During the third quarter of 1969, the International Monetary Fund’s resources were utilized by 19 countries. They purchased 16 currencies equivalent to $866.1 million. Repayments by repurchase during the quarter totaled $377.6 million.
Purchases of currencies from the Fund were down sharply in the first nine months of 1969 from the record levels of 1968, although drawings by France and the United Kingdom in late September raised total drawings for the period to about $1.7 billion. This compared with $3,359 million drawn in the first nine months of 1968, and a total of $3,552 million for that year. During the third quarter of 1969, membership in the Fund rose to 113 when Swaziland and Southern Yemen signed the Articles of Agreement in September. In other developments during the quarter, France proposed and the Fund concurred in a lowering of the par value of the French franc in August and on September 29 the German Government informed the Fund that it could not ensure that rates for deutsche mark transactions within Germany would be confined within the limits hitherto observed around the par value of that currency.
|Syrian Arab Republic||July||9.50|
|Total drawings in the third quarter of 1969||866.14|
|Total net drawings at the end of the third||5,481.71|
|quarter of 1969|
Drawings and Repurchases
Belgium purchased the equivalent of $46.5 million in three currencies in July; this purchase represents a partial use of Belgium’s reserve position in the Fund. A repayment to Belgium equivalent to $70 million was also made by the Fund to discharge its indebtedness to that member under the provisions of the General Arrangements to Borrow (GAB). France purchased exchange equivalent to $500 million in September under a stand-by arrangement that became effective that month (see below). To replenish the Fund’s holdings of currencies used for the French purchase, five GAB participants (Canada, Germany, Italy, Japan, and the Netherlands) agreed to extensive credits in their respective currencies to the Fund for a total amount equivalent to $190.5 million. The Fund also sold $101.5 million of gold to 13 countries to help finance this transaction and used the equivalent of $208 million from its holdings of currencies. Also in September, the United Kingdom purchased the equivalent of $175 million in four currencies under the stand-by arrangement for $1 billion approved by the Fund for that member in June 1969. Israel purchased $22.5 million in September in order to lessen the impact on its reserves of a deterioration in the balance of payments, and Pakistan purchased the equivalent of $35 million in August under a standby arrangement for $75 million approved in October 1968.
Repayment by repurchase of currency during the third quarter included the equivalent of $200 million repurchased by the United Kingdom early in September in respect to its purchase equivalent to $1.4 billion in May 1965. South Africa made repayments in gold in July and August amounting to almost $50 million in connection with its purchase from the Fund in April of the equivalent of $66.2 million. Among other repurchases of currency during the quarter were those by New Zealand ($20.6 million), Chile ($17 million), and Pakistan ($13 million). By the end of the quarter, total drawings since Fund operations commenced in March 1947 were slightly over $19 billion and drawings outstanding were about $5.5 billion.
On August 10, France and the Fund agreed upon a new par value for the new French franc at F1 = US$0.180044. Corresponding changes were made in the par values of the separate currencies in France’s nonmetropolitan territories with the exception of the par values of the currency which circulates in the territory of the Afars and Issas and the French currency of the condominium of the New Hebrides.
On September 29, the German Government informed the Fund that it was allowing the deutsche mark to float. The German authorities believed this would contribute to the avoidance of possible pressures on the international monetary system.
The Executive Directors of the Fund noted that Germany would maintain close contact with the Fund and would collaborate with it fully in accordance with the Articles of Agreement. In pursuing this course Germany would resume the maintenance of the limits around par at the earliest opportunity.
The largest stand-by arrangement approved by the Fund during the quarter was for the equivalent of $985 million for the Government of France in September. In August 1969 the Fund concurred in a change in the par value of the French franc which represented a parity adjustment of 11.11 per cent (see above). This was followed by an economic program of budgetary, credit, and other measures developed to reestablish balance of payments equilibrium on a sound and lasting basis. The stand-by arrangement was to assist the French authorities in meeting this objective.
A stand-by arrangement for Ceylon for the equivalent of $19.5 million was approved in August in support of a program by the national authorities to strengthen Ceylon’s external payments position. While the country’s economic growth accelerated sharply in 1968, the fall in world prices of tea, which provides about two thirds of Ceylon’s exchange earnings, continued over the past year. A $17 million stand-by arrangement for El Salvador in July was in support of efforts by the Salvadoran authorities to stimulate economic growth while maintaining over-all financial equilibrium. El Salvador plans to mobilize domestic and external resources in order to increase the level of public investment and stimulate the growth of the economy. The arrangement for Guatemala ($12 million) approved in July gave continued support for a financial program directed toward payments equilibrium. Guatemala’s coffee and cotton crops have been smaller than last year’s and prices for both export commodities have fallen. The national program for 1969 aims at consolidating recent financial gains in Guatemala while maintaining an exchange system which is virtually free of restrictions.
Stabilization of Primary Products
In July, the Fund announced the terms of a new decision by the Executive Directors under which drawings for the purpose of financing buffer stocks in connection with international commodity arrangements may be made up to amounts equivalent to 50 per cent of quota, provided that drawings under the Fund’s compensatory financing facility and the buffer stock facility taken together do not exceed 75 per cent of quota. The Fund also released Part 11 of a study on the problem of stabilization of prices of primary products, referring to the scope for action by the Fund. Part I of the study was submitted to the Governors of the Fund and World Bank in 1968 and consisted of an examination of the problem of commodity price stabilization made jointly by the staffs of the Fund and the IBRD.
Special Drawing Rights
The Amendment to the Fund’s Articles of Agreement establishing a new facility based on special drawing rights and making certain changes in Fund rules and practices entered into force on July 28 following its acceptance—as required under the Articles—by three fifths of the Fund’s members representing four fifths of the total voting power. The Amendment entered into force for all Fund members, whether or not they had accepted it. Under the amended Articles, two separate Accounts are maintained in the Fund. The Fund’s present operations and transactions are carried on through the General Account, and its functions relating to special drawing rights through the Special Drawing Account.
In order to become a participant in the Special Drawing Account, a member has to deposit with the Fund an instrument setting forth that it undertakes all the obligations of a participant in that Account. Only Fund members can become participants. However, no member could become a participant before instruments of participation had been deposited by members that have at least 75 per cent of total quotas in the Fund. This requirement was met on August 7.
In accordance with the Articles, the Fund’s Managing Director, Mr. Pierre-Paul Schweitzer, has made a proposal, in which the Executive Directors have concurred, to allocate special drawing rights to member countries over the first basic period of three years beginning January 1, 1970. The proposal was made in September and was presented to the Board of Governors of the Fund for action during the Annual Meeting for 1969. On October 3 the Board of Governors approved the proposal which calls for allocations to be made on January 1, 1970, January 1, 1971, and January 1, 1972. Each of these allocations is to be made at a rate that is expressed as a percentage of the quotas of participants on the day before the allocation in question. The percentage will be such as to yield allocations close to the equivalent of $3.5 billion in the first year and close to $3 billion in each of the second and third years.
DRAWINGS AND REPAYMENTS CALENDAR YEARS, 1947-SEPTEMBER 26, 1969
(In millions of U.S. dollars)
Citation: 6, 4; 10.5089/9781616352967.022.A012
1/ September 26, 1969