I. Introduction

International Monetary Fund. External Relations Dept.
Published Date:
September 1967
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World trade continued to increase strongly through 1966 although the rate of increase diminished somewhat during the course of the year. The value of exports from developed countries increased by about 10 per cent, which was slightly higher than the 9 per cent average annual increase over the last five years; exports from the less developed countries increased more slowly, by about 6 per cent per annum, which was somewhat less than the 7 per cent average rate of increase registered by these countries over the past five years.

In certain respects the expansion of trade was accompanied by an improvement in the international payments situation. There was a striking improvement concentrated mainly in the first half of 1966 in the over-all payments position of Australia and South Africa, which had been heavily in deficit in 1965; and there was some reduction in the surplus positions of France and Italy. Industrial countries, as a group, had a small deficit in their over-all balance of payments in 1966, while in 1965 they had a small surplus. The combined current account surplus of the industrial countries appears to have declined by abont US$500 million from 1965 to 1966. Although the current account balances of Germany, Japan, and the United Kingdom increased substantially, those of the United States, France, the Netherlands, and Belgium-Luxembourg declined. On capital account there was a very marked reduction of the deficit of the United States; this reduction, together with surpluses which developed in Belgium-Luxembourg, France, and the Netherlands during the period, had their counterpart in increased net over-all capital outflows from Italy, Japan, and the United Kingdom and a reduction of the net capital flows into Germany, Switzerland, and the less developed countries.

The less developed countries, as a group, were again in surplus, although to a lesser extent than in 1965. The combined surplus of the less developed countries tapered off during 1966, as the surplus in the payments balance of the less developed countries in Latin America, Africa, and the Middle East disappeared or was reversed.

The pattern of changes in restrictive systems, like the pattern of payments developments described above, was mixed. A number of countries were in a position to relax and simplify their restrictive systems. A number of others felt compelled to tighten restrictions.

The number of member countries of the Fund rose to 106 as Singapore and Guyana joined the organization in 1966 and Indonesia again became a member in February 1967. Since 1961 the number of members formally accepting the obligations of Article VIII, Sections 2, 3, and 4, of the Fund Agreement has been gradually expanding. These members have included both less developed and developed countries. By electing to accept formally the obligations of Article VIII, Denmark, Guyana, and Norway brought the number of such countries up to 30. These countries were the source of over 75 per cent of world exports in 1966. Of the remaining members, 74 have chosen to avail themselves of the transitional arrangements of Article XIV, Section 2, while two have not yet notified the Fund of their intentions. At the present time there are a number of members of the Fund which have not formally accepted the obligations of Article VIII, but do not now apply measures of a type subject to Fund approval under Article VIII, Sections 2 and 3, or do not rely on such measures to any significant extent.

A member availing itself of the transitional arrangements under Article XIV is authorized, for balance of payments reasons, to maintain and to adapt to changing circumstances those restrictions on payments and transfers for current international transactions which were in effect when the country became a member of the Fund. Like a, country that has accepted the obligations of Article VIII, Sections 2, 3, and 4, a member availing itself of the transitional arrangements (Article XIV, Section 4) may not introduce new restrictions on the making of payments and transfers for current international transactions or reimpose those that have been effectively eliminated without the prior approval of the Fund under Article VIII. Whether the adoption of a particular measure, in a country maintaining exchange restrictions, constitutes an adaptation of existing restrictions to changing circumstances, or an exchange measure requiring prior approval, is a question that must be decided by the Fund on the facts of each case. What is an adaptation, as compared with an introduction, cannot be the subject of rigid definition, although there are useful general criteria, such as the novelty of the measures adopted, whether they are of major or minor consequence, and whether the basic nature of the restrictive system is changed. Accordingly, a member contemplating a change in its restrictive system that appears to raise this problem should consult the Fund prior to making the change. In this connection it should be noted that, as explained above, a member does not affect its existing obligations to consult and to obtain prior approval from the Fund by not accepting formally the obligations of Article VIII.

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