Interim Committee of the Board of Governors on the International Monetary System
- International Monetary Fund. Secretary's Department
- Published Date:
- October 1977
September 24, 1977
1. The Interim Committee of the Board of Governors of the International Monetary Fund held its ninth meeting in Washington, D.C., on September 24, 1977, under the chairmanship of Mr. Denis Healey, Chancellor of the Exchequer of the United Kingdom, who was selected by the Committee to succeed Mr. Willy De Clercq of Belgium as Chairman. Mr. H. Johannes Witteveen, Managing Director of the International Monetary Fund, participated in the meeting. The following observers attended during the Committee’s discussions: Mr. G. D. Arsenis, Director, Division for Money, Finance and Development, UNCTAD; Mr. René Larre, General Manager, BIS; Mr. Emile van Lennep, Secretary General, OECD; Mr. F. Leutwiler, President, National Bank of Switzerland; Mr. Olivier Long, Director General, GATT; Mr. Robert S. McNamara, President, IBRD; Mr. François-Xavier Ortoli, Vice-President, CEC; Mr. Cyrus Sassanpour, Market Research Analyst, OPEC; and Mr. Cesar E. A. Virata, Chairman, Development Committee.
2. The Committee discussed the world economic outlook and the policies appropriate in the current situation.
While welcoming progress made in many countries in achieving stabilization and growth objectives, the Committee expressed concern about the faltering of economic activity during recent months in a number of industrial countries. Sluggishness in private investment demand, the Committee stated, continued to be a major feature of the current economic situation.
The Committee noted that the slower expansion of the economic activity had been accompanied by a deceleration in the growth of world trade. The impact of this on the export earnings of developing countries was a matter of concern to the Committee, which noted that these earnings had also been adversely affected by the marked declines in primary commodity prices during recent months.
The Committee paid considerable attention to the special problems that affect the economies of the developing countries. It was particularly concerned to ensure that adjustment measures by developed countries should not reduce the transfer of real resources to the developing world.
The Committee expressed concern about the persistence of high unemployment, noting that the overall rate of unemployment for the industrial countries as a group remained close to the recession peak reached in the latter part of 1975.
Although progress has been made in many countries in countering inflation, the Committee remained concerned about current rates of inflation noting that in almost all countries these were still much too high to be considered acceptable.
The Committee reaffirmed its view that tendencies toward protectionist trade policies are unacceptable from an international point of view and should be strongly resisted. In this connection, it stressed the importance it attached to the successful outcome of the current Multilateral Trade Negotiations in Geneva, and to the early conclusion of agreements that would benefit all countries, in particular developing countries.
With respect to national economic policies, the Committee agreed on the following conclusions:
(a) All countries in relatively strong external positions should make every effort to ensure adequate growth of domestic demand compatible with containing inflation; this would not only be in the interest of those countries themselves, but also would help to ensure achievement of a satisfactory rate of growth in world trade, supporting and facilitating external adjustment efforts by deficit countries. The Committee expressed regret that growth of domestic demand in some of the larger industrial countries had lagged behind the targets and expectations of their authorities, and it welcomed the expansionary measures recently announced by several governments. Also, the Committee expressed the belief that, as the results of adjustment action become progressively more evident, an increasing number of countries will be able to bring their inflation and balance of payments problems under control and thus will be strong enough to make their contribution to growth of the world economy.
(b) Demand policies in countries with relatively high inflation or seriously weak external positions should place primary emphasis on combating inflation and improving the balance of payments. The Committee reaffirmed its belief that for these countries this was not only necessary in present circumstances but over time would yield the best results for growth and employment.
(c) The Committee noted the importance of structural problems in the economic situation of many countries and the need to develop appropriate energy policies.
(d) Policies in all countries should be directed as a minimum to avoiding a resurgence of inflation and in many countries to reducing inflation rates which are clearly excessive.
3. An important requirement of the international adjustment process relates to the provision of official financing to deficit countries. Such finance should be provided in sufficiently large amounts, and under appropriate conditions which take account of the specific problems of the borrowing countries, and permits adequate time for necessary adjustment.
The Committee welcomed the completion by the Executive Directors of their work on the establishment of a supplementary financing facility that will enable the Fund to expand substantially the resources it can make available to members facing payments difficulties that are large in relation to their quotas, and the adoption of the decisions of August 29, 1977 on the facility and related arrangements. The Committee noted that a number of members and official institutions have expressed their willingness to make available to the Fund resources for the financing of the facility of about SDR 8.6 billion, equivalent to approximately $10 billion, but that the facility will not become operative until agreements have been entered into for a total amount of financing of not less than SDR 7.75 billion, including at least six agreements each of which provides for an amount not less than SDR 500 million. The Committee welcomed the prospect that some of the initial amounts made available might be increased and noted that it would be possible for other members in strong positions to make resources available to the facility. In view of the need of some members for prompt financial assistance on the scale envisaged under the new facility, the Committee urged all potential participants in the financing of the facility to complete as soon as possible the necessary action that will bring the facility into operation at the earliest date possible. At the same time, the Committee agreed to request the Executive Directors to pursue their consideration of the possibility of a subsidy, perhaps through voluntary contributions, that would be related to the charges payable by members determined by the Fund to be in difficult circumstances.
4. The Committee noted the report of the Executive Directors on the Seventh General Review of Quotas and their intention to give priority to this matter in their work after the Annual Meeting. It asked the Executive Directors to submit appropriate proposals to the Committee for its consideration, at its next meeting, together with draft recommendations to the Board of Governors.
5. The Committee reaffirmed its request to the Executive Directors to report on the question whether a further allocation of SDRs would be advisable at the present time and to report to the Committee at its first meeting in 1978.
The Committee also reaffirmed its request to the Executive Directors to review the characteristics and uses of the SDR so as to promote the purposes of the Fund, including the objective of making the SDR the principal reserve asset in the international monetary system.
6. The Committee expressed concern at the delay in the entry into force of the Proposed Second Amendment of the Fund’s Articles of Agreement and in the increases in quotas under the Sixth General Review of Quotas. In this connection the Committee noted that it has been eighteen months since the Board of Governors completed its action on both these matters and that, although progress had been made in recent months, acceptances and consents from many more members will be needed to attain the required majorities. In view of the importance for members and the international monetary system of the entry into force of the Amendment and the increases in quotas, the Committee once again urged all members that have not yet accepted the Amendment or consented to the increases in their quotas, to do so at the earliest possible date.
7. The Committee agreed to hold its next meeting in Mexico on March 21, 1978.*
Composition. as of September 24, 1977
|Hans Apel||Germany, Federal Republic of|
|W. Michael Blumenthal||United States|
|Bofossa W’amb’ea Nkoso||Zaïre|
|Adolfo C. Diz||Argentina|
|W. F. Duisenberg||Netherlands|
|Benito Raúl Losada||Venezuela|
|Phillip R. Lynch||Australia|
|J. J. Oluleye 2||Nigeria|
|H. M. Patel||India|
|Tengku Razaleigh Hamzah||Malaysia|
|Mario Henrique Simonsen||Brazil|
|Sir Douglas Wass||United Kingdom|
This date was subsequently changed; see page 216.