims. Given the complex circumstances typically surrounding overdue financial obligations and the important differences existing among individual cases, the Fund will continue to fulfill its responsibilities under the Articles of Agreement on a case-by-case basis within the context of present policies and procedures, which are themselves expected to continue to evolve.

(5) In the light of the Fund’s primary responsibilities concerning the international monetary system and of its specific authority under the Articles of Agreement to provide financial and technical services, Fund management and staff will stand ready to use their good offices in helping members engaged in a particular dispute over an external financing obligation, consistent with available resources. Their role will be substantially technical in nature. The Fund will remain neutral in issues of debt disputes, and will act in such cases only if both parties wish to have the Fund provide the good offices.

During 1977–81, the total payments arrears of Fund members (including those in respect of capital transactions and government defaults) had remained relatively constant, amounting to between SDR 5 billion and SDR 7 billion, but, by the end of 1982, reflecting widespread balance of payments difficulties, they almost quadrupled to SDR 23 billion and increased further to SDR 29 billion by the end of 1983. According to the latest information available, the total of payments arrears incurred by Fund members is estimated to have risen further to SDR 43 billion at the end of 1984. In the last several years the number of Fund members incurring payments arrears had been rising continuously, reaching 46 in 1983. This trend was somewhat reversed in 1984, as the number declined to 44 by the end of the year. Of the 55 Fund members incurring payments arrears at some point during 1976–84, only 11 have managed to eliminate them. Of the remaining countries, 8 experienced virtually continuously rising arrears in recent years, whereas only 2 countries demonstrated a steady decline. Of the 44 countries incurring, or believed to be incurring, external payments arrears or government defaults at the end of 1984, information for the end of 1984 is available for the following 43 countries: Antigua and Barbuda, Argentina, Belize, Benin, Bolivia, the Central African Republic, Chad, Costa Rica, the Dominican Republic, Ecuador, Egypt, El Salvador, The Gambia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Honduras, Ivory Coast, Jamaica, Liberia, Madagascar, Mali, Mauritania, Morocco, Mozambique, Nicaragua, Nigeria, Paraguay, Peru, the Philippines, Somalia, Sudan, Suriname, Tanzania, Uganda, Venezuela, Viet Nam, Western Samoa, Zaïre, and Zambia. In addition, data for the end of June 1984 are available for Sierra Leone.

During 1984, payments arrears or government defaults were eliminated in Brazil, the Congo, Mexico, St. Lucia, and Togo. In one country, Suriname, payments arrears or government defaults emerged in 1984 for the first time since 1976. In two other countries payments arrears or government defaults emerged again in 1984; of these countries, Egypt had eliminated them in 1978 and Somalia in 1982. In the course of 1984, of the countries that had payments arrears or government defaults at the end of 1983, the outstanding amount rose, or arrears were introduced, in 28 countries (Antigua and Barbuda, Argentina, Belize, Benin, Bolivia, Chad, Costa Rica, the Dominican Republic, Ecuador, El Salvador, The Gambia, Grenada, Guatemala, Guinea, Guyana, Honduras, Mauritania, Morocco, Mozambique, Nicaragua, Nigeria, Paraguay, Peru, the Philippines, Sudan, Tanzania, Venezuela, and Viet Nam) and declined in 13 countries (the Central African Republic, Ghana, Guinea-Bissau, Ivory Coast, Jamaica, Liberia, Madagascar, Mali, Sierra Leone, Uganda, Western Samoa, Zaïre, and Zambia).

During 1984, the debts of 24 Fund members were rescheduled or refinanced; in addition, negotiations were under way with three Fund members. The following 15 countries incurring external arrears as of the end of 1984 were involved in these restructuring exercises in 1984: Argentina, Ecuador, Guyana, Honduras, Ivory Coast, Jamaica, Madagascar, Morocco, Nicaragua, Peru, the Philippines, Sierra Leone, Sudan, Venezuela, and Zambia. Excluding agreements in principle, the total of payments obligations for which rescheduling agreements were signed in 1984 is estimated to have amounted to SDR 22.5 billion; the total was close to SDR 60 billion in 1983. Of the rescheduling in 1984, over SDR 11 billion was in respect of debt service payments already in arrears or falling due in 1984. The restructurings were aimed at helping countries achieve a more sustainable balance of payments and reserves position by improving the maturity structure of the external debt profiles and by regularizing outstanding external arrears, while adjustment programs aimed at strengthening the balance of payments were implemented.

At the end of 1984, adjustment programs supported by stand-by or extended arrangements, all in the higher credit tranches, were in effect in the following 16 countries that were identified as incurring payments arrears or government defaults: Argentina, Belize, the Central African Republic, the Dominican Republic, The Gambia, Ghana, Grenada, Ivory Coast, Jamaica, Liberia, Peru, the Philippines, Sierra Leone, Sudan, Western Samoa, and Zambia. All programs provided for a phased reduction or elimination of payments arrears or government defaults during a specified period as a performance criterion. Eight of these countries reduced payments arrears or government defaults during 1984. In a number of adjustment programs, a counterpart deposit requirement in local currency was introduced as a means of maintaining a reliable record on payments arrears and of monitoring the bona fides of foreign exchange applications. Such deposit requirements also helped effect an orderly elimination of payments arrears by ensuring that domestic debtors had sufficient financial resources when foreign exchange was released, and also served as a means of moderating liquidity expansion. In a number of instances, monetary authorities paid interest on such deposits or guaranteed the exchange rate to be applied at settlement so as to avoid the possible emergence of a multiple currency practice. In instances where the monetary authorities assumed the obligations, such exchange rate guarantees were effectively and automatically provided.

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.7 Such practices encompass separate exchange rates (for example, through the mechanism of dual or multiple exchange markets, the establishment of separate official exchange rates for specified transactions or the application of exchange measures, including exchange taxes or subsidies, and wide exchange rate spreads), broken cross rates, or discriminatory currency arrangements. The Fund approves multiple currency practices only when a well-conceived plan to bring about the unification of the exchange rate system during a specific and relatively short period of time is in place. In many instances, the staff assists the authorities to formulate such a plan, especially in the context of adjustment programs supported by the use of Fund resources.

In April 1984 and February 1985 the Executive Board reviewed the Fund’s experience and policies with respect to multiple exchange rate regimes. The main conclusions of these reviews can be summarized as follows:

(1) Reflecting widespread balance of payments difficulties, a temporary reversal in the period 1980–82 of the long-run trend toward reduced resort by Fund members to multiple exchange rate regimes had occurred. In the mid-1950s some two thirds of all members, representing one third of members’ trade, had such regimes. In June 1957, the Fund adopted an important decision urging members to simplify their exchange rate structures; it also undertook to assist members in their efforts to do so, providing technical assistance where appropriate. In the late 1950s and early 1960s these efforts, together with the establishment of convertibility among major countries and an improvement in the international trade situation, contributed to a substantial simplification of exchange rate systems in both developed and developing countries. Progress in simplifying developing countries’ systems was, however, mixed thereafter, with increased use by these countries in the late 1960s, and again in the early 1980s. Also, practices newly adopted by members in the 1980s tended to take the form of dual or multiple exchange rate systems of relatively large scope.

(2) Fund members have adopted multiple rate regimes for a number of reasons but most frequently they were introduced as a temporary alternative to a straightforward uniform exchange rate adjustment. This was typically the case when the currency depreciation that would be required was seen by the member as too costly from a political and social perspective, in particular in its effects on the prices of certain important commodities. Multiple exchange rate systems were also found to have been adopted in response to the volatility of capital flows or more frequently to one-way pressures on capital account, particularly during periods of exchange rate uncertainties. A third important category of dual rate systems has been those setting up preferential rates for external debt service payments on debts contracted up to a certain date with the aim of alleviating the financial position of certain industries.

(3) Whatever the arguments for adopting a multiple rate system, the experience with their operation has shown a number of common features. The first is that they tend to become a long-lasting aspect of members’ exchange arrangements. The second feature is that the multiple rate system did not often produce the desired result or if it did, the result was achieved at a high economic cost. In a number of instances, the availability of subsidized commodities or financing at the preferential rate was reflected in black market operations, with the final consumer paying the equivalent of the equilibrium exchange rate price. In the majority of cases where the system was introduced as a buffer for capital speculation, the spread between the free and official market rates raised doubts as to the continued viability of the official market and the authorities therefore intervened in the free market to limit or even to prevent the depreciation of that rate. A further characteristic is the complex legislation and numerous modifications that have marked resort to multiple rate regimes. In short, the experience showed that multiple rate systems are costly in terms of efficiency and in resource allocation, and have not proven conducive to medium-term balance of payments adjustment.

(4) Executive Directors were of the view that Fund policies in the area of multiple exchange rates should remain flexible, pragmatic, and responsive on a case-by-case basis to each country’s particular circumstances. The most important judgment to be made when deciding on the approval of multiple exchange rate systems relates to their temporary character. Fund approval of these practices is based on the existence of a well-conceived plan designed to bring about the unification of exchange rates over a specific and appropriately brief period of time. The development of such plans and the search for firm commitments to eliminate multiple rates should be expected from members undertaking adjustment programs supported by the use of Fund resources. The plan should normally consist of successive reductions in exchange rate spreads or shifts in the transactions undertaken in the various exchange markets. In cases where no arrangement entailing the use of Fund resources is in effect, approval of multiple exchange rates is granted when there are firm indications of measures and conditions considered likely to ensure their temporary nature.

