III. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1984
Imports and Import Payments
On the whole, the trend in recent years toward increased restrictiveness as regards trade policies continued in 1983, albeit at a more moderate pace than in 1982. With few exceptions the modest recovery of world production and trade last year was not accompanied by a reversal of the rising tide of protectionist measures to contain the growth of imports. The persistence of high unemployment in industrial countries and of severe external payments difficulties in developing countries were major reasons for further advances of trade protectionism. As in 1982, members carried out these policies primarily by resorting to quantitative restrictions; actions in 1983 represented both the intensification and extension of existing measures and the imposition of new ones, although there were fewer new actions than in 1982. Besides undertaking actions to restrict mutual trade flows, industrial countries raised new barriers against imports from newly industrialized countries; on the other hand, some concessions were granted to imports from countries classified as “least developed.” In a number of cases agreements were reached on a commodity-specific or bilateral basis to avoid the multilateral imposition of controls. The main focus of restrictions continued to be agriculture, textiles, automobiles, and steel, but for the first time in recent years pressures emerged to extend restrictions to high technology products. Protectionist measures had been used mainly to ease the adjustments necessitated by declining industries, but protectionist arguments in the electronics and high technology sectors were based on security and infant industry considerations.
The level of protectionism by industrial countries in the agricultural sector remained high in 1983. Import quotas and tariff restricted imports, while variable import levies and export subsidies were used to enable effective operations of domestic farm support programs. Trade was regulated both under international agreements covering sugar, dairy products, grains, and meat, and through the widespread use of bilateral trade agreements. The EC Council began to reassess more actively the implications of the Common Agricultural Policy (CAP) with a view to bringing excess output under control and, for certain products, narrowing the gap between internal farm prices and world market prices, thus moderating the budgetary costs of the CAP and reducing the risks of trade conflicts with third countries. Increases in guaranteed common agricultural prices approved in May 1983 averaged less than half of those granted in the previous year.
There was some improvement in world prices of primary commodity exports in 1983 which, together with adjustment programs adopted in response to very difficult balance of payments problems, resulted in an improvement in the external position of some countries. Moves toward more flexible and realistic exchange rates became more common, but comprehensive restrictions introduced on an emergency basis, and aimed at preventing payments arrears, remained in some countries. Several developing countries increased import controls with a view to halting the loss of foreign exchange or to generate a needed trade surplus, but a number of them made efforts to improve import licensing procedures, by replacing import quotas with tariffs and reducing reliance on export subsidies. The oil exporting developing countries continued to face a difficult situation with a further weakening of international oil prices, and some of these countries intensified their import restrictions.
The Contracting Parties to the GATT held their thirty-ninth session in November 1983 to review progress on the work program adopted at the 1982 ministerial meeting. Studies are under way on trade in agriculture, tropical products, and textiles and clothing. New procedures were set up to review the international trading system, and particularly implementation of Part IV of the GATT providing for favorable trade treatment for developing countries. Work has begun on the harmonization of tariff coding systems. Little progress was made, however, on the issue of safeguards, despite intensive efforts.
The Generalized System of Preferences (GSP) was extended for another year with minor improvements by most industrial countries, although for some developing countries the scope of the GSP was reduced. The EC proposed an acceleration of the timetable for tariff cuts agreed during the Tokyo Round, provided other OECD countries did likewise, and conditional on satisfactory progress on economic recovery. At the thirty-ninth session of the GATT, Japan and the United States proposed a new round of multilateral trade negotiations, but this was not widely supported, with other members calling for full implementation of existing agreements and completion of the work program formulated at the November 1982 GATT ministerial meeting.
Quantitative Import Controls
Industrial countries continued in 1983 to resort heavily to quantitative import controls and special agreements. Following the extension of the Multifiber Arrangement (MFA) from 1982 to 1986, and the negotiation of many four-year bilateral agreements in 1982, further agreements were concluded in 1983. The EC concluded bilateral agreements with all major textile producers signatory to the agreement to control the growth of imports of wool, cotton, and synthetic textiles and to protect against any sudden surges. During 1983, however, quantitative restrictions were removed by the EC from a number of textile products originating in Japan and Hong Kong. Smaller GSP concessions by the EC were given to products covered by the MFA. Canada negotiated bilateral agreements with 17 developing countries and certain non-MFA signatories under the extended MFA. Consultations were held in 1983 with four major suppliers to lower levels of clothing imports for selected products from which competition was considered to have become particularly serious. A new five-year bilateral agreement was signed with Hong Kong to limit growing imports of textiles from Hong Kong to growth rates of 0.5 percent to 15 percent a year, depending on the item involved. When Canada’s imports of acrylic yarn and blouses and skirts from Malaysia rose above agreed threshold levels they were converted in June into specific restraint levels, also for the period 1983−86. In July, the Government announced its intention to use the orderly marketing provisions in Canada’s bilateral arrangements with the People’s Republic of China, Hong Kong, Korea, and Taiwan† to prevent disruptive concentration of clothing imports during any one calendar quarter of the year and to seek to eliminate the provisions for flexibility in these arrangements. In August, an agreement was reached for 1983 on the level of imports of tailored shirts from Indonesia. Agreement was also reached on the establishment of an export licensing arrangement for all Indonesian clothing exports to Canada. In September, quantitative limits were announced on Canadian imports of hosiery from Singapore for the period 1984−86. The United States renegotiated agreements due to expire with three major suppliers for the six-year period from 1982; under the new agreements exports would be held close to 1982 levels. Agreements due to expire with another seven countries were renegotiated on terms similar to the existing agreements. In January 1983, the United States announced countervailing duties on textiles imported from Peru and unilaterally imposed quotas at the 1982 level on textiles and clothing from the People’s Republic of China. This followed failure to reach bilateral agreement on regulating such imports to replace the agreement that expired on December 31, 1982. However, in August, a bilateral agreement was signed regarding imports from the People’s Republic of China, covering imports of 33 categories (up from 14 in the previous agreement) and providing for increases of 2 to 3 percent a year through 1987. The United States also renewed an agreement with Maldives in September 1983, raising quotas on imports of wool sweaters over a three-year period. In December, the U.S. administration announced a new textile policy which increased substantially the scope for surveillance of, and restrictions on, imports of textiles and apparel; whenever imports of a product grew by more than 30 percent in a year, grew to the equivalent of 20 percent of U.S. production of that product, or, in the case of the major foreign suppliers, reached 65 percent of an agreed quota, the United States would automatically begin negotiations with the exporting country.
Protectionist pressures intensified in 1983 with respect to international trade in steel and steel products, particularly with respect to exports from newly industrialized countries such as Mexico, Brazil, Argentina, and the Republic of Korea. Controls on EC steel production and prices, due to expire on June 30, were extended to December 31, 1983, and later to December 1985. The EC again extended its import quota system. The bilateral agreements limiting exports of steel products to the EC were renewed by 14 countries for 1983 for smaller quantities than in 1982. Commencing in February, major steel companies in the United States sought quotas on specialty steels, and the U.S. International Trade Commission made a determination of serious injury to domestic industries by imports. In July, duty increases and global quotas were imposed on imports of stainless steel sheet, strip, plate, rod, and bars and alloy tool steel, under the provisions of Article XIX of the GATT. Import quotas on these items were to reduce imports below 1982 levels and then to increase them by 3 percent a year for four years. At the same time tariffs on these items were doubled, with provisions for gradual reductions over the same period. The EC sought formal compensation with respect to the U.S. restrictions. In September, the United States reached understandings, under GATT Article XIII in some instances, with Argentina, Austria, Canada, Japan, Poland, Spain, and Sweden regarding restraints applicable to imports of specialty steel from those countries. Unfair trade practice suits were filed in the United States against Argentina, Brazil, and Mexico with respect to carbon steel imports, and plans for filing against Romania, Spain, and South Africa were announced. In one instance, a ceiling reducing imports of basic carbon steel below the current level was sought. In October 1983, the EC indicated dissatisfaction with the U.S. offer of compensation with respect to specialty steels. After failing to reach a satisfactory compensation agreement with the United States, the EC imposed retaliatory restrictions on U.S. sales of chemical and sporting goods in Europe, effective March 1, 1984. These restrictions will last for the duration of the specialty steel restriction by the United States (about four years).
Restrictions on international trade in automobiles continued to be applied in 1983. In 1983, the final year of a three-year voluntary export restraint period, Japan undertook in February to continue to restrain shipments of passenger cars to the United States to the same level as in the two previous years, that is, 1.68 million units. Later in the year, the Japanese authorities decided to continue to restrain exports of passenger cars to the United States for a fourth year; these exports in the year beginning April 1, 1984 are not to exceed 1.85 million units. Following an agreement in August 1982 that limited passenger car exports to Canada to about 120,00 units during the period April 1 to December 31, 1982, the Japanese Government stated that such exports to Canada during the period January 1, 1983 to March 31, 1984 would amount to 202,000 units compared with 200,000 units during the previous 15 months. Japan also agreed to take measures to moderate exports of vans, fork-lift trucks, and motorcycles to the EC.
Restrictions on imports of high-technology and electronic products were among those that were intensified in 1983 by voluntary export restraints, although in March the United States reached an agreement with Japan aimed at ensuring mutual access to trade and investment opportunities in high-technology industries. In February 1983, Japan agreed to limit videotape recorder exports to the EC to 4.55 million units during 1983. This ceiling represented a modest rise for Japanese sales in the EC over 1982, when they accounted for 80 percent of a total market estimated at about 4.7 million units. For 1984, the ceiling was fixed at 5.05 million units. In addition, a floor price system was introduced to align prices of Japanese imports of these goods into the EC with domestic ex-factory prices in the EC. Furthermore, a ceiling of 900,000 units was set for exports of color television tubes along with a moderation in the pace of shipment of eight other goods (color television sets, audio equipment, machine tools, automobiles, light commercial vehicles, forklifts, motorcycles, and quartz watches). Apart from steel (restricted since 1976) this was the first occasion on which Japan had given the EC a precise undertaking to hold down exports. Subsequently, the regulation by France, introduced in October 1982, requiring that all imported video units be sent to Poitiers, in central France, for customs clearance was lifted in April 1983. France also withdrew its dumping complaint against imports of videotape recorders from Japan. Japan agreed to continue to restrain exports of ten sensitive manufactured consumer products in 1984. Also in 1983, the EC notified Japan of its intention to raise tariffs on digital audio disc players in February 1983 before the product was imported into Europe. In July, Japan proposed to the GATT that the Contracting Parties discuss and reach a consensus on how to deal with possible preventive tariffs in the future. In October, the EC doubled the Community’s tariff on compact disc players, of which Japan is the main producer.
A range of other measures to restrict imports was introduced by industrial countries. The EC announced quotas for imports of footwear from Taiwan† in February. The EC authorized France and the United Kingdom to restrict for the period January 1983 to December 1985 imports of tableware and stoneware from third countries. The EC also introduced emergency measures providing for quotas until December 31, 1983 on imports of timber into France. Certain member states of the EC were also authorized not to give Community treatment to products from outside the EC circulating in other EC member states. These regulations applied to motorcycles, television sets, tuners, and outboard motors from Japan circulating in Italy, window glass from Hungary in the Benelux countries, quartz watches from Hong Kong in France, and certain imports of bananas into Italy. The EC notified the GATT in July 1983 of its intention to establish temporary measures against imports of hybrid maize. A voluntary export restraint agreement will regulate exports of cassava by Thailand, Brazil, and Indonesia to the EC through 1985/86. From 1982 to 1984 a temporary joint discipline agreement will regulate two-way cheese trade between the EC, on the one hand, and Finland and Austria, on the other; a similar arrangement was concluded between the EC and Norway for the period 1983−85. The EC imposed in December 1982 import quotas for 1983 on mushrooms, while exports of sheep meat and goat meat from most suppliers to the EC were restricted by voluntary export restraint from 1980, through March 31, 1984. France imposed an import quota for 1983 on quartz watches from Hong Kong. In April, the United States imposed duty increases and tariff rate quotas for five years on imports of certain heavyweight motorcycles as a safeguard action under Article XIX of GATT. The additional duties were to be reduced gradually and the quotas increased over the five-year period. Separate quotas were established for imports of these goods from the Federal Republic of Germany, Japan, and all other countries. In June, quotas were established to ban imports of certain sugars and syrups into the United States. In August and September, the United States concluded arrangements with Australia, Canada, and New Zealand under which the countries agreed to limit their exports of meat to the United States effective through the end of 1983. In December, the United States revoked specified licensing requirements for imports of petroleum and petroleum products.
The exception to the protectionist thrust of trade policy among the industrial countries in 1983 was again Japan, which took further steps to open its market and to promote imports. Following the measures already taken in January and May 1982, a third package of measures was announced in January 1983. This package included some relaxation of import quotas on a wide range of agricultural goods, the expansion of the number of outlets handling tobacco products, and modifications of non-tariff barriers in the form of certain import inspection procedures and standards. For example, the sale of foreign goods could be registered directly, rather than through importing agents, and official approval of an import sample could be extended to all goods of the same type. Other measures included the promotion of procurements of foreign products by the Nippon Telegraph and Telephone Public Corporation and the establishment of an advisory council to strengthen the functions of the office of Trade Ombudsman. In April 1983, the EC requested the establishment of a working party under the provisions of GATT Article XXIII:2 to examine the concern of the EC that the benefits of successive GATT negotiations with Japan had not been realized. On October 21, 1983 Japan announced further measures aimed at easing import controls. These included an increase in the overall quotas for industrial products imported under the GSP by around 50 percent in fiscal year 1984, modification of lending facilities of the Export-Import Bank of Japan to enable it to finance imports of manufactured goods with low interest loans, enhancement of the import promotion function of the Japan External Trade Organization, promotion of the procurement of imported goods by the government and other public sector entities, improvement of the distribution system for imported goods, and measures to improve standards and certification systems.
