IV. Other Developments
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1959
European Economic Community
The six members of the European Economic Community6 on January 1, 1959 began the process of setting up a complete customs union, over a transitional period of from 11 to 14 years. The initial step involved the reduction of tariffs within the Community by 10 per cent. Many customs duties were also reduced on that date on goods coming from other member countries of the OEEC and from countries outside Europe, including those countries acceding to the General Agreement on Tariffs and Trade. The initial expansion of import quotas required under the Treaty of Rome was with certain limitations extended to other members of the OEEC. As this Report is written, consideration is being given to the manner in which the progressive development of the European Economic Community may ensure a continuous expansion of trade between the Community and the rest of the world. It is too early to say what solutions will be found.
Bilateral Payments Arrangements
There has been a general decline in the number of bilateral payments arrangements in operation. A good many of these were terminated before the end of 1958, reflecting the general trend of the past few years toward reducing reliance on bilateralism. Some Fund members entered into new bilateral payments agreements, but the partner countries are, almost without exception, either countries in the Soviet bloc or other nonmembers. Despite the general liberalization of international payments, bilateral payments arrangements remain an important element in international economic and financial relations. There are a number of countries which conduct a substantial portion of their trade on a bilateral basis. It is to be expected that Fund member countries will increasingly appreciate that they no longer have a balance of payments need for bilateral payments arrangements and that their longer run interests are best met by taking full advantage of the existing convertibility facilities to place their payments relations on a normal commercial basis.
The Ninth Annual Report on Exchange Restrictions mentioned that in a number of countries increased use had been made of advance deposits as a prerequisite for obtaining import or exchange licenses. This increase has continued. Since the last Report was prepared the use of advance deposits has been intensified in Greece, Indonesia, Paraguay, the Sudan, Turkey, and the United Arab Republic (Syrian Region). They were introduced in Bolivia, but only for imports of cars. There are now ten countries—Argentina, Chile, Colombia, Ecuador, Greece, Indonesia, Nicaragua, Paraguay, the Philippines, and Turkey—which have some advance deposit requirements of 100 per cent or more. In some countries, the requirements are discriminatory in that they do not apply equally to imports of the same goods from all countries.
Some countries have used advance deposits to restrain excessive import demand. This technique has its disadvantages, however, as a longer run exchange or credit mechanism. During a brief period after their introduction, advance deposit requirements may strain the financial resources of importers. Unless monetary policy is very tight, however, some importers quickly arrange financing, sometimes at the expense of other users of credit, and imports tend to return to their previous level. Moreover, because of the contractive monetary effects when advance deposits are rising, the need for fundamental measures to curb the actual source of inflation may be disguised temporarily. Thus when advance deposits stop rising, the problem of excess credit may emerge again. Fears have been expressed that the elimination of this device would precipitate a flood of imports, but some countries are finding it possible to reduce their advance deposit requirements.
Over the past few years, several countries have liberalized payments of a capital nature. While this process has continued in the past year, the measures taken vary from country to country. In Austria, all balances on blocked accounts as at the end of 1958 have been released for free transfer or the provision of exchange at the official market rate. In Denmark, authorized banks were permitted to transfer abroad amounts representing the contractual repayment of loans, legacies, the surrendered value of life insurance policies, and payments by residents utilizing their rights of subscription to foreign shares. In France, following the introduction of nonresident convertibility, Capital Accounts were abolished and balances could be transferred at official market rates to the account holders, and the whole system of control applicable to investments by nonresidents in the French Franc Area was simplified to permit most investments to be made and withdrawn freely. In the Federal Republic of Germany, the last remaining limitations on the movement of capital by residents and nonresidents were completely removed early in 1959.
In the United Kingdom, increased foreign investment in sterling securities has caused the rate for security sterling to rise to a level at which the discount on the official market exchange rate is nominal. The premium on dollar securities negotiated between residents on the London stock exchange has entirely disappeared.
Certain countries have found it necessary to extend the scope of their exchange surrender requirements, usually as a means of tightening exchange control over capital movements. During the past 12 months Cuba, India, Pakistan, and the Union of South Africa have taken such steps.
Belgium, France, Federal Republic of Germany, Italy, Luxembourg, and Netherlands.