Discussion of Fund Policy by Governors at Fund Session1

International Monetary Fund. Secretary's Department
Published Date:
October 1967
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Statement by the Governor of the Fund for the Gambia—S. S. Sisay

As the Fund’s newest member, The Gambia has many reasons to feel grateful. First, for the opportunity to speak on this important occasion. Secondly, to join with other members in acknowledging the splendid hospitality which the Government of Brazil has shown us all. Thirdly, to thank all those speakers who have welcomed us. Fourthly, we thank you, Sir, and the Board of Governors of the Fund for receiving The Gambia into the club. We note particularly that our country is the first to be admitted with an agreed quota below the minimum level fixed in 1958. This new departure by the Fund is a precedent and a yardstick for those other small countries who are now seeking membership or will be seeking it before long.

Although small, The Gambia is relatively as much concerned as any other developing country in your deliberations and in the policies followed in the great financial and trading countries of the world. Abrupt changes in economic activity in those places due to fine adjustments of policy may release shock forces round the world large enough to affect gravely all those countries in Africa and elsewhere which depend on a sparse income from agriculture as the main source of their livelihood.

The Fund represents also for us the door through which we may enter both the Bank and IDA. I hope that our applications for membership of these institutions will be accepted in the next few days. We make no bones about our desire for the means to speed development. We have already received valuable help from abroad, but an important gap remains. We are seeking to strengthen our economic base, to diversify our activities, and to achieve better agricultural output. Finally, we hope to develop those assets, notably connected with our great river, which hold out promise in the longer term.

We venture, therefore, to hope for support from the Bank and from IDA in two important directions. The first is in the launching of constructive projects within The Gambia itself. Some of these projects, notably in connection with the harbor at Bathurst, are already under active preparation. The second direction is in exploring and ultimately in bringing to fruition larger schemes which can only be carried out on an international scale and by international effort.

I must emphasize the word “international” here because we are always mindful that some of the long-term plans for development do not affect us alone but also our friends and neighbors in the Republic of Senegal.

Collaboration on an international scale has one special aspect. The Gambia may yet be an important testing ground for the growth of what we in Africa call the horizontal links, that is, the ties between different countries within the continent. It is a fact of history that most of us have risen to nationhood deeply influenced in economic structure and habits by what may be called the vertical links, that is, with other and larger economic systems overseas. This is not a matter for regret, since the vertical links have great and continuing value. But undoubtedly they tend to make difficult the extension of practical collaboration between African countries which historically belong to different systems. In this respect The Gambia occupies a position of strategic importance and one which, I hope, will command the sympathy and interest of you all.

The currency of The Gambia is free and convertible. It is our intention to maintain these characteristics. The currency is allied to the pound sterling and we have found the connection a satisfactory and valuable one, which we shall continue. Our trade system is straightforward and on classical lines. We seek to sell our produce in the best markets—though these admittedly produce poor returns at the present time—and we aim to buy in the cheapest markets. In short, we conduct a liberal trade policy, and behind it we have a currency amply backed by external assets and at a par value which reflects its true purchasing power.

I make no apology for referring to our aims and our circumstances. This is, after all, a special occasion for us and one where it may be helpful to some of our friends that we comment on our own affairs rather than presume to comment as newcomers on your larger preoccupations. For the rest, we salute the efforts which the Fund is making to improve international liquidity and thereby to bring about an expansion of world trade free from the upsets that have characterized it in the past decade. We align ourselves fully with our African colleagues in expressing the hope that it will be possible to increase the volume of development aid and to make it available on terms which take great account of the immense difficulties which face all of us, not only in Africa, but also in many other developing countries.

Finally, while recognizing the vast problems involved, we support all efforts to achieve greater stability in the prices of primary products. It is for this reason that my country wishes to be associated with the Resolution on the subject which is before the meeting; and I congratulate the countries which submitted it on their timely initiative.

We are confident of your interest and proud to participate in your affairs.

Statement by the Governor of the Fund and Bank for Turkey—Cihat Bilgehan

It is a pleasure and an honor for me to represent my country at the Annual Meeting of the International Monetary Fund.

I wish to express my appreciation for the Annual Report and for the statements made at the beginning of this meeting by you, Mr. Chairman, and by Mr. Schweitzer.

In the Annual Report of this year it is once again stated that “…slowdown in the tempo of economic activity in major industrial countries during the latter part of 1966 continued in the first half of 1967. . . .” It is also stated that “weakening of demand conditions in the industrial world … has had adverse effects on commodity prices and exports in many of the primary producing countries.” The monetary policies pursued by some of the industrial countries in order to restrict the domestic demand have had negative effects on the financial flows to the developing countries.

Time has come to tackle this acute issue of the international economic community with necessary courage and vigor and to solve it in such a way and by such measures that international liquidity will no longer be a bottleneck to economic activities of developed and developing countries.

The observations made in this connection are very interesting. Global world reserves increased at a 2.6 per cent average rate per annum during the 1951-65 period, whereas the expansion of world trade was 6 per cent per annum during the same period.

At present it is certain that the global world reserves are not adequate to finance the world trade. But a more important aspect of the problem is the distribution of the existing reserves. With one or two exceptions all of the developed countries enjoy a surplus, while all of the developing countries are short of means of financing their development activities. I am of the opinion that the present structure of international liquidity requires substantial improvement. This is a question to which, fortunately, experts throughout the world are trying to find a solution that ought to be satisfactory to the needs of the majority.

To state it more clearly, I believe the need for any correction in the structure of international liquidity cannot entirely be separated from the growing liquidity need of the developing countries.

Unless the subject matter is examined from this viewpoint, the volume of world trade is very likely to grow at a slower pace, coupled with a slower rate of economic development. I welcome, therefore, every suggestion made or to be made here to this end, here, in one of the most authoritative international forums. I also welcome every effort made or to be made to find a solution to the present difficulties of the developing countries’ reserve needs, in this meeting.

In this connection, it is with pleasure that I refer to the speech made by Mr. Schweitzer last year on the desired qualifications of the additional liquidity to be created. I take the opportunity of expressing our view, though briefly, on the draft before us which was finalized at the recent London meeting.

In the draft before us, it is proposed that the additional reserves to be created be distributed among the members in proportion to their quotas in the Fund. It is not easy to argue that the present liquidity problems of developing countries, even to a certain extent, are incorporated in the proposed scheme. In my view, the facts that the international liquidity problem is of a short-term nature from the viewpoint of industrialized countries and that the problems of developing countries are of a rather long-term nature do not constitute a reason for not establishing any link between these two problems.

On the contrary, such a significant new step in international cooperation cannot be taken without considering the questions of developing countries. I believe, in order that world trade could be further promoted on a sound basis, a system ought to be worked out that will meet the needs of developing countries so far as the distribution of the additional liquidity to be created is concerned.

On the other hand, we observe that the additional liquidity might turn out to be, at least indirectly, a credit with terms which cannot be identified as desired ones. Moreover, we believe that exceptions should be adopted in favor of developing countries so far as interest payments and reconstitution are concerned.

In this connection, I should like to draw attention to the fact that bilateral or regional or international capital flow in the form of aid is not adequate to meet the reserve need of developing countries.

During the period following the Second World War up to the present time, the creation of the IMF and of the World Bank has been the most significant example of achievement of international cooperation in the direction of expansion of world trade and of overcoming the present difficulties of the developing countries. Another example of remarkable achievement in international cooperation is expected from us in the immediate future, namely, in finding a solution to the problem of international liquidity which would be satisfactory to the majority. Unless this problem of international liquidity is solved soon, world trade as well as development efforts of developing countries are likely to be threatened ever increasingly.

Statement by the Governor of the Fund and Bank for South Africa—Nicolaas Diederichs

I gladly join with other Governors in thanking the Government and people of Brazil for their generous hospitality in this beautiful city.

I think we must all recognize the achievement of those who drafted the Outline of the special drawing rights facility which is now before us. It was no mean task to obtain agreement among the most important nations of the world on a scheme of this nature, even though many specific details remain to be worked out and important issues to be resolved. However, I—and probably many others here today—-have reservations on the Outline scheme, and—since we were afforded only a very limited opportunity to make our views known when the proposals were being drafted—I think it is my duty to state my views frankly at this meeting.

Special drawing rights are, of course, not a net advantage to everybody. They imply that creditor countries may have to give even more real resources than in the past—and to receive in exchange a new and untried credit instrument. They may imply that creditor countries, which in the past have held their reserves mainly in the form of gold, may have to give up some of their gold in exchange for drawing rights. Many of us hope very sincerely that the scheme is not merely a device to enable chronic debtor countries to continue on their primrose path, and I agree with the emphasis placed by the Governors for France and Germany on the essentiality of adequate reconstitution provisions.

I am glad to note that special drawing rights have been authoritatively described as a supplement to, and not as a substitute for, gold. This is, I think, a realistic approach. Special drawing rights differ from gold in important respects. They are a form of credit—a new and unfamiliar form. Their acceptability is, to say the least, limited—otherwise why should it be necessary to oblige participants to accept payment in the form of these rights? Special drawing rights lack the anonymity of gold and the consequent ease of transfer; they are essentially fair-weather assets, capable perhaps of playing a useful role in times of prosperity and peace, but untested in times of stress. Gold, on the other hand, still constitutes well over half the world’s monetary reserves, and its special qualities as a source of liquidity and the confidence it universally inspires enable it still to play a vital role in international finance. The very fact that an additional credit structure may be erected to supplement existing international liquidity makes it the more important that gold should be enabled to fulfill its functions as the base of this liquidity.

One of the reasons given for the preparation of the Outline scheme is that the annual accrual of gold to monetary reserves is insufficient to supply the world’s need of additional liquidity. This has often been incorrectly stated as being the result of the so-called vagaries of gold production. But this is not true. In fact, the level of gold production has been maintained; the problem has arisen because gold has not in recent years flowed into monetary reserves in adequate quantities. Why, then, in the search for additional liquidity, was no attention given to the causes of this failure of gold to flow into official reserves?

Among the causes is the increased demand for industrial and hoarding purposes. The latter is related partly to speculation but partly to rising living standards and increased saving in countries where financial institutions are relatively underdeveloped and savings are still traditionally channeled into gold. But in all cases price plays a part, and it is surely paradoxical that the major industrial countries should, through the operation of the gold pool, maintain the price of gold at a level low enough to make it attractive for nonofficial buyers to absorb the entire supply of gold coming onto the free world’s markets, leaving nothing for official reserves. In other words, the question arises whether the operations of the gold pool, by keeping down the price on the principal markets, have not contributed to the inadequate flow of gold into monetary reserves. I do not wish to argue this question at length, but would ask why it has not been examined at all in the course of the study of the liquidity problem which preceded the formulation of the present proposals.

Another question which, in my view, calls for examination is the future level of gold production and its implications for international finance.

In production, as in distribution, the gold price is a key factor. I think that gold producers might well be prepared, in return for a satisfactory price for their product, to channel a high proportion of their disposable annual output into official monetary reserves, and on this basis the world would be assured of a satisfactory growth of liquidity, in its best form, for many years to come. On the other hand, as the representative of the world’s leading gold producing country, I consider it my duty to state clearly that, on the basis of the present gold price, South Africa may not in the future be able to make gold available on the same level as in the past.

In a spirit of cooperation, my country has accepted all the various devices for augmenting liquidity which have been introduced in recent years. We have all along believed that the solution provided in the Fund’s own Articles, namely, a general revaluation of currencies in terms of Article IV, Section 7, would be more appropriate, but we have not opposed these other devices. Similarly, although we still have certain reservations regarding the special drawing rights scheme, we shall be prepared to consider on their merits the proposals as finally formulated by the Executive Board.

However, in the course of the intensive discussions which will have to take place in drafting the detailed scheme and especially the purposes of, and the specific considerations applicable to, the facility, I would stress that these important aspects of the production and distribution of gold be given the consideration which they obviously warrant. . . .

In conclusion, I am pleased that two newly independent neighboring African States, Botswana and Lesotho, are likely to join our institutions shortly. We shall welcome our neighbors most sincerely to our ranks.

Statement by the Governor of the Fund and Alternate Governor of the Bank for Belgium—Hubert Ansiaux

At the moment when we are called upon to take important decisions for the future of international monetary relations, we can only rejoice that the names of Brazil and this marvelous and hospitable city of Rio de Janeiro will be permanently associated with this stage of monetary history.

For several years it has been evident that it is necessary to adapt the structure of international monetary relations and arrangements for granting monetary credit and creating liquidity to the new needs of our time. The excellent Report of the Executive Directors of the Fund, which deserves our congratulations and thanks, describes clearly and objectively the state of this matter. The time has come to choose the solutions that best meet present needs.