In the context of a subsequent discussion in early 1985 on multiple currency practices applicable solely to capital transactions, the Executive Board did not take a view on the question of Fund jurisdiction over these practices under Articles VIII and XIV, leaving the matter open for further consideration. At the same time, it was agreed that members should continue to provide the Fund with specific and full information on capital controls and multiple currency practices applicable solely to capital transactions, and that the Fund will continue to assess the economic consequence of such practices in the context of its surveillance activities. The experience of the Fund membership with regard to practices that segment foreign exchange markets precisely on the basis of current and capital transactions has been limited; only six countries presently maintain multiple currency practices that are identified as relating solely to capital transactions. In most of these instances, these practices have not taken the form of a separate exchange rate for capital flows in general, but rather for specific components of the capital account, and they have served as an adjunct, and not as an alternative to, quantitative controls on other forms of capital transactions. Furthermore, the spreads have generally been maintained at a more or less steady depreciated rate over extended periods of time, or have varied mainly in response to nonbalance of payments factors, or were subject to infrequent discretionary change, all of which indicate that these practices have played a limited “buffering” role for variations in capital movements.

The trend since 1980 toward the increased use of multiple currency practices by Fund members noted in the 1984 Annual Report on Exchange Arrangements and Exchange Restrictions was reversed in 1984, as 11 members eliminated or simplified multiple currency practices (Argentina, Ecuador, Egypt, El Salvador, Indonesia, Paraguay, Rwanda, Sudan, Uganda, Yugoslavia, and Zaïre), while six members introduced multiple currency practices, or made the practices more complex (Bolivia, Colombia, Guatemala, Israel, Peru, and Venezuela). During the period under review five members eliminated multiple currency practices. Indonesia, in January, abolished the MPO tax on exports, and in May, changed the collection procedures of the export surcharge and the additional export surcharge so as to abolish the multiple currency practice feature. In July Rwanda eliminated the features in the advance import deposit requirement which had given rise to a multiple currency practice. In June Uganda replaced the dual exchange rate system with a unified exchange rate system under which the weekly exchange rates are determined by auction administered by the Bank of Uganda. Yugoslavia, in February, eliminated the multiple currency practice feature in a scheme which entitled foreign tourists to a 10 percent discount on goods and services when paying in dinar checks issued by the National Bank of Yugoslavia. Zaïre unified the free and interbank market exchange rates in February.

During 1984 six members simplified multiple currency practices. Argentina reduced in October export rebates by 6 percentage points. In February Ecuador transferred to the intervention market of the Central Bank additional export transactions and all service receipts and payments, with the exception of those for interest payments on foreign debt, profit remittances of registered foreign investments, and a few minor service transactions. In the course of 1984, Egypt took several measures aimed at a gradual unification of the commercial bank pool and the free market pool; on the other hand, the central bank pool, through which a large share of current transactions take place at an exchange rate of LE 0.7 = US$1, was not affected by these measures. In February, public sector banks were allowed to purchase foreign exchange at the premium rate of LE 1.12 = US$1 from the domestic market as well as from abroad. In March the permission to purchase foreign exchange at the premium rate, without restriction on the source of the funds, was extended to all commercial banks. In April all commercial banks were authorized to effect at a premium rate of LE 1.18 = US$1 virtually all of their sales of foreign exchange to public sector entities with authorizations in the foreign exchange budget and to private importers of industrial inputs and construction materials. On May 5, the spread between the premium buying and selling rates was reduced to 4.4 percent through a reduction in the latter rate to LE 1.17 = US$1 (the premium exchange rates are set by a seven-member committee). In El Salvador, a number of transactions were shifted from the official exchange market to the parallel exchange market, effective December 3, 1984, establishing a new mixed exchange rate based on 50 percent of the value of the official exchange rate and 50 percent of the value of the parallel exchange rate. Payments for 100 percent of the value of a number of consumer goods imports were shifted to the parallel market, together with payments for 50 percent of the value of certain imports of intermediate goods. At the same time, 50 percent of the proceeds from most exports to the rest of Central America were transferred to the parallel market. With these changes, the special preferential rate for certain imports of goods and services from the rest of Central America was eliminated. With effect from February 22 the official exchange rate in Paraguay, which was used for the transfer abroad of proceeds from air freight charges and domestic sales of air transportation tickets, was depreciated by 47 percent from ₲ 300 = US$1. In addition, on March 9 the mixing exchange rate applied to the surrender of export receipts was devalued, and the exchange rate regime applicable to exports was simplified. In May, the regime was further simplified as a rate of ₲ 160 = US$1 was made applicable to most official transactions; export receipts, along with certain registered private sector capital transactions and specified import payments, could be transacted at a rate of ₲ 240 = US$1; and all other transactions could take place at a rate determined in the free market. The resulting depreciations ranged from 13 percent in the case of exports to more than 30 percent for most imports. Sudan depreciated the commercial bank exchange rate from LSd 1.80 to LSd 2.10 per U.S. dollar, effective October 21, 1984. At the same time, all exports, with the exception of cotton and gum arabic, were valued at the commercial bank foreign exchange rate, rather than at the previous rate that was a composite of 75 percent of the official market rate and 25 percent of the commercial bank rate. The effective depreciation for these exports was thus 48 percent (from LSd 1.42 to LSd 2.10 per US$1). The 75:25 composite rate (now LSd 1.50 per US$1) continues to be applied to exports of cotton and gum arabic. In addition to these changes, export receipt surrender requirements were partly liberalized. Under the new system, 50 percent of foreign exchange receipts from exports must be surrendered to the Bank of Sudan, compared with 75 percent under the previous system. The liberalization does not apply, however, to cotton or gum arabic and a 100 percent surrender requirement applies to sesame. All imports of goods under commodity aid agreements, including wheat and wheat flour have been valued since the beginning of the fiscal year at the commercial bank rate rather than at the official rate or at composite rates as has previously been the case. All future commercial purchases of both wheat and sugar are to be financed in the free exchange market. In addition, all invisible payments and receipts previously transacted in the official market have been transferred to the commercial bank market. The commercial bank rate is now applied to most capital inflows for investment purposes, and to receipts from tourism as well as to all government payments for invisibles except debt service.

Six member countries introduced or intensified existing multiple currency practices in 1984. Bolivia introduced a number of changes in the course of 1984 that represented an increase in the complexity of the exchange system. In June, Bolivia increased the tax on the sale of foreign exchange from the equivalent of 1.8 percent to 4.8 percent; furthermore, effective August 17, Bolivia announced the introduction of a multiple exchange rate system consisting of five rates: (1) an “essential” exchange market with a preferential selling rate of $b 2,000 = US$1 plus a 4 percent tax and commissions of 0.5 percent each for the Central Bank and the intermediating bank applied to payment of essential imports. Thirty percent of the net value of export receipts surrendered to the Central Bank could be used to pay for imports of inputs and capital goods and the remaining 70 percent was to be settled at the “essential” exchange rate of $b 2,000 = US$1; (2) a “complementary” exchange market with rates of $b 5,000 = US$1 (buying) and $b 5,250 = US$1 (selling) applicable to other purchases and sales of foreign exchange for payment of nonessential imports; (3) a third “parity” exchange rate which was to be set fortnightly by the Ministry of Finance. The difference between the “parity” rate and the “essential” rate on 70 percent of the value of exports was to be remitted to the exporter in the form of export exchange credit certificates (CERCEX) expressed in Bolivian pesos; after 90 days, these were to be converted into gold savings certificates (see below). The CERCEX system was never implemented; (4) a rate for gold savings certificates. These certificates were to be sold and redeemed in local currency at a gold price based on the price of gold in the London Metal Exchange. These freely negotiable and transferable certificates were to have a redemption period of four years and yield interest at LIBOR, payable every six months in local currency, and their issue was to be initially limited to the equivalent of 50,000 ounces of gold;8 and (5) a rate for negotiable and transferable savings certificates denominated in U.S. dollars issued by the Central Bank with an initial selling price of $b 5,000 per U.S. dollar. These dollar savings certificates were to be redeemed in U.S. dollars within a six-year maturity and yield interest at LIBOR, payable every six months in U.S. dollars.9 Airline tickets could only be purchased with U.S. dollar checks bought at the “complementary” rate. In November a single exchange rate of $b 8,571 = US$1 (buying) and $b 9,000 = US$1 (selling) replaced the previous five-tier exchange rate regime; separate exchange rates of $b 15,300 = US$1 and $b 17,500 = US$1 were applied, respectively, to the purchase of airline tickets and to the conversion of exchange receipts of the mining sector. In March, Colombia established new tax credit certificate rates (TCC) at 5, 10, 15, 20, and 25 percent and introduced geographical discrimination in the form of different incentive rates for the same product according to its destination (in April TCC rates for exports to LAIA countries were set at 15, 20, 25, 30 and 35 percent). In March, the amounts of advance deposits required to be made prior to purchase of foreign exchange for travel was increased from Col$50 per U.S. dollar to Col$65 per U.S. dollar. Guatemala in November adopted a three-tier exchange rate system consisting of: (1) an official rate of Q 1 = US$1 applicable to most exports, all official transactions, and “essential” imports; (2) a rate determined in an “auction” market administered by the Bank of Guatemala for specified imports; and (3) a banking market rate applicable to other transactions not eligible for the other rates. At the time of the introduction of the multiple exchange rate system, the value of the quetzal in the secondary market was around Q 1.45 = US$1. Also in November, Israel introduced a 15 percent tax on imported services that is collected at the time of foreign exchange sales. In Peru a multiple currency practice was made more complex late in 1984 when access to the unified exchange market for most invisible payments was canceled. Venezuela added, effective February 24, a fourth tier to its previous three-tier system, which now consists of: (1) an exchange rate of Bs 4.30 per U.S. dollar applicable to priority transactions; (2) an exchange rate of Bs 6.00 per U.S. dollar for petroleum and iron ore transactions; (3) an exchange rate of Bs 7.50 per U.S. dollar for all other transactions approved under the exchange control system; and (4) a free market rate applicable to the remaining transactions. In March, Zaïre introduced a minimum mandatory deposit requirement at the rate of 50 percent against letters of credit; in May, the deposit rate was raised to 65 percent but was reduced again to 50 percent in November.

