The International Monetary Fund ended its first quarter century with drawings on the Fund totaling more than $20 billion. Of this amount, 1969 accounted for $2,871 million while repayments by repurchase of currency during the year reached a record $1,580 million.
The decision at the Fund’s Annual Meeting in Washington in September to allocate special drawing rights (SDR’s) to members culminated an intensive process of study and negotiation which began in 1963, and was regarded as the most important change in the world monetary system since the Bretton Woods Conference in 1944.
Membership in the Fund increased to 115 in 1969 with the addition of Swaziland and Southern Yemen in September and of Equatorial Guinea and Cambodia in December. Two major currencies, the French franc and the deutsche mark, changed their parities in 1969. Uncertainty in currency markets had continued for much of 1969 prior to the 11.11 per cent devaluation of the French franc in August and the 9.3 per cent upward revaluation of the deutsche mark in October.
A policy innovation adopted in June authorized Fund support in financing commodity buffer stock arrangements. At the end of the year, the Executive Directors also adopted an important decision defining the procedures under which the Fund will purchase gold from the Republic of South Africa. Proposals for the increase in members’ quotas were submitted to the Board of Governors in December following the fifth general review of quotas in the Fund. Total quotas would rise from the current level of about $21,300 million to approximately $28,900 million if all members were to increase their quotas to the maximum proposed.
Drawings and Repurchases
Purchases of foreign currencies totaling $2,457 million by six members (Belgium, Denmark, France, Germany, South Africa, and the United Kingdom) accounted for 85 per cent of all transactions in 1969. France purchased $500 million in September under a stand-by arrangement approved by the Fund that month. Germany drew $540 million in November in the last quarter’s largest transaction, using a credit position in the Fund built up by the previous use of deutsche mark by other members. In December, the Fund repaid $340 million previously borrowed from Germany under the General Arrangements to Borrow (GAB). A further German claim of $210 million under the GAB was transferred to other participants.
The United Kingdom drew a total of $850 million under stand-by arrangements, composed of $500 million in June and $175 million in each of September and December, and made repayments totaling $918.5 million. South Africa purchased $66.1 million in April representing its $50 million gold tranche plus a drawing in a credit tranche. The gold tranche purchase was repaid before the end of 1969. Denmark purchased $45 million in May, which comprised its gold tranche plus a credit drawing. Belgium purchased $46.5 million in July, representing a partial use of its gold tranche. This drawing was repaid before the end of the year. The Fund also repaid $70 million to Belgium to discharge its indebtedness under the GAB.
|Total drawings in the fourth quarter of 1969||824.59|
|Total net drawings at the end of the fourth|
|quarter of 1969||5,384.61|
Drawings in the last quarter of the year also included purchases totaling $59 million by Indonesia and $9 million by Colombia under stand-by arrangements approved in April. The Dominican Republic in December purchased the equivalent of $8 million in support of a program to assure satisfactory balance of payments performance with reasonable price stability.
Drawings by developing countries during 1969 totaled $395.2 million, compared with $688.6 million in 1968. Purchases by Latin America and Caribbean nations were $177.2 million, while developing countries in Asia purchased $126.8 million. Countries in the Middle East purchased $54.5 million, and African countries $36.7 million.
Five stand-by arrangements were approved by the Fund during the final quarter of the year. The largest of these was Morocco’s arrangement for $25 million, to assist stabilization efforts in that country and to help maintain its liberal trade policy. Stand-by arrangements for the equivalent of $12 million each were approved for Afghanistan and Burma.
The Afghan arrangement was in support of a program aimed at strengthening the budgetary position in order to attain a better balance between domestic and foreign financing of development expenditure. The arrangement for Burma was that member’s first stand-by arrangement with the Fund. Burma has suffered a large decline in exports over the last few years and a substantial fall in net foreign exchange reserves. Burma’s program for 1969-70 is intended to stimulate economic growth through greater flexibility in policies affecting production, prices, and distribution.
Tunisia’s $7.5 million stand-by arrangement was to ensure continued economic progress in a climate of price stability and external equilibrium. After several years of considerable economic progress, Tunisia now faces reconstruction problems following heavy damage inflicted by floods. The Tunisian program for 1970 is directed toward consolidation of economic gains in recent years, with emphasis on increasing productivity and improving the competitive position of the country’s economy. The $3 million arrangement for Mali was in support of a stabilization program.
Increase in Quotas
The proposals submitted by the Executive Directors to the Board of Governors in December providing for an increase in members’ quotas followed the consideration given to this matter at the 1969 Annual Meeting in Washington. At that meeting, the Board of Governors requested the Executive Directors to submit an appropriate proposal by the end of the year for the adjustment of members’ quotas. In their report to the Board of Governors in December, the Executive Directors stated that the periodic general review of quotas required by the Fund’s Articles of Agreement facilitates an adjustment of the size of the Fund to the growth of the world economy. The review also offers an opportunity to adjust individual quotas so as to reflect changes in the position of members in the world economy, and helps to maintain a balanced distribution of quotas within the whole membership of the Fund.
The increased quotas recommended in the report are the maximum amounts to which quotas could be increased under the proposed Resolution. A member may consent to a smaller increase in its quota than the amount shown against its name, and if it does so, it may, at any time not later than November 15, 1971, consent to further increases up to the amount shown in the proposed Resolution. No increase in quotas will take place before October 30,1970.
The report described arrangements for the payment in gold and currency of additional subscriptions to meet the proposed quota increases. Special provisions are included which permit a member to pay less than 25 per cent of the increase in its subscription in gold, and to mitigate the impact of gold purchases for subscription payment purposes. Under the Fund’s Articles, proposals to adjust members’ quotas as a result of a general review require the approval of Governors representing 85 per cent of the total voting power in the Fund. Exercise of the power to reduce gold payments in connection with increases in subscriptions also require a majority of 85 per cent of the total voting power.
Gold Purchases from South Africa
On December 30, 1969, the Fund decided that it would buy gold offered to it by South Africa whenever the latter indicated that the offer was in accordance with a policy statement by that member with respect to the sale of gold and the handling of its reserves. Under this policy, South Africa may offer to sell gold to the Fund when the market price of gold falls to $35 per fine ounce or below, in amounts necessary to meet current foreign exchange needs during any such period. Further, South Africa may sell gold the the Fund, regardless of the price in the private market, to the extent that South Africa has a need for foreign exchange over a semiannual period beyond the need that can be satisfied by the sale of all current new gold production in the private market
At the same time South Africa intends to sell its current production of gold in an orderly manner in the private market to the full extent of current payments needs. The Fund’s announcement in December also specified certain gold sales by South Africa from earlier stocks and the use of gold by South Africa in accordance with the Articles of the Fund and its past decisions. The Fund also accepted an offer previously made by South Africa to sell gold to the Fund in return for £ stg. 14.5 million.
Special Drawing Rights
The Fund made an initial allocation of special drawing rights equivalent to $3,414 million on January 1, 1970 to 104 participants in the Fund’s Special Drawing Account. The allocation was made in accordance with a Resolution adopted by the Board of Governors at its 1969 Annual Meeting.
The present allocation is made for the first year of a first basic period of three years. It will be followed by annual allocations on 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 percentages are 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. The rate of allocation for the first year of the basic period was computed at 16.8 per cent of the quota as of December 31, 1969 of each participant receiving an allocation. (For further information about special drawing rights see table and Views and Comments.)
|(thousand U.S. dollars)|
|Syrian Arab Republic||6,384|
|Trinidad and Tobago||7,392|
|United Arab Republic||25,200|