In tackling together the problems of the creation of special drawing rights within the Fund for the purpose of supplementing existing reserves and of the improvements to be made in the present rules and practices of the Fund, the draft Resolution before us places these problems in their proper perspective. What is involved is an evolution, gradual and cautious, but indispensable, of the present system toward new arrangements.

We consider it particularly fortunate that this evolution is taking place within the framework of the Fund. We have always advocated solutions covering the entire international community, patterned on the Fund’s operating technique and appropriately identified with this institution.

The Outline of a Facility Based on Special Drawing Rights in the International Monetary Fund meets these requirements, and we therefore approve it.

The Belgian Delegation considers that this system of special drawing rights has three advantages of great importance: unity of action on the international level, recourse to an already approved monetary technique, and the flexibility of a plan open to subsequent improvements.

First, it appears essential to us to maintain a sole responsibility at the highest level of international monetary cooperation in the creation of liquidity intended to meet a general need and in the granting of individual credits by the international community.

A second advantage is that the system is based on the well-known technique of drawing rights. The exercise of rights and respect for obligations of the Fund and its members implicit in the use of special drawing rights must be effectively guaranteed by the Fund. The arrangements made to this effect are designed to strengthen confidence in the special drawing rights and promote their holding and utilization by national monetary authorities.

Finally, it is clear that the arrangement described in the Outline is not definitive in all respects. It opens the way for techniques that are flexible enough to be adapted as experience requires.

The decision to set up the new facility in the form of special drawing rights created by a collective decision is undoubtedly an improvement over a system in which fortuitous factors play the leading role. But it imposes the obligation to pursue with special determination a policy of balance of payments equilibrium. A justified and adequate creation of liquidity presupposes this fundamental equilibrium. In its absence, the special drawing rights would become too easy a means of financing persistent deficits and would accordingly no longer constitute a good reserve.

It is for the same reason that the Outline recommends the combined use of different forms of reserves, in order to maintain a just proportion in the holding of the different international means of payment.

I wish to emphasize here the special responsibility that will fall upon the Managing Director of the Fund in the procedure for creating special drawing rights. He must assess the global need for reserves and make sure that the conditions are met for creating new liquidity safely. It will be especially important for a satisfactory equilibrium in the balances of payments of the principal countries to prevent other forms of liquidity creation from interfering with the distribution of the special drawing rights.

It remains to define the position of Belgium on the other problem treated in the draft Resolution: the appropriate adaptations of the rules governing the Fund’s traditional activity.

We attach as much importance to this as to the creation of new liquidity. We consider that there is a link between these two proposals and that the adoption of one cannot be dissociated from that of the other.

In fact, in the light of the experience of the last twenty years and the present needs of the world economy, taking into account the new mission entrusted to the Fund by the creation of special drawing rights, certain rules and practices of the Fund require revision.

A point on which we have insisted on several occasions in recent years is that of adequate status for the gold tranche, calling for full automaticity of drawings. This question is especially important in the perspective of the creation of special drawing rights. It will in fact be necessary to move toward the greatest homogeneity possible between these two forms of international liquidity, both of which can validly supplement traditional reserves.

The considerations that I have advanced concerning the creation of liquidity and the reform of the Fund constitute the essential elements of the Belgian position on these two questions. They justify the total support that Belgium is giving to the draft Resolution. I earnestly hope that the work of the Executive Directors of the Fund toward presenting jointly the two reports requested for the spring of 1968 may continue in the same spirit of constructive international cooperation that has characterized the negotiations of the last two years.

In these circumstances, we can face the future with confidence and expect that the decisions on the creation of special drawing rights and on adaptations of the rules and practices of the Fund will form a balanced combination of important reforms.

Statement by the Governor of the Fund for the Philippines—Andres V. Castillo

May I first convey the cordial greetings and warm appreciation of the Filipino people to the people of this metropolis of Rio de Janeiro and this great country, Brazil, for the generous and affectionate hospitality that has been accorded to us since our arrival.

I would also like to join my esteemed colleagues in congratulating Mr. Schweitzer for his very illuminating address.

The past year has seen the culmination of the years of hard work on the problem of international liquidity in an Outline of a contingency plan for establishing a facility in the form of special drawing rights to supplement existing reserve assets. The agreement on the contingency plan is eloquent testimony to the capability of men to reconcile conflicting national views in the interest of the entire community of nations. We, the representatives of the less developed countries, draw comfort from this achievement, and our confidence in the fruitfulness and efficacy of international cooperation has thus been bolstered. With the same dedication and cooperative spirit, we are hopeful that the remaining problems confronting us and those that may arise in the future shall be solved with greater and swifter ease and facility.

The significance of an expanding world trade to the primary producing countries, which the additional international liquidity seeks to foster, was shown rather forcefully by recent developments analyzed in the Annual Report. When the growth of imports of industrial countries slowed down from 13 per cent in April-September 1965 to 7 per cent in October 1966-March 1967, the increase in exports of the less developed countries decelerated more rapidly, from 9 per cent to minus 1 per cent. In contrast, the growth of exports of industrial countries remained stable, actually rising from 9 per cent to 10 per cent in the latter six-month period.

It is, therefore, quite timely for the Annual Report to devote much space to a problem of developing countries, their foreign exchange policies. In our experience, balancing of international payments is the most crucial problem among the host of difficulties encountered in the attempt to develop the Philippine economy. During the 21 years of our independent national existence, we have tried a variety of foreign exchange policies in trying to solve this problem, policies that ranged from severe trade and payments restrictions to completely unfettered foreign transactions. In the process, we devalued our currency by nearly 50 per cent. The problem of balancing international payments in the context of even a modest economic development program, however, remains as perplexing as ever. One cannot escape the suspicion that the existing body of knowledge is not yet adequate to explain the evident conflict between the requirements of economic development and external monetary stability.

The chapter in the Annual Report that deals with the foreign exchange policies of the less developed countries may help explain this state of affairs. This chapter is made up of 42 paragraphs. Only 2 short paragraphs are devoted to the exogenous elements which act as constraints to the developing countries. At that, the discussion is confined to the unfavorable tariff and tax policies of industrial countries, giving the impression that this aspect of the problem was treated only as an afterthought.

It is submitted, however, that the exogenous elements operating against the less developed countries are not included among the premises used in constructing the theory of international economics. Consequently, the theory cannot provide an adequate explanation of the forces operating in the less developed countries. It follows that the policies pursued on the basis of this theory are deficient in many important respects.

I refer to the technological and institutional biases operating in the world market against the products of less developed countries. Technological developments in the industrial countries have been shown to exert a bias against natural primary products, reducing, if not altogether displacing, the input of natural raw materials in the manufacture of finished products. This combines with the institutional bias which translates increases in productivity into a decline in prices of primary products produced by the less developed countries and into an increase in factor incomes in the case of manufactured products of the industrial countries. Adjusting the level of domestic economic activities to attain external balance in the light of the scissors effect of these two adverse forces would virtually mean condemning the less developed countries to economic stagnation, and, possibly, economic retrogression.

If we survey the experiences of less developed member countries for the Fund, we can discern quite quickly the almost universal use of exchange and trade restrictions for balance of payments reasons. Countries as disparate as India and Mauritania operate within an exchange control system. Is this a case where a large number of countries are adopting policies diametrically opposed to those indicated by economic theory and explained in the Annual Report? Or, is this not a case where, borrowing Lady Jackson’s apt description, conditions have changed, “leaving the Theory high and dry above the receding facts”?

The solution of this problem becomes daily more urgent. As the conflict between the requirements of economic development and external monetary stability remains to be resolved, the pressure of population growth continues to build up. This not only makes the problem even more difficult to remedy as time goes on but threatens to undermine the free institutions in these countries. The internal build-up of pressure, moreover, is now being reinforced by the recent trend toward a decrease in external assistance made available by the industrial countries. In the past, external assistance had helped to mitigate the inequity in the distribution of the gains from international trade.

It should have been possible, for example, to tailor the Outline of the contingency plan to provide some compensating element for the bias in the prevailing world market against developing countries. The Outline provides that the special drawing rights shall be allocated in proportion to the countries’ quotas in the Fund at the time the decision is taken. The present structure of the Fund quotas is, however, weighted heavily in favor of a small number of industrial countries. The 13 industrial countries in the Fund accounted for 65 per cent of total quotas as of May 31, 1967; 4 of these countries alone accounted for nearly 47 per cent. The 82 less developed countries, which number more than six times as many as the industrial countries, share only 27 per cent of total quotas, which is equivalent to less than one half as much as that of the industrial countries.

Considering the inequitable distribution of the gains from world trade and the uneven structure of the Fund quotas, the principle for allocating the special drawing rights could have been defined in such a way as to act as a compensatory device to meet the more urgent requirements of the developing countries.

It is obvious that the Outline scheme to create special drawing rights will be of primary benefit to the high-income or developed countries. It does not, in our view, squarely meet the deteriorating situation of the developing countries. The most that these countries can hope for, in the light of our present knowledge, is that the stimulus to trade among the advanced countries which the scheme may bring about may spill over in the form of increased demand for the exports of developing countries.

However, we live in a world of reality and compromise, and we are prepared to accept the scheme as the most that can be achieved at present. We also live in a world of faith and hope, and we note with satisfaction that Mr. Schweitzer, in his opening address, has said that the scheme is “capable of further development,” that “the Fund has shown a remarkable capacity to evolve,” and that “its policies and practices are not static” and “can be further modified.” Our acceptance of the scheme, therefore, must be read as an acceptance of an initial step in the improvement of the world’s monetary system and as an act of faith in the further evolution of the international payments system so as to meet squarely the problems of the developing countries of Asia, Africa, and Latin America.

With the taking of the first step on international liquidity, I would like to propose that the research staff of the Fund address itself to the pressing balance of payments problem of the developing countries. With the construction of an appropriate theory, it would be possible to suggest the policies and, possibly, the adjustments in the institutional framework necessary to reconcile the requirements of economic development and external monetary stability.

Statement by the Governor of the Fund for Ethiopia—Menasse Lemma

Before I make a few remarks on the Annual Report of the Fund, and on the new proposal for the creation of special drawing rights, I would like to take this opportunity, firstly, to thank the Managing Director of the Fund for his interesting speech. Secondly, through the Governor of the host country, I would like to thank the Government and the people of Brazil for the excellent preparations that have been made, and for the hospitality which has been extended to all of us, meeting in this beautiful city of Rio de Janeiro.

During the year under review, the world economy as a whole was confronted with a number of difficulties. The problems of the industrialized countries have not always been similar to the problems of the primary producing countries. Even among the primary producing countries, their fortunes have differed widely.

The major problem faced by the industrialized countries was that of continued internal adjustment in their domestic economies; the policies which have been followed by these countries internally have often had unfavorable repercussions particularly in the less developed group of the primary producing countries.

The industrialized countries, in their attempt to eliminate inflation and restore healthy economic growth internally, have often resorted to policies designed to reduce demand. The weakening of demand in the developed countries has led to a severe curtailment in imports, and has resulted in the further deterioration of prices and reduction of volume of the exportable commodities of the less developed primary producing countries.

Because of these and other factors, the less developed of the primary producing countries have experienced substantial economic difficulties. They have not been able to earn adequate amounts of foreign exchange reserves, to repay obligations of already contracted loans, and to meet minimum capital importing needs.

Even though problems connected with commodity agreements aimed at price stabilization and access to markets are difficult to solve, the ingenuity of the Fund in the future, with that of the Bank and other international organizations, should be directed more to the search for appropriate and flexible solutions. This should enable, in particular, the less developed of the primary producing countries to have a tolerable level of sustained economic growth.

I would like now to direct your attention briefly to the Outline of a Facility Based on Special Drawing Rights in the Fund.

The point which is interesting to note is that it is a contingency plan for the future—for a possible need which might arise. Since the conditions for activating the scheme and the purposes of the facility are still to be spelled out, it is very difficult to assess precisely at this stage, how we—individually or collectively—are going to be affected.

In any case, the broad indications as to which group of countries are likely to receive the lion’s share, and thus reap substantial benefit from the scheme of deliberate reserve creation seems to be clear. Special drawing rights are not always free money. They are free only at the time of creation and initial distribution. After that they involve a real shift of economic resources. We can gain special drawing rights by running surpluses, or lose them with a deficit.

Therefore, if developing countries support the scheme as presented, it is not because of the likelihood that it will solve any of their immediate economic difficulties—such as long-term capital assistance or obtaining adequate compensation for their exports; it will be because the scheme even in its present form, with all its uncertainty, might in the long run bring about a better working of the international monetary system as a whole.

In all equity, however, even at this late stage, some connecting link should be found between deliberate reserve creation and development financing. In addition, the following points should be noted.

