I. Introductory Note

International Monetary Fund. External Relations Dept.
Published Date:
September 1964
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In the past year, as in the immediately preceding years, the intensity of exchange restrictions differed broadly between the developed and the developing countries. The industrial and high-income countries were able to maintain their external economic relations with few significant limitations on the acquisition or use of foreign exchange for current transactions, while very many, though by no means all, low-income countries in the process, of development found it necessary to continue to rely on such restrictions.

Most of the industrial countries continued to have adequate reserve positions, taking into account the additional support provided by special cooperative arrangements as well as by the Fund. In general, exchange markets and the gold market remained calm, as a result both of the absence of major crises in payments positions of individual countries, and of the continued close cooperation among the industrial countries in monetary matters. Convertibility was maintained by all the industrial countries that have accepted the obligations of Article VIII of the Fund’s Articles of Agreement—Japan joining them as of April 1, 1964—and several took further steps to relax controls on outflows of capital. Large inflows of capital into some countries continued, and in three instances this led to measures to render such inflows less attractive.

The deficit in the balance of payments of the United States rose in the first half of 1963, but was sharply reduced in the second half. The current account surplus increased in the course of the year, despite the rise in imports, as the economic expansion continued. Moreover, the proposal for an interest equalization tax was followed by a decline in the outflow of long-term capital. Among other industrial countries, there were some major shifts in payments positions (e.g., in the Federal Republic of Germany and Italy), brought about in large part by disparities in cost and price movements, the increases in prices and costs in some of these countries being rather pronounced.

One of the most encouraging developments during the past year was an improvement in the export earnings of a number of primary producing countries (e.g., Australia, India, Philippines, and several countries exporting mainly coffee). The recovery in prices for primary products that commenced during 1962 continued in 1963 and early 1964, with sharp rises in prices of a few commodities. For 1963 as a whole, the value of the exports of the primary producing countries was about 8 per cent higher than in 1962, i.e., the rate of increase was about the same as that for world trade. Although not all the primary producing countries shared in this progress, and in many of them the larger receipts were absorbed by a high volume of payments, some of them improved their payments positions and were able to reduce their restrictions on trade and payments.

Most of the developing countries, however, continue to rely fairly heavily on restrictions, sometimes in combination with multiple currency practices or similar devices, to balance their international transactions. Most such countries have low foreign exchange reserves or have encountered difficulties in accumulating such reserves. A number of them have made use of the Fund’s resources. The problems involved in stimulating the growth of, and reducing the fluctuations in, the export earnings of these countries are under consideration in the United Nations Conference on Trade and Development and in the GATT (General Agreement on Tariffs and Trade); in particular, it is expected that a successful conclusion of the GATT round of negotiations on the reduction of trade barriers, opening on May 4, 1964, will benefit the exports of these countries.

The following paragraphs set out in more detail the experience of the past year with respect to foreign exchange practices and related matters.

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