I. Introduction 1
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1971
In 1970 there continued to be a rapid expansion in world trade. In terms of total value, the 1969-70 increase amounted to slightly more than 14 per cent, about the same rate of expansion as that recorded for the previous year. For industrial countries as a group, both imports and exports rose by some 15-16 per cent, while the increase in trade of primary producing countries was on the order of 10-11 per cent.
Of the increase in the value of world exports in 1970, slightly less than half was a reflection of higher prices, particularly for manufactured products, rather than of increased volume. Prices of primary products rose considerably less steeply, on the average, than those of manufactures. Although food prices registered an increase approaching the average rate for manufactured goods, the trend in prices of most other primary products was much weaker, as those of base metals showed little change and those of agricultural raw materials declined appreciably.
The changes in the restrictive systems of member countries that took place in the period under review, although not affecting a major portion of world payments, appear on balance to have resulted in a reduction in restrictions on current payments. This occurred despite the difficulties in the world payments system witnessed in 1968 and 1969. At the end of 1970 there were somewhat less than 10 members out of a total of 117 whose restrictive systems could be described as complex as regards their rate structure or their exchange systems as a whole. Several important reforms took place, in Ecuador, Indonesia, the Philippines, Turkey, and Viet-Nam in 1970 and in Yugoslavia in early 1971. These reforms led to simplifications of restrictive systems and to a relaxation of general restrictions. France, in two successive steps, relaxed tourist allowances in 1970, and this action was followed by a number of the Operations Account countries.2 Early in 1971 France again increased its tourist allowances. Other countries, both developed and developing, each as a group, also increased their tourist allowances. These relaxations of restrictions were aided by an increase in 1970 in the international reserves in developed and developing countries, as a group. In addition to the relaxations in exchange restrictions and the exchange reforms undertaken, the resort to bilateral payments agreements also declined in the period. In the sphere of nontariff trade barriers, however, the situation is less clear. With regard to import surcharges, advance import deposits, and measures to stimulate exports, there appears to have been a small net increase in restrictions. Also, in several member countries the role of state trading increased. Although it is difficult to quantify the effect of this, it is possible that on balance there was an increase in restrictions insofar as nontariff barriers are concerned.
In its consultations and through the provision of financial resources, especially in support of stand-by arrangements, the Fund has continued to work for a multilateral trade and payments system based on effective par values and free from restrictions on current payments. In addition, in the past year the Fund reviewed its policy with respect to the granting of temporary approvals of multiple currency practices and of restrictions on payments and transfers for current international transactions that are subject to approval under the Fund’s Articles of Agreement. The review centered on the need for uniformity of approach in granting approval and the importance of granting approval only for a specified time normally not to exceed 12 months. The approval policy with respect to undue delays in making exchange available for the settlement of current international transactions that result from a governmental limitation and give rise to payments arrears was the subject of a separate review. Such delays are payments restrictions under Article VIII, Section 2(a) and Article XIV, Section 2 of the Fund Agreement, whether the limitation is formalized, as for instance by the imposition of compulsory waiting periods for exchange, or is informal or ad hoc. As a result of its review, the Fund adopted a decision which drew attention to the particular harm that informal or ad hoc measures that unduly delay the availability or use of exchange for current international transactions do to a country’s financial relationships because of the uncertainty they generate. The Fund provided general guidelines for their treatment. These guidelines made provision for the possibility of Fund approval of the exchange restriction, together with financial assistance by the Fund to support a program which inter alia envisages a phasing out of the restriction.
Of major potential importance for trade and payments prospects of the developing countries was the agreement in principle reached within the United Nations Conference on Trade and Development on a system of generalized preferences in their favor to be implemented in 1971. Proposals are pending in the United Nations that developed countries shall not raise any new tariff and non-tariff barriers to primary products from developing countries, and that existing tariff barriers to imports of manufactures and semimanufactures of interest to developing countries are to be eliminated progressively (Strategy for the Second Development Decade). Also of importance was a High-Level Meeting in Tokyo of the Development Assistance Committee (DAC), at which a majority of donor countries expressed support for the principle of untying bilateral and multilateral aid.
Two countries—the Yemen Arab Republic and Barbados—became members of the Fund in 1970, raising the total membership to 117 countries at the end of the year. During the period under review Ecuador accepted the obligations of Article VIII, which have now been accepted by 35 member countries accounting for some three fourths of world trade. Par values were changed by Ecuador and Turkey in 1970 and by Yugoslavia in early 1971. Initial par values were established by the Republic of China and the Democratic Republic of Congo. On May 31, 1970, Canada announced that it would, for the time being, not maintain the exchange rate of the Canadian dollar within the permitted margins, i.e., the exchange rate of the Canadian dollar has been allowed to fluctuate. The Fund has since been in close consultation with Canada on the question of the re-establishment of an effective par value.
This Report, and in particular the following sections, centers on exchange restrictions, but it also covers other measures and intergovernmental arrangements that may have direct balance of payments implications, such as import deposits, import surcharges, and measures to stimulate exports.