In the “Procedure for Decision” paragraph (a) speaks of “concurrence” by the Executive Directors. This must, we hope, mean decision reached at a formal meeting of the Executive Directors. Our Executive Directors are elected to examine and present their recommendations before a decision is reached by us at the level of the Board of Governors.

Again, under paragraph (b) on “Procedure for Decision,” it is said that the Managing Director will conduct “consultations” to enable him to ascertain the broad support among participants for the allocation of special drawing rights at the rate and for the proposed basic period.

These provisions also are very vague and are likely to create misunderstanding in the future. We have been given to understand by our Executive Director that in this text the words “concurrence” and “consultations” shall only be reached in formal meetings of the Board of Executive Directors. Should this interpretation not be correct, we believe it important to have it clarified and spelled out at this meeting to avoid future confusions.

On the voting amendment, the proposed 85 per cent majority is a step in the wrong direction. This is especially so if it is extended to the present Articles of Agreement. We therefore intend not to support this provision if so extended. We sincerely hope that this provision will be discussed again by our Directors when the final documents are prepared.

Another point which should be thought out very carefully once again is the connection between existing quotas and the distribution of special drawing rights. The determination of the quota system, as it exists, was based on certain criteria and formulas which at that moment had nothing to do with the problems of international liquidity. This is not satisfactory as a basis, since adequate importance has not been given to the nonmonetary sector of a developing economy and the need that might arise in cases of economic difficulty.

As we try to find a proper supplement to existing reserve currencies, we should keep the historical facts in mind. Was it really the kind of international agreement which we now propose for ourselves—with all its known and unknown restrictions—that made first the pound sterling, and then the U.S. dollar, a reserve currency? This is not the case. It was the free choice of peoples all over the world, and especially of central bankers, I presume, which made the pound and the dollar reserve currencies. I do not need to elaborate on the various reasons for the choice. I should, perhaps, only mention in passing the phrase “freedom of movement.”

To what extent then will an internationally contracted arrangement for creating special drawing rights give to those SDR’s the status of reserve currency acceptable to all? This is a question which cannot perhaps be answered adequately at this stage.

In conclusion, let me thank the Managing Director and the other members of the staff who have once again served our institution with dedication during the past year.

Statement by the Governor of the Fund for Niger—Courmo Barcourgné

Mr. Chairman, in response to your appeal for a more restricted debate, it is not on behalf of the Republic of Niger that I speak to you and to the assembly over which you preside with such authority and courtesy, but also on behalf of the Republics of Ivory Coast, Dahomey, Upper Volta, Mauritania, Senegal, and Togo, which constitute, with my own country, the West African Monetary Union. It is in my capacity as the Chairman of the Board of our Central Bank that I take the floor here.

I should like leave first to warmly pay tribute to Brazil and to extend our thanks for the magnificent reception. We are particularly happy to be received in this great country where so many West Africans among us here find once more, on the other side of the ocean and after centuries, the men, the tongues, the gods, and the rhythms of their countries.

Among the new members of our meeting, there is one, The Gambia, that we are particularly happy to find here at our side.

You have allowed us to anticipate the forthcoming membership of two other African countries, and we express our pleasure in advance at this.

The West African Monetary Union has always shown great eagerness to participate fully in the activity of international institutions. Thus, our signatures were among the first to be affixed to the Convention on the Settlement of Investment Disputes, and of the 36 States to ratify it, 7 are members of our Union.

Barely three months ago, our 7 Governments, by a joint decision, completely liberalized the external financial relations of our States, eliminating all exchange controls and leaving subject to authorization only a few investment operations in order to integrate them better into our development programs. On this occasion, the moderate exchange taxes previously established by 3 of our States were eliminated in conformity with the International Monetary Fund’s wish.

Our currency, based on the combined external reserves of our 7 States, managed by a jointly administered Central Bank, and supported by a monetary cooperation agreement concluded with France, is now completely convertible.

No exchange restrictions deter the activities of foreign investors from any country. Encouraged also by liberal and nondiscriminatory investment codes, investors can find in our country the most favorable conditions for their activities.

In an Africa in agitation, in a radically changing world, it gives me pleasure to state here that, in spite of everything, our States have always fulfilled their obligations. They have thus provided the stability necessary for the expansion of investment.

We expect from our membership in the Fund and Bank and from strict observance of their principles not intellectual satisfactions but tangible assistance for the development of our economies.

Year after year, we have heard eloquent assertions at these meetings of the need for nations, all nations, to try to balance their external payments so as not to prejudice the operation of the international monetary system. We shall approve the creation of new facilities to benefit countries whose behavior has or will have rendered their international financial relations difficult. Our countries of the West African Monetary Union, in assuring the equilibrium of their external payments, will not be in a position to profit from these new arrangements. Once more, we shall have to content ourselves with being satisfied with the satisfaction of others.

Just before we came to this meeting, we balanced our accounts. We found that our 7 States have, in the five years of their participation in the international financial institutions, paid to them in convertible currencies an amount almost equal to that actually disbursed on our behalf by these institutions. It is true that the obligations recently contracted on behalf of our countries by the Bank and its affiliates will soon reverse this situation. We have been able to note, however, how right you were, Mr. Chairman, in emphasizing the slowness of the process, and we would add, procedures, of development.

Your remarkable opening address would have the most salutary effect if it finally led to recognition by this meeting of the need to give priority to ways in which adequate aid could be provided for the development of our countries.

There is no other way of doing this than to allow the developing countries to draw the optimum profit from their present activities, according to their present possibilities. Such aid can be rendered to them at the least cost by appropriate commodity agreements covering the principal agricultural or mining products which now provide the essential part of the foreign exchange earnings of the countries all of us here wish to aid.

Our colleague, the Governor for Malaysia, has shown us so well the need for a commodity agreement for his country’s principal export that it seems useless for me to repeat it here with reference to our countries.

Such agreements would impart to the flow of financial resources available to our countries the regularity necessary for their efficient use, as Mr. Woods requested at the start of our meeting.

Therefore, a study should be made of the stabilization of commodity prices at remunerative levels by establishing appropriate arrangements calling for balanced obligations on the part of both the producer and the consumer countries, and the necessary resources should be allocated to it.

This is the purpose of the resolution which the Governors for the 15 African, French, and Malagasy countries, assembled last week in Dakar under the chairmanship of the Minister of Finance of the Republic of Senegal, agreed to submit for approval at our present meeting.

We wish to be sure that in the new study requested of them the Executive Boards and staff of the Bank and Fund show the same diligence and efficiency that they demonstrated in the search for a solution to the problem of international liquidity. Mr. Schweitzer, the eminent Managing Director of the Fund, authorizes us to look forward to it with the following statement, made a short time ago, which he allows me to quote: “An outstanding lesson of both the Kennedy Round and the liquidity negotiations is that the most difficult problems of trade and finance can be resolved provided that the will exists.”

Statement by the Governor of the Fund for the Netherlands—J. Zijlstra

No one can come here without being struck by the beauty of this country, the courtesy and the friendliness of her inhabitants and their energy in getting things done. We are truly grateful for the lavish hospitality here encountered.

It is likely that the year 1967 will go down in the history of international monetary relations as a very significant one. Extensive discussions over a period of four years have finally resulted in a scheme for the creation of automatic drawing rights, which has been embodied in a draft Resolution, submitted to our meeting for approval.

This Resolution—with which the Netherlands Delegation, I am glad to say, fully concurs—consists of two elements: (1) the establishment of a system of special drawing rights; and (2) improvements in the present rules and practices of the Fund. With respect to these rules and practices, I would like to point out that the Netherlands Delegation takes the view that the voting majority proposed for decisions to be taken for the allocation of the new special drawing rights should also apply to some important decisions concerning the normal activities of the Fund.

I would like to make a few comments on the proposed scheme for the creation of special automatic drawing rights. The Resolution specifies that the main intention of the arrangement is “to meet the need, as and when it arises, for a supplement to existing reserve assets.” Generally speaking, the existing reserve assets consist of gold, reserve currency holdings, and gold tranche positions in the IMF. If the new asset is, in due course, to develop into a “true supplement to existing reserves”—and for a country holding its reserves mainly in the form of gold, like the Netherlands, this would mean a “true supplement to gold”—the following should be borne in mind:

  • (1) According to accepted economic principles, the value of an economic entity is determined by its relative scarcity. When effectively creating special drawing rights we therefore should be careful not to endanger the function of “true supplement to existing reserves” by the creation of too substantial amounts. In this respect one should not forget the good old Gresham’s law: “Bad money drives out good money.”

  • (2) The quality of the new asset does not merely depend on the amounts to be created; the reimbursement, or “reconstitution,” is also of great importance in this respect. As regards the proposed arrangement for reconstitution of the new facility, it may be true that member countries are permitted to make a continuous use of 70 per cent of the allocated drawing rights; however, the sense of the proposed rule surely is to promote a fluctuating use. A permanent and excessive use by a number of major countries could impair the quality of the new asset in the eyes of the others.

  • (3) In the proposed scheme the principle of harmonization in respect of the (more or less) proportionate use of the various components of the reserves of a country “in payments need” has retained no more than platonic significance. It is to be hoped that in the future this principle will become more operational; this would in our opinion be one of the means to ensure that the new facility will in due course develop into a true supplement to existing reserve assets. I was very glad to note that the Managing Director of the Fund in his inspiring address has also focused attention—and, in my opinion, in an original way—on the significance of the harmonization principle.

What, then, can reasonably be expected from the new system? The answer to this question can perhaps best be approached by first enumerating what in any event should not be expected from it.

  • (1) The objective of the new system is not to remove balance of payments difficulties of individual countries. In principle, every country should restore equilibrium of its own balance of payments through timely and efficient adjustment policies.

  • (2) The idea that the new system should be used to stimulate world economic activity should also be ruled out. I do by no means deny that one of the objectives of the scheme is to prevent the cumulative effects of the adjustment policies pursued in a number of countries from leading to deflationary tendencies in the world as a whole. However, this is something very different from the suggestion that the new facility could be used as an instrument of demand management.

    In this connection I should like to stress what is said in the opening sentence of the first chapter of the—as usual—excellent Annual Report of the IMF: “The year 1966 was one of adjustment for the world economy—an adjustment that has yet to run its course.” The decrease in the growth rate which we observe in present conditions is but the necessary correction which was due after the long period of inflation and overexpansion the world has gone through. The present danger is not that recessional tendencies will gain ground, but rather that the fuel for the next round of inflationary tendencies is again accumulating. Inflation, rather than deflation or recession, may not be just around the corner, but its possible revival in 1968 should not be ruled out.

More important are the positive effects we are justified in expecting from the new system. We hope and indeed feel sure that the special automatic drawing rights will evolve into a real supplement to existing reserves. A very important step has been made on the road to a more rational international monetary system, within the framework of which the volume of available reserve assets will, more so than in present conditions, be determined by rational considerations and decisions. It is very gratifying that after years of difficult study and negotiations, solutions could be arrived at, which without any doubt could be of far-reaching importance.

But we must not allow this achievement to become a reason to neglect the solution of the problems which we face at this moment. We must admit that the problem of the instability of the present monetary system has yet to be brought to a satisfactory solution. This instability emanates from the position of the two reserve currencies. It is clear that this problem, which deserves our constant attention and alertness, demands in the first instance the removal of still existing disequilibria.

It follows that a good functioning of the adjustment process in individual countries remains of paramount importance. In this connection I would like to make the following observations:

  • (1) There should be consistency between current account and capital account of the balance of payments. A country aiming at a surplus on current account should in principle accept the consequence of a deficit on capital account to the same amount. Neither the balance of payments of the United States nor that of the continental European countries as a whole comply with this principle. Net capital exports of continental European countries do not compensate their current surpluses; the opposite applies to the United States. This imbalance has an impact on the relationship between the United States and the other industrial countries taken together, on the one hand, and the group of developing countries, on the other, insofar as the flow of resources to developing countries might be unfavorably affected, however unjustified this would be. If I am permitted to say so, the present difficulties concerning the replenishment of IDA seem to me an illustration of the point I have just made.

  • (2) A particular aspect of the above-mentioned problem concerns the question of what instruments are needed by means of which the consistency alluded to in the previous paragraph could be restored and maintained. To promote this consistency a better mix of fiscal and monetary policies would seem indispensable. The present relationship between the two policies is generally speaking not very satisfactory. Too much stress on monetary policy and too little on fiscal policy can easily lead to a situation in which balance of payments problems become insoluble.

