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

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1980
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Press Communiqué: September 29, 1980

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its fifteenth meeting in Washington, D.C. on September 28, 1980. Mr. Hannes Androsch, Vice Chancellor and Minister of Finance of Austria presided over the meeting in the absence of the Chairman of the Committee, Mr. Filippo Maria Pandolfi, Minister of the Treasury of Italy. Mr. Jacques de Larosière, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by: Mr. G. D. Arsenis, Director of Money, Finance and Development Division, UNCTAD; Mr. Alexandre Lam-falussy, Economic Adviser and Head of the Monetary and Economic Department, BIS; Mr. Emile van Lennep, Secretary-General, OECD; Mr, F. Leutwiler, President, Swiss National Bank; Mr. M. G. Mathur, Deputy Director-General, GATT; Mr. Robert S. McNamara, President, IBRD; Mr. François-Xavier Ortoli, Vice-President, CEC; Mr. Jean Ripert, Under-Secretary-General for International Economic and Social Affairs, UN; Mr. Cyrus Sassanpour, Head, International Money and Finance Unit, OPEC; and Mr. Cesar E. A. Virata, Chairman, Development Committee. Mr. Wang Weicai, Vice-President, Bank of China, also attended.

2. The Committee discussed the world economic outlook and the policies appropriate in the current situation. Noting that the key features of the world economic situation had not changed much since its April meeting in Hamburg, the Committee was again concerned particularly with two problems: worldwide inflation and the external payment imbalances of non-oil developing countries.

The Committee remained convinced that the top priority being given in many countries to the fight against inflation must not be relaxed. Reduction of inflation and inflationary expectations was considered necessary for the restoration of conditions for better investment performance and sustained economic growth. Although recognizing that slow growth of output is a key feature of the current situation, the Committee cautioned against any premature shift to expansionary monetary and fiscal policies. It stressed that the broad objective must be to establish the basis for sustained growth and improved employment prospects, with relative price stability over the longer run.

The Committee noted the dramatic increases in the deficits of the non-oil developing countries and expressed concern about the problems of financing such deficits, especially in the case of the low-income countries. The Committee foresaw a great and urgent need for more official development assistance to the latter countries from the industrial and oil exporting countries. This need reflects the inadequacy of the current flow of imports to low-income countries, the erosion of their external financial positions in obtaining even this flow, their limited access to international financial markets, and their requirements for sustained rates of growth.

For developing countries, the Committee attached importance to adequate access to markets for their exports. Industrial countries were urged to avoid protectionist measures and to maintain or expand the great advantages—for themselves, as well as for many developing countries—provided by an open trading environment. Noting that many developing countries will continue to need large amounts of external credit on market terms, the Committee also urged industrial countries to avoid measures that might restrict the access of developing countries to their capital markets. It was observed that a number of developing countries themselves could contribute to maintenance or expansion of the necessary capital inflows by following policies designed to bolster confidence regarding their economic prospects.

3. The Committee discussed the developments in the Fund’s policies on the use of its resources and the prospects for the Fund’s liquidity.

(a) The Committee welcomed the work done by the Executive Board following the agreement reached by the Committee at its Hamburg meeting that the Fund should play a larger role in the adjustment and financing of payments imbalances in prospect for many members of the Fund. Under this policy, various aspects of which will still need to be elaborated by the Executive Board, members of the Fund making strong efforts to correct their balance of payments problems over a reasonable period through the pursuit of sound demand and supply policies would be able to obtain, on appropriate terms of conditionality, considerably larger amounts of assistance from the Fund than were available in the past. The Committee endorsed the Executive Board’s conclusion that amounts up to an annual limit of 200 per cent of quota (excluding uses under the compensatory and buffer stock financing facilities), i.e., for a total of 600 per cent of quota over a three-year period, would be a reasonable guideline in the present circumstances. The members of the Committee noted with satisfaction that, on the basis of this policy, the Fund has already agreed to provide large amounts of resources to several members in support of programs that envisage adjustment over longer periods than have been the normal practice hitherto.

(b) The Committee agreed that, in order for the Fund to be able to meet requests for assistance under this new policy on the use of its resources, it will be necessary that the Fund supplement its resources by further borrowing and, in this connection, it welcomed the steps already taken by the Managing Director. In view of the magnitude of the expected need, the Committee agreed that the Executive Board and the Managing Director should make, as soon as possible, the necessary arrangements to enable the Fund to borrow from various potential sources of financing, not excluding a possible recourse to the private markets if this were indispensable.

(c) While agreeing that, during the next few years, it will be necessary for the Fund to resort to further borrowing, the Committee wished to stress its view that the Fund should continue to place primary reliance on subscriptions under members’ quotas as a source of financing of the Fund’s operations. In this connection, the Committee expressed regret at the long delay in the implementation of the quota increases provided for in the Resolution of the Board of Governors on the Seventh General Review. The Committee, noting that 84 members having 58 per cent of the total quotas have already consented to the increases in their quotas under that Resolution and that other members are expected to consent shortly, urged those members that have not yet consented to increases in their quotas, to make every effort to do so as soon as possible. Moreover, it endorsed the intention of the Executive Board to begin preparatory work on the Eighth General Review of Quotas. The Committee noted that this review will be the occasion to reflect in the quotas the developments in members’ positions in the world economy, including a review of the criteria by which quotas are calculated.