In early 1985, three members eliminated multiple currency practices. Effective January 1, when it joined the BEAC, Equatorial Guinea eliminated the multiple currency practices arising from taxes on transfers of net investment income, on interest payments on foreign loans used for direct investment, and on general expenses remitted by branches and subsidiaries of foreign companies. Also with effect from January 1, the People’s Republic of China abolished the internal settlement rate that was applied to all trade and related transactions. Mauritania eliminated all broken cross rates effective February 15 as the exchange rate of the ouguiya against the U.S. dollar was devalued by 16 percent from UM 67.15 = US$1 to UM 80.0 = US$1. In four other countries multiple currency practices were simplified in early 1985. Bolivia devalued the exchange rate of the peso by 81 percent from $b 8,571 = US$1 to $b 45,000 = US$1 for foreign exchange purchases in the official exchange market by the Central Bank and commercial banks, effective February 11. At the same time, the Central Bank began applying new selling rates of $b 49,550 = US$1 to commercial banks and $b 50,000 = US$1 to the general public, compared with $b 8,995 and $b 9,000 per US$1 previously. With effect from January 23, 1985 the previously existing dual exchange markets were unified in the Dominican Republic and all foreign exchange transactions began to be carried out at market-determined exchange rates, with the exception of transitional arrangements for which the peso counterpart had already been deposited with the Central Bank and certain other transactions that had already been authorized by the Central Bank; in addition, a “windfall” surcharge was introduced on exchange proceeds generated from exports of goods and services except tourism. On February 8, 1985, Nicaragua eliminated mixing exchange rates for export proceeds and introduced new, more depreciated, exchange rates for most transactions. An exchange tax applicable to certain import payments was eliminated in December 1984. Sudan adjusted the official exchange rate for the Sudanese pound effective February 12 from LSd 1.3 = US$1 to LSd 2.5 = US$1, representing a 48 percent depreciation. Transactions conducted through the official market were enlarged to include certain export proceeds and import payments previously channeled through the commercial bank market. The commercial bank rate was initially set at LSd 3.0 = US$1, and on March 23 the Bank of Sudan allowed commercial banks to set independently their own buying and selling rates for foreign currencies in the free market. By the end of the first quarter, the rate had depreciated to LSd 3.48 = US$1.

In early 1985, one member intensified existing multiple currency practices. Effective February 18, Paraguay reintroduced a system of minimum export prices denominated in U.S. dollars (aforos) as the basis for surrender and conversion of all export proceeds. Also effective that date, a fourth exchange rate of ₲ 400 = US$1 was made applicable to 50 percent of export proceeds based on minimum export prices.

In Egypt, a number of measures were taken in January 1985 with the objective of unifying the commercial bank pool and the free market pool, but in April they were rescinded.

Bilateral Payments Arrangements and Countertrade Practices

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. A basic feature of bilateral payments arrangements, which gives rise to a restriction on the making of payments and transfers for current international transactions within the meaning of Article VIII, Section 2(a), is that balances in the bilateral account, which is typically established to settle bilateral trade transactions, can be used only to make settlements between the two partner countries and cannot be transferred into another currency, or be used to make payments to a third country. Even in agreements in which the transferability of balances in the bilateral account is permitted, an exchange restriction may be involved if the period between transfers is unduly long. A multiple currency arrangement within the ambit of Article VIII, Section 3 of the Fund’s Articles will be involved if settlements of balances are effected at exchange rates whose cross-rate differentials exceed more than 1 percent. 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 the Annual Report on Exchange Arrangements and Exchange Restrictions, 1983 (pages 44–45).

The 1984 Annual Report on Exchange Arrangements and Exchange Restrictions noted that in 1983 there was a further decline in the number of bilateral payments arrangements (including inoperative agreements) maintained between Fund members, while the number of bilateral payments arrangements maintained between Fund members and non-Fund members remained unchanged at the 1982 level. As a result, at the end of 1983 the total number of bilateral payments agreements maintained between Fund members was 53, down from 62 at the end of 1982, while the total number of those maintained between Fund members and non-Fund members was 84.

During 1984, progress in reducing bilateralism in payments arrangements continued, as one bilateral payments agreement maintained between Fund members was terminated, the number of such agreements between Fund members and non-Fund members remained unchanged, and no new agreements were concluded between Fund members, or between Fund members and non-Fund members. In March 1984, a payments agreement between Afghanistan and Hungary was terminated. Finland renewed in September its bilateral payments agreement with the U.S.S.R. for the period 1986–90. Pakistan renewed its bilateral payments agreements with the Islamic Republic of Iran and two non-Fund members (Bulgaria and Poland). Consequently, as of the end of 1984, the total number of agreements between Fund members declined to 52, and that of agreements between Fund members and non-Fund members remained unchanged for the second consecutive year at 84.

Detailed information on the value of trade conducted under bilateral payments 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 1983. It is most likely that the value of trade conducted under bilateral payments arrangements is considerably 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, as noted in the 1983 and 1984 issues of the Annual Report on Exchange Arrangements and Exchange Restrictions, there has been a growing resort in some countries to trading practices known as countertrade arrangements. Such types of arrangements have taken a variety of forms, but basically they are 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 intervention, 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. In early 1984 Colombia instituted a mandatory barter system for the importation of certain goods. Ecuador introduced in late 1982 compulsory options of minimum financing or barter trade for imports. Also in 1982, Indonesia issued regulations requiring foreign firms bidding for government-sponsored construction or procurement projects to agree to fulfill a counterpurchase obligation. In Israel foreign suppliers to the public sector must purchase Israeli products worth a certain proportion of the value of the contracts they receive, and in Malaysia guidelines specifying export and import commodities that would be considered in countertrade arrangements have been in existence since 1982. In Peru a countertrade committee was established in December 1984 to promote exports under barter and similar arrangements.

The re-emergence of and recent growth in countertrade have been attributed to several factors. In the centrally planned Eastern European countries, countertrade is often seen as helpful to the central planning process by reducing the uncertainties for the domestic production plan that result from the difficulty in forecasting foreign demand. It is also a means of achieving bilateral balancing of trade, which is an important 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 also motivated Eastern European countries to enter into countertrade arrangements. Countertrade has increasingly been resorted to in developing countries in recent years for a variety of reasons. The recent balance of payments difficulties of several developing countries arising from sluggish export growth and a rising external debt service burden have led these countries to seek new ways of economizing scarce foreign exchange resources. The pressures to find markets for surplus goods or the difficulties of gaining access to the markets of the industrial countries for certain primary and/or manufactured products have also prompted some 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 other cases, countertrade may have become the only way for exporters (including those in industrial countries) to overcome the protective trade policies of some countries.

Despite the recent proliferation of countertrade arrangements, reliable estimates of trade conducted under such arrangements are not available as they are most often concluded by individual firms without the knowledge and requirement of the government, or in instances where governments require or engage in countertrade and strategic goods are involved, detailed trade data are not published. Moreover, countertrade in the form of buy-back arrangements, which are perhaps the most prevalent and involve a relatively large volume of trade, often extend over several years, making it difficult to estimate the annual volume of trade. Global countertrade in 1980 was estimated to have reached roughly about 1 percent of world trade. A more recent estimate would be as high as 5 percent to 10 percent of world trade.

