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Recent Activity—International Monetary Fund

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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Special Drawing Rights

Transactions in special drawing rights (SDR’s) totaled the equivalent of $548.8 million on June 30, 1970, the end of the first six months of operation of the new facility. Since the allocation of approximately SDR 3.4 billion (one SDR unit is equivalent to $1) to 104 participating members of the Fund was made on January 1, 1970, in amounts proportional to their Fund quotas, 46 countries have made use of their SDR holdings. Eleven countries have used almost the full amount at their disposal until the next allocation, scheduled for January 1, 1971. Twenty-two countries accepted transfers of SDR’s from other participants through the Special Drawing Account during this period, providing currency in return for SDR’s ‘ received by them. Thus far, the 14 leading industrial countries that are participants have seen their total holdings of SDR’s rise 3 per cent over their total allocation last January, while the holdings of developing countries in Africa, Asia, Latin America, and the Middle East have declined by 31 per cent.

The Fund’s General Account is authorized to hold SDR’s and its holdings of the new reserve asset totaled SDR 244.4 million on June 30. These SDR’s were received in payment of various member obligations, and may be used by the Fund to replenish its holdings of currencies that have been reduced by members’ purchases from the General Account.

Gold

Paralleling the six-month experience with SDR’s was the initial period of gold transactions between the Fund and South Africa under an Agreement announced in December 1969. Total Fund purchases of gold from South Africa in this period were $307.25 million, and helped to raise the Fund’s gold holdings to $3,593 million on June 30, 1970.

Purchases and Repurchases

Purchases from the Fund’s General Account have amounted to $1,010 million since January 1, 1970, compared with $770 million in the first six months of 1969 and the record $3,182 million during the same period in 1968. Members’ repurchases of currency amounted to $698.6 million in January-June 1970, and net purchases at the end of June totaled $5,348 million. Major purchases so far in 1970 have been those by France ($485 million) and the United Kingdom ($150 million) in the first quarter, and purchases in May by the United States ($150 million) and South Africa ($100 million). The purchases by the United States and South Africa were made within these countries’ creditor positions in the Fund, built up by the use of U.S. dollars and South African rand by other members. These purchases do not involve repayment obligations. A purchase by Guinea of the equivalent of $4.2 million was announced in May, in support of measures aimed at restoring internal financial equilibrium and the strengthening of its balance of payments.

The Fund’s currency sales since January 1 have included $339 million in U.S. dollars, $136.4 million in Belgian francs, $123 million in Japanese yen, $105 million in Netherlands guilders, and smaller amounts of Australian dollars, Austrian schillings, Canadian dollars, deutsche mark, Irish pounds, Italian lire, Mexican pesos, Norwegian kroner, South African rand, pounds sterling, and Venezuelan bolívares.

Stand-By Arrangements

Thirteen stand-by arrangements were approved during the first six months of the year. The largest of these was Brazil’s arrangement for $50 million approved in February (see Finance and Development, June 1970). Arrangements in the second quarter of the year included those for Indonesia ($46.3 million), Colombia ($38.50 million), and Peru ($35 million). Indonesia’s arrangement was in support of policies by the national authorities which aim at consolidating recent achievements of that country’s stabilization program, and at fostering further growth. Indonesia’s financial program for 1970/71 includes an exchange reform announced in April in which the two exchange markets—BE (Bonus Export) and the DP (Complementary Foreign Exchange) markets—were merged at a rate of Rp 378 per U.S. dollar. The Indonesian program also includes measures to decelerate credit expansion, strengthen fiscal administration, encourage exports, and control contraction of short-term and medium-term debt. Rice production in the country is also to be improved so as to meet Indonesia’s target of self-sufficiency in this commodity by 1973/74.

FUND STAND-BY ARRANGEMENTS APPROVED DURING THE SECOND QUARTER OF 1970
MEMBERMONTHAMOUNT

($ millions)
BurundiJune1.50
ColombiaApril38.50
GuyanaApril3.00
HaitiJune2.20
IndonesiaApril46.30
LiberiaMay2.00
PeruApril35.00
UruguayMay13.75

The stand-by arrangement for Colombia is in support of a continued program to improve that member’s balance of payments structure. The program provides for continuation of a flexible exchange rate policy to encourage expansion of exports other than coffee, a further gradual liberalization of import restrictions, and a cautious central bank credit policy.

Peru’s financial program supported by its stand-by arrangement with the Fund includes a shift in emphasis from rebuilding external reserves to a reactivation of the economy to achieve the maximum economic growth and employment compatible with a moderate balance of payments surplus and relative domestic price stability.

The Fund also approved a $13.75 million stand-by arrangement for Uruguay in May. Uruguay’s foreign reserve position is encumbered by heavy foreign debt payments falling due this year, and the stand-by arrangement offers a secondary line of reserves to help meet contingencies while the country’s financial program for 1970 is being carried out.

Guayana’s $3 million arrangement was approved in support of a program to continue its development program without undue recourse to bank credit, while the $2.2 million stand-by arrangement for Haiti supports a program designed to maintain a viable payments position and to eliminate restrictions on current payments. Liberia’s $2 million arrangement approved in May was that country’s eighth successive arrangement with the Fund since 1963 when its authorities began a program of financial reform. The $1.5 million arrangement for Burundi in support of its financial program was announced simultaneously with a purchase by that member of the equivalent of $2.5 million to alleviate payments difficulties arising from a temporary shortfall in exports earnings during 1969. The purchase was in accordance with the Fund’s policy of compensatory financing assistance.

Fund Borrowings

In June, Italy arranged to transfer to Japan the $250 million claim which resulted from a Fund borrowing in lire in August 1966. The credit was for a five-year period and marked the Fund’s first borrowing outside the $6 billion General Arrangements to Borrow (GAB) from 10 major industrial countries. On June 30, $5,074 million was available for use under the GAB.

DRAWINGS BY FUND MEMBERS DURING THE SECOND QUARTER OF 1970
MEMBERMONTHAMOUNT

($ millions)
AfghanistanJune2.00
BurundiJune2.50
CeylonMay4.50
ColombiaMay14.00
GhanaJune2.00
GuineaMay4.20
HondurasMay4.75
IndonesiaJune20.00
South AfricaMay100.00
United StatesMay150.00
Total drawings in the second quarter of 1970303.95
Total net drawings at the end of the second quarter of 19705,348.4

New Member

The Yemen Arab Republic joined the Fund in May with a quota of $8 million, bringing membership in the Fund to 116 and total quotas to $21,358.5 million.

Canadian Dollar

The Fund announced on May 31 the Canadian Government’s decision that Canada will, for the time being, not maintain the exchange rate of the Canadian dollar between the present margins. The Fund announcement observed that the Canadian authorities said that this action is necessary in the light of additions to the over-all foreign exchange position at an unmanageable pace, and will prevent disruptive effects upon the international payments system from occurring. The Canadian authorities will remain in consultation with the Fund and intend to resume the fulfillment of the obligations of Article IV, Section 3, of the Fund’s Articles of Agreement as soon as circumstances permit. This Section states the maximum and the minimum rates for exchange transactions between the currencies of members taking place within their territories.

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