P. Report of the Managing Director to the Board of Governors and to the Executive Board Pursuant to Article XVIII, Section 4(c)
- International Monetary Fund
- Published Date:
- September 1996
This report is submitted pursuant to Article XVIII, Section 4(c) of the Articles of Agreement which provides, in part, as follows:
The Managing Director shall make proposals:
(i) not later than six months before the end of each basic period;
provided that, if under (i) … above the Managing Director ascertains that there is no proposal which he considers to be consistent with the provisions of Section 1 of this Article that has broad support among participants in accordance with (b) above, he shall report to the Board of Governors and to the Executive Board.
The present basic period, which is the third one, began on January 1, 1978 and will end on December 31, 1981. In view of the provision in Article XVIII, Section 4 quoted above, the Managing Director must submit his proposal, or his report if he is unable to make a proposal, not later than June 30, 1981. As stated in that provision, he must submit a proposal to the Board of Governors if he is satisfied that a proposal could be made which, in his view, would be (i) consistent with the provisions of Section 1(a) of Article XVIII and (ii) would have broad support among participants in accordance with Section 4(b) of the same Article. He must report to the Board of Governors and to the Executive Board if he is not so satisfied. Section 1(a) and the relevant part of Section 4(b) provide as follows:
In all its decisions with respect to the allocation and cancellation of special drawing rights the Fund shall seek to meet the long-term global need, as and when it arises, to supplement existing reserve assets in such manner as will promote the attainment of its purposes and will avoid economic stagnation and deflation as well as excess demand and inflation in the world.
Before making any proposal, the Managing Director, after having satisfied himself that it will be consistent with the provisions of Section 1(a) of this Article, shall conduct such consultations as will enable him to ascertain that there is broad support among participants for the proposal…
Under Article XVIII, Section 4(d), and Article XXI(a)(i) decisions of the Board of Governors approving proposals of the Managing Director require an eighty-five percent majority of the total voting power of participants in the Special Drawing Rights Department. As all members of the Fund are now participants in the Special Drawing Rights Department, this means eighty-five percent of the total voting power in the Fund.
The question of allocations of SDRs in the fourth basic period has been under discussion in the Executive Board, which considered the matter in meetings in January and April 1981. The consideration by the Executive Board was on the basis of staff memoranda providing background material and discussing the considerations relevant to the determination of the existence of a global need to supplement existing reserves and the size of the SDR allocation in the next basic period, including the objective under the Articles of Agreement of making the SDR the principal reserve asset in the international monetary system. During the discussions in the Executive Board, many Executive Directors expressed support for allocations in the fourth basic period, while some Directors were not prepared to support any allocations, and there was a wide range of views about possible amounts. These discussions, therefore, did not lead to a conclusion on the part of the Executive Board on the matter of allocations.
The question of allocations during the fourth basic period was considered by the Interim Committee at its meeting in Libreville, Gabon, on May 21, 1981. The communiqué issued by the Committee at the conclusion of that meeting contained the following paragraph:
The members of the Committee considered the question of allocations of SDRs in the next, i.e., the fourth, basic period, which is scheduled to begin on January 1, 1982. The members of the Committee discussed this matter on the basis of the provisions of the Fund’s Articles of Agreement and in the light of the various relevant factors, including the importance of strengthening the role of the SDR as a reserve asset and the need to avoid an undue increase in international liquidity. Many members supported the continuation of allocations in the fourth basic period and expressed the view that every effort should be made to achieve a consensus on this matter. Some other members considered that no case had been established in accordance with the principles laid down in the Articles of Agreement for an allocation in the near future. The Committee urged the Executive Board to continue its deliberations on the subject to enable the Managing Director to submit to the Board of Governors at the earliest possible date a proposal that would command the necessary support among members.
On the basis of discussions that have taken place, I have concluded that I am not in a position to make, by June 30 of this year, a proposal for allocations of SDRs in the fourth basic period that would command a broad support among the members of the Fund in accordance with the Articles. As provided in Article XVIII, Section 4(c)(ii), however, it remains incumbent upon me to make a proposal regarding the fourth basic period as soon as I am satisfied that the requirements of Article XVIII, Section 4(b) are fulfilled. I shall, therefore, submit a proposal for allocations of SDRs in the fourth basic period as soon as further discussions and consultations lead me to the conclusion that there is broad support for a proposal that would be consistent with the Articles. In this connection, it is of importance that the Executive Board will, as requested by the Interim Committee, continue its deliberations on the subject with a view to arriving at conclusions that would enable me to make a proposal as soon as possible.
June 9, 1981