With the continued weakness of international oil prices, a number of oil exporting countries introduced or intensified import restrictions. Algeria published in September a list of goods produced locally whose importation was banned or restricted. Indonesia limited imports of several products to specified agencies. In June, the Libyan Arab Jamahiriya added a number of items to the list of prohibited consumer goods, including automobiles, televisions, air conditioners, bicycles, videocassettes, and automobile radios. In the course of the year Nigeria expanded the list of products subject to import licensing to include a wide range of food products, consumer goods, and building materials; the list of prohibited imports was also increased by the inclusion of passenger cars in excess of a specified size or value. In early 1984 all imports to Nigeria became subject to specific import licensing. In March and April, in conjunction with the establishment of a three-tier exchange system, Venezuela established three customs lists: a list of “essential goods” which could be imported at the preferential rate, a list of items that could be imported only by the government, and a smaller list of items subject to import quotas and financeable only at the most depreciated exchange rate.
Among the non-oil developing countries, some made further progress during 1983 in reducing import restrictions and simplifying import regimes. On balance these actions appear to have compensated the negative effect of new restrictive measures in the other countries of this group. Barbados eliminated import quotas on passenger cars and small commercial vehicles in January. At the same time importers in Bolivia were permitted to import unprohibited items with their own foreign exchange. Ecuador and El Salvador exempted a number of items from import bans. In November Grenada reduced the list of commodities subject to individual licensing by about one third. Hungary granted large and frequent importers an exemption from the requirement for approval of licenses, except for capital goods imports. India adopted wide-ranging measures that on balance increased access to imports and reduced the level of protection afforded to domestic industry. In April 1983, a large number of capital goods items, raw materials, and components were shifted to more liberal licensing arrangements and the value limit below which automatic licenses issued during the previous year could be used on a repeat basis was raised. In May 1983, changes were made in India’s system of special licenses issued against exports of manufactured goods whereby value limits applicable to imports of capital goods and technology against Import Replenishment Scheme (REP) licenses were increased; in addition, the effective value of automatic and REP licenses for the import of goods carried by Indian vessels was increased, as freight and insurance costs for these imports were excluded from the costs charged against the value of the license. Also in May, manufacturers exporting at least 50 percent of their production were permitted to use freely their automatically available supplementary licenses to import restricted raw materials and components, and a simplified clearance procedure was introduced for automatic authorization of imports of capital goods and technology that would reduce production costs by at least 10 percent. The April and May measures were estimated to increase access to imports (excluding petroleum, fertilizers, edible oils, and foodgrains) by 12.5 percent with respect to 1982/83 import values. Also in 1983 a number of items were moved from more restricted to less restricted categories of import licenses. Import duties for certain items of textile machinery were sharply reduced. Some measures introduced by India during the year reduced access to imports, and basic and auxiliary customs duties were raised for a number of products. In June, Kenya revised its import licensing system to restore a subschedule of freely importable items, and a timetable was established for further import liberalization by widening the coverage of this subschedule. In July, the Republic of Korea removed import restrictions on a number of items but raised tariffs on a smaller group of import items; from January 1, 1984, further items would be exempted from import restrictions and import duties. Mauritius lifted import restrictions on some goods in December. Morocco’s import program for 1983 involved shifts of a number of imports from a licensing requirement to freely importable status. In March, all imports were made temporarily subject to licensing, but groups of items were subsequently transferred back to a free list equivalent to about one third of the total c.i.f. value of annual imports. In July, Pakistan made a basic change in its import system when a “negative” list of restricted imports replaced the previous “positive” list of permitted imports; a number of products were added to the importable list, and licensing restrictions were lifted on several items previously subject to quantitative restrictions. The ceiling for imports of capital goods outside the restricted list of industries was doubled. In September, further items were removed from the negative import list, and an exemption from minimum margin requirements for the opening of letters of credit for imports of industrial raw materials was extended to all importers. In the course of 1983, Panama replaced quotas by import tariffs for a number of imports, including shoes and certain textile products. Turkey early in the year eliminated special licensing requirements for a number of commodities. In September, Zaïre allowed commercial banks to allocate freely 75 percent of their earnings from exports and invisibles for payments for imports of goods and associated expenses. Approval of the Bank of Zaïre was required, however, for imports transported by an air carrier other than Air Zaïre, for imports in the form of foreign grants to private residents, for imports in the form of foreign contributions to capital, except those under the Investment Code, and for imports financed abroad for more than one year other than those contracted or guaranteed by the Government.
Quantitative import restrictions were introduced or intensified, and import regimes were tightened, in a number of non-oil developing countries during 1983, but there were fewer such actions than in the previous year. In October, Argentina temporarily suspended acceptance of applications for import licenses, except for goods not produced in Argentina or for which payment in foreign exchange was not required; after a short time a system of foreign exchange allocations was introduced by which the importer could receive an allocation for a certain percentage of the value of imports made in the previous year. Certain imports, however, were licensed automatically, including fuel, replacement parts of capital equipment, and goods for which foreign exchange was not required. In May, Brazil made imports of specified minerals, including iron and steel alloys, copper, nickel, aluminum, lead, and zinc subject to prior import control. Chad suspended licenses for the importation of sugar and selected brands of cigarettes in April and tightened controls on the importation of textiles in September. During the year, Colombia shifted a large number of items from being freely importable to requiring a license. Greece in February introduced quantitative restrictions on imports of a number of industrial products. Guinea-Bissau introduced in December a system for allocating imports to traders on the basis of their exports. Israel in March added certain fruits and vegetables and in May nonalcoholic beverages to the list of imports subject to licensing. Democratic Kampuchea promulgated in January a law specifying authorized imports and conditions for obtaining import licenses. The Netherlands Antilles imposed import quotas in August on certain items for which locally produced substitutes were available. The Philippines introduced in August and September a requirement of prior authorization for imports of a number of consumer and intermediate items amounting to about 4 percent of total imports in 1983, suspended indefinitely in November application for importation of fresh fruit, electronic components, and alcoholic liquors and wines, and introduced in November a priority system for import payments that would provide for the allocation of foreign exchange for oil imports, inputs to export products, raw materials for vital domestic industries, and food grains. In addition, access to imports was affected by regulations issued in March and September limiting the net foreign exchange holdings of commercial banks; amounts in excess of the established limits had to be sold to the Central Bank. Furthermore, in June and October quotas on the amount of foreign exchange that nonbank authorized foreign exchange dealers should sell to the Central Bank were established. Senegal introduced new regulations for the importation of videocassettes and equipment. Sudan banned in January the importation of a number of consumer goods, including passenger cars, household electrical appliances, textiles, and certain foods and beverages. Seychelles introduced import licensing requirements in March for motor vehicles, and increased customs duties on consumer goods in May. Thailand limited imports of palm oil, diesel engines, skimmed milk, onions, and fork-lift trucks in the course of the year, and in September applied licensing requirements to certain chemical products and television cabinets. Trinidad and Tobago in March made most imports from Caricom countries subject to specific licenses, and in October introduced a foreign exchange budget for total imports that gave priority to capital goods, raw materials, other industrial inputs and essential food and drugs. Importers were required to obtain exchange approval from the Central Bank before an import license could be activated. In July, Uganda reduced the maximum period for importation of goods from six months to four months, or two months for goods transported by air.
Among major measures introduced in the first quarter of 1984, the People’s Republic of China became a signatory to the MFA in January. In February Portugal announced that temporary import controls ranging from restrictions to prohibitions could be imposed for a six-month period in sectors where Portuguese industries could be seriously damaged by imports. The regulation was expected to affect especially consumer durables and automobile parts, but it could also be used to protect special geographic regions such as areas of industrial growth. On the other hand, quantitative import restrictions were considerably reduced in Turkey. From the beginning of 1984, all goods could be imported freely into Turkey, except for those explicitly prohibited or subject to specific licensing. In contrast with the previous regime under which the importation of all but a limited number of goods was either prohibited or subject to specific license, the 1984 import regime contains a list of prohibited imports and a list of restricted imports; all other goods are freely importable. Also, administrative procedures to obtain an import license for restricted imports have been simplified. Venezuela announced that quantitative import quotas would be established for 1984, with such quotas not exceeding 1982 import levels in real terms.
Import Surcharges and Import Taxation
In 1983 there were two instances of new across-the-board import surcharges. The Philippines introduced a 3 percent levy in January, which was subsequently raised to 5 percent in November. In June the Yemen Arab Republic imposed a 1 percent tax for reconstruction relating to earthquakes. Other intensifications involved specific products or increases in general taxes. Senegal raised the general import tax on nonexempt items from 15 percent to 20 percent in May. Sudan increased the surcharge applicable to most imports from 10 percent to 13 percent in August. Zimbabwe increased its customs surtax on imports in August from 15 percent to 20 percent on most imports. Liberalizing measures were taken in a similar number of instances. Iceland in February reduced special excise taxes on domestic and imported goods from 32 percent to 24 percent and from 40 percent to 30 percent, and removed the special temporary levy on biscuits, confectionery, and chocolates. In March, Peru changed its temporary import surcharge from 15 percent of the duty payable to 10 percent of the c.i.f. value of the import, and extended the arrangement to December 31, 1983. South Africa reduced and then abolished its import surcharge. Thailand lifted the 0.5 percent surcharge on all imports from January.
With respect to import taxation, a wide range of measures were introduced. In January, the EC and EFTA removed the last remaining barriers to mutual trade in industrial products. Also in January, Australia and New Zealand entered into an agreement providing for elimination of tariffs of 5 percent or less, and a phased reduction of virtually all other tariffs. In November the United States designated 11 Caribbean Basin countries as beneficiaries of trade-liberalizing measures, including duty-free treatment for a period of almost 12 years; a further 9 countries were added to that list in early 1984.
Most other measures in the area of import taxation concerned further concessions under the GSP in tariffs applied to imports from developing countries. These extensions included deeper tariff cuts, expansion of product coverage and additions to the beneficiary lists of least developed countries. In January, Canada reduced tariff rates in line with the schedule agreed to in the context of the Tokyo Round of Multilateral Trade Negotiations (MTN) and made proportionate reductions in many tariff rates under the GSP. Thirty-one countries were designated as “least developed” and thereby were eligible to receive duty-free treatment. Tariff reductions on a number of products were implemented in February as compensation to the EC for the imposition of quotas on leather footwear. Also in February, further tariff concessions on linerboard and solid bleached boxboard were implemented at the conclusion of MTN arrangements between Canada and the United States. In April, reductions were made in GSP tariff rates for developing countries. Tariffs were reduced on a number of goods, including firebrick, electronic carillons, crawler machines and engines, and mixing consoles and tape recorders for sound recording studios, but increased on certain machinery parts. In June, however, Canada implemented, on a provisional basis, the customs and tariff aspects of the new offshore policies announced by the Government in January, which consisted of extending the customs and excise regime beyond the 12-mile territorial limit to all goods used in connection with resource-related activities on the Canadian continental shelf. In December, Canada introduced new legislation to enable the Cabinet to cancel privileges and to impose quantitative restrictions or extra tariffs on goods from countries not adhering to trade agreements with Canada. A new agency was established to investigate antidumping and countervailing duty complaints on the basis of retardation of, rather than injury to, Canadian industry. The EC continued its GSP scheme in 1983. There were no changes in arrangements for steel products or industrial products. Some countries received additional tariff quotas or higher ceilings, and in some cases ceilings were made more flexible. For a number of products tariff quotas were increased by 5 percent to 10 percent, but for more sensitive sectors such as steel, footwear, leather, and chemical products there were no increases in quotas. Ceilings were raised from 5 percent to 15 percent, the latter figure applying to all nonsensitive products. Under the MFA there was no increase in the GSP for most sensitive products; others were eligible for increases of 2.5 percent to 5.0 percent. All bilateral trading partners were assigned specific ceilings. In five instances (the People’s Republic of China, Macao, Romania, Hong Kong, and the Republic of Korea) there were virtually no increases made in offers for MFA products. For trading partners with no specific ceilings, there were volume increases of 5 percent or more. GSP preferences relating to textiles were to be available only to countries with bilateral agreements with the EC. For non-MFA products a new system of individual ceilings replaced the former global ceilings, with increases in most cases of 5 percent. For agricultural imports from least developed countries, the GSP was extended to a number of additional tariff categories. For all beneficiaries of the GSP, preferential margins on some products were improved, some new products were added, and the distribution of quotas for products subject to quota was revised. The beneficiaries of the GSP comprised the same group of 125 countries as in 1982. Sierra Leone and Togo were added to the list of least developed countries. Special arrangements were entered into with the People’s Republic of China and with Romania, dealing with a broader range of products than in 1982. During the year the EC imposed antidumping duties on certain chemical products from various countries and on imports of specified sheet iron or sheet steel originating in Brazil. Japan introduced some tariff reductions under the GSP and increased the number of countries designated as least developed from 30 to 34. In January, Spain reduced import duties on a number of chemical products from a range of 13 percent to 35 percent to a range of 0 percent to 1 percent, and tariff quotas at reduced rates were introduced for imports of automobiles from EC countries. Switzerland in January amended its regulation establishing preferential customs duties in favor of developing countries in order to give effect to the fourth annual reduction of MFN rates under the Tokyo Round. Five countries (Djibouti, Equatorial Guinea, São Tomé and Principe, Sierra Leone, and Togo) were added to the list of least developed countries eligible for special treatment in the context of the Swiss scheme of tariff preferences. The United States introduced new proposals regarding the extension of its GSP for a ten-year period from 1985. Whereas the existing system automatically excludes a beneficiary country from GSP eligibility for a product when imports of that product under the GSP exceed either 50 percent of total U.S. imports of that product or a specified absolute value (adjusted annually), the revised GSP would lower the limit to 25 percent of the value of U.S. imports or to US$25 million, for products from countries found to be highly competitive. A key factor in determining such limits would be the extent to which the beneficiary country had assured the United States of reasonable and equitable access to its own markets. The limits could be waived for products from least developed countries. It was estimated that about 30 of the poorest countries would gain from the new proposals, but that six newly industrialized countries could forfeit much of their market share unless they lowered barriers to U.S. goods. The GSP program gives about 140 countries and territories duty-free access to the U.S. market; in 1982 imports under the GSP totaled $8.4 billion or about 3 percent of total U.S. imports. In June, the administration requested Congress to extend for a further 12 months a waiver of the provision in the Trade Act specifying that most-favored-nation status not be given to countries with nonmarket economies that denied the right to free emigration.
