Interim Committee of the Board of Governors on the International Monetary System

International Monetary Fund. Secretary's Department
Published Date:
November 1982
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Press Communiqué September 4, 1982

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its nineteenth meeting in Toronto, Ontario, on September 4, 1982 under the chairmanship of the Honorable Allan J. MacEachen, Deputy Prime Minister and Minister of Finance of Canada. Mr. Jacques de Larosière, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by observers from a number of international and regional organizations and from Switzerland.

2. The Committee discussed the world economic outlook and the policies needed to deal with the difficult problems faced by most of the Fund’s member countries. It was agreed that the deep-rooted character of the problems calls for sustained efforts to carry out adjustment of both internal and external imbalances.

The Committee expressed deep concern about the lack of growth in output and world trade, the high and rising rates of unemployment, and the increasing domestic pressure for protectionist trade measures. It noted that significant progress in reducing inflation has been made by several of the major industrial countries but that prevailing rates of inflation remain unacceptably high in most countries. The Committee recognized that the goals of steady expansion of output and reduction of unemployment could only be achieved if there were a sustained reduction in inflation and inflationary expectations, in nominal and real interest rates, and in other impediments. The Committee also recognized the importance of structural policies and special programs designed to encourage production and employment.

The Committee welcomed the recent declines in interest rates, which reflect in part the lower rates of increase in prices that have occurred. However, it believed that further decisive progress toward price stability—especially in countries with relatively high rates of price increase—is essential for lower rates of interest, for revival of economic growth, and for the closer convergence of inflation rates that would permit greater stability in the exchange markets for major currencies.

With these objectives in mind, the Committee stressed the need to make fiscal policies more supportive of monetary policies so as to allow appropriate moderation of growth in monetary aggregates with a less pronounced impact on output and employment. More specifically, the Committee called for a sustained reduction of fiscal deficits in order to build public confidence in the authorities’ determination to maintain their anti-inflation stance, to ease pressures in credit markets and bring down interest rates, and to avoid impairing the medium-term availability of resources for the financing of private investment.

Efforts to reduce rigidities in prevailing practices with respect to wage bargaining and price determination were also urged by the Committee. It was recognized that, depending on the individual circumstances, a useful adjunct to appropriate fiscal and monetary policies might be provided by efforts of the authorities to promote consensus among the social partners on the need, as a means of promoting employment, for moderation of wage and salary increases. In this context, the Committee stressed the need to increase savings and to restore profit margins and incentives to investment.

The Committee deplored the unfortunate situation in which so many non-oil developing countries now find themselves. It noted that the marked slowing of economic growth in those countries, as well as the enlargement of their current account deficits, can be attributed, to a considerable extent, to external factors, including the international recession, severe deterioration of the terms of trade, and the unprecedented upsurge of interest rates in international credit markets. The Committee pointed out, however, that the current difficulties in many countries have also stemmed from unduly expansionary financial policies, which have generated domestic inflation and misallocation of resources, as well as external imbalances. The Committee observed that many non-oil developing countries are endeavoring to adjust the imbalances in their economies but that further progress is needed.

In this connection, the Committee voiced grave concern about two particular aspects of the external finances of non-oil developing countries. One of these related to the need for an enlarged flow of aid and concessional loans to developing countries, especially the low-income ones with limited access to international financial markets. The other aspect of concern related to the recent rates of increase in external debt, which has reached historically high levels in many countries. The Committee stressed the importance for these countries, at a time when private financial flows are less readily available, to be taking steps toward realistic adjustment to prevailing circumstances.

The Committee’s discussions pointed up the high degree of interdependence in the world economy and reaffirmed its conviction regarding the urgent need for closer international cooperation. At a time of unsettled conditions in financial markets arising from external payments imbalances and the continuing problems of adjustment, the Committee again urged all member countries to seek solutions of their difficulties by means that give due consideration to the interests of their trading partners and of the world economy as a whole. In this connection, it warned that protectionist trade measures are short-sighted since they are inimical to productivity gains and progress against inflation, and also destructive of opportunities for expansion of world trade and increased participation of all countries in its benefits. The Committee further noted that nondiscriminatory access to financial markets is essential and should be maintained.