In summing up, I would like to say that the new system of special drawing rights can contribute significantly to a healthy economic and financial long-term development. But we must be on our guard against the misunderstanding that the new system could in the future be a substitute for a good functioning of the adjustment process in individual countries. I would like to repeat in this connection what I have said before: the justified expectation that the new scheme will lead to a better international monetary system must not be permitted to obscure the problems we face now.

Statement by the Governor of the Fund for Greece—Demetrius Galanis

It gives me great pleasure and honor to participate in the Annual Meeting of the International Monetary Fund. These meetings, which bring together hundreds of economic policymakers, prominent economists, and financial experts from all over the world, have become, in our field, a very significant event. This year our meeting has not only become more important because of the deliberations on the special drawing rights facility but also most enjoyable because of the courteous reception and warm hospitality extended to us by our Brazilian hosts in their magnificent city.

First of all, I should like to congratulate our Managing Director, Mr. Pierre-Paul Schweitzer, for his stimulating address, as well as the Executive Directors and the staff for their excellent work in preparing the Annual Report.

It is hardly possible to overemphasize the importance of the agreement recently reached by the major trading countries regarding a solution to the problem of international liquidity. There can be no doubt that, at this stage, what is of great significance is the unanimity with which the countries of the Group of Ten reached an agreement on such a crucial issue. This constitutes a major achievement of international monetary cooperation, in the light of which we should feel certain that any remaining minor differences will be promptly and satisfactorily settled. The consensus among the major trading countries to establish the special drawing account offers conclusive proof as to their willingness and ability to carry successfully their greater responsibilities in promoting international monetary order, trade, and economic growth.

Of course, it is not my intention to analyze, on the basis of its approved Outline, the new facility, even less to involve myself in details, however important they may be. But two points deserve, I think, special attention. The one is the active role which is assigned to the Fund. Over the last 21 years the Fund has, as we all know, gained precious skill and experience in the domain of world liquidity and related problems. It was, therefore, a very wise decision to establish the special drawing account within the framework of our organization. Thus, its skill and experience will duly be used to meet the delicate and complex problems which will inevitably arise in connection with the special drawing account. It is my belief that this constitutes a guarantee as to the efficient, sound, and equitable utilization of this additional facility to supplement international reserve assets.

The second point is the universality of the special drawing rights. This is most gratifying to the smaller member countries of the Fund, most of which are in the process of development. Quite often, the efforts of these countries to develop their economies and raise the standard of living of their populations are frustrated by balance of payments difficulties and the inadequate inflow of development capital.

In fact, the problem of development financing, although quite distinct in itself, is also closely connected with international liquidity. The significance of the new facility for the developing countries does not, perhaps, lie so much in the marginal increase in their international reserves as in that the facility is expected to prevent world-wide liquidity shortages which would be bound to aggravate pressures on their balance of payments. In any case this is a very serious problem and deserves a fair measure of consideration in the over-all context of our deliberations. In view of the prevailing spirit of international cooperation, one can be optimistic in this respect as well.

Statement by the Governor of the Fund for Tanzania—A. H. Jamal

I join my fellow Governors in expressing my deep appreciation and gratification to the Government and the people of Brazil for the courtesy, hospitality, and comfort extended to us during what is bound to be a most memorable stay in this beautiful city of Rio de Janeiro.

I shall be brief. What has clearly emerged from all that has been said so far is that there are two worlds each circling in its orbit but perilously so because of the interaction of gravitation forces generated by economic and social interrelations.

The industrial societies of the world have the economic power and therefore the ability to bring to a focal point any issue that preoccupies them with sufficient and commonly shared intensity. The Outline Plan for special drawing rights to improve international liquidity is a consequence of such preoccupation. As a member of an international organization which seeks to establish and strengthen international monetary order, we in Tanzania believe we have a duty to support technical reforms, however limited their value may be to developing societies. At the same time we believe that a major reorientation is called for in respect of the procedures governing the IMF so as to fully reflect the aspirations of the developing societies. Full and careful examination of this need is essential. On this basis, as part of international discipline which we have accepted, we support the Outline Plan.

In doing so, I would like to urge Mr. Schweitzer and his most competent technical staff to keep an absolutely vigilant eye on the possible adverse consequences that could arise as far as primary producing countries are concerned. The industrialized societies, with their enormous momentum, will be able to use even a marginal increase in their liquidity, to their maximum mutual advantage, and if the products of their industrial machines register a broadly uniform increase in prices this will have only marginal effect on their mutual economies because for the most part they will cancel out one another. But the relative position of the developing countries will, by the same token, deteriorate, since the marginal increase of liquidity in the developing areas, infinitesimal in absolute terms and constrained because of inertia, will have given no direct support to their struggle to improve their terms of trade. This can be a serious consequence, and posterity will judge the IMF by the positive influence it is able to exercise or fails to exercise at the critical time.

Let us admit that even in the best of circumstances, all that this may mean is asking the developing societies to stand still while the industrial societies want to run even faster than they are doing, as far in the front as they already are. Let us not wallow too much in the euphoria produced by such slogans as “from Bretton Woods to Rio” and “the coming of age” and so on.

I do not deny the gains made by humanity in its effort to organize itself in some sort of world order. But so much more remains to be done. I believe the industrial societies have the power and therefore the historical opportunity to take a new bold step forward. I believe that they cannot be so blind as not to see this, if for no better reason than that they must love their own children and grandchildren to whom they would not wish to bequeath a legacy of despair and international civil strife.

Against the clear evidence that international trade has been developing along ominous lines, that is, that trade within the industrialized world is increasing so much faster than that between it and the developing world, what does the international community propose to do? Can we afford to sit and wait with folded hands?

Wittingly or otherwise—the effects are the same—the industrialized societies have formed themselves into an international cartel, and the processed and semiprocessed goods of the developing world are being kept out of their markets to the maximum extent possible. If petroleum products are excluded, the situation is very grim. The industrialized societies have the power to determine shipping, freight, and other ancillary trade service charges, such as insurance, and so on. The GATT is manifestly a rich peoples’ agreement. The Kennedy Round, by its very success, may have worsened, relatively speaking, the position of developing countries, as one imperative less will operate in their favor in their effort to seek markets in the developed world. International action is absolutely necessary. We need a decisive change to meet the exigencies of our times.

Mr. Debré’s plea for imaginative and deliberately measured self-restraint on the part of the industrialized societies needs to be heeded. The resources spared as a result of such self-restraint need to be channeled into an international effort to provide for equitable returns to primary producing countries struggling as they are so courageously in this world of instant communication. A measure of such struggle can be seen in the fact that in the past two years the disastrous fall in the price of sisal reduced Tanzania’s income by nearly £20 million, an amount nearly three times the loan which the United Kingdom had intended to give but was not able to do so—an amount which is nearly 80 per cent of our total reserves today.

The resolution submitted by the 15 Governors asking for urgent study to be made for the establishment and maintenance of fair commodity prices has the full support of Tanzania. I would like to go further and say that a sane and just international order calls for the establishment of an international agricultural commodity fund which will have the ability to pursue support-price policies on an international scale, together with the interrelated international stock-carrying of various agricultural commodities. It will have the ability to enforce certain disciplines and the ability to ensure that economic growth in developed societies does not take place at the expense of the struggling developing societies. Equally important, it will be able to give the Food and Agriculture Organization a new and very urgently needed perspective in economic production and distribution on a world scale rather than diffuse its energies on too philosophical a plane.

The United States Governor very rightly emphasized the need for priority attention of the world on increasing food supplies. This objective can be reached with the maximum effect through the disciplines accepted internationally in an organized manner. I realize only too well the magnitude of complexity involved in this effort. But I repeat: international monetary order can only function in a sane and just manner if the industrialized societies take a new bold step forward now in the direction I have mentioned. They have an unprecedented opportunity. It is not a sacrifice of what they already have that is needed. It is a sacrifice of part of what they seem inexorably bent upon having, with all the overwhelming logic of technology, that is needed to be made in the interest of humanity. I like to believe that industrialized societies consist of human beings. Will they not give us a cause to continue to believe in a single, indivisible humanity?

Statement by the Governor of the Fund and Bank for Ireland—Charles J. Haughey

I wish to join with other Governors in expressing our thanks to the Government of Brazil for the way in which they have made us welcome to this beautiful city and country. We shall all bear away many happy memories of Brazilian hospitality and friendliness.

The general economic survey in this year’s Annual Report of the Fund makes disquieting reading. For various reasons, growth in a number of the major industrial countries in 1966 was well below normal. This trend has continued in 1967. As the Report points out, total output in the first half of 1967 rose little, if at all, in the United States, Germany, the United Kingdom, and Canada, and a crucial question is whether these countries will achieve a revival of economic expansion on a satisfactory scale during the second half of 1967.

When growth slackens in the industrialized economies, serious consequences follow for the less advanced countries, whose internal problems are greatly aggravated by depressed conditions in external markets and restrictions on the supply of external capital. It is very important that more normal rates of growth should be resumed as soon as possible. Otherwise, there is a danger that, with our growing dependence on each other, all our economies may grind to a virtual standstill, with everything that this implies in loss of production, in unemployment, and accentuation of the world’s problems of hunger and want.

An important factor in economic growth is the psychological climate in which economic activity takes place. The increasing strains on the international monetary system in recent years and growing preoccupation with the adequacy of reserves have had a cramping influence on development plans. It is, therefore, very satisfactory that this year’s Annual Meeting should witness a substantial advance in the efforts to improve the international monetary mechanism. The Outline scheme of special drawing rights in the Fund placed before us for our approval constitutes, indeed, a milestone in the history of the Fund. At times over the past few years, one could well be forgiven for a feeling of despondency at what appeared to be irreconcilable attitudes over the problem of international liquidity. That, despite many differences of opinion, it has proved possible to prepare an agreed scheme is an outstanding and most encouraging instance of international cooperation.

The scheme in its present form does not go as far as some of us would have wished. Because of the need to resolve opposing viewpoints, the opportunity has been lost to take the bold step of creating a new and fully unconditional reserve asset. Another limitation is the rather small scope of the scheme envisaged, at least in the initial period. The improvement in the reserves of the less advanced countries, whose Fund quotas are small, will be meager. Despite these limitations, however, the draft scheme is welcome and opportune. I believe that as experience is gained of its operation it will be possible to make improvements in it and to widen its scope.

Early activation of the draft scheme seems necessary to avoid a serious shortage of international liquidity. In 1966 total world reserves rose by only 2 per cent, as compared with 3.2 per cent on the average in the six preceding years. This sharp deceleration in the rise of reserves must give cause for concern. Time is obviously running out for the present international monetary system, and it is to be hoped that there will be little delay between the establishment of the new facility in the Fund and its activation.

We congratulate the Managing Director of the Fund and the others concerned for the progress made since our last Annual Meeting in preparing a scheme to improve the international payments system. Let us hope that by next year’s Annual Meeting we shall be very near the point where the new scheme can be put into operation and we can start on the road of deliberate, rather than haphazard, international reserve creation.

Statement by the Governor of the Fund for Sweden Per V. Åsbrink

I shall try to be brief. However, I have a few points to stress on the question of international liquidity, a subject where my country, like many others, feels that its vital economic interests can be affected.

We are now about to agree on a contingency plan outlining a facility which is intended to supplement existing reserve assets. I much prefer that we could start cautiously with a facility that can develop into a first-class asset instead of having to go along with something that can be rather generously distributed because it is so fenced round with restrictive features. My country is ready to accept the compromise represented by the Outline before us, so naturally I do not intend to plead for a change in the near future of the essential characteristics of the plan embodied therein. The Outline, however, gives considerable leeway to those who will be entrusted with the task of setting down in detail and in legal language the general agreement that is now within reach. In my opinion they will have to bear in mind also the following points.

It is important that the great majority of central banks or other monetary authorities should feel able to show the new facility among other assets in their balance sheets. This is after all one essential meaning of our endeavors. It is equally indispensable that we aim at a facility that, when activated, is distributed evenly and periodically in order to supply a modest but reliable source of new liquidity. As regards the rules for the use of the new facility, I should like to express at least one wish. It has been maintained during the discussions among the experts that the question of direct or indirect transfer is rather irrelevant; that the main thing is to have transfers effected within a framework of rules and regulations by the Fund. This may be so from a purely economic point of view, but I doubt whether it also holds good psychologically. I willingly recognize the importance of the close collaboration of our very able and loyal Fund staff, but, nonetheless, I remain convinced that some leeway for direct contacts in the traditional way between central banks is bound to enhance the value of the new facility.