Japan took further measures in the tariff field during 1983 in its effort to further open its market to foreign imports. Measures announced included the reduction or elimination of tariffs on items of concern to trading partners, such as tobacco products, chocolates, and biscuits, as well as additional agricultural products and manufactured goods. Reductions or abolitions of tariffs that were part of the May 1982 and January 1983 liberalization packages were implemented on April 1, 1983. The products covered by the tariff cuts accounted for 11 percent of Japan’s imports of dutiable goods (excluding oil) in fiscal year 1981. As a result, the average tariff rate for these items was reduced from 7.7 percent in 1982 to 4.5 percent in 1983. The tariff reduction on tobacco was from 35 percent to about 20 percent and duties on chocolates and biscuits were also lowered to 20 or 24 percent. In October, 1983 Japan announced further measures aimed at promoting imports. These included a reduction of tariffs on certain items, from fiscal year 1984, and further advancement, starting from fiscal 1984, of the scheduled reduction of tariffs on industrial products agreed on at the Tokyo Round of Multilateral Trade Negotiations.
A few non-oil developing countries lowered import tariffs on a selective basis in 1983, but, on balance, tariff protection was increased. Reductions in tariff barriers were reported for three countries only, although in several others some easing partially offset the more general upward trend in protectionism. Brazil made changes in the applicability of its financial transactions tax. Imports of un-worked coal and sodium carbonate were exempted from this tax in March, and the tax rate was lowered from 25 percent to 15 percent for a list of specified imports. In April lists of items subject to reduced rates of 15 percent, 12 percent, and 0 percent were published. In May the tax on imports of lead was reduced from 25 percent to 15 percent, and in December new rates of tax on crude oil imports were announced for 1984. In March Brazil introduced a scheme permitting trading companies to procure and sell raw materials and intermediate goods free of domestic taxes for transformation into exports within a specified period. In April and May temporary tariff suspensions were announced for imports of wheat, beef, leather and hides imported by processing industries for their own use, and for imports of alumina by aluminum producers. In May, however, Brazil ceased to grant multilateral tariff concessions to Argentina, Chile, Mexico, Paraguay, and Uruguay. In January, Israel reduced customs duties on imports from the EC by 10 percent. Mexico eliminated duties on a number of import items in March. In March also, Western Samoa reduced import duty rates on a number of food products by amounts ranging from 1 percent to 8 percent.
Tariff protection was increased in a number of non-oil developing countries in 1983. In March Chile increased the uniform tariff rate applicable to most imports from 10 to 20 percent. Colombia increased duties on most tariff items by 10 percent in June, but in July tariffs on a number of textile products and other items, used as inputs by specified domestic producers, were reduced. In March, Ecuador imposed a monetary stabilization surcharge on the c.i.f. value of certain imports. In November, Fiji raised import duties on a wide range of products; however, a few items, mainly luxury goods such as electronic equipment, were added to the duty-free list. Grenada raised the stamp duty on imports from 17.5 percent to 20 percent in January, and the international airport duty on dutiable imports from 2 percent to 5 percent of the c.i.f. value in June. During the year, the Republic of Korea increased the number of commodities subject to emergency tariffs and reduced tariff rates on a larger group of items, although customs duties were raised on some products in December. The Netherlands Antilles increased import duties in November from 22 percent to 40 percent on imports of luxury consumer durables. Seychelles increased duties on a number of consumer goods in June. Singapore raised duties on wines and spirits in May from a range of 19 percent to 240 percent to a range of 22 percent to 280 percent. Thailand increased tariffs on telephone equipment from 5 percent to 30 percent in August. The Yemen Arab Republic announced in March large increases in import duties for a wide range of goods, including luxury products, meat, and vegetables. Zimbabwe increased customs duties on gasoline and diesel fuel in February and in August, raised import taxes, and imposed an ad valorem duty of 15 percent on imported trucks.
Among oil exporting countries, the trend of import taxes was also generally upward in 1983. Members of the Gulf Cooperation Council (GCC) (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) formally established in September uniform minimum and maximum import tariffs of 4 percent and 20 percent, respectively, on imports from third markets (with certain exceptions) as a first step toward a common market arrangement. Bahrain raised import duties on alcoholic beverages in February from 70 percent to 100 percent, on tobacco products from 30 percent to 35 percent, and on automobiles from 10 percent to 20 percent. Commencing in January Nigeria levied new, or increased (existing), import duties on a wide range of products. Oman increased import duties on alcoholic beverages and spirits from 75 percent to 100 percent, and on tobacco products from 30 percent to 50 percent in June, although duties on paints and on ice cream were lowered from 20 percent to 4 percent and from 10 percent to 4 percent, respectively. Saudi Arabia raised customs duties on imports of dry batteries from 3 percent to 20 percent in February, and later in the year a duty of 20 percent was levied on imports of sulphuric acid and on imports of eggs, for one year.
Advance Import Deposits
During 1983 five countries eliminated or reduced the scope of their deposit requirements, and four introduced new schemes. In addition, one country abolished such requirements at the beginning of 1984. In September Colombia reduced its advance exchange license deposit requirement to 35 percent. Greece reduced the advance deposit requirement applicable to specified imports in January by one third of the level prevailing during 1982. In January also, Nigeria reduced import deposit rates for raw materials and spare parts from 25 percent to 10 percent and 15 percent, respectively. Turkey reduced the guarantee deposit requirement applicable to commercial importers in January, from 20 percent to 15 percent, and the rate applicable to industrialists for their own imports and to public sector imports, from 10 percent to 7.5 percent. In addition, coal imports were added to the list of goods subject to a guarantee deposit requirement of only 1 percent. In July Uganda eliminated the 5 percent bond payable to the Bank of Uganda for imports.
In June, Israel introduced a one-year noninterest-bearing deposit requirement of 15 percent for specified imports equivalent to about 12 percent of total annual imports; the requirement was to be effective for six months and was renewed for a further six months in December. In May Morocco established an advance import deposit requirement of 25 percent for most imports, but this was reduced to 15 percent in September. Rwanda introduced a prior import deposit scheme in March for most imports, equivalent to 100 percent or 50 percent of the c.i.f. value, depending on the product. The deposit would be held by the National Bank for the period between validation of the import license and customs clearance of the import. In March Sudan required all private sector imports to be financed in the free foreign exchange market, or from the importer’s own foreign exchange resources. In August margin requirements for the opening of letters of credit were raised to a range of 40 percent to 100 percent, depending on the products involved. Suriname also introduced an advance import deposit requirement, in January.
Other Measures Affecting Import Payments
A number of modifications were made in regulations regarding the terms of import payments or the procedures for such payments. In contrast to the experience of the previous year, most of these changes involved easing of the terms of, or the procedures for, import payments.
Among industrial countries, Australia abolished in December all restrictions on the timing of import payments. In connection with the removal of remaining restrictions of capital imports, the Netherlands announced in July that residents would no longer require prior approval from the Netherlands Bank to delay import payments. As regards developing countries, Algeria in January exempted certain import transactions for which no foreign exchange or local currency was involved from all exchange and trade control formalities and simplified formalities for imported goods used in public works. Argentina liberalized minimum foreign financing terms for imports in March and April, but made them more restrictive in October. Bangladesh in February reduced the minimum margin requirement for the opening of letters of credit to 10 percent of the value of the import in respect of imports of machinery and industrial raw materials under the Wage Earners’ Scheme. Bolivia announced in January that approved exchange requests for imports would be valid for a period not exceeding six months and that imports must be shipped within three months from the date of exchange approval. In March, Burma suspended forward sales of foreign exchange for imports. Also in March, Chile introduced a minimum import financing requirement of 120 days. El Salvador announced in February that payments for imports of certain items must be settled through the parallel foreign exchange market. Malaysia announced in October that all private sector imports must be financed by letters of credit for a six-month period. Pakistan in June permitted authorized dealers to perform certain functions without the prior approval of the State Bank of Pakistan, including the opening of usance letters of credit without any time limit. In November authorized dealers were permitted to make repayments of principal and interest in respect of suppliers’ credits without State Bank approval for each individual remittance. Authorized dealers were also permitted to allow advance remittances against import licenses, without prior State Bank approval, for imports of books, magazines, and journals. In March, Paraguay subjected all imports covered by letters of credit to prior central bank approval. In January, the Philippines restricted authorization to import under arrangements in the form either of documents against acceptance or of open accounts to oil firms and certain exporters. In March, however, authorized agent banks were permitted to sell foreign exchange to cover the importation of a small group of nonessential consumer items without the specific prior approval of the Central Bank. In June required reserves against margin deposits on importers’ letters of credit against liberalized imports were increased to 100 percent. In July it was announced that importation up to a certain monthly value by any single importer of certain categories of capital equipment would be allowed only if such imports were covered by supplier’s credits, or were financed by Asian Development Bank or World Bank credit lines. In September, Thailand doubled the limit up to which authorized agents could approve the purchase of foreign currencies for payment of imports, including advance payments, but in December commercial banks were required to limit for one year the opening of letters of credit for non-oil imports to amounts not exceeding the previous year’s level. In October, Trinidad and Tobago required importers to obtain exchange approval from the Central Bank before an import license could be activated. Uganda abolished in June the regime of import licenses not involving use of official foreign exchange, with certain exceptions. In July, authorization was granted for the private sector to import capital goods on a consignment basis by overseas borrowing subject to approval by the Bank of Uganda. As part of a rationalization of import licensing, Zaïre announced in September that payments for imports could be made either upon shipment or upon arrival. The previously applicable time limits for such payments were eliminated. Interest payments on foreign financing for imports were authorized only if financing had been obtained in the form of a supplier’s credit or other foreign financing with a maturity of at least 90 days. Financing charges were treated as import expenses rather than invisible payments. Authorized banks were permitted to pay transportation and insurance costs in foreign currency only for imports whose payments were made on an f.o.b. basis.
There were few changes in the state-trading practices of Fund members in 1983. In December, Guinea-Bissau authorized private traders to export nontraditional products; they would be allotted a portion of the related foreign exchange earnings to finance their import payments. India in September required exporters to obtain their supplies of mutton tallow from the State Trading Corporation. In March, Jamaica announced that all motor vehicles were required to be imported through the Jamaica Commodity Trading Company. The Lao People’s Democratic Republic introduced in July a requirement that settlements for imports be channeled through the Lao Bank for Foreign Trade. Peru eliminated in April the state import monopoly for wheat. Yugoslavia amended on December 31, 1982 the Law on Foreign Exchange Operations and Credit Relations with Foreign Countries, laying down rules on the basis of which organizations of associated labor were to allocate earned foreign exchange for various purposes according to self-management agreements. A new element in the law is a strengthening of the role of federal entities at the expense of the regional communities.
Exports and Export Proceeds
Changes in regulations affecting exports and export proceeds during 1983 reflected both rising difficulties in trade flows among industrial countries and attempts by developing countries to improve export performance and exert more effective control on receipts in the face of payments difficulties.
Quantitative export restrictions were eliminated or reduced in a number of countries. Among the industrial countries, the United States lifted in December the prohibition on exports of military equipment to Argentina. Among the other countries, Colombia raised the export quota for rice in September. Pakistan eliminated restrictions on exports of several products; including restrictions on firearms and ammunition, special foods, camels, and certain varieties of vegetables. India removed the ban on the export of several commodities; including writing and printing paper, sugarcane, and chemicals. Panama eliminated restrictions and quotas on the export of coffee, beef cattle, and manufactures in January; and Peru removed restrictions on the export of certain types of native wool products in May. Thailand permitted exports of religious statues and canned pineapple with prior approval from January, abolished the ban on the exports of cattle and turkey in April and September, respectively, and eliminated controls on the export of a variety of other materials during the year. Zaïre freed exports of artisanal gold and diamonds in January.
A number of countries increased restrictions or imposed quotas on exports. Brazil in May suspended corn exports on a temporary basis. India in February banned or imposed ceilings on the export of cotton yarn; later in the year, bans were imposed on exports of basmati rice, tea, certain artistic goods, and corn oil. India also introduced in 1983 restrictions on the export of peanut butter, jaggery, barley, animal feeds, snake venom, foodgrains, wool tops, black pepper, and raw magnesite. Indonesia imposed in March a ban on the export of textiles and textile products by individuals or firms other than those registered as exporters of textiles and textile products with the Ministry of Trade, and in May a similar measure was announced for exports of processed wood. Also in May, Peru introduced a prohibition on exports of cotton. Sudan, which in July had lifted the prohibition on exports of cottonseed cake, imposed later in the year bans on exports of ivory and sorghum. In February, Thailand introduced mandatory minimum quotas on exports of coffee to member countries of the International Coffee Organization (ICO) within total exports and subjected coffee exports to licensing; soon after midyear the mandatory quota on coffee exports to member countries of the ICO was increased, the export of wild animals was regulated, and restrictions were imposed on textile exports to the United States; in December, exports of coats and jackets to Canada were subjected to a quota. In Uruguay veterinary inspection standards were introduced in October for meat exports.
