V. Restrictions of New Member Countries
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1965
Since 1960, 35 countries have become members of the International Monetary Fund. Most of these countries are newly independent states and are in the early stage of economic development. The largest relatively homogeneous group are the African members of the French Franc Area, which generally have similar, moderately restrictive systems. The association of these countries with the EEC has meant an alteration of the preferential trading arrangements that previously existed between them and Metropolitan France and that are being modified and extended to include the other five member states of the Community. In most instances, this extension applies to quantitative restrictions as well as to tariffs. In addition to other relationships, four of these countries are parties to a convention establishing the Equatorial Customs Union and to a protocol regulating economic and customs relations between them and a fifth country in the group.
Five African and four other newly independent countries are members of the Sterling Area, with fairly liberal systems which have changed relatively little since they joined the Fund. Some, however, have increased restrictions and tariffs, in part to protect new industries.
The remaining new members have varying restrictive systems. Several apply relatively severe restrictions, and the position of some of them has deteriorated in the face of domestic and balance of payments difficulties since they became Fund members.
As already noted, a number of the newly independent countries have sought to expand and diversify their exports and to obtain credits by entering into bilateral payments agreements. Often, any benefits achieved have failed to compensate for the distortions introduced. Some countries, seeking new sources of revenue, have considered or introduced exchange taxes. Experience in other parts of the world shows the desirability of keeping the exchange system free from such devices.
Of the 35 new members, 33 have chosen to avail themselves of the transitional arrangements in Article XIV, Section 2, of the Fund Agreement rather than to accept the obligations of Article VIII, Sections 2, 3, and 4; one has not yet made its choice. Of all Fund members, old and new, a total of 75 are now availing themselves of the transitional arrangements in Article XIV, Section 2, which authorizes a member, for balance of payments reasons, to maintain and 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. A member which is availing itself of the transitional arrangements may not, however, introduce restrictions on the making of payments and transfers for current international transactions without the approval of the Fund under Article VIII.5 Whether the adoption of a particular exchange restriction would constitute an adaptation to changing circumstances of existing restrictions or a measure requiring prior approval is a matter of judgment to be decided on the facts of each case. Consequently, a member contemplating a change in its restrictive system which appears to raise this problem should consult with the Fund prior to making such changes in order to clarify the situation.
The Fund—while adhering to its objectives—will continue to deal with understanding with members that encounter difficulties in the maintenance or the adoption of payments systems free of quantitative restrictions and discrimination. In accordance with the Fund’s policies and regulations, its resources, both technical and financial, will continue to be put at the disposal of members to help them to overcome obstacles to the maintenance of liberal trade and payments regimes.
Both multiple currency practices and discriminatory current arrangements may also be maintained under the provisions of Article XIV, Section 2. However, with respect to multiple currency practices, as explained in Decision No. 237-2 of the Executive Directors (Selected Decisions of the Executive Directors and Selected Documents, Third Issue, Washington, D.C., January 1965, pp. 84-91), rates of exchange are involved and a member has a duty to consult and obtain the approval of the Fund before changing any such practice, whether maintained under Article VIII or as a transitional arrangement under Article XIV.