The great importance that we attach in my country to the question of international liquidity leads me finally to bring up a point that has proved to be somewhat delicate. We need great flexibility in the administration of the new facility. Its basic features are fairly clearly defined and cannot easily be modified, but it would be unwise to adopt a rigid form in all important respects. For one thing, if our enterprise proves to be a success—and eventually the new facility should form a considerable part of over-all reserves—this by itself would necessitate an adaptation even of some basic rules. I need here only point to the question of holding limits. Besides, we must be prepared to learn from gradually accumulated experience. In my country we are therefore in favor of an arrangement that gives essential powers to Governors and Executive Directors. Our experience tends to confirm that it is normally of little importance whether the formal decision lies with the Governors or rests with the Executive Body. Even when important problems are referred to the Governors, they have been so well thought out and defined that the ultimate decision by Governors is not much more than a formality. It would therefore be appropriate and practical that in most cases final decisions rest with Executive Directors.

The five member countries with the largest quotas are each represented by an Executive Director who casts the votes of the respective country. Another six or seven countries with fairly large quotas are usually or permanently represented by Executive Directors seconded from them. It seems therefore safe to assume that in important questions more than half of the Executive Directors vote as instructed by their home countries. The system of bloc voting as instituted by Article XII, Section 3(i), which I quote: “All the votes which a director is entitled to cast shall be cast as a unit,” in reality applies only to member countries with quotas of small or modest size. There may be reasons of administration or expediency that favor such an arrangement. Nonetheless, it is decidedly discriminatory. Countries represented on an equal footing by the same Executive Director have to agree in order to give voting instructions to “their” Director. Otherwise, either he cannot vote at all, or else has to vote against the interests of one or more of the countries he represents.

My country has accepted this system of voting for the present activities of the Fund, and we do not intend to propose a change as regards these activities. However, we do not find it reasonable to be asked to give up voting rights in the new scheme on questions that we find of considerable or even of major interest. Therefore, we sincerely hope that in the legal text of the new arrangement it will be foreseen that votes exercised by an Executive Director need not be cast as a unit. I have no doubt that after sufficient time for study a considerable number of countries will support us. Many small countries can be expected to take a lively interest in matters of international liquidity, and it certainly is not only large countries who wish and are fully able to decide for themselves their positions on such major questions. Furthermore, for all countries it would seem useful to know that on important subjects the votes cast by an Executive Director were not only formally those of the countries he represents but also, in effect, reflect the considered views of those countries which wish to have assured use of their votes. I have consulted my Nordic fellow Governors, and without committing themselves as to the final positions of their Governments they share the view that this issue should be given thorough and unbiased consideration when the legal provisions are to be negotiated.

Statement by the Governor of the Fund for Israel—Pinhas Sapir

First of all, I would like to express my deep appreciation for the hospitality extended to us by the Government of Brazil. I believe that the very fact that we are here adds the accent and atmosphere of the developing world to our deliberations, and I would express the hope that this will induce us to seek solutions which will take into consideration the particular needs of the developing countries. Indeed, I intend to devote the main part of my remarks to this subject.

In recent years we have occupied ourselves in defining the roots of and trying to find solutions to the problem of international liquidity. In this connection, I take great pleasure in expressing my appreciation for the excellent work done by the Fund’s staff, which enables us to understand better the issues involved and to see more clearly the magnitude of the problem and the possibilities of a solution.

Lack of international liquidity presents a special problem for the developing economies for two main reasons:

(1) Our desire to narrow the differences between standards of living in the various countries of the world. This means that the developing economies will have to attain a higher rate of growth than the developed countries and, in consequence, will feel an increased need for international liquidity.

(2) The dependence of most developing countries on exports of primary products, a dependence which makes them much more vulnerable than industrial countries to sharp seasonal and annual fluctuations in their foreign exchange receipts due to uncertainty regarding crop yields and price levels.

These two reasons make the developing countries very sensitive to the problems of reserves in foreign currency. We think that their position warrants a special consideration which should be taken into account in formulating a new and better scheme for world reserves and liquidity.

I am well aware of the necessity not to confuse the need for liquidity with the need for financing capital imports. A stronger liquidity position cannot and should never replace capital imports for development. But the need for, and the reliance upon, capital imports, coupled with the instability of foreign exchange receipts (and consequently of foreign exchange reserves), puts special emphasis on the urgent need to find a satisfactory solution to the liquidity problems of the developing countries. Insufficient liquidity originating in current trade setbacks may impair the already delicate balance between the capital funds available and the desired rate of growth. The price which a developing country must pay as a result of such an imbalance—namely, the slowing down of its development processes—is a very high one indeed.

I should like to use the development in my country in the last years as an example of the difficulties a developing country can encounter when the wish to grow rapidly clashes with its policy to maintain a strong foreign currency position. According to a longstanding tradition in the meetings of the Fund, I will limit myself to the economic events in my country in speaking about the developments of the last year.

In order to prevent the possibility of serious liquidity problems in the future, we felt the necessity of instituting policies which would diminish the increasing deficit in our current foreign exchange account. As a result, we succeeded in substantially improving our balance of payments position, and together with it we achieved relative stability in domestic price levels. But we had to pay a price for this: gross national product, which had increased at an average rate of 10 per cent during the previous ten years, rose last year by less than 1 per cent. Added to that, we were faced with increased unemployment which had been almost nonexistent in the last few years.

The necessity to effect a structural change in an economy, namely, to change the investment pattern and to achieve a redeployment of the labor force, is painful not only for the economy as a whole but especially for those sectors where the changes have to be made. Thus, for the sake of stability, we found ourselves slowing down the pace of development and hampering economic growth. This cannot be an ideal solution either for us or for any other developing country.

As a result of this situation, we have noted with particular satisfaction that significant progress was made last year by the IMF and the Group of Ten toward a solution of the international liquidity problem. We hope that the suggested formula will prove itself to be a practical solution, and we would like to stress the importance we attribute to the fact that a solution is being found now, while the world’s economy is strong. If we should wait for a crisis to break out, it might well become impossible to implement any solution that may have been formulated in the meantime.

As I mentioned before, we believe that there are weighty reasons to give special consideration to the needs of developing countries in fixing the allocation of newly created reserves.

I feel the necessity to stress here that we are in full agreement with all those who have stated that the decision to create new reserves may be influenced only by the general situation of world trade and its relation to world reserves.

We are well aware how dangerous it could be for the world if other arguments would enter the deliberations about an increase of world liquidity and would endanger the normal development of trade.

Only a strict adherence to the principles of sound international financing needs will prevent undesired increases in world reserves which would defeat the purpose for which these reserves are being created.

But after we have decided for the right reasons that it is necessary to create additional liquid assets for the world, a question arises where we doubt if the present recommendations are the right ones for the future.

Creating additional international liquid assets means creating additional international purchasing power before producing the goods which are normally the source of this power. It is, in our opinion, vital that the facilities of these assets be made available first and foremost to those developing countries which now suffer from considerable instability in their reserve position as a result of the uncertainties of their export possibilities.

We believe that, if we want to prevent a recurring demand of the developing countries for additional instruments to ease their special liquidity problems, we have to allocate the new “unearned” purchasing power, not in proportion to the established wealth of the different countries, but according to the needs of the world as a whole.

Much work will have to be done to find an objective key for allocation which will take into account the needs of today and tomorrow instead of the status quo.

The draft Resolution, which we also support, is, as a framework, a constructive step forward on the road of reasonable world monetary management. We believe that in its elaboration and implementation it will be able to solve not only the general problem of liquidity in the world but at the same time, and not contrary to it, the special liquidity problem of the developing world.

This is only possible if the “haves” of the world will agree. There is today a great chance for the world. May I express the hope that we will use it.

Statement by the Governor of the Fund for New Zealand—R. D. Muldoon

Since the Governors of the Fund met last year in Washington, a considerable amount of effort has been expended and substantial progress has been made in the drafting of a plan for supplementary reserve creation. New Zealand has been following closely the discussions in the Group of Ten and in the Fund. New Zealand’s economy can be, and in fact in recent months has been, affected greatly by fluctuations in the prices of our export commodities and by unreasonable quantitative restrictions imposed on our exports. It is therefore very important to us, as it is to all countries, that the world payments system should work efficiently and expansively.

Since the Fund was established it has shown itself capable of adapting its policies and procedures to meet changing circumstances. Among the adaptions which I might mention is the compensatory financing facility—first its initiation and later its liberalization. As one of the countries which have made use of this facility, New Zealand can sincerely say how valuable it has been to us in helping to meet a difficult situation. For the further progress that has now been made in planning a special drawing rights scheme we are grateful to those who have persevered for so long in grappling with the many complex problems involved. The scheme which they have put before us now could well be a dramatic turning point in the development of the international monetary system. Its authors must feel well satisfied that, at last, after a long period of frustration, a major forward step is about to take place.

My Government has always urged that there should be participation of all members of the Fund in whatever scheme was produced for expanding international liquidity, and that the Fund should have a central role in its operation. These objectives will be achieved by the adoption of the proposals before us.

It is important that, once the plan is completed and ratified, it should be quickly put into operation. Activation should not be delayed until further imbalances stemming from the growth in international trade and payments have actually emerged. If it were so delayed it might become available too late to avoid the introduction of additional restrictive measures which would adversely affect the volume of world trade and depress commodity prices further.

As the time approaches for decision making on the activation of the scheme and the amounts to be created and distributed, all countries, and particularly those larger countries which expect to be major creditors during the asset-creating period, should take a broad view of the future. We hope that those countries who were so cautious in their approach to the scheme will not adopt a similar attitude when the time comes to decide when to put it into operation.

While it has been necessary for the large nations to find a point of agreement before a scheme could be submitted to this meeting, it will always be important for the views of the small nations to be taken into account. These are the nations whose vulnerable economies tend to suffer most from depressed prices in single commodities, and no amount of aid can substitute for a vigorous and expanding pattern of trade. In this respect we have noted the references which have been made by other speakers to a need for a means of stabilizing commodity prices at fair and remunerative levels. We hope that increased and intensified efforts will be made to find, for important commodities entering into international trade, arrangements which are satisfactory to both producing and consuming countries.

The special drawing rights scheme which has emerged is perhaps not as satisfactory as many of us would have wished; but no scheme as important and as complex as this is likely to operate perfectly immediately. In our view, experience in operation should be gained as soon as possible and before the need for additional liquidity is too urgent. We welcome the flexibility and review procedure which is proposed. This ensures that the process of evolution in international finance will continue, and that any deficiencies which appear can be rectified. In the process, perhaps countries which have been resistant to change will, with experience of the scheme in operation, take a more forward-looking attitude.

That this scheme is being launched at all is a fact of historic significance, and it is far more important at this stage to see it launched confidently than that we should spend undue time and energy disputing the details.

The New Zealand Government welcomes the scheme and will fully support the Resolution before us. We hope that with an early activation of the scheme another of the limiting factors to the development of world trade and payments will be removed.

In conclusion, I should like to associate myself and my Delegation with the references made by other Governors to the excellent facilities provided by our host country, Brazil, and also to express my delight at the beauty of the country and Brazilian hospitality.

Statement by the Governor of the Fund and Bank for Brazil—Antônio Delfim Netto

On the occasion of this historic meeting in the City of Rio de Janeiro, my colleagues from Latin America and the Philippines have entrusted me with the important duty of setting forth the viewpoints we hold in common with regard to the activities and policies of the International Monetary Fund. I speak in the name of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Uruguay, and Venezuela.

Two decades after Bretton Woods we find ourselves on the threshold of a new era in the management of international monetary matters. In the course of these years, we have been working continuously to perfect the international monetary system in order to make it an efficient mechanism capable of promoting the expansion of world trade and the international flow of capital. The mutual trust which has during this period bound together the member countries of the Fund has made it possible for us to arrive at an agreement regarding the basic principles governing the deliberate creation of new reserve assets, thus opening broad avenues for continuing improvement in international monetary relationships.

The countries of Latin America and the Philippines take note of the affirmative aspects included in the final proposals that have been submitted to us by the Executive Directors of the International Monetary Fund. We especially note that the mechanism suggested embodies certain fundamental principles, such as the world-wide participation of all countries reflected in the central role which the International Monetary Fund will play in it—the absence of discrimination as regards the types and forms of liquidity to be created, the procedures for decision making, and the unconditional nature of the new reserve assets. These basic characteristics have consistently been supported by the nations of Latin America and by other developing countries since the Annual Meeting in Tokyo in 1964.

The proposed mechanism contains the so-called obligation to “reconstitute” as one of the necessary characteristics for the first basic period of operation of the new system. Thus understood, the rules for reconstitution appear to us to be acceptable. Experience with the functioning of the mechanism will indicate to what degree these rules should be reviewed at a later time, in order that, with such revisions, the more flexible use and transfer of the new reserve assets will be assured.