With effect from January 1, 1984, Iceland removed the licensing requirement for most industrial exports. Export licensing requirements were modified in a few countries. Italy eliminated in December authorization requirements for certain exports. The United States announced in August the termination of export licensing requirements for the sale of pipe-laying tractors to the U.S.S.R., and liberalized in November the licensing requirements for exports of a number of high technology products to the People’s Republic of China. In November, Sweden introduced a licensing requirement for exports of specialized steel to the United States. Guatemala introduced in July licensing requirements for exports to Nicaragua, and before the end of the year extended these requirements to exports to Costa Rica, El Salvador, and Honduras.
Measures aimed at promoting exports were taken by a number of developing countries in 1983, and in Latin America a few countries moved vigorously to support export industries. Argentina early in the year raised tax rebates from 5−9 percent to 8−11 percent for exports originating from, and shipped through, ports located in certain less developed regions. In December these rebates were raised to a range of 8−13 percent and the list of eligible products was expanded; in addition it was decreed that these rebates would be reduced by 1 percentage point at the beginning of 1984 and maintained at that level for 11 years. In July, exports of automobiles were granted a rebate equivalent to 23 percent of the export value, but in September this rebate was abolished. During the second semester, a number of export items became eligible for special rebates, with rates varying between 10 and 15 percent of export receipts. In Colombia a compensation scheme for rice exports, implying a subsidy equivalent to up to US$60 a ton, was introduced in February; in May a subsidy to offset air transportation costs in the export of electrical appliances to Peru was announced, and in September textile exporters were granted a special subsidy equivalent to 5 percent of the increase in the f.o.b. value of exports to European, Latin American, and Caribbean countries. A rate structure for tax credit certificates for nontraditional exports in 1984 was announced by Colombia at the end of August, with the maximum applicable rates increasing to 20 percent of export value, from 15 percent in 1983. In Guatemala, a system of tax credit certificates for nontraditional exports was adopted in July and effectively introduced in March 1984; tax credit certificates equivalent to 10 percent of the f.o.b. value of eligible exports were granted for exports to countries with which Guatemala has no bilateral or multilateral trade agreements. For new nontraditional exports, the benefit was increased to 15 percent of f.o.b. value and was applied also to new nontraditional exports to countries having bilateral or multilateral trade agreements with Guatemala but in which the products were not covered by the agreements. Greece introduced in May a subsidy of 6 percent on the drachma value of export proceeds surrendered within 90 days of the date of export. Nepal introduced in June a cash incentive scheme for exports of leather and leather products to countries other than India at rates ranging from 10 percent to 20 percent of the f.o.b. export value; in November the scheme was extended to all other exports at the rate of 10 percent, and a number of other tax benefits were announced for overseas exports. Pakistan introduced in June a tax rebate of 4.5 percent on woolen yarn exports. In Senegal export subsidies were increased from 10 percent to 15 percent in February, and the list of eligible exports was extended to products that were in excess supply in the domestic market and to goods whose output could be easily increased. Finally, Thailand increased the rebate on exports of rice to Hong Kong.
Some countries reduced or eliminated subsidies. As part of an agreement reached at the beginning of the year between Australia and New Zealand, the two countries would eliminate all performance-based export incentives by 1987 in respect of goods traded bilaterally. A few developing countries also reduced the extent of their reliance on export subsidies. Argentina abolished in April a 5 percent special tax rebate on exports to new markets. At about the same time, Ghana eliminated the system of bonuses for all exports except cocoa, residual oil, and electricity. In Pakistan compensatory export rebates on cotton yarn were reduced from 7.5 percent to 4.5 percent in May and were eliminated in August, together with those on wool yarn; in addition, the export rebate on leather and leather products, acetate yarn, canvas footwear, and a number of other products was reduced from 12.5 percent to 7.5 percent, and the rebate on gray cloth exports was lowered from 10 percent to 5 percent. Peru eliminated in September all incentives applicable to textile exports to the United States that had been subject to countervailing duties. By redefining benefits granted to eligible exports in the form of reimbursement of indirect taxes, Uruguay reduced the effective rate of subsidization of nontraditional exports.
A small number of countries modified their structure of export taxation in 1983; on balance, reliance on export taxes as a source of fiscal revenue appears to have been reduced. Argentina reduced export taxes on a number of agricultural and mineral products in the second half of the year. In February, export taxes ranging from 9 percent to 20 percent were established in Brazil on a number of agricultural, livestock, and forestry products, but these as well as other export taxes were reduced in the course of the year, and in some cases schedules were set up for their elimination. Costa Rica eliminated in August a 1 percent tax on nontraditional exports outside Central America, and abolished in December taxes of 10 and 5 percent levied, respectively, on traditional and nontraditional exports to Central America. In Guatemala the above-mentioned introduction of subsidies in favor of nontraditional exports was accompanied by the announcement of a schedule for the elimination of taxes on traditional exports over a two-year period ending June 30, 1985. In Guinea-Bissau export duties were eliminated in December, being replaced by a more limited tariff schedule. During the second half of the year, Thailand reduced taxes on a number of export items, including a halving of both a duty and premiums levied on rice exports, and an effective lowering of the royalty rates for tin. Zaïre eliminated a tax on coffee exports in September, retroactive to August 11, 1982.
Four countries introduced new taxes or increased existing taxes on exports in 1983. Brazil increased in January the “contribution quota” for coffee. In September, Colombia raised the coffee retention quota (a tax in kind) from 35 percent to 40 percent. In Democratic Kampuchea export taxes were introduced at the beginning of the year, together with other trade measures. At the time of a major depreciation of the exchange rate of its currency in January, Uruguay imposed a 15 percent tax on traditional exports, and a 5 percent tax on combed wool exports; however, the tax on traditional exports was reduced in November from 15 percent to 10 percent, and the tax on combed wool exports was eliminated.
Some developing countries made increased use of preferential credit facilities to enhance the profitability of export activities. Argentina established in November special financing to those meat packing firms that were exporting at least 30 percent of their output during the first half of 1983. In Brazil, the annual interest rate on export financing in foreign currency was lowered in January from a range of 8.5–10.0 percent to 7.5–9.0 percent. Colombia increased the access of eligible exporters to preferential credit in March by raising the maximum permissible amount available under the pre-shipment export credit facility from 80 percent to 90 percent of export value. In addition, Colombia’s Banco de la Republica was authorized in March to accept the prior surrender of foreign exchange proceeds by coffee exporters in advance of actual exports, up to a maximum of US$100 million, and for not more than 60 days prior to the date of shipment; in September, the overall ceiling for these operations was increased. Nepal introduced in November a pre-export financing facility at concessional interest rates. Pakistan lowered in August the minimum export value requirements for exporters of carpets and rugs using preferential credit, while in October the penal rate of interest was increased for exporters failing to effect shipments within the period stipulated of falling short of performance required. In addition, Pakistan extended in September access to preferential postshipment financing to goods shipped to international fairs and exhibitions. To some extent, the impact of these measures on export activities in Pakistan was weakened by the addition of mutton, beef, and wheat to the list of goods not qualifying for export financing. In April Peru began to provide local currency preshipment financing for exports at a preferential interest rate.
In two countries there was a reduction in the extent of subsidization of exports through financing facilities in 1983. Greece discontinued in May export prefinancing at interest rates of 10½ percent to 14 percent a year and subjected all export credits to a uniform annual interest rate of 21½ percent. In Indonesia preshipment export credit facilities were eliminated in June, and the annual lending rate on rediscountable export credits—which ranged between 6 and 9 percent—was set at 9 percent.
There were numerous changes during 1983 in regulations affecting repatriation and surrender of export receipts, with no marked trend toward either liberalization or restrictiveness. Among countries where surrender and repatriation requirements were liberalized, Australia eliminated in December all restrictions on the timing of export receipts. Also in December, France eased regulations on the manner of payment in the surrendering of foreign exchange for up to the equivalent of F 150,000, and Italy simplified the requirement for foreign exchange authorization in the case of exports of less than Lit 50 billion and not requiring compulsory insurance. Similarly, the Netherlands eliminated in July the requirement that exporters seek approval from the Netherlands Bank before accepting advance payment for exports in excess of normal trade practices. Among developing countries, Argentina in March began to allow the delayed surrender of export earnings affected by payments restrictions imposed by foreign governments. Colombia extended in July the maximum period for repatriation of export receipts to two years, and to three years with special authorization (from one year) for exports to Ecuador and Venezuela. Costa Rica reduced in April the surrender requirement on export proceeds at the official rate from 5 percent to 1 percent, increasing from 95 percent to 99 percent the portion to be surrendered at the banking rate; in June, exporters were permitted to convert up to 1 percent of proceeds in the free market. The Dominican Republic expanded in June and October the list of export products entitled to foreign exchange certificates; however, in November a number of traditional export products (sugar, molasses, coffee, cocoa and related products, and tobacco) were excluded from the list of exports receiving foreign exchange certificates and became entitled instead to cash payments in domestic currency. In Ecuador the Central Bank was authorized in September to subtract from export receipts surrendered the value of foreign inputs imported under the temporary import regime and incorporated into the exported item. In Egypt exporters of movies and videocassettes were permitted, since May, to repatriate their foreign exchange proceeds within a period of up to six months from the date of shipment, instead of four months. As part of the establishment of a dual exchange market at the beginning of the year, Jamaica allowed exporters of nontraditional products to retain up to 50 percent of their foreign exchange proceeds in the form of negotiable claims that provided automatic access to import permits for specified goods; in November, however, the exchange system was reunified, and all export receipts were required to be surrendered at the new official exchange rate. Madagascar adopted in March a scheme under which certain exporters of manufactured products were permitted to retain special percentages of export earnings in convertible accounts denominated in Malagasy francs; these funds could be used by the exporters to import materials needed in their own production. Similarly, border traders in Nicaragua were entitled from May to convert export proceeds at the parallel market rate. On several occasions during 1983, surrender requirements related to various exports were changed in Paraguay by increasing the proportions eligible for surrender at more depreciated exchange rates. In Sri Lanka exchange dealers were permitted in October to convert foreign exchange proceeds amounting to US$5,000 or more without specific authorization from the Comptroller of Exchange. Industrial and manufacturing firms in the Syrian Arab Republic became entitled since August to retain up to 50 percent of their export proceeds in special accounts to cover their own imports of raw materials. In Turkey exporters were allowed at the beginning of the year to retain up to 5 percent of exchange receipts in the form of sight deposits with authorized banks denominated in foreign exchange; these funds could be used to make payments abroad for the exporter’s own import needs, or to settle domestic debts by issuing checks denominated in Turkish lira against such accounts. Since the beginning of 1984, exporters in Turkey have become entitled to retain up to 20 percent of their exchange proceeds without restriction as to its use. In Zaïre producers and authorized traders of artisanal gold and diamonds were permitted to open special accounts in which they could retain up to 50 percent of the foreign exchange proceeds from sales; such accounts could be used to make payments authorized by the Bank of Zaïre. In September, however, all such accounts were eliminated, along with elimination of the 30 percent surrender requirement applicable to commercial banks. In Zambia the state copper mining company—the Zambian Corporation for Copper Mining—was permitted from August to retain up to 25 percent of its export earnings for its own import needs.
Several countries introduced or intensified official controls over export receipts in 1983. Bolivia in September shortened the period within which export receipts should be surrendered to the Central Bank from 15 days to 3 days. Chile lowered in January the proportion of export proceeds that exporters could retain in special foreign exchange accounts, from 10 percent to 5 percent, and limited the inflow into such accounts over any 12-month period to a maximum of US$100,000; in addition, the maximum period for repatriation of export receipts was reduced in March from 150 days to 90 days. Also in March, Ecuador introduced a mechanism to control export settlements in foreign currency that was aimed at preventing underinvoicing of exports. In India, minimum export prices of buffaloes, buffalo meat, sheep, and goats were raised in April, and floor prices were announced after midyear for exports of black pepper, a number of chemicals, and certain new varieties of coir products. In September, Jordan terminated an exemption from repatriation requirement granted in respect of proceeds from re-exports of goods valued at less than JD 1,500. Sudan tightened in March regulations concerning the surrender of export proceeds. The proportion of proceeds to be surrendered to the Bank of Sudan was raised from 50 percent to 75 percent, and all foreign exchange retention schemes were eliminated. Exporters were required to sell the remaining 25 percent of export proceeds to commercial banks at the free exchange rate. In July, Uganda reduced the permitted period for repatriation of export receipts from six to four months, and to two months for exports to neighboring countries or for exports shipped by air. At the time of the adoption of a three-tier foreign exchange system at the end of February, Venezuela introduced surrender requirements for export proceeds. Except for foreign exchange earnings of private exporters not availing themselves of official export subsidies, all export proceeds were required to be surrendered to the Central Bank at one of the two fixed official exchange rates. The surrender requirement was slightly modified in May when export earnings of the state steel enterprise were permitted to be sold in the free market, and the requirement that private export earnings be surrendered at one of the two fixed rates to qualify for export incentives was eliminated. At the beginning of the year, Yugoslavia tightened regulations governing the allocation of foreign exchange by the corresponding organizations of associated labor. According to the new regulations, a certain portion of foreign exchange earnings was to be surrendered to the National Bank of Yugoslavia for specific purposes; out of the remaining exchange earnings, a portion was to be retained by the respective group of enterprises, and the rest was to be sold in the unified foreign exchange market. As part of the same regulations, the maximum period for the repatriation of foreign exchange was extended from 60 to 90 days. In April, more uniform criteria were adopted for the determination of the portion of foreign exchange receipts to be retained by each group of enterprises; retention rates for foreign debt payments were set on the basis of the ratio of estimated obligations in 1983 to total export receipts in 1982, increased by 20 percent, and retention rates for production needs were set at 80 percent of the ratio of such needs (excluding capital goods) to exports in 1981−82. In September, Zaïre abolished most special convertible accounts held by resident traders and producers for use in making foreign payments; also, all export retention quotas were eliminated, except for those covered by international credit agreements and bilateral conventions between the Government and foreign partners.