Although the volume of trade conducted under countertrade arrangements appears to be small 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 or availability of exchange as such, they entail exchange restrictions and multiple currency practices that may be subject to approval under Article VIII of the Fund’s Articles of Agreement. Even though countertrade practices may be viewed as having some advantages, such as access to restricted markets, or in some circumstances implicit valuation of exports at a more depreciated exchange rate, they have a number of shortcomings. Apart from the basic issue of inefficiency of resource allocation, some of the more common serious disadvantages generally encountered are: (1) a limited choice of products or services that are available for trading at internationally competitive prices; (2) poor quality of goods; (3) the difficulty of marketing products that are not directly consumed by the buyer, especially when the seller places geographical or commercial restrictions on the marketing of products; and (4) a higher product cost resulting from payments of commissions or fees to the middleman handling sales of products and from bridge financing that may be required owing to long delivery dates. Countertrade arrangements also tend to increase the cost of trade, as additional risks not usually present in normal bank-financed foreign trade must be covered. The use of countertrade has been proposed in some quarters as a means by which countries with high debt service problems can improve their trade balances through access to markets where these are otherwise restricted. Such an approach might offer temporary access to markets for these countries. But, it is a second-best solution when viewed from the system as a whole; a far better alternative is for all countries concerned to reduce their level of protectionism. When countertrade is advocated because of the absence of trade financing arising from fears of nonpayment, the best response would seem to be official action to promote the normal trade financing mechanisms and to restore confidence in the management of the economy.

Capital Flows

During 1984, the long-term trend toward liberalization by Fund members of regulations governing capital flows continued in the industrial countries, and was extended to the developing countries. As in the recent past, the direction of international capital flows in 1984 was largely influenced by interest rate differentials, expectations regarding exchange rate movements, particularly those of the U.S. dollar, and political and economic uncertainties abroad. The continued financing needs of some of the oil exporting countries and the still heavy borrowing requirements of developing countries with large debt service burdens also affected the pattern of international capital flows.

In 1984, a number of industrial and developing countries liberalized regulations governing international operations of commercial banks. Japan abolished in April the practice of setting guidelines for lending abroad by Japanese commercial banks; in addition, the limits on net conversion of foreign currency into yen by Japanese banks and branches of foreign banks were abolished in June, at the same time that permission was granted to Japanese and foreign banks to extend Euro-yen lending with maturities of one year or less to Japanese residents for any purpose. In a modification of practices regarding transactions on the Tokyo exchange market, Japanese banks were allowed in July to engage directly with each other in foreign exchange transactions, other than yen-U.S. dollar transactions, without a broker; the exclusion of yen-U.S. dollar transactions from liberalized treatment was abolished in February 1985. In December, foreign and Japanese banks were authorized to issue, from their offices abroad, short-term (six months or less) negotiable Euro-yen certificates of deposit (CDs). However, sales of Euro-yen CDs to Japanese residents are prohibited. At the end of October, New Zealand abolished rules limiting foreign borrowing operations by residents, and soon afterwards financial institutions other than authorized foreign exchange dealers were allowed to borrow abroad to finance their day-to-day operations; financial institutions licensed to deal in foreign exchange continued to be subject to currency exposure limits. Norway eased in June the limits on banks’ overall exchange position (spot plus forward) by granting a margin of fluctuation of NKr 200 million to banks quoting binding buying and selling rates for the main currencies against the krone (spot and forward) on a continuing basis. For other banks, lower margins of fluctuation in relation to their respective total assets were specified. The ban on import credits with maturities of up to five years provided by foreign financial institutions was lifted, and legislation was passed allowing a small number of foreign banks to set up subsidiaries in Norway; the activities of foreign-owned banks would be subject to the same general conditions as Norwegian banks. In addition, Norwegian banks were allowed, in October, to grant krone-denominated loans to nonresidents, provided that such applicants had obtained license from the Norges Bank; a quota of NKr 5,000 million for such loans was fixed for 1985 (contingent on the maintenance of foreign exchange reserves at a satisfactory level).

Among developing countries, the People’s Republic of China established in August special foreign currency lending facilities within the Industrial and Commercial Bank of China for domestic borrowers, and authorized the bank in November to carry out business transactions in foreign exchange in special economic zones. Foreign banks were allowed, since December, to accept deposits and make loans in foreign currency in Shanghai. In January, Korea liberalized the foreign currency management rules of branches of foreign banks by making it easier to swap Japanese yen for won; the new regulation permitted yen received overseas to be sold to the Bank of Korea and later repurchased to provide credit facilities. In a further liberalization of the rules under which foreign bank branches could operate, Korea allowed foreign banks in April to join the National Bankers’ Association, permitted them to apply a higher gearing ratio to their capital in order to expand their lending activities, and announced that, beginning in 1985, branches of foreign banks would be given access to the rediscount facilities of the Bank of Korea on the same terms as domestic banks for export financing. From 1986 onward, the rediscount facility would be fully available to foreign banks on the same basis as that applied to domestic banks.

A few countries, mainly within the developing country group, tightened regulations governing capital flows through the banking system. In July, Italy introduced a ceiling on foreign indebtedness of banks; the limit was set at the level outstanding on June 30, 1984. Colombia introduced in April regulatory procedures concerning foreign borrowing by the domestic banking system and, in May, regulated foreign borrowing by domestic banks to finance purchases of assets by their foreign branches. Lebanon reduced in October the net foreign currency position that commercial banks are authorized to maintain from 50 percent to 15 percent of capital. In October, the United Arab Emirates required banks to maintain interest-free deposits with the Central Bank amounting to 30 percent of their placements with, or lending to, nonresident banks with maturities of one year or less; also, central bank swap facilities were withdrawn for commercial banks having a short position in dirhams, except for the covering of forward transactions for commercial purposes; in November, it was announced that cash reserve requirements in the form of deposits held by commercial banks with the Central Bank would bear no interest and that the reserve ratios applicable to time deposits were reduced. Zaïre reduced, both in April and in May, the net foreign exchange position of banks to 50 percent of their own resources.

During the period under review, some countries introduced measures liberalizing the use of nonresident accounts. Finland abolished in January the limit on loans to nonresidents against property in Finland. The limit on the amount of foreign exchange held in Finland by residents and not subject to obligatory repatriation was raised from Fmk 5,000 to Fmk 10,000. In addition, the limit on resident foreign exchange holdings not subject to obligatory repatriation was raised from Fmk 6,000 to Fmk 10,000. In October, Norway eased the rules for maintaining private working accounts in foreign currency. Among developing countries, Bangladesh in March allowed foreign nationals residing in Bangladesh to obtain up to US$300 (previously US$50) in currency notes for travel abroad against their foreign currency or convertible taka accounts. In June Cape Verde allowed the opening by emigrants of interest-bearing foreign exchange deposit accounts, saving-credit deposit accounts, and special accounts in Cape Verde escudos; the accounts were to be credited only with convertible foreign currencies, and holders of saving-credit accounts could raise loans on special terms for financing small-scale projects. In July, the People’s Republic of China allowed individuals to open freely foreign currency accounts with the Bank of China in Beijing, Shanghai, Tianjing, and Guangzhou. In September, Greece permitted nonresidents to open time deposits, with maturities of one, three, or six months and interest rates to be negotiated freely, in convertible drachmas; in addition, banks were allowed to make convertible drachma loans to credit institutions abroad for up to six months in amounts not exceeding the bank’s total deposits in convertible drachmas. The maximum annual rate of interest payable on blocked deposits was raised in October from 11.5 percent to the rate of interest paid on savings deposits at domestic commercial banks. Grenada liberalized in November the opening of foreign currency and external accounts. India permitted in April the opening of ordinary nonresident accounts by overseas corporate bodies/trusts with at least 60 percent ownership (or beneficial interest) held by nonresident Indians, provided that the initial deposit was made from remittances abroad or from funds in India eligible for credit to such accounts. In January 1985, Nigeria announced that provisions would be made for the opening of foreign currency accounts in Nigerian banks by residents who acquire foreign exchange other than from export proceeds or from receipts of authorized foreign exchange buyers and dealers, and Somalia introduced import- and export-promoting accounts with the commercial banks and liberalized regulations on the use of external accounts. In February, the Syrian Arab Republic permitted the opening of foreign currency accounts for funds obtained outside Syria; funds in such accounts may be used to finance imports, may be transferred abroad without restriction, or may be sold to local banks at the tourist market exchange rate. Also in February, Tunisia extended eligibility for the opening of Exportations-Frais Accessoires (EFAC) accounts, in which part of the proceeds of exports can be deposited and used for expenditures abroad, to travel agencies and all providers of services abroad; previously, eligibility had been limited to exporters of goods and hotel services.

Three developing countries imposed restrictions on the use of nonresident accounts. In January, Bangladesh limited interest paid on nonresident accounts to 1 percentage point above LIBOR or to rates prevailing in the local money market for taka deposits, whichever is lower. Soon afterwards, imports of capital goods under the Wage Earners’ Scheme were permitted against letters of credit, but with deferred payments of up to 360 days. Finally, in December the validity period for Import Entitlement Certificates under the Export Licensing Scheme was reduced from six to three months. Jamaica abolished in January the foreign currency deposit “B” Scheme and required that existing balances under such accounts be cleared by January 31, 1984. In February Sudan prohibited payment of interest on current bank accounts denominated in foreign currency.