There is no question about the appropriateness and timeliness of the task we now undertake. It will avoid new speculative pressures on the gold market, and the normal functioning of the international monetary system as a whole will be assured. We trust that the more developed countries will be led to adopt less restrictive policies regarding trade, foreign investments, and financial aid for economic development in the remaining countries, by instilling greater confidence in the former as concerns the formulation of their balance of payments policies.

Once the basic decision is made, we hope that the community of countries that are members of the International Monetary Fund will not postpone unnecessarily the ratification of the new mechanism nor its timely activation. Although, fortunately, the present monetary system is not exposed to imminent danger, already signs of a possible insufficiency of international liquidity may be seen. Adequate and expeditious measures, therefore, to prevent critical situations should not be delayed.

We are aware that the new mechanism deliberately creating reserve assets cannot provide a complete and definitive solution for all the problems that beset the international monetary system. As we have already pointed out on other occasions—and as we reiterate here once more—the question of the improvement of the balance of payments adjustment process must be confronted without delay, in order to place the responsibility for the application of corrective policies on both the deficit countries and the surplus countries. The lack of balance now existing, which requires the deficit countries to bear the whole responsibility, should not be prolonged, because the maintenance of high levels of trade and investment is a joint task of the community of nations. We are pleased to note that in his brilliant address Mr. Schweitzer referred with emphasis to the need to improve the balance of payments adjustment process. We hope that the Fund will give due attention to these problems, so that effective progress in this important area of international financial relationships may be made.

We trust that the same world-wide spirit of understanding and cooperation, which has allowed us to arrive at a contingency plan for the deliberate creation of new reserves, will continue to prevail when consideration is given to other aspects of international economic policy, of vital importance for the great majority of nations. The improvement, referred to above, of the external adjustment process belongs in this class of problems. Other areas exist, nevertheless, such as the just and efficient settlement of trade in primary products and the elimination of restrictive and discriminatory practices in international trade which affect the less developed nations, the multilateral policy of financing development and the elimination of restrictions in the capital markets, which figure so prominently in the list of crucial problems affecting the immediate future of the developing countries.

It is obvious that, in order to set up the mechanism for special drawing rights, it will be necessary to amend certain provisions of the Fund’s Articles of Agreement. It is possible that advantage will be taken of the opportunity to introduce other amendments in the existing provisions. We think, however, that this will only be justified insofar as such proposals will contribute to the improvement, in an appreciable way, of the operation of the international monetary system. For example, it seems timely for the Fund to consider its possible contribution in support of the movement toward regional economic integration.

We are agreed in requesting the Executive Directors to give due consideration to any proposals for amendment that may have merit, and we shall as the occasion offers propose amendments which in our opinion may contribute to strengthening and expanding the Fund’s operations. Nevertheless, we wish to point out right now that we shall oppose proposals for amendments that would imply a reduction in the flexibility of the operation of the present system and, in particular, as concerns policies relating to the use of the conditional resources of the Fund.

Likewise, we do not favor any change in the character of the Fund as a forum for international monetary cooperation, whose decisions are based on the consensus of the member countries and not on formal voting. We recommend, therefore, caution in considering proposals for the amendment of the Bretton Woods Articles, which, being based on simple and generic principles, have permitted the Fund to evolve uninterruptedly and to adapt to the changing circumstances of the world economy.

While we recognize the transcendental importance of the new mechanism for international liquidity and the possible changes in the Fund, the countries of Latin America and the Philippines continue to take a lively interest in the present policies and activities of our institution. In particular, we note with interest that, during the course of the past year, the use of the compensatory financing mechanism has been intensified, which reflects a marked basic deterioration in world trade in primary products. In this regard we note that the amendment approved in September 1966, which modified the original decision made in February 1963, was timely. This modification gave greater security to the member countries in seeking the financial assistance of the Fund. We trust that the Fund’s experience in the practical application of the mechanism will result in greater flexibility in its compensatory financing policy.

I hope that the joint work of this meeting will represent a great step toward the consolidation of the international system of payments which will provide an adequate volume of liquidity to meet the needs of world trade in such a manner that the financial and exchange problems of both the developed and the developing nations may be successfully met, thus in the end establishing a propitious climate for the International Monetary Fund and for the nations which are members of it.

In conclusion, may I repeat, in the name of the Brazilian Government and in my own behalf, that it is an exceptional honor and pleasure for us to receive in our own country such illustrious members of the international financial community.

Statement by the Governor of the Fund for Italy—Emilio Colombo

Our meeting this year concludes a series in which we have been striving for agreement on the future of the international monetary system: the atmosphere in which it opens is that of a constituent assembly. The joint committee of the Executive Directors of the Fund and the Deputies of the Group of Ten, which was given the task of examining the proposals for a reform of the international monetary system, has reached a consensus which is expressed in the Outline annexed to the Resolution that has been submitted for our approval.

The Outline represents a compromise between divergent and, at times, completely contrasting attitudes, whose supporters have somehow managed to find common ground for agreement in the face of practical realities. We are all aware that the fundamental problem of adjustment is not solved. That depends basically on the will of the individual member countries to preserve internal and external balance, even if this entails unpopular measures. Once this condition has been fulfilled, the compromise reached may become a milestone in the evolution of the international monetary system, provided those using the new instruments do so in an appropriate and responsible manner.

In this connection I should like to point out that the nature of the new special drawing rights is not nearly as important as the manner in which they will be used. Such instruments originate, of course, as I already stressed last year, in the reciprocal granting of credit and are characterized by their origin. However, quite apart from the fact that at the very beginning they will be included wholly or partially in reserves, they inherently possess four features which are essential to make them, in time, valid reserve instruments: they are unconditional, i.e., their utilization is not tied to external conditions relating to the conduct of economic policy; they are transferable from one account to another in the Fund’s books like any other currency balance; they may be used to acquire intervention currencies—generally U.S. dollars; and, finally, they may normally be reconstituted by means of a reversal of the balance of payments.

Admittedly, transfers of special drawing rights from one account to another are to take place under the guidance of the Fund, which will have to adhere to certain principles in its management of them, among which will be the maintenance of a certain proportion between earned rights and total reserves. However, we consider that, far from preventing the special drawing rights from developing into a true and proper reserve instrument, Fund guidance will have a regulatory and balancing effect in the operation of the scheme, as is already the case regarding current reserve positions in the Fund.

Within the limits of this supervision by the Fund, there is quite a sufficient margin of discretion, nonetheless, allowed in the use of the new instruments. But it is the manner of utilization of this margin of discretion that will confirm or deny the validity of the scheme. In fact, it is stated in the Outline that member countries must use their allocations to meet balance of payments needs and not solely to change the composition of their reserves. Moreover, member countries would have to maintain a balanced relationship between their holdings of drawing rights and their other reserves; in other words, they should not be overeager to draw on the new instruments. The first rule is an effective one, because the Fund does not lack the power to see that it is respected; the second is a less binding one, and there should be a reinforced multilateral surveillance to ensure its observation. If these two obligations are disregarded, the consequence will be that the new instrument would not be considered to be on a par with traditional reserves, and its future status would be irreparably compromised.

If, however, these evolutionary potentialities are safeguarded—and we hope that they will be—we will then have paved the way for a new international monetary order. This order would exclude an increase in the price of gold as a means of increasing international liquidity, both because it would particularly benefit countries with large gold reserves and because it contains inflationary dangers. This new order, based on the most modern conceptions, would result in the creation of international liquidity governed according to responsible, collective decisions rather than by fluctuations in the supply of monetary gold or the unilateral decisions of the reserve centers. Groups of countries which hitherto have not exercised an influence commensurate with their increased economic importance will have a determining voice in these collective decisions. With this new order in prospect, we also feel it would be well at the same time to continue studying ways and means of making the improvements in the present structure of the Fund that seem called for in the light of experience and of the new requirements.

The final agreement will specify in the preamble the conditions for its activation. These will include improvements in balance of payments equilibria or other conditions, such as the sound financing of deficits, to prevent the creation of the new reserves from leading to a relaxation of balance of payments discipline. But once these basic conditions are fulfilled, it would be unlikely under the new monetary order that governments would remain passive in the face of a general shortage of reserves.

It should be pointed out in this connection that the world’s reserve requirements would be reduced if, on the demand side, member countries were to resist the tendency to adhere strictly to a specific level of reserves and were to adopt a more flexible attitude regarding their absolute and relative volume, and if, on the supply side, the potentialities of the Euro-dollar market and of other sources of reserves were fully explored.

The principle according to which decisions for the activation of the agreement will have to be taken by an 85 per cent majority vote, by giving more voting strength to some countries, particularly EEC members, associates more directly and more adequately with the responsibilities for the functioning of the system countries which have a determining influence in economic life; we believe that this principle, far from engendering differences, will promote instead a community of interests apt to reinforce the system itself.

The developing countries will benefit appreciably from the conclusion of an agreement on the creation of new reserves. As I have already mentioned on a previous occasion, these benefits are not necessarily to be measured by the amount allocated to those countries. However, the problems of development will not be solved by this agreement alone. Their solution requires efforts in many directions and in various contexts.

Both in the world economy as a whole and in the so-called dual economies it is still proving a hard task not only to narrow down existing disparities in income levels but even to prevent those disparities from widening further. Nevertheless, it should be recognized that it is essential to stimulate the development of backward areas without at the same time restraining the autonomous expansionary force of the developed areas, if we are to achieve a state of affairs in the world inspired by modern political and economic concepts regarding the advancement of peoples. Such advancement, which today constitutes not only a moral obligation as affirmed in the encyclical, “Populorum Progressio,” to which President Woods referred in his opening address, but also a political necessity, should be sought through the judicious management of productive resources. Nothing is more vexing than to observe the uneconomic way in which resources are being depleted without regard to essential needs, such as food, housing, health, and education. . . .

My country has always tried to help solve the problems of international liquidity and development assistance that I have just outlined through material contributions and actions in keeping with its responsibilities. It may be pointed out, for example, that at the present time, thanks to its strong reserve position and the absence of conflict between internal and external objectives—a state of affairs to which the Fund has duly called attention in its excellent Annual Report—Italy is making a significant contribution to the expansion of income and trade in the world. This has been achieved through balance of payments and reserve policies which entail the assumption of calculated risks.

Thus, I think it may be useful for me to dwell briefly on the most recent economic developments in my country. In general, an optimistic view may be taken of the current economic situation in Italy, although, as is always the case in a phase of upsurge, constant care must be exercised by the authorities in order to control its course.

Industrial production, continuing a trend that has been going on for some time, is at present expanding at an annual rate of 10 per cent, which is certainly one of the highest in the Western world; what is particularly encouraging is that the most dynamic sector is the capital goods industry. The growth rate I have just given is, of course, an average; in some sectors advances are more rapid than in others. But even building activity, which had slowed down for various reasons, has recently accelerated.

Economic recovery, which has been continuing now for more than two years after a standstill in 1964, is taking place against the background of a satisfactory degree of monetary stability. Wholesale prices have for some time remained substantially unchanged, while the cost of living has shown increases, which—however moderate in comparison with those taking place in other countries—raises some apprehensions.

These developments in the price field, on the whole gratifying, have been accompanied by a reasonable stability of both short-term and long-term interest rates, which have settled down at levels that are considered likely, in view of the particular circumstances prevailing in Italy, to encourage a balanced growth of productive activity.

For the current year it may reasonably be expected that the rate of increase in national income will be not less than 5.5 per cent in real terms and 8 per cent in money terms. Similar gains are expected to be shown next year.

Naturally, the high level of productive activity has had repercussions on the balance of payments, repercussions that are becoming all the more noticeable as Italy’s dependence on trade with foreign countries increases. Consequently, the large balance of payments surplus of the last few years has been gradually diminishing and may turn into a deficit, albeit a small one, for 1967 as a whole.

On the current account side, a trade deficit is the result of an increase in the rate of growth of imports, especially raw materials and semimanufactures, and at the same time of a reduction in the growth of exports, due not only to the recovery of domestic demand but also to the less favorable economic conditions prevailing in some of the countries with which Italy has particularly strong commercial ties. The latter factor may also be held responsible for the slowing down in certain receipts from services (tourism and emigrants’ remittances).

Coupled with the deterioration in the current balance, a comparable deficit has taken place on capital account. The imbalance here is partly due to the liberalization policy that enables holders of liquid funds to invest them in the most profitable way, either in Italy or abroad; in this connection it is interesting to note that the deficit recorded in respect to capital movements is the net result of larger flows in both directions. This deficit represents, in fact, a shift of foreign exchange assets—i.e., of credits to foreign countries—from the public sector, that is to say, the monetary authorities, to the private sector, and from short term to long term. Among other things, this has made it easier to cope with the problem of administering the official reserves.

The Italian banking system is also playing an active—and increasingly important—role in financial transactions on foreign markets.