(d) The Committee welcomed the agreement reached in the Executive Board on the establishment of a Subsidy Account designed to reduce the cost to low-income member countries of the use of the Fund’s resources under the supplementary financing facility and the intention of the Board to complete the arrangements for putting such an Account into effect. In this connection, the Committee noted the view of the Executive Board that a part of the proceeds from repayments of loans by the Trust Fund should be used to provide resources to the Subsidy Account. At the same time, the Committee endorsed the efforts of the Managing Director to obtain voluntary contributions to the Subsidy Account, expressed its appreciation to those countries that had announced their intention to make such contributions, and urged all countries that were in a position to contribute but had not yet decided to do so to take such steps as would enable them to make an appropriate contribution to the funding of that Account.

(e) The Committee noted that, in response to a suggestion by the Food and Agriculture Organization and the World Food Council, the Executive Board had begun consideration of the question whether the Fund could extend temporary financial assistance to low-income member countries when such countries are adversely affected by a crop failure or a sharp increase in the world price of food items, especially cereals. The Committee further noted that, in the view of the Managing Director, it would be possible to establish, consistently with the Fund’s authority and objectives, an arrangement for such assistance that would have only a limited effect on the liquidity of the Fund. Recognizing the seriousness of the problem faced by these member countries, the Committee urged the Executive Board to give prompt consideration to the matter.

4. The Committee had a discussion on the recommendations of the Program of Immediate Action of the Group of Twenty-Four relating to monetary issues on the basis of a report by the Executive Board, and, in this connection, noted the developments in the policies on the use of the Fund’s resources described in paragraph 3(a) above. It also noted that the Executive Board had initiated an in-depth examination of the issues involved in these recommendations, such as those relating to the SDR allocations, the link between SDR allocations and development finance, and the participation of developing countries in the decision making in the Fund.

The Committee endorsed the view that the important economic developments that have taken place should be taken into account in the consideration of further SDR allocations. In this connection, the Committee asked the Executive Board to give active consideration, in the months before the next meeting of the Committee, to the question of the appropriate level of SDR allocations. The Committee noted that due regard would need to be paid to the developments in international liquidity, payments imbalances, and the need for reserves as well as to the importance of strengthening the role of the SDR and its credibility as a reserve asset.

The Committee agreed that the Executive Board should carry out a more comprehensive study of a possible link between SDR allocations and development finance. This would need to be considered in the context of the proper role of the SDR in the system and the liquidity needs of the world.

On the subject of the participation of developing countries in the decision making in the Fund, the Committee felt that the matter needed further consideration and noted the intention of the Executive Board to return to this important topic at an early date in connection with the Eighth Quota Review.

The Committee urged the Executive Board to pursue its consideration of the remaining issues raised by the recommendations of the Group of Twenty-Four with a view to arriving at widely acceptable solutions. The Board should report on these matters at the next meeting of the Committee.

5. The Committee welcomed the recent decisions of the Executive Board to simplify the SDR. Under these decisions, beginning on January 1, 1981, the currency basket for the valuation of the SDR will become identical with the one already applied for interest rate purposes. The SDR will, therefore, consist of five currencies, i.e., the U.S. dollar, the deutsche mark, the French franc, the Japanese yen, and the pound sterling. In the view of the Committee, this important action, which gives practical effect to the Committee’s recommendation at its meeting in Hamburg, will further enhance the attractiveness of the SDR and promote its use by private as well as public holders. The Committee also welcomed the increase in the past few months in the number of official institutions that can hold and deal in SDRs. The Committee asked the Executive Board to give early attention to the question of adjusting the SDR interest rate to the full market rate and that of eliminating the remaining reconstitution requirement.

The Committee reiterated its intention to continue the study of the subject of the substitution account.

6. The Committee agreed to hold its next meeting in Libreville, Gabon, on May 21,1981.

Composition as of September 29, 1980

Hannes Androsch, Temporary Chairman*
Mohamed Abalkhail1Saudi Arabia
Hassan Al-Najafi2Iraq
Paolo BaffiItaly
Adolfo Cesar DizArgentina
Sunday Mathew EssangNigeria
Emane GalvêasBrazil
Paul HatryBelgium
John W. Howard3Australia
Sir Geoffrey HoweUnited Kingdom
David Ibarra MuñozMexico
Allan J. MacEachenCanada
Hans MatthoeferGermany, Federal Republic of
G. William MillerUnited States
René MonoryFrance
Seghir MostefaïAlgeria
Ivar NørgaardDenmark
Tengku Razaleigh HamzahMalaysia
Sambwa Pida NbaguiZaïre
A. P. J. M. M. van der SteeNetherlands
R. VenkataramanIndia
Michio WatanabeJapan

Hannes Androsch (Austria) acted as Temporary Chairman of the Committee at the September 29, 1980 meeting, in the absence of the Chairman, Filippo Maria Pandolfi (Italy).

Alternate attending for the member:

Mahsoun B. Jalal

Mohammad Said Nabulsi (Jordan)

R. D. Muldoon (New Zealand)

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