Countries introduced a variety of other measures that affected exports or export receipts. The United States adopted in June measures implementing the Export Trading Company Act of October 1982. Bank-holding companies were authorized to set up trading companies if at least one half of the net revenue of these companies derived from export operations over a two-year period. In the wake of the devaluation of the drachma at the beginning of the year, special noninterest-bearing special accounts were opened at the Bank of Greece for deposit of 60 percent of the windfall gain derived from the devaluation in the case of exports of industrial products shipped before the devaluation date. In Guinea-Bissau it was announced in December that private traders would be authorized to export nontraditional products and would be permitted to retain a portion of such earnings to finance their own import needs. Pakistan in July simplified regulations concerning administrative procedures to be followed by commercial banks in implementing an export credit scheme.
Changes in regulations relating to current invisibles during 1983 tended, on the whole, to tighten controls over these operations. Following the trend in recent years, they affected primarily foreign exchange allowances for travel of different types. Other changes related mainly to regulations on payments for services performed by nonresidents such as profit, dividend, interest and royalty remittances, as well as imports and exports of bank notes and coin. Virtually all changes in regulations concerning current invisible transactions were made by developing countries; faced with a critical external payments situation, a number of countries introduced new restrictions or intensified existing restrictions on payments for invisibles. However, several countries reduced or eliminated restrictions on foreign exchange allocations for travel, medical expenses, or study abroad.
Among industrial countries, Finland increased in November the general exchange allocation for travel abroad, as well as the additional allocation for students. In May, Italy raised the amount of foreign exchange allowed for tourist travel abroad from the equivalent of Lit 1.1 million to Lit 1.6 million a person a year; in addition, residents traveling abroad were permitted to take with them up to Lit 200,000 in bank notes a trip. Iceland abolished in July a 10 percent tax on purchases of foreign exchange for travel abroad, and Sweden eased, with effect from January 1, 1984, regulations concerning exchange allocations for travel abroad. Among developing countries, Bangladesh in May raised the allowance for overland travel to India. In April, Ghana reduced existing taxes on exchange purchases for education, travel, medical treatment, and private transfers abroad. In Hungary the foreign exchange allowance for travel outside the CMEA countries was raised in April and July. Foreign exchange allowances for married nationals studying abroad were increased in July by the Islamic Republic of Iran. Pakistan relaxed administrative regulations for student remittances on several occasions during the year, increased the foreign exchange quota for private travel to India and Bangladesh, and raised the foreign exchange allowance for incidental expenses connected with travel abroad. In February South Africa raised the foreign exchange allowance for tourist and business travel and relaxed controls on remittances abroad from estates of deceased persons and transfers by emigrants. Similarly, the foreign exchange allowance for tourist and business travel was raised in Swaziland. Sri Lanka increased both annual living allowances for education and the travel allowance for Indian nationals traveling to India; on the other hand, members of foreign missions and their non-Sri Lankan staff traveling abroad were prohibited from taking foreign currency notes in excess of 20 percent of their travel expenses. With effect from the beginning of 1984, Turkey liberalized access to foreign exchange for travel abroad as well as for other invisible transactions. Limitations on tourist travel (number of trips abroad a year) were eliminated, and commercial banks were authorized to handle a number of invisible transactions without need for specific central bank authorization.
Reductions in travel allowances and other restrictive measures were imposed by a number of countries in 1983. In several cases, the changes involved a major tightening of regulations concerning invisible transactions. In March, France limited the general foreign exchange allocation on travel abroad for other than business purposes from F 5,000 a trip to F 2,000 a year; the use of credit cards was restricted to business travel only, and foreign exchange purchases were subject to recording. Soon afterward, the foreign exchange allocation for remittances abroad without supporting evidence was tightened. Before the end of the year, however, the above regulations were eliminated, with the exception of a restriction imposed on the use of credit cards for expenses other than business travel. Except for an announcement by the Central Bank in July to the effect that sales of foreign exchange for travel, study, family remittances, or medical treatment in excess of established limits would be authorized in duly justified cases, travel restrictions were intensified in Argentina after midyear, culminating in the suspension of all official sales of foreign exchange for an indefinite period in September. Together with the imposition of overall limits on the access to foreign exchange by private individuals over the course of a fiscal year, Bolivia introduced in January limits on foreign exchange allocations for travel and medical treatment abroad. In Brazil the basic foreign exchange allowance for tourist travel abroad was halved in March and again in September; on the other hand, foreign exchange sales for travel and business representation expenses were exempted in March from the 25 percent financial transactions tax. Chile, Colombia, and Suriname also reduced travel allowances in 1983, accompanied in Colombia by the introduction of a prior import deposit on the purchase of foreign exchange for travel and the establishment of individual licensing requirements for payments of international travel, freight, and bank commissions. After midyear Colombia raised the prior import deposit and tightened further allowances for special groups of travelers. In Costa Rica the monthly foreign exchange allowance available at the official exchange rate for remittances to students pursuing higher education abroad was halved in July and abolished at the end of the year; in addition, most invisible payments became subject to a 1 percent tax from August. In October, airline companies operating in the Dominican Republic were instructed to require nonresident aliens traveling to the Dominican Republic to have in their possession valid round-trip tickets purchased in the country of departure. Ecuador limited from March access to the official market for remittances to graduate and handicapped students engaged in special training courses. Egypt, Israel, and Morocco introduced administrative changes relating to purchases of foreign exchange for travel. Likewise, Israel and Morocco introduced taxes on travel by nationals abroad, with the exception in Morocco of students, pilgrims, emigrant workers, and those traveling on official business. The Islamic Republic of Iran in May reduced the maximum foreign exchange allowance for travel abroad. After midyear Guatemala tightened regulations on the sale of foreign exchange for travel to Central America and Mexico. In Malta regulations concerning the foreign exchange allowance for tourist travel were tightened after midyear. In Nicaragua, regulations were issued at the beginning of the year requiring foreign tourists to pay hotel room charges and telephone calls in U.S. dollars, and for those aged 18 years or above to exchange at least US$60 at the official exchange rate upon arrival. In March, the exchange rate applicable in Nicaragua to authorized purchases of foreign exchange for travel, study, and medical treatment (and subsequently educational fees and family remittances) was changed from the official to the parallel market rate; at the same time, however, a number of invisible receipts (including those from tourism, remittances, and sales of foreign currency by embassies and agencies of international organizations to cover local expenses) were permitted to be transacted at the depreciated parallel market rate. Following the imposition of tight controls on foreign exchange operations by banks and exchange dealers in the Philippines, restrictions on access to foreign exchange for business travel abroad were intensified after midyear and tourist travel allocations were reduced. In October Rwanda suspended indefinitely authorizations for the purchase of tickets and foreign exchange relating to tourist, religious or family travel, or travel to attend conferences or participate in sport activities; at the same time, restrictions were imposed on business and official travel and on the treatment of leave for foreign residents working in Rwanda. After midyear, regulations concerning foreign travel were considerably tightened in Uganda; foreign exchange allocations were more than halved and certain forms of access to foreign exchange for travel were made subject to specific authorization. In addition, the limit on foreign exchange purchases for other invisibles transactions was reduced, and the freedom of commercial banks to sell foreign exchange in small amounts was curtailed. In Venezuela access to official foreign exchange was discontinued in February for invisible transactions other than authorized debt payments, approved public sector expenses abroad, costs connected with approved merchandise imports, and authorized student remittances. Zimbabwe introduced wide-ranging increases in exchange restrictions in March 1984. Increased restrictions were imposed on the remittances of dividends and profits, emigrant income, property income, and private transfers; and foreign securities holdings of residents and former residents were acquired by the Government with compensation in nontransferable local currency.
Several countries enacted measures affecting transactions performed by nonresidents and remittances of nonresident income such as profits, dividends, interest, pensions, royalties, and insurance proceeds. In some cases, the changes tended to eliminate or reduce restrictions on current transactions. France raised in December the limit on permissible undocumented outward remittances from F 1,000 to F 1,500 a person a quarter and increased that on transfers to relatives abroad from F 2,000 to F 3,000 an applicant a month. Among developing countries Barbados reduced in June a levy on purchases of foreign exchange for private sector remittances abroad (other than import payments, travel and education expenses, and minor nontrade payments). The People’s Republic of China eliminated in February the restriction on remittances abroad of after-tax earnings by foreign workers and employees. In the Dominican Republic the Central Bank incorporated during the year a number of invisible receipts in the list of goods and services qualifying for foreign exchange certificates and permitted the conversion of some invisible receipts at the exchange rate established for the parallel market by the Exchange Commission; on the other hand, payments for insurance premiums were eliminated from the list of invisible payments having access to foreign exchange at the official rate, and the use of dollar accounts for remittances abroad was restricted. After excluding in March virtually all payments for invisibles from access to foreign exchange at the official exchange rate, Ecuador introduced regulations that authorized the Central Bank to pay in foreign currency the three-month LIBOR interest rate to importers or financial institutions that had paid interest abroad for foreign exchange that they were entitled to obtain at the official rate, but that was not made available by the Central Bank. In June importers and financial institutions were given the option to be paid in domestic currency or in foreign exchange by means of a certificate redeemable within a certain period from the date of payment of the interest abroad. In June also, access to foreign exchange at the official exchange rate was authorized for payment of interest on private sector loans not conforming to the domestic refinancing alternatives offered by the Government. In Nicaragua, airlines were authorized to purchase foreign exchange at the relatively depreciated parallel market exchange rate to remit their net income from authorized activities, while in Pakistan foreign exchange dealers were permitted to service debts arising from suppliers’ credits without State Bank approval for each remittance, if the repayment program and conditions of the credit had already been approved by the State Bank. Pakistan also raised in December the limit on individual family remittances abroad by foreign nationals from US$500 to US$750 a month. Singapore eliminated in April a stamp duty on traveler’s checks and other checks. In February, Swaziland relaxed regulations on a number of invisible payments and in December credit card holders in the Rand Monetary Area were authorized to use such cards outside the Area, up to the amount of the applicable travel allowance.
A number of countries intensified restrictions with respect to income remittances to nonresidents, and to payments for services and tightened official controls over inflows. Argentina introduced a regulation in May requiring net foreign exchange receipts from air or sea (and later land) freight and transportation services, and from insurance and reinsurance activity to be surrendered within 30 days of receipt; in July the Central Bank announced that sales of foreign exchange for settlement of credit card obligations incurred abroad after July 25, 1983 would not be authorized. In addition, while access to foreign exchange at the official rate for remittance of profits, dividends, royalties and technical assistance payments were restored in August after being suspended since April 1982, all sales of foreign exchange were made subject to prior central bank approval in September. In May Bolivia introduced the requirement that nonresidents, excluding members of diplomatic missions and international organizations, pay airline tickets in U.S. dollars. During 1983, Brazil imposed and maintained requirements pursuant to which debt service payments, due in connection with financial obligations owed abroad, were to be made in domestic currency to accounts opened for the respective creditors in the Central Bank; pending the payment in foreign currency to the respective creditors, the deposits were denominated in the foreign currencies in which the obligations were expressed. Profit remittances, interest and amortization payments, and a number of other invisible payments were made subject to central bank authorization from March in Chile. In February, El Salvador interrupted access to the official market for foreign exchange for payments of commissions and royalties incurred since 1982 and for payments for the leasing of movies and television films. While authorization for employment abroad by private citizens was decentralized in Hungary, wages earned abroad under such employment were made subject to a 20 percent repatriation and conversion requirement. Jordan introduced in June a 0.1 percent fee on all foreign exchange permits for invisible payments. Paraguay banned from June the repatriation of retained earnings, except in instances in which substantial hardship could be demonstrated. In Sri Lanka the conversion by authorized dealers of traveler’s checks exceeding a certain value was made subject to prior approval by the Comptroller of Exchange, except in the case of payments for goods supplied or services rendered. Sudan abolished in March all convertible currency accounts in Sudanese pounds; foreign exchange receipts from hotels and transactions by foreign companies, diplomatic missions, and international organizations to cover local expenses were required to be surrendered to the Bank of Sudan at the official exchange rate.
Regulations affecting the import and export of foreign and domestic currency notes were changed in a few countries. Finland lifted, as of January 1, 1984, the prohibition on the import and export of 500 markka notes and doubled the value of foreign exchange that could be freely exported. In April, Iceland raised the permissible amount of Icelandic bank notes and coins in denominations not exceeding ISK 100 which may be brought into or taken out of the country from ISK 1,200 to ISK 2,100. Sweden eliminated at the end of the year the prohibition on export and import of Swedish bank notes of denominations higher than SKr 100. In Algeria the importation of convertible currency notes by nonresident nationals was permitted, provided that the importation was declared upon entry into the country. In some countries regulations concerning currency notes were tightened. Colombia imposed a ceiling on the sale of foreign exchange to foreign tourists leaving the country. Effective January 1, 1984, Korea lowered the value of foreign currency holdings that foreign visitors could bring into the country without declaration from US$10,000 to US$5,000. In Suriname traders were required to declare all domestic and foreign currencies held in their possession upon entry into the country, and resident traders, to exchange all foreign currency holdings at an authorized bank; in addition, nonresidents were required to take out of the country a smaller amount of foreign currency than that declared on entry. Finally, the Yemen Arab Republic prohibited in August the export of bank notes for more than YRls 100,000 in the case of Yemen rial notes, or the equivalent of US$30,000 in the case of foreign currency notes, without the prior authorization of the Central Bank.