If the present favorable economic situation is to continue, it is necessary, inter alia, to prevent tensions from emerging as a result of factors already present or arising in the Italian economy. On the domestic front there is already a potential element of tension in the growing requirements announced by the public sector; an additional stimulant could be supplied by the foreign sector when economic activity will revive in certain countries. Hence, the need exists for liquidity to be carefully controlled to ensure an adequate flow of funds to the various sectors of the economy and at the same time guarantee conditions of financial equilibrium.

Application of the methods of economic planning recently introduced in Italy, which lay down the guidelines to be followed by each sector of the economy in order to achieve orderly economic growth at a rate compatible with the country’s current potential, may work effectively to that end.

Statement by the Governor of the Fund for Democratic Republic of Congo—Albert Ndele

May I join all those who preceded me at this forum to express my thanks to the Brazilian Government and the Brazilian people for the tremendous welcome we received in this beautiful country. I should also like to take this opportunity to pay tribute to the new membership of The Gambia and Indonesia.

The monetary reform effected in the Congo last June with the aid of the Fund, and the Resolution on the reform of the international monetary system, are the two subjects on which I would like to address this meeting.

The monetary reform, which came into effect on June 24 of this year, marks the end of a long period of economic and financial disorder characterized by a continuous rise in prices and a gradual deterioration in the standard of living.

The gravity of the situation existing at the time the Government of General Mobutu came into power led the Congolese authorities to apply a radical reform program acting on the main causes of the disequilibrium through three measures: the adoption of a realistic exchange rate capable of encouraging exports and controlling demand for imports; the elimination of credit to the Treasury through a far-reaching reform of taxation; and the establishment of a liberalized import system intended to restore standards of competition.

This program, the application of which coincided with the introduction of a new monetary unit, was formulated with the aid of Fund experts who have assisted the Congo monetary authorities continuously since independence; it has been supported by a stand-by arrangement, the first assistance of this kind that the Congo has obtained from our institution; it is directly patterned on the Fund’s principles in regard to reform programs, which principles are expressed with particular clarity in last year’s Annual Report and in Chapter 4 of the Annual Report for this year.

In addition to improvement in the balance of payments, a target fixed in any reform program in conformity with Fund principles, the program drawn up by the Congo introduces an extensive reform of the tax system which is providing the State with the means for building up the savings indispensable for development. It is accompanied, moreover, by a set of measures providing for a redistribution of income in favor of the most productive economic factors and a reallocation of resources to production sectors in which the Congo has a comparative advantage.

It would be presumptuous to venture to formulate an over-all judgment of the success of the reform after only three months. I am, however, already able to report with satisfaction that the commitments undertaken in the letter of intent have been fully honored. The new tax system has provided the Treasury with additional revenues that have made it possible to halt recourse to central bank advances and to constitute a reserve for the financing of the investment expenditures equal to 10 per cent of current fiscal revenues. The rise of wages and the expansion of credits to the private sector have been held within the limits agreed upon with the Fund. Moreover, the adjustment of retail prices since the adoption of the new exchange rate justifies the expectation that at the end of the adjustment period the level of these prices will be below the projections made by mutual agreement with the staff of the Fund. Finally, present net external reserves are the highest in seven years.

With regard to the reform of the monetary system, I have to express the satisfaction of the authorities of my country concerning the Resolution submitted to us and the content of the Outline annexed to that Resolution.

The adjustments in the international payments system that will result from our decisions may rightly be regarded as the greatest progress made in this field since the Bretton Woods Conference. These adjustments appear to me to provide a simple and concrete solution to the major problems treated in studies carried out in recent years: first, the creation of an adequate volume of reserves no longer dependent exclusively on the production of gold and on the deficit of the reserve currency countries; second, the retention through this reform of the valid elements of the present international payments system; and third, placing at the disposal of the central banks new forms of reserves with characteristics equivalent to those of gold and of the convertible currencies.

The creation, in a rational manner, of an adequate volume of reserves appears to me to be guaranteed, under the terms of the proposals, by the participation of all the members in the decision process, by the distribution among all the members of the new reserves on the basis of quotas corresponding to their relative importance within the international payments system, and by the flexibility of the proposed procedures for determination of the base period, the distribution of the special drawing rights, and the aggregate volume of those rights.

It seems to me that the maintenance of the valid features of the present international payments system is guaranteed by the role that gold and the reserve currencies will continue to play, in conjunction with the special drawing rights, and by a more intensive utilization of the various mechanisms of the International Monetary Fund that have proved their worth.

The provision to the central banks of facilities embodying the characteristics of a true international reserve will be guaranteed by the high degree of automaticity permitted for the utilization of the special drawing rights, by the reconstitution obligation in the case of the user countries, and by the limit on the obligation to supply currency, in the case of the countries in balance of payments surplus; these two latter provisions can prevent the persistence of extreme credit or debit positions that might impair the quality of the new reserve. In this connection, the provision permitting the International Monetary Fund to direct the drawings toward countries making too intensive or too prolonged use of the new facilities appears to me to constitute an important step forward in international monetary cooperation.

The confidence of the Congolese authorities in the reserves to be created under the Resolution is clearly shown in a ruling of the new statutes of the National Bank of Congo, which provides that, from now on, all drawing rights in the International Monetary Fund shall be included in the foreign exchange holdings.

In conclusion, I wish to express my agreement with the Resolution before us and to recommend that the Executive Directors continue their work along the lines of the Outline annexed to the Resolution. I trust that the point of view of the developing countries will be fully taken into consideration during these discussions, so that the solutions adopted for implementation shall reconcile the mutual interests of all our members.

Statement by the Governor of the Fund for Denmark—Erik Hoffmeyer

First of all I want to associate myself with my fellow Governors in expressing my profound thankfulness to the Brazilian Government and people for the arrangement of this meeting.

I am pleased to state that Denmark casts its vote in favor of the Resolution before us regarding the establishment in the Fund of a new facility based on special drawing rights and improvements in the present rules and practices of the Fund. I want to add a few words explaining our attitude and shall confine my remarks to the part of the Resolution dealing with the establishment of reserve drawing rights in accordance with the Outline attached to the Resolution.

In evaluating the result of the detailed deliberations and prolonged negotiations during the last four to five years, a clear distinction must be drawn between the long-term perspective and the short-run problems which have to a large extent impeded the attainment of an agreement within a reasonable negotiation period.

As regards the long run, we can express satisfaction with the results achieved for the following reasons: (1) a contingency plan has been agreed upon; (2) the basic idea is that the development of the international monetary system shall be managed in such a way that long-run policy aims can be fulfilled, i.e., monetary stability and expansion of trade; (3) this management shall be carried out within the framework of the IMF and therefore be open to all members; and (4) the proposed system is so flexible that with ingenuity and imagination adjustments can be made after the experience of the first period.

In brief, the proposal aims at gradually changing the relative weights of the three elements in international reserves: gold, holdings of reserve currencies, and holdings of internationalized assets.

Many of us want gold to be relegated to a more modest role in monetary affairs. We want it to recede in an orderly way, however.

We furthermore agree that the reserve currency system has been used to a point where certain weaknesses appear. It is therefore natural to welcome a shift to internationalized assets in the longer run, which must mean that we shall regard and publish such assets as part of our exchange reserves.

Turning now to the more immediate future, we have to realize that the frequent occurrence of short-term disturbances mean that the three types of assets will not always possess the same relative attractiveness. This applies in various degrees to both the market and the central banks. We have, however, witnessed ingenious and successful efforts to cushion the short-run instability of the system by unprecedented central bank cooperation, particularly through the swap system and the gold pool. We consider it essential that this cooperation is not weakened, since this could bring about the risk of major disturbances, particularly during the period until the new supplement to the system achieves real significance.

We could retain our equanimity if the possibilities were confined to gradual and orderly adjustments of the relative values of international assets, but certainly not if large and sudden changes are to be feared.

The new scheme does not relieve any major or small nation from the responsibility to maintain equilibrium on the balance of payments over reasonable periods of time. This is still a main precondition for the stability of the international payments system. If this principle is adhered to, we should be able to overcome the current tensions and in future years avail ourselves of the new scheme in a constructive manner.

Statement by the Governor of the Fund for Indonesia—Radius Prawiro

Appearing before this Annual Meeting again, after a fortunately relatively brief period of absence, allow me, first of all, to express on behalf of my Government our most sincere thanks for all that the Fund has done and continues doing for my country. We are grateful to Mr. Schweitzer and his staff for their splendid cooperation with us, exercised in a truly international spirit of the highest order. I would only cite as an example the fact that the Fund was willing to assist us even before our renewed membership.

On behalf of my Government may I also commend the Fund for its excellent Annual Report and Mr. Schweitzer for his clear and precise address. Finally, I am grateful for the warm words of welcome extended to us by the Managing Director and fellow Governors and for the hospitality of the Government and the people of Brazil.

It is with some reluctance that I would like to make some comments on the matter of international liquidity which is now before us. The matter is highly complicated and technical; it is perhaps hardly suitable to be discussed in public. But we are called on to make our opinion known, and we have no choice but to respond to that call.

International liquidity, as the name says, is a problem which affects all of us; its impact is felt all over the world. The search for its solution, however, has been organized regionally rather than internationally. It was a task which the highly developed countries felt obliged to take charge of. From a purely technical point of view I believe that the Group of Ten has done remarkable work. The recently reached agreement on a contingency plan, the core of which is the creation of special drawing rights, or SDR’s, within the Fund, is an outstanding achievement.

Monetary purists or idealists might be inclined to measure the special drawing rights with the yardstick suggested by Keynes during the Bretton Woods Conference, when his ever-imaginative and creative mind unfolded the dream of an international banker’s bank, which would have the power to create liquidity as well as to contract it. Keynes’ dream is still a dream. And yet the special drawing rights as conceived and proposed do represent new liquidity, thus perhaps changing the Fund from a secondary into a primary bank, if we may borrow those terms from ordinary monetary and banking theory.

It is not my intention to dwell further on this or other interesting theoretical problems. The thinking of the Group of Ten has definitely enriched monetary thinking, although I am afraid that the last word has still to be said. I would rather confine myself to one or two observations of a more practical nature—practical and important to countries in the process of economic development like my own.

First of all, if the plan was intended to have world-wide application, could not we, the economically lesser developed countries, have been consulted more or even given the opportunity to participate in the discussions by the Group of Ten? We, too, would have been affected by a scarcity of international liquidity both for reasons of development and in view of our balance of payments position. It is now decided that the scheme would be mainly used for balance of payments purposes. While we might have had other suggestions, had we have been taken into the confidence of the architects of the special drawing rights, we have at present no other choice but to accept, at least for the time being, the objectives as set out.

I do not want to be misunderstood; I fully realize the problems of the developed countries in view of the burden to be shouldered by them in regard to any plan. My observations are meant to be constructive. If special drawing rights are intended to alleviate balance of payments difficulties, they, of course, do fit into our needs. As such, we welcome their creation. But, our balance of payments needs are different from those of the developed countries. While they are less in absolute terms, they are relatively more serious than those of developed countries which, moreover, have the benefit of other additional means for meeting their problems, such as bilateral and multilateral stand-by arrangements and the like. If such is the case, the difference should be reflected in the system of their distribution. As it now stands, the allocation of special drawing rights is intended to take place on the basis of our contribution to the Fund. I am wondering if it is fair to apply the same principle to the developed and developing countries alike, if we take into consideration the distinct difference of their balance of payments problems. Could not developing countries be given a more adequate share, for instance, by way of an extra quota in addition to their contribution or by some other device? By doing so, the difference in position would be more adequately reflected. I do not intend to press my point further at present; my only objective is to raise it for possible further consideration at the appropriate time. I hope that such an opportunity could still be given.

Mr. Chairman, may I conclude by conveying to you my Government’s decision to support the Resolution pertaining to the “contingency plan.”

Statement by the Governor of the Fund for Spain—Faustino García Moncó

I wish first of all to express my pleasure at being in this wonderful country which has given such a cordial welcome to the participants in this Annual Meeting.

The Fund’s activities are continuously expanding while at the same time being adapted flexibly to the changing circumstances of the moment. The outstanding Report of the Executive Directors shows this clearly. My congratulations, therefore, to the Executive Directors and the Managing Director for the job well done. I would like also to congratulate the Managing Director for his very interesting opening address.

I wish to express my full agreement with the excellent summary he makes of the lessons taught by experience in world economic developments in the last two years. In fact, I believe that the difficulties of making economic diagnoses and forecasts, the impossibility of pursuing an authentic incomes policy in a situation of excess demand, the need to utilize fiscal policy to achieve internal and external objectives, and the necessity of coordinating financial policies—at least those of the major countries—are matters that must always be borne in mind if it is desired to combat successfully the existing imbalance, both in national and international economies.