3. The Committee agreed that in the unusually difficult conditions prevailing in the world economy the role of the Fund in the promotion of balance of payments adjustment is of critical importance and stressed the need for effective and even-handed implementation by the Fund of its surveillance function. In the view of the Committee, full cooperation by all members was essential for the success of the Fund’s efforts to promote increased international stability. In this connection, the Committee was pleased to note the policy declaration relating to the Fund’s surveillance responsibilities and its efforts to foster stability that was included in the Statement on International Monetary Undertakings issued at the Versailles Summit Meeting of last June.

4. The Committee considered various issues relating to the Eighth General Review of Quotas. It noted that considerable progress toward an increase in the size of the Fund that was reported by the Executive Board and welcomed the agreement reached in the Board on the method for calculating quotas for the purposes of the Eighth General Review. The Committee’s attention was focused on the main issues of the overall increase in the size of the Fund and the distribution of the overall increase among individual members.

There was widespread support in the Committee on the urgent need for a substantial increase in quotas under the Eighth General Review. The Committee reiterated its view that quotas must remain the primary source of financial resources for the Fund’s operations and that, therefore, the Review should result in an increase in quotas that would be large enough to enable the Fund to perform its functions in an effective manner in the 1980s. The Committee also reiterated its view that the occasion of an enlargement of the Fund under the Eighth General Review should be used to bring the quotas of members more in line with their relative positions in the world economy, taking account of the case for maintaining a proper balance between the different groups of countries. The Committee also asked the Executive Board to assess the adequacy of existing arrangements to deal with major strains in the international financial system.

The Committee urged the Executive Board to pursue its work on the issues of the Review as a matter of high priority, so that the remaining issues on the size and distribution of the quota increase could be resolved by the time of the Committee’s next meeting in April 1983.

5. The Committee discussed various SDR matters, in particular the question of allocations of SDRs in the fourth basic period which began on January 1, 1982. The Managing Director reported that he had not been able to make a proposal for such allocations because the broad support required by the Articles was lacking. The Committee asked the Executive Board to continue its efforts to bring about a convergence of views that would permit the Managing Director to submit, as soon as possible, a proposal concerning SDR allocations in the current basic period, in accordance with the provisions of the Fund’s Articles.

The Committee noted the wide-ranging examination undertaken by the Executive Board of various aspects of the use and role of the SDR and SDR-denominated assets in the international monetary system, and endorsed the active pursuit by the Executive Board of this examination.

6. The Committee expressed deep appreciation to the Government of Canada, to the authorities of Ontario, and to the city and the people of Toronto for their warm hospitality and for the excellent arrangements provided for the meeting.

7. The Committee agreed to hold its next meeting in Washington, D.C., on April 27–28, 1983.

Composition as of September 4, 1982

Allan J. MacEachen, Chairman

Mohammad Abal-KhailSaudi Arabia
Hassan Al-NajafiIraq
Beniamino AndreattaItaly
Mahfoud AoufiAlgeria
Willy De ClercqBelgium
Jacques DelorsFrance
Emane GalvêasBrazil
Juan Antonio Garcia Diez1Spain
John HowardAustralia
Sir Geoffrey HoweUnited Kingdom
Ahti KarjalainenFinland
Manfred LahnsteinGermany, Federal Republic of
Ray MacSharryIreland
Arthur K. MaguguKenya
Pranab Kumar MukherjeeIndia
Tengku Razaleigh HamzahMalaysia
Donald T. ReganUnited States
Sambwa Pida NbaguiZaïre
Shang MingChina
A. P. J. M. M. van der SteeNetherlands
Michio WatanabeJapan
Jorge WehbeArgentina

José Ramón Alvarez Rendueles

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