Several industrial countries introduced measures liberalizing regulations governing portfolio investments. Denmark lifted in January restrictions on purchases by residents of foreign shares in commercial or industrial enterprises listed on the stock exchange; restrictions were also lifted on foreign investment by residents in financial and commodity futures. In October, France abolished, with effect retroactive to August, the withholding tax of 25 percent on dividend earnings by nonresident holders of French bonds and in November improved access of European Community institutions to the Paris financial market by allowing increased security issues in francs and issuance of securities denominated in ECUs and exempted from the devise titre regulations. The Federal Republic of Germany discontinued in August the withholding tax of 25 percent on interest payable to nonresident holders of German fixed-interest securities. In December, Italy reduced the non-interest-bearing deposit requirement in respect of investments abroad from a uniform rate of 50 percent to 40 percent for investments in the OECD countries, and to 30 percent for investments in securities of the European Community institutions to be held for at least one year. At the same time, the deposit requirement in respect of investments in foreign securities by mutual funds, within a limit of 10 percent of their total assets, was abolished. As part of a package of measures to further liberalize capital markets, Japan in April eased guidelines on the issue of Euro-yen bonds by residents, allowed residents and nonresidents to swap non-yen bonds into yen (using either the forward exchange market or currency swaps), discontinued the application of the “real demand” principle to forward exchange transactions by residents, further relaxed the notification requirement on sales of yen-denominated securities to foreigners, granted permission for sales of foreign certificates of deposits (CDs) and of foreign commercial paper (CPs) in the Japanese market, relaxed the rules of eligibility for yen bonds to be issued in Tokyo, and increased to ¥ 30 billion the limit on the amount of each yen bond issued by an international agency. In May a bill was passed to eliminate the “designated company” system and to liberalize nonresident acquisition of real estate in Japan; the “designated company” system was abolished in July. In addition, in May Japan passed a bill allowing the issuance of foreign-currency-denominated government bonds in foreign markets; and the Japanese Government committed itself to further liberalize its financial markets, internationalize the use of the yen, and facilitate the access of foreign institutions to Japanese capital markets. The trading of foreign-currency-denominated bonds in the Gensaki market was permitted, commencing in June. The rules of eligibility, issue amounts, and issuing procedures for the issuance of yen-denominated foreign bonds in Japan were relaxed in July. Also, in August, Japanese brokers were allowed to deal in international brokering, with the exception of transactions involving the yen and the U.S. dollar; this exception was eliminated in February 1985. Foreign private corporations, state and local governments, and government agencies were authorized in December to issue Euro-yen bonds; previously, such authorization had been confined to national governments and international organizations. Late in the year, New Zealand removed all restrictions on the access of foreign-owned companies operating in the country to the domestic capital market, and relaxed restrictions on foreign ownership by foreign exchange dealers; in addition, residents were permitted to purchase foreign exchange for investment purposes. Norway introduced in June measures permitting residents to purchase quoted and nonquoted foreign shares; however, purchases of nonquoted shares were made subject to licenses. Permission was also granted for purchases of Euro-krone bonds by residents in the secondary market. Subject to the limit of the Concession Acts and the respective companies’ Articles of Association, Norway allowed nonresidents, in June, to purchase nonquoted, as well as quoted, shares. Sweden relaxed in February the minimum required maturity for foreign currency borrowing abroad by enterprises and local governments from five years to two years, and abolished in May the requirement that the amount of such borrowing be at least SKr 10 million. In January, Switzerland eliminated the queuing system (under which a limit of three issues per week was imposed on foreign bond issues) and raised the maximum amount per issue from Sw F 100 million to Sw F 200 million. The United States repealed, in July, the 30 percent withholding tax on interest paid to foreign investors in U.S. securities, removing a barrier that had prevented U.S. borrowers, including the U.S. Treasury, from issuing bearer bonds to foreign investors. In August, the U.S. Treasury announced that it would not issue bearer bonds but would instead issue special registered securities to foreigners that provide some degree of anonymity to the purchaser. Among developing countries, the People’s Republic of China allowed local companies to sell to individual foreigners stock in newly established corporations located in a special economic zone.

Very few countries introduced measures that restricted portfolio investments abroad. In June, Australia applied new taxation screening arrangements to certain outward capital transfers. Norway revoked in November the permission for foreigners to purchase Norwegian bonds up to certain limits. Foreign insurance companies can, however, be given special permission to invest in such bonds to cover their need for technical reserves. In a modification of the deposit requirement for medium-term notes, Switzerland made the Swiss Security Clearing Organization (SEGA) eligible in January to act as a custodian in addition to existing custodians, consisting of the issuing bank members of the syndicate. Among developing countries, Colombia established in March that external borrowing by residents to finance investments abroad would be subject to approval by the Ministry of Planning and could not have a maturity of less than four years, with two years minimum grace. Israel tightened in January controls on portfolio investments abroad as residents were no longer permitted to hold bank accounts abroad (except exporters in connection with export proceeds) or to buy foreign securities (except certain securities of Israeli firms issued abroad); existing bank accounts abroad were required to be closed by April 1, 1985, but foreign securities bought before January 17, 1984 could continue to be held. In addition, Israeli residents would no longer be permitted to buy gold bullion or coin for investment purposes, and Israeli emigrants would be allowed to transfer their assets abroad only by means of annual remittances not exceeding US$2,000 per person. In March, Zimbabwe decided to acquire the foreign-currency-denominated securities being held on behalf of residents and nonresidents by nominee companies, in exchange for local currency holdings. In addition, income remittances from blocked funds of companies and individuals were suspended; however, holders of blocked funds could invest their funds in Government of Zimbabwe external bonds. Zimbabwe also required those applying for emigrant status to liquidate their assets within a period of six months and to invest the total proceeds, less any settling-in allowance, in Government of Zimbabwe external bonds.

Several industrial and developing countries liberalized regulations governing foreign direct investments. Finland raised in January the limit on the purchase of foreign exchange for the purchase of a second home abroad, from Fmk 250,000 to Fmk 300,000. In January, France exempted foreign direct investment by small and medium-sized firms from foreign financing obligations, and raised the limit for exemption from the foreign financing obligations from F 1 million to F 2 million. The proportion of foreign direct investment that is required to be financed abroad was reduced in November from 75 percent to 50 percent for direct investment in EC countries. In addition, the period for obligatory review of applications for direct investment in France was reduced to one month in all cases. Previously, it was two months for applicants from other EC member states, and there was an unspecified time limit in the case of other applicants. Norway abolished in June the limit of NKr 400,000 on the purchase of real estate for recreational purposes, and lifted the ban on borrowing abroad in connection with such a purchase. At the same time, the licensing system for inward direct investment with respect to transfer of share capital was replaced by a reporting system, thus subjecting such investments to the Concession Acts and other relevant regulations. In March, the United States signed a tax treaty on the avoidance of double taxation with the People’s Republic of China. Among developing countries, Cameroon introduced a new investment code which provided for a range of fiscal incentives for foreign direct investment. During the period under review, the People’s Republic of China adopted a range of measures in a move to attract direct investment from abroad. In January, the municipality of Shanghai was granted authority to approve directly direct foreign investment for up to a value of US$10 million. In April, it was announced that 14 selected coastal cities would be opened further to outside direct foreign investment and, in May, the harbor city of Beihai was officially opened to foreign direct investment by medium-sized and small electronics and light industrial enterprises, which will be eligible for preferential tax treatment. It was also announced that income of foreign investors operating on their own, or in joint partnership with Chinese entities in Hainan Island, will be exempt from income tax during the first two years, but subject to a 15 percent tax in the third year. Consolidated industrial and commercial taxes will be reduced or eliminated during the first three years for undertakings subject to production difficulties, while imports of certain inputs will be exempted from customs duties. In June, the municipality of Shanghai announced preferential local tax treatment for foreign investors in the economic and technological zone in Shanghai. In July, to speed up a “wider opening up” of the 14 designated coastal cities, the State Council announced that these cities will be allowed to offer additional tax incentives to foreign investors providing advanced technologies. In addition, special economic and technological development areas will be set up in these cities, where the 10 percent tax levied on the amount of profits remitted abroad by the foreign investors would be waived and, as in the special economic zones, the profits of joint ventures established in the designated areas will be subject to a 15 percent income tax, instead of the standard 33 percent. Moreover, imports of means of production by or for joint ventures in the 14 coastal cities will be exempt from customs duties as well as from consolidated industrial and commercial taxes. Products for export will also be exempt from export customs duties, and a certain proportion of products requiring advanced manufacturing techniques will be permitted to be marketed domestically. In November, the State Council issued new regulations on income taxes and on the consolidated industrial and commercial taxes in the special economic zones and in the new economic and technological development zones in 14 coastal cities. Under these regulations, income taxes on long-term industrial communication, transport, agricultural and service trade undertakings, other than those in the special economic zones and the new economic and technological development zones, will be waived in their first one or two profit-making years, and will be reduced by 50 percent in the following two or three years. However, profits generated in the 14 coastal cities will be subject to taxation up to 80 percent of the standard tax rate of 33 percent. Consolidated industrial and commercial tax exemptions will be granted on imports of inputs, on export products, and on those sold within the special zones or designated areas in the 14 coastal cities; however, products sold in the People’s Republic of China outside these zones and areas will continue to be subject to customs duties. In addition, foreign participants in joint ventures in the zones and areas mentioned above will be allowed to remit abroad their profits tax free, while a 10 percent tax will be levied on income from royalties, dividends, interest and rentals, against a rate of 20 percent elsewhere in the People’s Republic of China. The exemptions and reductions of income tax are with effect in 1984. Finally, in January 1985, the People’s Republic of China, following experiments in the special economic zones and the 14 coastal cities, took a further step in its current policy of opening up to the outside world by unveiling new plans to open four large industrialized regions to foreign investment and trade. Ecuador permitted from January foreign investment in insurance, re-insurance, commercial banking, and financial companies. Also in January, Indonesia adopted a new income tax law which provides new incentives for direct foreign investment. Ivory Coast modified in November the investment code under which it granted new incentives to direct foreign investment in certain priority sectors and geographical areas, including exemptions from customs duties and tariffs on all imported capital equipment and spare parts, and temporary exemptions from corporate profit taxes, patent contributions, and capital asset taxes. The exemptions would apply to 100 percent of applicable taxes up to the third to last year of the exemption period, 75 percent of the applicable taxes in the second to last year of the exemption period, and 25 percent in the last year of the exemption period. In July, Korea adopted a revised Foreign Capital Inducement Act which expanded the areas for foreign investment by introducing a “negative list system,” under which only those industries closed to foreign investment were specified. Automatic approval would henceforth be granted, in principle, for equity participation amounting to less than 50 percent of the total, or US$1 million, for a single project; equity participation up to 100 percent would also be permitted under the new law. In addition, Korea announced in December detailed rules guiding approval of foreign investment in sectors reserved for restricted projects which, among others, specified criteria to be met by foreign investors in certain manufacturing industries and foreign trade projects. Malaysia relaxed in August restrictions on foreign direct investment by allowing large foreign firms engaged in capital- and technology-intensive production to hold majority equity shares. In addition, the possibility of 100 percent foreign ownership, previously limited to export industries, was extended to other sectors. In February, Mexico announced a list of priority sectors where majority foreign ownership would be allowed; as a rule, foreign ownership had been limited to 49 percent of capital. The list included electrical and nonelectrical machinery, metal products, electronics, transportation materials, chemicals, biotechnology, hotels, and certain other industrial sectors. Priority would also be given to investments directed to the export market. Effective September, Mozambique provided, under a new investment code, various incentives to foreign direct investment, which included, among others, guarantees for profit remittances, protection against nationalization, and provisions for income tax and import duty concessions for foreign investors. In November, Yugoslavia adopted a new law on joint ventures that eliminated the previous restrictions on the shares of capital and profits of a foreign partner in joint ventures, and provided for a larger role by the foreign partner in the management of the joint venture. Zaïre authorized in July the repatriation of foreign capital and transfer of profits and dividends on such capital under the provisions of the Investment Code.