But it cannot be doubted that the main topic this year—even more than in previous years—is international monetary liquidity, now that the studies carried out over a long period of time by the Executive Directors and staff of the Fund have crystallized into something concrete.

This has been an important task which in my opinion must justly be emphasized and which now enables us to have a draft Resolution that I am ready to support.

I do not believe it is an ideal and complete solution, valid for the very long run. However, it undoubtedly presupposes an agreement, reached at a timely moment, which is in line with that capacity I referred to before, of adapting Fund policy flexibly to changing circumstances so that it may always be a useful instrument for achieving the purposes set forth in the Articles of Agreement.

If we recall how, only a year ago, we were still discussing whether it might be desirable for the new liquidity to be created by a small group of industrialized countries and even whether it might be distributed among them, we can see the ground covered in arriving at a clear assertion that all members of the Fund may participate in the new arrangement in proportion to their quotas.

The new liquidity will be unconditional because of the fact that countries do not consider conditional facilities absolutely equivalent to an increase in their resources.

Thus, in the future, these new means will be available provided there is an adequate level of international monetary cooperation. I believe that this is the assumption that should be taken as the starting point, not only because of the degree of cooperation that has now been reached within the Fund, and even in other arrangements outside the Fund, but because its absence would presuppose the failure of any international monetary scheme in our present-day world, no matter how great its technical perfection.

It seems clear that the possibility of creating additional liquidity in the future will be beneficial to all countries in enabling them to enjoy higher levels of economic activity and requiring less drastic restrictive measures to correct similar disequilibria. This can and should have a very beneficial effect on developing countries, especially if at the same time progress is made in opening the markets of the industrial countries to products of the developing countries. In this line of thought, I welcome the proposal made by the Ministers of several member countries that met in Dakar.

The road ahead until the new Outline could be put into operation will still present many difficulties. There are also a number of problems—particularly the adjustment process—which remain to be solved and where further work must be done. But at the present time the decision that in the future the growth of international reserves will be ordered rationally as need requires on the basis of a collective judgment constitutes a fundamental step in the history of international monetary cooperation.

Statement by the Governor of the Fund for Paraguay—César Barrientos

The Paraguayan Delegation is taking part in this most important international event, firstly, in order to render a report on the efforts put forth by our country, and, secondly, to gain further acquaintance with the persevering work done by the IMF.

It is gratifying to us to note how fruitful have been the labors of the IMF in the interests of the developing countries and, on studying the Report submitted, we see that those countries have made greater use of the Fund’s resources, in proportion to the amount of their quotas. Similarly, the attention devoted by the IMF to the study of international liquidity, as also the carrying out of the study entitled “Compensatory Financing of Export Fluctuations,” are matters of outstanding importance.

Our institution has exercised very good judgment in sharing in the debate on the problem of international liquidity, and we believe that the studies made with the Group of Ten will make it possible to find a solution, without jeopardizing the operation of a possible agreement on the creation of supplementary international reserves.

So far as compensatory financing is concerned, the work done in this sphere also proved advantageous in dealing with the problem of the extension of facilities to member countries that face difficulties in their balances of payments. Here the Fund showed greater liberality in the use of its resources by countries that depend on exports of primary products to provide them with foreign exchange.

One of the most outstanding occurrences, from the point of view of some Latin American countries was, in our view, the visit paid to them by the Managing Director, an event which made it possible to achieve still closer collaboration between monetary and economic authorities, on the one hand, and the institution, on the other.

When Mr. Schweitzer visits Paraguay, following the conclusion of this meeting, he will be able to gain firsthand knowledge of our present economic and social conditions and will also be able to see for himself the fruitful work that the Government of Paraguay is doing to enable it to continue in the path of progress, thus affording an ever greater guarantee of the country’s peace and advancement.

Trading Balance—Balance of Payments

Balances that have been, in turn, favorable and unfavorable have been a feature of the trading position shown by our balance of payments during the past few years.

Generally speaking, the value of our exports has been sufficient to cover the total value of imports. The trading deficit recorded in the first half of this year will be offset, in the second half of the year, by greater activity in the production of meat, cotton, and certain fresh items.

As regards the financing of the balance of payments, the movement of capital has made a contribution toward meeting the deficit in the goods and services account and has also made it possible to strengthen the country’s position in the matter of international monetary reserves.

As in previous years, we have refrained from availing ourselves of the possibility of making use of the stand-by credit of $7.5 million, an arrangement that was entered into with the International Monetary Fund in 1966.

There is reason to believe that, in future, the balance of payments will show an improvement, when greater selectivity is employed in applying the incentives held out by the Government to the productive sectors of the economy, and the difficulties caused by the fall in international prices for Paraguay’s basic exports have been overcome.

My country’s position continues to be satisfactory, owing to the fact that, during the past four years, we have been able to obtain financing from abroad on favorable terms that will not bear too heavily on the structure of our external debt.

The efforts that the Government of Paraguay is making, by the adoption of appropriate and coordinated measures, designed to ensure that provisions in the taxation and monetary fields reflect a policy of adjustment, afford a guarantee of growth under conditions of price stability and maximum employment.

Issue of Currency

The monetary obligations of the Central Bank rose by 5.8 per cent during the first half of the year, an increase that was produced by the growth of bank and official deposits. These deposits resulted in a contraction to the extent of 8 per cent in the currency issue proper.

A scarcely noticeable reduction of 0.8 per cent occurred in the money supply, in accordance with the trend in the internal and external purchasing power of the currency.

Financial Stability

The success achieved by the policy of financial stability, together with the encouraging picture presented by the balance of payments during the past few years, has made it possible to follow a lending policy designed to facilitate the granting of credit, and to expand the volume of such credit, to those branches of activity which are best adapted to serve as a means of fostering the participation of the private sector in the introduction and expansion of new lines of production.

Stand-By Agreement

The information given in the Annual Report shows how large are the funds available, under stand-by arrangements, to assist any member countries that may require them, and this, in its turn, provides a reliable indication of the trend toward a return to normal conditions as regards the flow of trade, as also in the matter of international financial stability.

For six years now Paraguay has not made use of the stand-by credit for currency stabilization purposes in respect of which it entered into an arrangement with the Fund. To provide, however, against seasonal pressures on its balance of payments, the country has applied for renewal of the stand-by agreement to a value of $7.5 million.

The foregoing entitles us to assert that neither our exports nor our external trading balance is burdened by the operation of factors prejudicial to them. In addition to this, there is no chronic deficit spending on the part of our Government, and we have a comparatively low level of internal and external debt.

Revenue and Finance

In the field of tax administration, we are carrying out a gradual overhaul of the system of taxation, as also of the administrative structure.

As compared with 1965, the tax receipts of the Central Government have risen by 11 per cent and, on the basis of the data recorded at the end of July of the present year, there was an increase in revenue of 6 per cent, with respect to the level anticipated for the same period.

The public debt of the National Government showed an increase of 8 per cent at the end of the first half of this year, as compared with the position obtaining a year ago. The annual payments due under this heading represent 5 per cent of the total amount of the credits appropriated in the country’s general budget, as a charge against tax receipts.

At the present time, with a view to supplementing financial aid from abroad, study is being given to some means of obtaining counterpart funds, from noninflationary sources, for the carrying out of programs of economic and social development that have already been approved by the international financial organizations.

The revival that the economy has undergone is the result of the efforts made by the National Government in carrying out its considerable investments in projects of an infrastructure nature, especially in the transport and highway sector, the aim here being to form the country into a single viable unit, from the economic, political, and social points of view.

The Government is devoting its main attention to the electric power, agricultural, and stock-raising sectors, as also to the task of expanding the production of portland cement and carrying out feasibility studies for the purpose of turning its mineral resources to account.

With the putting into service, halfway through next year, of the Rio Acaray hydroelectric power station, the building of which is proceeding rapidly and which will cost $33 million, one goal of the country’s program of industrial development will have been attained, and this will also make it possible to embark upon a program of electrification in the interior of the country and, at the same time, meet the requirements of the border areas of neighboring countries.

In presenting the foregoing account of our activities I should like, on behalf of the Government of my country, to offer my thanks to the people and Government of the Republic of Brazil for having given us the opportunity, with their customary courtesy and hospitality, of holding this meeting of the IMF in their beautiful city of Rio de Janeiro. We likewise congratulate the Managing Director, as also all his assistants, on the useful work they have done during the financial year that has elapsed, a period which, as they have shown us, has been one of the most active in the life of the IMF. We should also like, on behalf of the people and Government of Paraguay, to offer our sincere wishes for the happiness and prosperity of all the sister nations here represented.

Statement by the Governor of the Bank for the Syrian Arab Republic—Mouaffaq Shourbaji

I would like to begin by thanking the managements of the Bank and Fund for their valuable 1967 Annual Reports.

There is no doubt that the important international monetary event this year was that an agreement was reached on an Outline to create special drawing rights in the Fund. There is no need to elaborate here on the content of the Outline and on the differences between the SDR’s and the other facilities provided by the Fund, since this is well known to the distinguished gathering here. May I, however, make the following comments:

1. We feel that one of the positive aspects of the Outline is that, according to it, international reserves are created as a result of the deliberate will of the member countries, and not only as a result of the changes in gold production or the deficit in the balance of payments of reserve countries. Thus, the international community as represented in the Fund would be able to create reserves deliberately in a manner that would satisfy the growing requirements of world trade.

Another positive aspect of the scheme is that it is open to all members in the IMF. Consequently they would be able to benefit directly from reserve creation. Thus certain schemes (such as the Collective Reserve Units Scheme) which aimed at limiting the direct benefit of reserve creation to a certain group of countries were discarded. We feel that this is a salutary step. Developing countries that are members of the IMF would benefit directly from the scheme in proportion to their quotas. However, owing to the fact that quotas of developing countries are generally very small, their benefit would be very limited and hardly adequate to meet their need. On the other hand, they are expected to benefit indirectly (as indeed would be the case in any scheme to increase international liquidity) as a result of the expected increase in demand in industrial countries and their enhanced ability to give assistance.

2. That the developing countries would benefit from the activation of the plan should not make us overlook the fact that this benefit will be reduced and possibly eliminated if their terms of trade decline. Indeed, these countries have suffered from such a decline between 1958 and 1966.

Consequently, we believe that it is of utmost urgency that the countries present here, and those who are members in the United Nations Conference on Trade and Development, should exert maximum effort in order to increase the number of commodity agreements which partly help to stabilize prices and improve the terms of trade of developing countries. Maximum efforts should also be exerted to bring about a gradual reduction in trade barriers in developed countries so as to help the developing ones to achieve a higher rate of growth in their exports.

3. It is to be noted that the Outline to create SDR’s does not envisage, nor indeed allow for, a link between reserve creation and the granting of assistance. This is the most important aspect in which it differs from the IMF units scheme proposed by the UNCTAD Group of Experts. We still believe that it is important to agree on a scheme which would establish a link between reserve creation and the granting of adequate financing to developing nations. We believe also that developed countries should increase their financial aid to international financial organizations. This is necessary in order to reduce the widening gap in the average per capita incomes between these two groups of countries. It is saddening to note that while between 1960 and 1966 the capacity of developing countries to absorb efficiently more financial assistance was enhanced, and their need for more assistance increased, the flow of net financial assistance nevertheless remained rather stagnant and, indeed, declined as a percentage of the incomes of the donor countries. In addition to the necessity of exerting maximum efforts in the afore-mentioned direction, we would like to see the condition that drawing on the compensatory facility in the Fund cannot exceed 25 per cent of quota in any one year be dropped and therefore member countries are allowed, if justified, to draw in any one year the maximum limit, that is to say, 50 per cent of quota. Therefore, we regret that we do not agree that an 85 per cent majority of the voting power of participants should be required instead of the usual 80 per cent, because a new veto power is created and our target should be to mitigate any veto power already existing to enhance international monetary cooperation.

4. According to the draft Resolution now before the Board of Governors, the Executive Directors are requested to proceed with their work relating to “improvements in the present rules and practices of the Fund based on developments in world economic conditions and the experience of the Fund since the adoption of the Articles of Agreement of the Fund.” We hope that when the Executive Directors proceed with their work concerning this matter, they would study seriously the possibility of increasing quotas and the voting power of the developing countries in the Fund. We believe that their voting power and quotas are not commensurate with their legitimate economic interests and concerns.

5. The last comment I would like to make is this: we hope that when a decision is being contemplated in order to activate the plan and distribute SDR’s sufficient weight is given to the balance of payments of developing countries, the level of their reserves, and their need for additional reserves.

September 28, 1967.

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