External payments arrears occur when the authorities of a country are responsible for undue delays, beyond those required by normal administrative procedures, in approving applications or in meeting bona fide requests for foreign exchange to settle payments for which approval, if needed, has been previously granted.5 Generally speaking, they emerge when other measures to correct an unsustainable balance of payments position have not been adopted soon enough, or are of insufficient strength. An increase in arrears raises the riskiness of international lending, and countries in arrears are accorded reduced access to international capital markets. 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 programs supported by the use of the Fund’s resources.6 Where there is no program in effect with the Fund, 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 the exchange restriction evidenced by the existence of arrears with respect to current international payments under Article VIII of the Fund’s Articles, except when a satisfactory program for their elimination is in place.
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 6 billion, but, by the end of 1982, they almost quadrupled to SDR 22.6 billion. According to the latest information available, the total of payments arrears incurred by Fund members is estimated to have risen to SDR 25.8 billion at the end of 1983. The number of Fund members incurring payments arrears has been rising continuously, and this trend continued in 1983 as the number rose from 38 to 42. Of the 52 Fund members incurring payments arrears at some point during 1976−83, only 10 have managed to eliminate them. Of the remaining countries, 10 countries experienced virtually continuously rising arrears in recent years, whereas only 3 countries demonstrated a steady decline. Of the 42 countries incurring, or believed to be incurring, external payments arrears or government defaults at the end of 1983, the 40 countries for which information for the end of 1983 is available are Antigua and Barbuda, Argentina, Belize, Bolivia, Brazil, Chad, Congo, Costa Rica, Dominican Republic, Ecuador, El Salvador, The Gambia, Ghana, Grenada, Guatemala, Guinea, Guyana, Honduras, Ivory Coast, Jamaica, Liberia, Madagascar, Mali, Mauritania, Mexico, Nicaragua, Nigeria, Paraguay, the Philippines, St. Lucia, Sierra Leone, Sudan, Tanzania, Togo, Uganda, Venezuela, Viet Nam, Western Samoa, Zaïre, and Zambia. Although no information for the end of 1983 is available for the other two countries (Benin, and Guinea-Bissau) that had payments arrears or government defaults at the end of 1981 and 1982, it is unlikely that these countries eliminated the arrears or defaults by the end of 1983. The global estimate of the outstanding payments arrears and government defaults at the end of 1983, therefore, includes the data for the end of 1982 of these countries (and, in one instance, the end of 1981).
During 1983, payments arrears emerged for the first time since 1976 in Brazil, Ivory Coast, Paraguay, St. Lucia, the Philippines, and Venezuela. Jamaica eliminated payments arrears in 1982 but incurred new arrears in 1983. Four countries—Central African Republic, Haiti, Romania, and Yugoslavia—eliminated payments arrears or government defaults in 1983. Brazil eliminated arrears in March 1984. In the course of 1983, of the countries that had payments arrears or government defaults at the end of 1982, the outstanding amount rose in 12 countries (Antigua and Barbuda, Chad, The Gambia, Guinea, Guyana, Honduras, Madagascar, Mauritania, Nicaragua, Nigeria, Sierra Leone, and Tanzania) and declined in 19 countries (Argentina, Belize, Bolivia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Ghana, Guatemala, Liberia, Mali, Mexico, Sudan, Togo, Uganda, Viet Nam, Western Samoa, Zaïre, and Zambia). In one country (Congo) the outstanding amount remained unchanged.
The Annual Report on Exchange Arrangements and Exchange Restrictions, 1983 (pages 38–39) noted that negotiations with a number of Fund members aimed at rescheduling overdue and future payments obligations were underway or were expected to commence during the last quarter of 1982. During 1983, the debts of 25 Fund members were rescheduled or refinanced, and negotiations were under way with a further 4 Fund members. The total of payments obligations for which rescheduling agreements were signed or agreed in principle in 1983 is estimated to have amounted to SDR 67.6 billion; the total was SDR 5.5 billion in 1982. Of the rescheduling in 1983, over SDR 30 billion was in respect of debt service payments already in arrears or falling due in 1983. The following 20 countries incurring external arrears during 1983 were involved in these restructuring exercises in 1983: Argentina, Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Guyana, Jamaica, Liberia, Madagascar, Mexico, Nicaragua, Nigeria, Romania, Sudan, Togo, Venezuela, Yugoslavia, Zaïre, and Zambia. 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 debts profiles and by regularizing outstanding external arrears, while adjustment programs aimed at strengthening the balance of payments were implemented.
At the end of 1983, 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, Brazil, Dominican Republic, Ecuador, Ghana, Guatemala, Jamaica, Liberia, Mali, Mexico, Sudan, Togo, Uganda, Western Samoa, Zaïre, and Zambia. In addition, a stand-by arrangement with Sierra Leone was approved in February, 1984. All programs provided for a phased reduction or elimination of payments arrears or government defaults during a specified period as a performance criterion. Fourteen of these countries reduced payments arrears or government defaults during 1983. 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.
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 (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 excessive exchange rate spreads), broken cross rates, or discriminatory currency arrangements. During 1983, as in 1980−82, about one third of the Fund’s members engaged in multiple currency practices,8 although on a trade-weighted basis the proportion of developing country members with these practices has risen considerably since 1980 and the importance of the practices in the individual economies has grown. Nevertheless, the recent trend toward increased incidence of multiple currency practices among Fund members leveled off somewhat in 1983. The trade-weighted proportion of developing countries maintaining the practices fell to 34 percent, from 40 percent at end-1982, and 28 percent in 1980.
During 1983 multiple currency practices were eliminated by eight members. Barbados eliminated differential fees on the sales of foreign exchange for certain current transactions with effect from the end of May. In November Bolivia abolished an 8 percent premium on foreign exchange receipts from tourism. In July Iceland abolished the 10 percent exchange tax on purchases of foreign exchange for travel abroad. Kenya eliminated its advance import deposit scheme in January. Lesotho in February eliminated the discounted “financial rand” market in conjunction with South Africa’s exchange rate unification. In early June, Nepal ended the practice of simultaneously maintaining fixed exchange rates against the U.S. dollar and the Indian rupee-an arrangement that had given rise to frequent broken cross rates in the past. In view of the strengthening of both the balance of payments and domestic financial situation, the South African authorities abolished exchange controls on nonresidents by eliminating the floating financial rand, and thereby made all foreign exchange transactions subject to the ruling unitary rate of exchange for the rand. Concurrently, Swaziland abolished its freely floating financial rand market.
During 1983, six members eliminated some multiple currency practices, but not all. In April, Argentina abolished, as part of a stand-by arrangement with the Fund, a special 5 percent rebate for exports to new markets. In March Colombia eliminated a 5 percent discount applied to the early conversion of proceeds from certain exports and invisibles. Ghana, in October, abolished the multiple exchange rate system which was introduced in April and unified its exchange rate at Ȼ 30 = US$1. In Nigeria, the exchange rate of the naira is determined on the basis of an import-weighted basket; at times, however, the nominal naira rate has been kept unchanged in terms of the U.S. dollar or the pound sterling, so that the cross rates implicit in the official quotations for the two currencies have tended occasionally to diverge from those prevailing in international exchange markets; such a situation emerged for a time from August, but was eliminated in mid-November. In July, Sierra Leone’s dual exchange market, comprising official and commercial rates introduced in 1982, was unified. With effect from September, Zaïre abolished the system of imports financed without recourse to the foreign exchange resources of the banking system as well as the relance minière exchange market.
Other reductions in member’s reliance on specific multiple currency practices occurred in 10 countries in 1983. In Belgium and Luxembourg the exchange rate spread between the official and financial markets narrowed to less than 2 percent by mid-1983. In March, the financial transactions tax (IOF) maintained by Brazil was reduced from 25 percent to 15 percent for a specific list of commodity imports and reduced from 25 percent to 12 percent for the same commodity imports from LAFTA and LAIA countries. The IOF was, however, extended in December to the sale of foreign exchange for imports of petroleum products. Later in the same month, Brazil also reduced the export taxes on soybeans and soybean by-products, Brazil nuts, unprocessed animal hides, lumber, and processed wood from 20 percent to 5 percent. In addition, the Brazilian authorities adopted reduced rates of export taxes for cocoa and cocoa by-products, and certain minerals. In December, the exchange tax on cornmeal exports was eliminated; the multiple currency practices arising from exchange taxes on receipts from exports of beef, cattle, hides, orange juice, and tangerine juice were eliminated by their conversion into taxes on physical movements of exports; and the multiple currency practice relating to remittances of profits and dividends was also eliminated by amendment of the graduated supplementary tax. In January 1984 multiple currency practices arising from discriminatory exchange taxes were eliminated for a number of export items. Costa Rica’s three-tier exchange rate system, consisting of an official, a banking, and a free rate, was simplified by the unification of the banking and the free exchange rates in November 1983. Subsequently, almost all foreign exchange transactions took place in the unified market. The dual exchange rate system in Ecuador underwent several changes in 1983: following the devaluation in March, the official rate was depreciated periodically. The authorities also shifted some of the transactions from the official to the parallel market in an effort to promote convergence of the two rates. In March the Egyptian authorities changed a special exchange rate applicable to visible transactions under bilateral payments agreements with the U.S.S.R. from the previous LE 1 = US$2.55555 to LE 1 = US$2.22222, for a period of one year; the rate was also applied to visible transactions within the bilateral payments arrangement with the Democratic People’s Republic of Korea. In April, Ghana applied a temporary uniform tax of 5 percent on purchases of foreign exchange for education, travel, medical treatment abroad, and unrequited private transfers. These purchases had previously been subject to foreign exchange transfer taxes ranging from 50 percent to 80 percent. In January Greece reduced cash deposit requirements against imports by one half; the cumulative reduction of the cash deposit requirements since the time of Greece’s accession to the EC in January 1981 has been 75 percent. Romania’s multiple exchange rate regime was further simplified. With effect from July, the remaining special rates for certain exports were abolished, and a unified commercial exchange rate was established. The authorities envisaged unifying the commercial and noncommercial rates in 1984. Under the dual exchange rate system in Uganda, the progressive shift of transactions from “Window One” (a market in which foreign exchange is allocated at a preferential rate managed by the Bank of Uganda for specified transactions such as certain imports, public debt service payments, etc.) to “Window Two” (a market in which a limited amount of foreign exchange is sold for all payments not eligible for financing at the first window in a weekly auction administered by the Bank of Uganda) has proceeded, and a significant real effective depreciation resulted.
Six countries that previously had not maintained any multiple currency practices introduced them in 1983. In July, the Lao People’s Democratic Republic introduced a special rate of KN 108 = US$1 for inward private remittances. Rwanda introduced in March an advance import deposit scheme, whereby noninterest-bearing deposits equivalent to 50–100 percent of the c. & f. value were required. In January, the Somali authorities instituted on a temporary basis a bonus scheme providing for a 33 percent premium (So. Sh. 5 = US$1) above the official exchange rate for workers’ remittances and capital inflows effected by Somali nationals. Priority in granting import licenses is accorded to individuals who have remitted foreign exchange through the bonus scheme. In January, Suriname introduced an advance deposit scheme for import payments. In February, following two days of suspension of all foreign exchange operations, the authorities of Venezuela established a three-tier exchange system with the following rates: (1) the previously existing exchange rate of Bs 4.30 = US$1 applicable to oil exports, priority imports, external debt obligations, certain private debt service payments, and a few other categories; (2) a rate of Bs 6.00 = US$1 applicable to imports of capital goods and individual imports; and (3) a floating exchange rate applicable to nontraditional exports and all other transactions permitted. In March, a list of “essential imports” was published, and this list was expanded several times in the course of the year. In March 1984, the exchange arrangements were modified as follows: (1) an exchange rate of Bs 7.50 = US$1 applies to all foreign exchange sales to the private and public sectors by the Central Bank of Venezuela as authorized under the exchange and import control system, except as indicated below; (2) an exchange rate of Bs 6.00 = US$1 applies to all foreign exchange transactions of the oil and iron ore sectors; (3) an exchange rate of Bs 4.30 = US$1 applies to (a) amortization payments of public and certain private external debt, and interest payments on such debt in arrears as of December 31, 1983. Private debt eligible for this rate includes only debts outstanding as of February 18, 1983, registered at Recadi (the Advisory Committee for the Multiple Exchange Rate System), and rescheduled into seven-year loans with a two-year grace period, and (b) on a temporary basis, and until not later than December 31, 1985, essential imports of food and medicines, and expenses of registered students abroad; and (4) foreign exchange for a limited number of non-prohibited imports, and all other transactions including private external debt not eligible for the Bs 4.30 = US$1 rate, will have to be obtained from the free market. Export receipts of the private sector and of the public sector entities other than those referred to above may be sold in the free market. In early April, Yugoslavia introduced a scheme entitling foreign tourists to a 10 percent discount on goods and services paid for in dinar traveler’s checks.