The regulations governing direct foreign investment were tightened in three developing countries. Bangladesh required the sterling tea companies in February to place on deposit in Bangladesh 10 percent of their annual remittable profits, until the total amount of such deposits reached 200 percent of their paid-up capital. In June, Colombia announced that profits beyond the 20 percent limit on outward remittances would be counted as additional foreign investment capital if invested in new enterprises, provided that at least 80 percent of their production is exported and that at least 40 percent of their financing is in the form of direct investment and/or medium-and long-term external borrowing. Finally, in January Nigeria announced that dividends due to nonresident investors could be reinvested in new companies, provided that an additional amount equal to one half of the remittable amount was imported; the additional capital inflow is required to enable the investor to qualify for approved status.

In January 1985 Egypt canceled the authorization to use foreign exchange in Free Accounts to effect import payments. However, authorization was granted until March 21, 1985 for owners of outstanding balances in Free Accounts and Import Accounts to use Egyptian pounds resulting from the sale of such balances for imports related to the activities of the account holders. These measures were rescinded in April. Norway introduced in January 1985 measures permitting residents to purchase quoted foreign bonds within certain limits (NKr 1 million for individuals and NKr 5 million for companies).

Gold

As in recent years, few Fund members introduced new regulations concerning procedures for the export and import of gold as well as for dealings in domestic holdings of gold. The premiums on Krugerrands sold by Intergold to local distributors in South Africa were reduced. In Mexico exporters of jewelry and precious metals were directed to surrender their export receipts exclusively through Banca Cremi (a nationalized commercial bank). Imports and exports of nonmonetary gold (other than jewelry for personal use) and of gold coins eligible as legal tender in Venezuela or abroad were made subject to prior authorization by the Central Bank. Effective April 25, India introduced a gold jewelry export promotion replenishment scheme whereby exporters of ornaments and articles made of gold of not less than 0.5833 fineness (equivalent to 14 carats) were entitled to the replenishment by gold imported by the State Bank of India, and supplied at prices notified by the Government against release orders issued by licensing authorities, provided that they satisfy “value added” and other requirements of the scheme. In February, the monopoly of the Bank of Sierra Leone over gold exports was terminated, and licenses were to be granted to private exporters. In Zaïre residents other than the monetary authorities and producers of gold were prohibited from purchasing, holding, or selling gold in any form. With the exception of jewelry, imports and exports of gold require prior authorization from the Bank of Zaïre. Gold produced by mining companies is purchased by the Bank of Zaïre under certain terms, and the bank may authorize part of the gold produced by these companies to be sold to residents for their industrial activities. There is a free trade in domestic gold mined by small-scale producers.

IV. Main Developments in Regional Arrangements

Several measures to foster regional cooperation were taken in 1984. The European Community (EC)10 entered into a new cooperation agreement with the People’s Republic of China, continued negotiations on the accession of Portugal and Spain to the EC, and signed a third Lomé Convention with the African, Caribbean, and Pacific States (ACP). The Central African states agreed on a constitution for a new economic grouping, and four regional arrangements in Africa were expanded. In Asia, a new member was admitted to the Association of South East Asian Nations, and the liberalization of interregional trade flows continued. The six states of the Cooperation Council for the Arab States of the Gulf11 strengthened their trade links and liberalized real estate legislation. The Caribbean states agreed to revive a multilateral trade clearing facility.

Negotiations continued on the accession of Portugal and Spain to the EC. After some 45 negotiating sessions with each candidate country, substantive agreement was achieved in transport, steel, and capital movements, and on related economic and financial matters. During 1984 progress was made in the following areas: wine production, the Integrated Mediterranean Program, fisheries, and imports of fruit and vegetables. In the sixteenth through twenty-third ministerial meetings held in the course of 1984 to negotiate Portugal’s accession, agreements were reached on taxes, direct investment, and agriculture. The twentieth ministerial meeting between Spain and the EC, held on April 10, concluded agreements on the adoption of the Generalized System of Preferences (GSP) and on the preferential arrangements with the Mediterranean countries, the African, Caribbean and Pacific States, and the Overseas Countries and Territories (OCT).

The People’s Republic of China and the EC signed a new five-year textile agreement on March 16, and a new trade and economic cooperation agreement on September 26, 1984, superseding a previous trade agreement signed in 1978. The second Financial Protocols between the EC and Israel and Cyprus entered into force in January and May, respectively. The protocols provide for Community assistance of ECU 40 million through October 31, 1986 in the case of Israel, and ECU 44 million through December 31, 1988 in the case of Cyprus. In December, the EC and Israel signed a third Financial Protocol outlining a new schedule for reducing customs duties. The third ministerial meeting of the EC-Egypt Cooperation Council, held on April 9, reviewed relations between the Community and Egypt as covered by the provisions of the 1977 Cooperation Agreement and discussed efforts to reduce Egypt’s trade deficit with the Community. In June 1984, the EC adopted a Decision on a second Financial Protocol with Yugoslavia and extended the existing trade provisions of the EC-Yugoslavia Cooperation Agreement until June 30, 1985. Also in June, the EC extended the existing trade arrangements with Cyprus and Malta until the end of December 1984. The EC-Jordan Cooperation Council, set up under a 1978 agreement, met for the first time on October 23 in Luxembourg to discuss ways of improving economic, technical, and financial cooperation. A five-year Cooperation Agreement with the Yemen Arab Republic was signed on October 9. In addition to these protocols, several agreements were concluded on steel arrangements, fisheries, and textiles.

On December 8, a new EC-ACP convention (Lomé III) was signed by representatives of the Community and the 65 countries of the African, Caribbean, and Pacific States.12 The new convention is to run for five years starting March 1, 1985 and replaces Lomé II which expired on February 28, 1985. Participants agreed to a financial endowment of ECU 8.5 billion, and to promote measures designed to encourage European industrial investment in Africa. It was also agreed that under the stabilization of ACP export earnings system (Stabex), ACP countries must furnish both specific details on how the transferred money is to be used and a subsequent report detailing how the money was allocated.

