INITIAL drawings by the United States and Italy ($125 million and $225 million, respectively) and a $305 million stand-by arrangement with Japan were the largest of the new entries in Fund accounts during the first quarter of the year. A week before they made the drawing, in March, the Italian authorities had disclosed that approximately $1 billion in credits had been arranged in the United States and Europe to supplement the country’s reserves, which had been reduced partly in consequence of capital movements and speculative pressure. Italy’s drawing on the Fund corresponded to the amount of its gold subscription, $67.5 million, added to the net drawings of lire from the Fund by other members.
The initial U.S. drawing, in February, came after other members had drawn $4.3 billion in U.S. currency from the Fund since the beginning of Fund operations in 1947. But repayments had restored the Fund’s holdings of U.S. dollars to the level of the U.S. subscription. Beyond that point, members must make their repayments either in another convertible currency of which the Fund’s holdings are below subscription level, or else in gold. The United States has announced its willingness to exchange for dollars the currencies needed for this purpose, drawing them from the Fund under a $500 million stand-by arrangement approved last July. The U.S. drawing, equivalent to $125 million, was made in Italian lire, deutsche mark, and French francs.
The establishment of a one-year, $305 million stand-by arrangement for Japan was announced on March 11 in conjunction with the country’s agreement to accept the obligations of currency convertibility under Article VIII, effective April 1. By providing additional resources in support of Japan’s reserve position, the stand-by arrangement will help Japan to defend the convertibility of the yen in the event of any temporary balance of payments difficulties. The $305 million figure is equal to 50 per cent of Japan’s $500 million quota, augmented by $55 million in net drawings of yen by other members. The acceptance of Article VIII by Japan makes it possible for other countries to make repayments to the Fund in Japanese currency.
Also in March, the Fund approved a standby arrangement that authorizes the Government of the Syrian Arab Republic to draw the equivalent of $18.5 million until the end of December 1964. The Syrian authorities had been attempting for several years to deal with a difficult payments position and had made several previous drawings on the Fund. Stabilization policies introduced toward the end of 1961 helped to bring a large degree of stability to the domestic economy, but an imbalance returned in 1963, mainly as a result of capital movements. The Government has introduced new policies in the credit, trade, and exchange fields which are expected to improve the payments position.
Turkey’s new $21.5 million stand-by arrangement is intended to add support to the country’s reserve position in the event of temporary shortfalls in foreign exchange earnings or delays in the inflow of external assistance. Turkey is in the second year of a five-year development program assisted by a consortium under the aegis of the Organization for Economic Cooperation and Development. During 1963 it achieved a 7 per cent increase in gross national product while generally maintaining price stability.
New stand-by arrangements with Chile, Colombia, and Peru are also designed to assist these member countries in promoting their economic development under conditions of monetary stability. Peru has maintained such arrangements with the Fund since 1954, has drawn upon them in the amount of $14.5 million, but has no balances outstanding. The Fund announcement noted that the Peruvian economy had expanded rapidly since 1959, with real per capita income growing by more than 20 per cent from 1960 through 1963. Meanwhile Peru has maintained a unified and stable exchange system, freedom from exchange and trade restrictions, and a surplus foreign payments position.
Both Chile and Colombia improved their balance of payments during 1963 while pursuing policies of economic stabilization. In Colombia, the exchange reforms introduced in 1962 were followed in 1963 by far-reaching fiscal reforms. Tax and administrative reforms in Chile helped last year to bring about a budgetary surplus on current account. The two countries previously had drawn upon the Fund in substantial amounts, bringing Chile’s net drawings to $106 million and Colombia’s to $115 million. The amounts made available to the two members under the new one-year stand-by arrangements were, respectively, $25 million and $10 million.
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During February and March, Mr. Schweitzer, the Fund’s Managing Director, made his first trip to some of the Fund’s Latin American members, visiting the capitals of Mexico, El Salvador, Venezuela, and Colombia. The Managing Director’s travel enabled him to confer with leading officials in these developing countries, and to attend a meeting of Central American banking authorities on monetary integration in the area. On February 10 he welcomed to the Fund a group of economists from universities in Argentina, Bolivia, Chile, Paraguay, Peru, and Uruguay, who had come to Washington for discussions sponsored by the Fund, the Inter-American Development Bank, and the International Bank for Reconstruction and Development.
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Other developments in the first quarter of the year were the admission to membership of Kenya, with a quota of $25 million, and an increase in the quotas of Israel (from $25 million to $50 million) and the Syrian Arab Republic (from $15 million to $25 million). The Government of Canada notified the Fund of its adherence to the Fund’s $6 billion General Arrangements to Borrow. Consultations were held in the Executive Board with 15 countries under Article XIV and with 3 countries that accept the obligations of Article VIII. Twenty-six staff members of ministries of finance and central banks completed a Fund training course in financial analysis and policy, and 25 others took their places; the trainees in the two groups were nationals of 48 countries, mainly in developing areas of Latin America, the Middle East, Asia, and Africa.
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The Fund’s program of research in recent months has given particular attention to problems of international liquidity, in accord with an undertaking of its management to this effect at the outset of the 1963 Annual Meeting of the Board of Governors.
In an address to the United Nations Conference on Trade and Development on March 25, Mr. Schweitzer put the Fund’s work on liquidity in context with other current efforts to improve the world economy. He spoke of “a remarkable concentration of effort in 1964 to find ways and means of improving international trade and finance, and development,” with the attack on these problems being made from three directions. The UN Conference itself was to point the way toward a new trade policy for development; the GATT was about to embark on negotiations to reduce trade barriers among the contracting parties; and among the Fund’s members, intensive discussions were continuing on how best to ensure the maintenance of enough liquidity to sustain a steady and satisfactory rate of growth.
Mr. Schweitzer recalled some of the Fund’s recent moves to clarify and expand its financing facilities: In 1959, a general increase in quotas was carried out, and in 1962 a scheme for supplementing the Fund’s resources through borrowing from ten major countries went into operation. Last year, in February, the Fund established its special compensatory financing facility, which provides more liberal terms of assistance for countries faced with temporary commodity export problems that are largely beyond their control. The Fund also agreed to give sympathetic consideration to increases in quotas proposed by commodity exporting countries.