Actions creating new multiple currency practices or intensifying existing multiple currency practices were taken in 11 countries. In January 1983, the rebates maintained by Argentina for goods originating in and shipped through ports in specified less developed regions of the country were increased from a range of 5 percent to 9 percent to a range of 8 percent to 11 percent, with a view to restoring the average rebate to approximately the level that had prevailed before December 1982. Brazil, which had maintained a discriminatory multiple currency practice arising from the taxes on the export of certain manufactured goods to the United States, introduced discriminatory taxes on steel bar and rod products in March, on frozen concentrated orange juice in April, and on tool steel in May. In March Chile, which had maintained a preferential rate for debt service payments for debt contracted before August 1982, established a third rate—permitting foreign exchange transactions between private parties provided that such transactions were undertaken occasionally and without publicity. At the same time, the Chilean authorities imposed a 12 percent exchange tax on the sale of foreign exchange for payments of goods imported with import licenses issued prior to March 23, 1983. In April Colombia introduced an advance deposit on the purchase of foreign exchange for travel purposes at the rate of Col$15 = US$1, which was then raised to Col$50 = US$1 in July. Furthermore, in August, the Colombian authorities raised the rates for tax credit certificates granted to most nontraditional exports and applicable to the foreign exchange value of the export. In August also, Costa Rica modified the existing multiple currency practice arising from a stamp tax on foreign payments, which was subsequently eliminated in December. Egypt, in July, introduced a 20 percent administrative charge on purchases of foreign exchange for travel purposes. In April, in the process of abolishing a 20 percent tax on the value of letters of credit as well as a 20 percent bonus for all exports except for cocoa and electricity, Ghana introduced a temporary exchange rate regime based on a system of bonuses and surcharges to be applied by authorized foreign exchange banks and dealers; the regime was abolished in October in the context of a stand-by arrangement with the Fund. Jamaica’s exchange arrangement was complex during most of 1983: in January, a dual exchange system was introduced by the official legalization of the parallel market; in May, a special exchange rate of J$2.25 = US$1 was established for all Caricom transactions, except those previously designated for payments at the official exchange rate of J$ 1.78 = US$ 1. Three exchange rates were thus maintained until November when they were unified at a rate within a band of J$3.00 and J$3.30 per US$1. At this time, a 3 percent commission which had been introduced earlier in the year for all payments retained in the official market, except Bank of Jamaica’s debt service and public sector amortization payments, was abolished. The commission was also applicable to all imports obtained under external credits, the local currency value of which was determined at the official rate. Sudan had maintained a dual exchange market with two separately fixed rates against the U.S. dollar; in May 1983, however, a third, “unofficial” market emerged, reflecting a reduction in the supply of foreign exchange in the free market due largely to institutional changes made during the first several months of 1983 that imparted uncertainty to the market. In early 1983, Viet Nam introduced a preferential rate of D 20 per US$1 for salary remittances by Vietnamese workers in the nonconvertible areas. In Zaïre, a temporary dual exchange rate arrangement, involving two phases, was introduced in September 1983. In the first phase, which ended on October 14, 1983, the free market rate was set once a week by the commercial banks, in consultation with the Bank of Zaïre; the spread between the official and free market was limited to 10 percent. Since the beginning of the second phase, the free rate has been determined on an interbank foreign exchange market; the spread between the two rates was brought to under 5 percent on October 4, 1983, and to under 2.5 percent on December 29, 1983. The two rates were unified on February 24, 1984.
Changes occurred in dual or multiple exchange rate regimes of one member that did not substantially alter the arrangements themselves. Spreads between the official and the secondary market in Bangladesh virtually disappeared temporarily in 1983 but have recently increased.
Bilateral Payments Arrangements
Bilateral payments arrangements maintained between Fund members constitute restrictive exchange practices under 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 where the transferability of balances in the bilateral account is allowed, an exchange restriction may be involved if the period between transfers is unduly long. A discriminatory currency arrangement within the ambit of Article VIII, Section 3 of the Fund’s Articles may also be involved, if credit balances in the bilateral account are not remunerated at the prevailing representative interest rate, or if transfers of balances are made 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 1983 Report noted that there was a further decline in the number of bilateral payments agreements (including inoperative agreements) maintained between Fund members and between Fund members and non-Fund members in 1982. At the end of 1982, the total number of bilateral payments agreements maintained between Fund members was 62, and the total number of bilateral payments agreements maintained between Fund members and non-Fund members was 84.
During 1983 nine bilateral payments agreements between Fund members were terminated: In April, those between Algeria and Guinea, Algeria and Guinea-Bissau, Egypt and the Yemen Arab Republic, and Egypt and Jordan and during the year those between Cape Verde and Guinea-Bissau, and Finland and the People’s Republic of China. In addition, the agreement between the Islamic Republic of Iran and Pakistan expired in May and had not been renewed by the end of the year. Brazil eliminated the restrictive features of bilateral agreements with Hungary and Romania. In 1983, although a number of Fund members renewed the expiring bilateral payments agreements with other members and with non-Fund members, no new agreements were concluded between Fund members, or between Fund members and non-Fund members. As a result of the changes described above, at the end of 1983 the total number of bilateral payments agreements maintained between Fund members declined to 53, and the total number of agreements maintained between Fund members and non-Fund members remained unchanged since the end of 1982 at 84.
Detailed information on the value of trade conducted under bilateral payments arrangement 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 less than ¼ of 1 percent of the value of world trade of Fund members in 1982. It is most likely that the value of trade conducted under bilateral payments arrangements is considerably smaller 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.
In recent years, as reported in the 1983 Report, countertrade arrangements have become an increasingly important form of bilateralism. Countertrade refers to bilateral trading arrangements between foreign trade organizations or private firms in the exporting and importing country, under which the seller is obligated to purchase, as a partial or total settlement for his merchandise exports, or in some instances sales of services in the form of technology and industrial licenses, specified goods or services from the importing country on a barter basis or during a specified period. Reliable estimates of trade conducted under countertrade arrangements are not available because such arrangements are most often engaged in by individual firms without the knowledge of the government, or in instances where governments engage in such arrangements and strategic goods are involved, trade data are not published.
During 1983, on the whole, changes in the regulations governing capital flows in the developing as well as industrial countries do not appear to have had an important impact on international capital flows. Rather, international capital flows continued to be influenced by interest rate differentials, expectations regarding exchange rate movements, particularly the relative strength of the U.S. dollar, and the financing requirements of industrial countries experiencing deficits on external current account. The pattern of international capital flows was also affected by the emergence of some of the oil exporting countries as net borrowers on the international capital market, and by the borrowing requirements of developing countries with large debt service burdens. Nevertheless, the long-term trend toward liberalization of capital control regulations was sustained in the industrial countries and was not significantly eroded in the group of developing countries, despite the severe balance of payments difficulties. However, existing regulations tended to be administered more restrictively in the latter group.
Several changes in the regulations governing international operations of commercial banks in both the industrial and developing countries occurred during 1983. In December Australia permitted financial institutions to offer accounts denominated in foreign currency to their clients. The restriction on the investment of funds accruing interest in Australia by foreign governments, government agencies, and foreign banks, including central banks, was retained. In April Japan increased by 20 percent the amount of foreign currencies allowed to be converted into yen by foreign banks in Japan that had used more than 80 percent of their conversion quotas in the previous months. At the same time, the minimum required net overall foreign exchange position of foreign banks was increased to US$1 million. In June, Japan liberalized short-term Euro-yen lending by Japanese banks, by abolishing the regulation limiting to trade-related transactions such lending with a maturity of one year or less. Norway in April announced that authorization would be granted for the establishment of foreign exchange brokerage firms to handle spot and forward contracts and foreign currency deposits; previously, foreign exchange transactions in Norway were permitted to be carried out exclusively by banks. In March South Africa increased the overall limit set for banks in respect of cash balances held abroad from US$300 million to US$600 million.
Several developing countries liberalized the regulations governing international banking operations and the use of nonresident accounts. In March Bangladesh permitted authorized dealers to grant loans and advances in domestic currency to manufacturing companies incorporated in Bangladesh with foreign equity participation, subject to the observance of the local borrowing entitlement of the firm in question. In January Cyprus raised the maximum amount that could be released from blocked accounts, from £C 1,000 to £C 5,000. In April Egypt allowed exporters of goods and nonfactor services to retain in foreign exchange retention accounts the full amount of their foreign exchange receipts; rules on the use of such accounts were also liberalized. Greece in June allowed its citizens to open time-deposit accounts in foreign currencies without stating the origin of the funds, and in December Jamaica granted permission for commercial banks to accept deposits in foreign currency. In April Malaysia removed the limitation on access to domestic credit by companies in Malaysia that are controlled by nonresidents; previously, such borrowing was limited to the amount of shareholders’ paid-up capital. Commercial banks were also permitted to approve payments to nonresident accounts without limits; previously, credits to these accounts without prior approval were limited to M$2 million. Morocco in April raised permissible interest rates on deposits in convertible dirham, and in June raised the ceiling on payments in Morocco from suspense or capital accounts. Zaïre, in September, as part of broad exchange liberalization, allowed authorized banks to open three new forms of nonresident foreign currency accounts, in addition to the existing accounts; these are nonresident convertible accounts, nonresident ordinary accounts, and nonresident special accounts. All nonresident foreign currency accounts are noninterest-bearing, and sight deposits and overdrafts are not permitted. Nonresident convertible accounts and nonresident special accounts may be opened without the prior authorization of the Bank of Zaïre at any authorized commercial bank. With a few exceptions, the opening of nonresident ordinary accounts requires the prior authorization of the Bank of Zaïre.
During the period under review, several industrial countries tightened regulations governing capital flows through the banking system. In January Austria introduced a regulation specifying that foreign currency credits to nonresidents by Austrian banks in 1983 should not be more than 15 percent of such credits outstanding at the end of 1982. In February, Japan issued guidelines with regard to overseas lending by Japanese banks; these included matching requirements for funds procurement, limits on foreign currency assets of each bank in relation to its equity and reserves, and the establishment of a special reserve for banks to provide for possible loan loss overseas. In March, the minimum capital requirement for branches of foreign banks in Spain was increased from Ptas 750 million to Ptas 2 billion.
A few developing countries introduced controls or imposed restrictions with respect to capital flows through the banking system. In October Argentina required that the maturity of all fixed-term deposits in foreign exchange maturing in the period through December 4, 1983 be extended for 60 days beyond the original maturity date, and that most demand deposits in foreign exchange be frozen until December 4, 1983; deposits of international organizations, embassies, consulates, and legations, or their staff, were exempted. In May flotation of negotiable instruments (e.g., certificates of deposit) by the foreign branches of domestic banks was made subject to prior approval in the Philippines. In addition, in September, renewal of maturing foreign exchange swap contracts with the Central Bank were made subject to the following approval procedures: (a) when the official guiding rate on the date of renewal of the swap is higher than the original forward rate, the bank involved in the swap may automatically enter into an offsetting arrangement with the Central Bank for the difference between the official reference rate and the original forward rate plus ⅛ of 1 percent on subject differentials; (b) the foreign exchange differentials including the interest earned shall be carried over on subsequent renewals of the swap contract up to its final maturity; and (c) the swap contract for the renewal will specify both the forward rate, as normally determined, and the effective forward rate. In October the Philippines subjected to approval remittances of foreign exchange for repayments to foreign banks and financial institutions of principal on all foreign obligations maturing between October 17, 1983 and January 16, 1984. In January Saudi Arabia prohibited domestic banks from inviting foreign banks to participate in riyal-denominated syndicated transactions inside or outside Saudi Arabia without the prior approval of the Saudi Arabian Monetary Agency. In addition, participation by domestic banks in riyal-denominated transactions arranged abroad, or transactions denominated in foreign currency arranged for nonresidents, was made subject to the prior approval of the Saudi Arabian Monetary Agency. In January all outward remittances from airline external accounts in respect of passenger and freight collections were made subject to prior approval in Sri Lanka. In March Sudan abolished the facility for convertible currency accounts in Sudanese pounds. In October the maintenance of existing, and the opening of new foreign exchange accounts abroad, by residents were subjected to approval by Zaïre. In principle, approval is granted only if they are covered by international credit agreements or bilateral conventions between the Government of Zaïre and foreign partners. The accounts may be sight or time deposits but must bear interest.