On June 4, the EC concluded the cooperation agreement between the Community and the Andean Group13 signed in Cartagena, Colombia, in December 1983. Under this five-year nonpreferential agreement, commercial and economic links between enterprises in the two regions will be strengthened and the two parties will grant each other most-favored-nation status under the GATT.

Ministers of the European Community met with the Foreign Ministers of the Association of South East Asian Nations (ASEAN)14 on July 12–13 in Jakarta, and again in Dublin on November 15–16. In the first meeting, the discussions centered on the question of access to markets, and the November meeting focused on the need to strengthen financial cooperation. In addition, following Brunei’s accession to ASEAN on January 7, 1985, the member states’ request that the EC-ASEAN Cooperation Agreement signed in 1980 be extended to their sixth member was granted during the November meeting.

At the conclusion of the first EC-EFTA15 ministerial meeting on April 9, in Luxembourg, a Joint Declaration was issued praising the abolition in early 1984 of the last remaining intra-EC-EFTA tariff barriers and quantitative restrictions on industrial products. The Declaration also emphasized the need to oppose protectionist pressures; simplify origin rules and customs documentation; facilitate border controls; increase cooperation in the fields of research and development, transport, agriculture, fisheries, energy, tourism; and the importance of intensifying efforts to sustain and consolidate the economic recovery. These main points were reiterated by the heads of EFT A Governments during a meeting held in Visby, Sweden, on May 23 and again in Geneva at the ministerial meeting of the EFTA Council held on November 5–6, 1984. On July 12, the EFTA Council decided to establish a Committee on Technical Barriers to Trade. Meetings of the joint committees responsible for the management of the free-trade agreements between the EC and EFTA countries were held on several occasions throughout the year. The eighth Joint EFTA-Yugoslavia Committee met in Lugano from October 31 to November 1 and agreed to further strengthen EFTA-Yugoslavia cooperation, in line with the Bergen Declaration adopted in June 1983.

The EC-Austria Joint Committee met on July 4 to discuss trade in agricultural products and Austria’s trade deficit with the Community. The EC-Sri Lanka Joint Committee held its sixth session under the Commercial Cooperation Agreement in May and reviewed issues relating to trade, energy, financial and technical assistance to the Mahaweli Ganga irrigation scheme, and industrial cooperation. The seventh session of the EC-Bangladesh Joint Committee met on July 16 and 17 to discuss technical assistance in industry, energy cooperation, and a trade promotion program. On May 5–7, the EC-India Joint Commission reached agreement on science and technology and industrial cooperation. The EC-Pakistan Joint Committee met to discuss a commercial and economic cooperation agreement. The EC-Norway, EC-Finland, and EC-Iceland Joint Committees met on November 27–28 and expressed satisfaction at the new impetus given to inter-European Cooperation at the Luxembourg meeting in April. The EC-Romania Joint Committee met on November 8–9 in Bucharest and adopted several recommendations to stimulate trade.

The seventh annual meeting of the Economic Community of West African States (Ecowas)16 was held in Lomé, Togo, on November 22–23. The summit ended with a declaration on the creation of a Special Fund for Sub-Saharan Africa and the adoption of a resolution on the need to foster an economic recovery in West Africa. With regard to the latter, participants agreed to intensify their efforts to ensure the implementation of the following acts and decisions by May 28, 1985: a trade liberalization program, a protocol of mutual assistance in customs matters, the adoption of a common economic strategy for the subregion, balance of payments adjustment, and measures to facilitate the creation of a monetary zone.

On February 17, Mali signed the agreement providing for the country’s re-entry to the West African Monetary Union (WAMU)17 effective June 1. The decision to re-admit Mali had been taken at the October 1983 WAMU summit held in Niamey, Niger. The heads of state of the West African Economic Community (WAEC)18 held their tenth summit on October 27–29 in Bamako, Mali. In addition to admitting Benin as the Community’s seventh member, the summit took certain decisions pertaining to the organization and operation of the general secretariat, and appealed to the international community for additional aid for the Sahel countries.

The heads of state of the Central African Customs and Economic Union (UDEAC)19 met on December 17–20 in Brazzaville, the Congo, and readmitted Chad to the Union. Following Equatorial Guinea’s membership in the UDEAC in December 1983, the country became the sixth member of the Bank of Central African States (BEAC)20 in August, and the twenty-third member of the Franc Zone on January 1, 1985. In conjunction with the UDEAC summit, Brazzaville hosted a meeting of the Economic Community of the States of Central Africa (ECSCA),21 founded last year in Libreville, Gabon, as a Central African equivalent of Ecowas. The summit admitted Zaïre as the Community’s tenth member on June 6, decided on the location of the head office of the economic grouping (Libreville), on the initial budget, and on the scale of members’ contributions.

A ministerial meeting of the Gambia River Development Organization (OMVG)22 held in Conakry, Guinea, issued directives with the aim of finalizing plans for developing dam projects in the Gambia Basin. In November, experts from the member countries of the Organization for the Development of the Senegal River (OMVS)23 gathered in Dakar to discuss similar plans.

On February 1, the members of the Preferential Trade Area of Eastern and Southern African States (PTA)24 established a financial clearing house. The facility is to be run by the Reserve Bank of Zimbabwe for an initial period of two years. At a subsequent summit, held in Bujumbura, Burundi, on December 22, the fourteen members agreed to estabish a trade and development bank. The fifth annual summit of the Southern African Development Coordination Conference (SADCC)25 held in Gaborone, Botswana, on July 6 reviewed trade issues and past projects. At a special meeting held in London on July 18–20 the SADCC stressed the need to increase food production and to coordinate transport and energy programs, and discussed plans to set up a Southern African Development Fund. The eleventh ministerial council of the Niger Basin Authority (NBA)26 held in Niamey, Niger, on August 10–11 established an ad hoc commission with the task of evaluating the performance of the executive secretariat. Ministers from the four nations comprising the Lake Chad Basin Commission (CBLT)27 met on July 10–12 in N’Djamena, Chad, to find ways to improve irrigation methods and use of water resources from Lake Chad. The ministers met again in Niamey, Niger, toward the end of November to discuss the 1985 budget allocations. The leaders of Benin, Ghana, Nigeria, and Togo held a summit in Lagos, Nigeria, on December 9–10 and signed an agreement on mutual and administrative assistance in the areas of customs, trade, and immigration. Representatives agreed that payments between two or more of the contracting parties shall be made in currencies acceptable to all parties or through the West African Clearing House, and in conformity with the foreign exchange regulations in force in each member country.

At the annual meeting of the African Development Bank (AfDB) in Tunis, Tunisia, on May 828 delegates were informed that the African Development Fund had been successfully replenished for the years 1985–87. The Foreign Ministers of Madagascar, Mauritius, and Seychelles signed a cooperation agreement in Victoria, Seychelles, on January 11. The agreement was signed within the context of the Indian Ocean Commission formed in December 1982. At the seventh conference of the heads of state of the Great Lakes Economic Community (CEPGL)29 in Bujumbura, Burundi, on June 17, the participants decided to liberalize intra-Community trade for local products.

The economic ministers of the member states of ASEAN30 met on May 7–9 in Jakarta, Indonesia. They agreed that under the Preferential Trading Arrangement the margin of preference on qualifying goods would be gradually deepened to a maximum of 50 percent. Almost 4,000 items have been given margin-of-preference status. In addition, they decided to effect 20–25 percent across-the-board tariff cuts on all items with an import value beyond US$10 million and to approve the first four ASEAN Industrial Joint Venture (AIJV). Also approved were additional trade preferences agreed upon bilaterally. To date bilateral tariff concessions have been granted on some 19,000 items. The meeting endorsed Singapore’s plan to launch its own ASEAN Industrial Project (AIP) in the form of a hepatitis vaccine plant. Finally, the ministers appealed to the industrial countries to adopt liberal and progressive stances on such issues as trade and commodities. In addition, ASEAN representatives met in July and November with EC Ministers, as noted above.

Representatives of the Interim Mekong Committee31 gathered in Bangkok, Thailand, on January 16–21, along with representatives from other nations and regional organizations. The meeting endorsed various hydropower projects and irrigation studies, and considered plans for fish seed production. In May, a water quality monitoring network costing US$1.6 million and covering the entire Mekong River basin was approved.

The fifteenth South Pacific Forum (SPF)32 was held in Tuvalu on August 27–28. The participants reviewed the South Pacific Regional Trade and Economic Cooperation Agreement (Sparteca), under which island countries in the region gain duty-free access for a wide range of products to Australia and New Zealand. They also established a committee of officials33 to study problems related to the declining export shares of small member nations within Sparteca. The Forum received an interim report from the committee of Foreign Ministers established at the fourteenth Forum to examine the implications of setting up a single regional organization but took no decision.

The annual conference of the Pacific Basin Economic Council (PBEC),34 held in Vancouver, Canada, on May 21–24, reaffirmed its commitment to the formation of a Pacific Economic Community (PEC) and decided to continue meetings of government, business, and academic officials to examine the idea of a single Pacific Economic Community within the framework of the Pacific Economic Cooperation Conference (PECC).