Several industrial and developing countries introduced measures in the area of portfolio investment in the period under review. Among the number of liberalizing measures taken by industrial countries, Australia, in December removed all exchange control requirements in relation to borrowing and capital raising in, and the repatriation of capital from, Australia by nonresidents. Prior approval of borrowing agreements with nonresidents is no longer required except where agreements are with residents of countries designated for tax screening purposes. However, drawdowns of borrowings for all nonresidents need approval. Controls were also lifted on interest-bearing investments by nonresidents (with the exception of foreign governments, government agencies and foreign banks, including central banks). In addition, exchange control requirements were abolished for the issue of guarantees by residents in favor of nonresidents. Exchange control approval is no longer required for underwriting and sub-underwriting of foreign issues by residents except where residents of countries designated for tax screening purposes are involved. Approval of guarantees provided to Australian residents by nonresidents is subject to any necessary clearance under the Government’s foreign investment policy. In May, Belgium and Luxembourg granted authorization for banks to sell in the official market foreign exchange acquired in the financial market, thus offering the option to channel foreign exchange capital inflows through the official market. In May, Denmark raised the limit beyond which individual transactions and remittances become subject to exchange regulations from DKr 10,000 to DKr 25,000. Residents were permitted to acquire not only bonds issued by international organizations, but also bonds listed on a stock exchange; nonresidents were permitted to acquire (a) government bonds (excluding treasury bills), (b) shares in joint stock and private companies not quoted on the stock exchange, and (c) private mortgage deeds with a residual maturity exceeding five years. Authorization was also granted for residents who were registered as liable for value-added tax or for withholding of employees’ income tax to borrow abroad without restriction, provided that the maturity of such loans was at least five years. Furthermore, the limit of DKr 250,000, which restricted residents’ purchases abroad of real estate for noncommercial purposes, was abolished. The limit for loans to and from a family member as well as residents’ loans to subsidiary companies abroad was raised from DKr 200,000 to DKr 500,000 for each calendar year. In December Finland raised the maximum amount of foreign exchange allowed for each person emigrating from Finland and the limit on the purchase of foreign exchange for the purchase of a second residence abroad. In March France raised the limit applicable to prior authorization of external borrowings by residents, other than for trade purposes, from F 10 million to F 50 million. In December, Italy exempted certain direct investments abroad by industrial companies and banks from the 50 percent noninterest-bearing deposit requirement; other cases would also be considered to have been tacitly exempted if the authorities did not respond to the application within fourteen days. Japan, in late March, permitted domestic sales to Japanese residents of commercial paper and negotiable certificates of deposit issued abroad, and in April both banks and securities companies started to deal in these financial assets. Funds thus raised could be used by the subsidiary’s parent bank for lending abroad. In July the Netherlands removed restrictions on capital inflows with maturities of less than two years. Foreign borrowing by nonbank residents from nonresidents exceeding f. 500,000 a year, and the issuance and sale by nonbank residents of domestic debentures (not listed on the Amsterdam Stock Exchange), were no longer subject to review. In addition, resident enterprises were no longer required to obtain permission for longer-term borrowing abroad for domestic use. Portugal in September raised the maximum amount of private capital transactions that may be effected without the approval of the Minister of Finance from Esc 200 million to Esc 500 million. In February South Africa ceased to designate as “financial rand” local proceeds of sales of quoted and unquoted South African securities, real estate, and other equity investments held by nonresidents (with the exception of expatriates, who remain subject to restrictions on the same basis as in the past). Such proceeds are now allowed to be transferred freely from South Africa through normal banking channels at the prevailing unitary rate of exchange for the rand and, may also be freely used in the Rand Monetary Area by nonresidents for investment or other purposes. In May, Sweden abolished the regulation prohibiting local governments and local government-owned companies from obtaining foreign loans directly from abroad or via Swedish banks. In November Switzerland permitted foreign export credit agencies to issue bonds in the form of either public issues or private placements in Switzerland, provided that borrowing entities did not violate OECD guidelines relating to officially guaranteed export credits.
Several developing countries liberalized controls on portfolio investment. As an exception to a prohibition on the specification of foreign currency clauses in transactions between residents, Bolivia in September permitted loans from multilateral and bilateral international institutions and repayable in foreign currency to be re-lent domestically, either in the original currency or on the basis of maintenance-of-value clauses. Brazil in January raised the maximum amount of exchange transactions on Brazilian securities exchanges that may be effected without the intervention of authorized brokerage houses, from the equivalent of US$1,000 to the equivalent of US$20,000. Colombia in April added car-assembly enterprises to the list of enterprises that were permitted to borrow abroad for financing investment, up to a maximum of US$50 million for each enterprise. In September private entities operating in the agricultural, mining, manufacturing, and service sectors were also permitted to obtain loans from abroad for financing working capital or fixed investment, provided that such loans had a maturity of at least three years, and at least a one-year grace period, and that the lending rates did not exceed 2.5 percent over LIBOR or U.S. prime rates. In May India introduced several modifications in regulations governing portfolio investment in India by nonresidents. Designated banks were permitted to purchase equity shares and convertible debentures from nonresidents, without specific Reserve Bank approval, for each transaction up to an overall ceiling of (a) 5 percent of the total paid-up equity capital of the company, and (b) 5 percent of the total paid-up value of each series of convertible debentures issued by the companies. These overall ceilings were applied to purchases both with and without repatriation benefits, but equity shares acquired on conversion of debentures were not included in the ceilings. Purchases in excess of these ceilings were subject to the prior approval of the Reserve Bank. In addition, in July sales and transfer of shares of Indian companies held by nonresident Indians on a nonrepatriation basis to nonresident or resident Indians through a recognized stock exchange were no longer required to be approved by the Reserve Bank. In February Lesotho and Swaziland abolished the financial rand market. In June Pakistan permitted its nationals residing outside the country to repatriate proceeds of principal and capital gains on securities they had in Pakistan, provided that these securities were held for not less than one year.
During 1983 only a few industrial countries took measures which tended to restrict outflows and inflows of portfolio investment. In September Switzerland ceased to grant authorization for foreign export credit agencies to place public issues on the Swiss bond market. Private placements and direct credits from banks, however, continued to be permitted under certain conditions. Spain in February extended for a period of 12 months the suspension of a 1979 decree which liberalized outward portfolio investments; thus prior authorization continued to be required to transfer funds abroad for investments in foreign bonds and other financial instruments.
A few developing countries tightened the controls and intensified restrictions on portfolio investment. In Argentina, the Central Bank issued regulations in June providing for the compulsory rescheduling of private sector loans that were covered either by a swap arrangement with the Central Bank or by an exchange rate guarantee issued by the Central Bank in 1982. Bolivia in September introduced a number of changes in the regulations governing foreign indebtedness: (a) all public sector institutions were required to obtain prior approval before entering into negotiations for any financing or refinancing with foreign entities; and (b) foreign borrowing by private sector institutions or private individuals that would require official foreign exchange for servicing was made subject to approval.
Regulations governing foreign direct investments were modified in several developed and developing countries, on balance, toward liberalization. In May Denmark raised the limit on direct investments in Denmark by nonresidents from DKr 2 million to DKr 5 million a calendar year, and the limit on direct investment abroad by residents from DKr 500,000 to DKr 2 million; in March Sweden eased restrictions on mining operations in Sweden by foreign companies. In January Ethiopia announced a new foreign investment code, under which joint ventures were permitted between the Ethiopian public sector and foreign investors, with up to 49 percent ownership. Joint ventures, which cannot exceed 25 years in duration, were allowed in projects contributing to foreign exchange earnings, to employment, and to general economic and social development and were prohibited in the sectors of precious metals, public utilities, telecommunications, banking and insurance, transport, and domestic trade. All applications for joint ventures were required to be approved, and a minimum of 25 percent of share capital was required to be paid before registration. Joint ventures were exempt from the income tax for five years in the case of new projects, and for three years in the case of major extensions to existing projects. Imports of investment goods and spare parts for such ventures were made eligible for exemption from customs duties and other specified import levies. India in March provided the following additional facilities to encourage investment in India by nonresidents of Indian nationality or origin and by companies owned at least 60 percent by them: (a) hospitals were included among eligible projects for direct investment in new issues with full repatriation benefits under specified schemes; (b) the Reserve Bank permitted Indian companies to appoint agents abroad and pay reasonable compensation to secure investments by nonresident Indians in new issues of shares and debentures; and (c) nonresident Indians were permitted to place funds in public limited companies (including government undertakings) in India with full repatriation benefits, provided that deposits were made for three years and paid either out of remittances or from their nonresident (external) rupee or foreign currency accounts. In January Morocco announced a new industrial investment code that provided for full foreign ownership of Moroccan companies and for liberalized capital repatriation requirements, and that introduced fiscal incentives for foreign investments in Morocco. In June Oman promulgated a new foreign investment law, under which joint ventures would be offered a five-year tax holiday, renewable for an additional period of five years under certain conditions. In addition, the Oman Development Bank was authorized to make medium- and long-term loans at preferential interest rates for project financing in the petroleum, agricultural, fisheries, and mineral sectors and to provide assistance in preinvestment research. Foreign investment would no longer be permitted in trade and services but would be encouraged to concentrate on large production or manufacturing projects.
The regulations governing foreign direct investments were tightened in two developing countries. In May Ecuador required that foreign exchange from direct foreign investment be surrendered in the official exchange market. In May Maldives required all foreign investors to provide at least 75 percent of their capital investment from abroad either in the form of freely usable currencies or in the form of capital goods financed from abroad.
A number of countries introduced fiscal and monetary measures having an indirect impact on international banking operations and capital flows. Switzerland in February ceased to withhold taxes on interest earnings from Swiss fiduciary accounts held by both Swiss nationals and foreigners. Among the developing countries, Chile imposed in January a 5 percent reserve deposit requirement on all foreign loans with an average maturity of less than 72 months unless they were contracted to finance imports of capital goods authorized by the Central Bank; in November the coverage of the 5 percent deposit requirement was reduced to loans with an average maturity of 60 months. Chile in July introduced an exchange guarantee for foreign borrowing intended to refinance amortization payments and for new loans to enterprises operating in the nontrade sector, subject to a cumulative limit of US$750 million. In January, the People’s Republic of China announced a provision whereby for interest or leasing fees less the value of equipment paid abroad under credit, trade, and leasing agreements entered into with Chinese companies and enterprises during the period 1983−85, income tax is to be levied at the reduced rate of 10 percent (half of the normal rate) during the validity of these agreements, and interest that pertains to export credits is entitled to income tax exemption. For fees paid to foreign businessmen for special technology in such fields as agriculture, animal husbandry, research, energy, communications, transport, environment protection, and the development of important techniques, income tax is to be levied at the reduced rate of 10 percent (half of the normal rate), and fees that pertain to advanced technology obtained with favorable terms are entitled to income tax exemption. In November Fiji introduced tax concessions on investments in the tourist industry. Investment allowances similar to those granted to the hotel industry were granted to investments in projects supportive of the tourist industry when large outlays were involved. Under the 1983/84 budget, India introduced fiscal concessions for investments by nonresident Indians in shares issued by Indian companies, deposits with public limited Indian companies, units of the Unit Trust of India, securities issued by the Central Government of India, and other assets specified by the Central Government of India. Income and long-term capital gains from these assets were made taxable at a flat rate of 20 percent, plus a surcharge of 2.5 percent. Nonresident Indians were given the option of paying the tax at normal rates applicable to resident taxpayers if they were more favorable. These investments were also exempted from wealth and gift taxes. Singapore announced in April that all income accrued within five years by Asian Currency Units (ACUs) based in Singapore from loans syndicated in Singapore would be exempted from the 10 percent income tax provided that: (a) the entity serving as lead manager was an ACU based in Singapore (when two or more are lead managers, at least one half of the number should be financial institutions in Singapore); (b) the Ministry of Finance was satisfied that the bulk of the syndication process had been done in Singapore; (c) at least three lenders were involved; and (d) the loan involved was an offshore loan. In addition, the tax levied on the fees earned by ACUs from the provision of management services in loan transactions was reduced from 40 percent to 10 percent. In January Thailand extended the exemption of withholding tax on interest payments for foreign loans, which was originally scheduled to be eliminated by December 31, 1982, to June 30, 1983 for loans with maturities of more than 12 months; in July the withholding tax exemption was further extended to June 30, 1984 foreign loans with maturities of more than 24 months.
New regulations concerning transactions in gold were introduced by several member countries. In the People’s Republic of China, the State Council issued in June new regulations governing holdings of, and transactions in, gold. Chile introduced in March a regulation limiting trade in gold to authorized houses; from July, however, transactions in gold between private individuals were permitted as long as they were not carried out in a customary manner. In the Dominican Republic, the Central Bank authorized in July the sale of domestically mined gold for industrial activities through specified channels. In April Egypt authorized each arriving and departing traveler to carry jewelry of a value up to LE 500. In Ghana the previous export tax on gold assessed per troy ounce was changed to an ad valorem basis in April, with the rate set at 20 percent. The Guyana Gold Board announced in September that it would pay local gold miners a domestic currency price which, when compared with the world market price of gold in foreign exchange, would imply an exchange rate of G$4.9 = US$1. The foreign exchange earned by the Gold Board from such operations would be converted by the central bank at the rate of US$1 = G$5.50. In Iraq the Central Bank monopoly on gold importation was terminated in August, and permission was granted for Iraqi citizens to import gold. In addition, all imports of unworked and ornamental gold in excess of 250 grams were made subject to a duty of 35 percent. South Africa commenced in September the practice whereby the South African Reserve Bank would pay the gold mines in U.S. dollars for gold supplied to the bank. In the People’s Democratic Republic of Yemen, the maximum quantity of gold ornaments that departing female residents could take out of the country was doubled in February to 20 tolas.
See Explanatory Note on Coverage of Part Two, page 52.
See Explanatory Note on Coverage of Part Two, page 52.
Payments arrears constitute an exchange restriction under the Fund’s Article VIII, Section 2(a) when they involve current international transactions as described in Article XXX, Section (d) of the Fund’s Articles of Agreement, and are therefore subject to approval under Article VIII. When payments arrears are incurred by the government because it is unable to obtain domestic currency with which to purchase needed foreign exchange, such arrears are treated as government defaults rather than exchange restrictions; this occurs, for instance, when the government of a country belonging to a common central bank arrangement is unable to obtain domestic currency with which to purchase needed foreign exchange from the common central bank. This distinction between payments arrears and defaults is relevant, however, only for the purpose of the Fund’s jurisdiction under Article VIII; under the Fund’s policy on the use of its resources, defaults as well as payments arrears on capital transfers and current payments are examined, and their orderly elimination is usually made a performance criterion.
In March 1982, and again 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, pages 37–38.
For a detailed description of Fund policies relating to multiple currency practices and the criteria applied by the Fund in determining the existence of multiple currency practices and broken cross rates, see the Annual Report on Exchange Arrangements and Exchange Restrictions, 1980, page 17, and 1981, pages 22–23.
In this section all forms of multiple currency practices are discussed, irrespective of the transactions involved.