The final communiqué of the fifth summit of the Cooperation Council for the Arab States of the Gulf (GCC)35 held in Kuwait on November 27–30 announced that agreement had been reached on the introduction of legislation to allow GCC citizens to own property in each of the six member states. In addition, the summit approved a plan for governments to give priority to products made in other member states. The Arab Fund for Economic and Social Development (AFESD),36 meeting in Abu Dhabi in April, decided to allocate to agriculture the largest share of funds distributed in 1984 (30 percent of overall lending) in an effort to shift the emphasis away from infrastructure projects toward the production sectors, particularly food production.

On July 3–7, the heads of government of the Caribbean Community and Common Market (Caricom)37 held a summit in Nassau, the Bahamas, to discuss intraregional trade, regional security, and community membership. Agreement was reached to revive a multilateral trade clearing facility. The Dominican Republic and Haiti were granted observer status in certain standing committees. The economic affairs ministers of the seven-nation Organization of Eastern Caribbean States (OECS)38 agreed at a June meeting in Montserrat on a common position regarding access to other Caribbean markets, foreign exchange budgeting, and area origin eligibility rules. The governors of the Caribbean Development Bank (CDB),39 meeting in Kingston, Jamaica, on May 16–17, made an urgent appeal to member countries to restructure their economies to increase production and productivity, while changing consumption patterns in order to earn and conserve foreign exchange.

At the tenth council meeting of the Latin American Economic System (SELA),40 held on October 24 in Venezuela, the group considered ways of improving its terms of trade and of countering protectionism. The eleven-member nations of the Latin American Integration Association (LAIA)41 gathered in Montevideo, Uruguay, at the end of April and issued resolutions on implementing a system of preferential tariffs, reducing all nontariff barriers within the region within a three-year period, and agreeing to revive the 1969 Santo Domingo multilateral accord for the promotion of central bank cooperation between the nations in settling trade payments. Foreign and Finance Ministers of eleven major Latin American countries,42 meeting in Cartagena, Colombia, on June 21–22, agreed on a permanent system of consultation on the foreign debt and invited the major industrial countries to join them in negotiations on debt, trade, and development issues.

A ministerial accord was concluded on December 14, 1984 concerning changes in the tariff regime and institutional structure of the Central American Common Market (CACM).43 The regional tariff and customs treaty agreement signed last December abrogates the existing regime and all additional protocols, and provides the legal framework for a new trade regime to be put into place no later than October 1, 1985. In accordance with this regional agreement, the principal elements of the new trade regime comprise: (1) the introduction of the Brussels nomenclature and transformation of the system to an ad valorem basis; (2) the elimination of all tariff exemptions on raw materials, intermediates, and capital goods; (3) the abrogation of existing regional investment incentives; (4) the creation of a Central American Council for Tariffs and Customs, with authority to establish and modify import tariffs without the need for legislative action by individual member countries; and (5) a commitment to expedite the negotiation of (a) new tariffs for intermediates, raw materials, and capital goods, with the objective of having them in place preferably by July 1, 1985 but, in any case, by no later than October 1, 1985; and (b) new tariffs for final consumer goods in order to put them into effect by October 1, 1985. The agreement summarized above was ratified by El Salvador, Guatemala, and Nicaragua in January 1985 and by Costa Rica in April 1985.

1Argentina, Bolivia, the People’s Republic of China, Colombia, Egypt, Ethiopia, the Islamic Republic of Iran, Liberia, Nigeria, Paraguay, the Philippines, Sierra Leone, South Africa, Sri Lanka, Tanzania, Turkey, Trinidad and Tobago, Uganda, and Uruguay. A further nine notifications took place in the first quarter of 1985.
2Excluding the arrangements of Democratic Kampuchea, for which information is not available.
3Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
4Based 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, of competitive relationships with “third countries” in particular markets, and of estimated elasticities affecting trade flows.
See Explanatory Note on Coverage of Part Two, page 54.
5Payments 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, 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 VII and XIV, in the context of the Fund’s policies on the use 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.
6In March 1982 and in January 1983, the Fund reviewed the implementation of its policies with respect to payments arrears. The major conclusions of these reviews were summarized in the Annual Report on Exchange Arrangements and Exchange Restrictions, 1983. The major conclusions of the most recent review in July 1984 of developments in arrears are reported below.
7For a detailed description of Fund policies relating to multiple currency practices, in particular, the criteria applied by the Fund for determining the existence of multiple currency practices and broken cross rates subject to Article VIII of the Fund’s Articles of Agreement, see the Annual Report on Exchange Arrangements and Exchange Restrictions, 1980, page 17, and 1981, pages 22–23.
8Before the Central Bank started issuing gold and U.S. dollar-denominated certificates, the exchange rate regime was modified.
9Before the Central Bank started issuing gold and U.S. dollar-denominated certificates, the exchange rate regime was modified.
10Belgium, Denmark, France, the Federal Republic of Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, and the United Kingdom.
11Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Also referred to as Gulf Cooperation Council (GCC).
12The 65 ACP states associated with the EC are divided into the following categories by Lomé III: (1) the least developed countries—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 Tome’ 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, Bahamas, Barbados, Equatorial Guinea, Fiji, Jamaica, Madagascar, Mauritius, Papua New Guinea, St. Christopher and Nevis, St. Vincent and the Grenadines, Trinidad and Tobago, Vanuatu, Zaïre, Zambia, and Zimbabwe; (3) others—Belize, Cameroon, the Congo, Gabon, Ghana, Guyana, Ivory Coast, Kenya, Liberia, Mozambique, Nigeria, Senegal, and Suriname. St. Christopher and Nevis became a member of the ACP on March 5 and Mozambique was accepted as a member at the December 8 meeting of the ACP Council of Ministers in Lomé. Angola, which took an active part in the negotiation, did not sign the convention.
13The members of the Andean Group are Bolivia, Colombia, Ecuador, Peru, and Venezuela.
14Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
15Members of EFTA are Austria, Iceland, Norway, Portugal, Sweden, and Switzerland; Finland is an associate member.
16The members of Ecowas are Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
17Members are Benin, Burkina Faso, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Togo.
18Burkina Faso, Ivory Coast, Mali, Mauritania, Niger, and Senegal. Benin and Togo have observer status.
19Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon.
20Cameroon, Central African Republic,, Chad, Congo, Equatorial Guinea, and Gabon.
21Burundi, Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, Rwanda, São Tomé and Principe, and Zaïre.
22The Gambia, Guinea, Guinea-Bissau, and Senegal.
23Mali, Mauritania, and Senegal.
24Burundi, Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Rwanda, Somalia, Swaziland, Uganda, Zambia, and Zimbabwe. Angola, Mozambique, and Tanzania had observer status at the conference.
25Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe.
26Benin, Burkina Faso, Cameroon, Chad, Guinea, Ivory Coast, Mali, Niger, and Nigeria.
27Cameroon, Chad, Niger, and Nigeria.
28Regional members are: Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Djibouti, Egypt, Equatorial Guinea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Kenya, Lesotho, Liberia, Libyan Arab Jamahiriya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Niger, Nigeria, Rwanda, São Tomé and Principe, Senegal, Seychelles, Sierra Leone, Somalia, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zaïre, Zambia, and Zimbabwe. Nonregional members are: Austria, Belgium, Canada, Denmark, Federal Republic of Germany, Finland, France, Italy, Japan, Kuwait, Korea, Netherlands, Norway, Sweden, Switzerland, United Kingdom, United States, and Yugoslavia.
29Burundi, Rwanda, and Zaïre.
30Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand.
31Lao People’s Democratic Republic, Thailand, and Viet Nam.
32Australia, Cook Islands, Fiji, Kiribati, Nauru, New Zealand, Niue, Papua New Guinea, Solomon Islands, Tonga, Tuvalu, Vanuatu, and Western Samoa. The Federated States of Micronesia have observer status.
33The committee is formed by representatives from the Cook Islands, Fiji, Kiribati, Nauru, New Zealand, Niue, Tuvalu, and Western Samoa.
34Members are Australia, Canada, Chile, Fiji, Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Singapore, Sri Lanka, Taiwan (see Explanatory Note on Coverage of Part Two, page 54), Thailand, Tonga, and the United States.
35Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates.
36Algeria, Bahrain, Djibouti, Iraq, Jordan, Kuwait, Lebanon, Libyan Arab Jamahiriya, Mauritania, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, Yemen Arab Republic, and People’s Democratic Republic of Yemen.
37Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago.
38Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Christopher and Nevis, St. Lucia, and St. Vincent and the Grenadines.
39Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Jamaica, Mexico, Montserrat, St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, Turks and Caicos Islands, and Venezuela. Canada and the United Kingdom are nonregional members.
40Argentina, Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad and Tobago, Uruguay, and Venezuela.
41Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. In addition, El Salvador, Honduras, Portugal, and Spain have observer status.
42Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Peru, Uruguay, and Venezuela.
43Members of the CACM are Costa Rica, El Salvador, Guatemala, and Nicaragua. Honduras is not formally a member of the CACM, but is associated by means of bilateral protocols with the members of the CACM.

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