During the third quarter of 1970, the Fund’s resources were utilized by 15 countries. They purchased 12 currencies in amounts equivalent to $357.9 million. Repayments by repurchase during the quarter totaled $524.4 million.
Purchases of currencies from the Fund plus repayments of borrowings by the Fund reached $1,698.1 million in the first nine months of 1970, against $1,706.6 million in the corresponding period of 1969, and a total of $2,871.2 million for that year.
At the end of September, gross sales (i.e., total drawings since the beginning of Fund operations) reached $21.87 billion, and net or outstanding drawings were $5.01 billion.
By the end of September total transactions in special drawing rights (SDR’s) had reached SDR 631.6 million and SDR 231.3 million was held by the Fund in its General Account.
In other developments during the quarter, the Fund repaid its indebtedness to the Government of Italy under the General Arrangements to Borrow (GAB), new par values were agreed upon for the Turkish lira and the Ecuadoran sucre, and initial par values were established for the Congo zaïre and the new Taiwan dollar. In addition, Ecuador accepted the obligations of Article VIII, and stand-by arrangements were approved with Nicaragua, Turkey, and Ecuador. The Fund replenished its holdings of 12 currencies, decided to liquidate part of its investments, and purchased additional quantities of gold from South Africa. The Governors resolved that $17.53 million would be distributed to members out of net income earned by the Fund for fiscal 1970.
Drawings and Repurchases
By far the largest drawing during the third quarter of 1970 was the gold tranche purchase of deutsche mark in an amount equivalent to $133 million (made by Italy). Other large drawings included a purchase by Turkey equivalent to $50 million (Belgian francs $5 million, deutsche mark $20 million, Japanese yen $10 million, Netherlands guilders $5 million, and U.S. dollars $10 million); this purchase was under the stand-by arrangement approved on August 14 (see “Stand-By Arrangements,” below). Smaller drawings were made by Colombia, Denmark, Ecuador, Indonesia, Iraq, Lesotho, Nicaragua, Peru, the Philippines, South Africa, Swaziland, the United Arab Republic, and Uruguay.
In September, France repurchased the equivalent of $246.25 million, mostly in U.S. dollars ($245.59 million), and the balance in deutsche mark, Japanese yen, Austrian schillings, and Mexican pesos. The next largest repurchase during the third quarter was made in August by Brazil for an amount equivalent to $75.17 million, predominantly in U.S. dollars ($72.08 million), and the balance in deutsche mark, Netherlands guilders, Belgian francs, Canadian dollars, Norwegian kroner, and Mexican pesos. Total repurchases during the quarter were $524.4 million.
|United Arab Republic||July||17.50|
|Total drawings in the third quarter of 1970||357.90|
|Total net drawings at the end of the third|
|quarter of 1970||5,010.7|
Special Drawing Rights
Transactions in SDR’s totaled the equivalent of $631.6 million by September 30, 1970, the end of the first nine months of operation of the new facility. Since the allocation of approximately SDR 3.4 billion to 104 participating members of the Fund was made on January 1, 1970, in amounts proportional to their Fund quotas, 53 countries have made use of their SDR holdings. Thirteen countries have used almost the full amount at their disposal until the next allocation, scheduled for January 1, 1971. 27 countries accepted transfers of SDR’s from other participants through the Special Drawing Account during this nine-month period, providing currency in return for SDR’s received by them. 15 countries have accepted SDR’s in payment of remuneration, 9 have accepted them under the distribution of net income and 3 have elected to receive SDR’s when the Fund replenishes its holdings of scarce currencies (see “Replenishment” below).
The Fund’s General Account holdings were SDR 231.3 million on September 30, 1970.
Transactions Under the General Arrangements to Borrow
In July, the Fund repaid to Italy its debt, equivalent to $330 million, under the GAB. The repayment was made in Belgian francs ($30 million), Canadian dollars ($75 million), deutsche mark ($60 million), Netherlands guilders ($30 million), and U.S. dollars ($135 million).
Distribution of Net Income
A resolution adopted by the Board of Governors at the 1970 Annual Meeting provided that, out of $57.55 million net income earned by the Fund for the fiscal year ended April 30, 1970, an amount equal to $17.53 million would be distributed to 34 members, which had net creditor positions in the Fund. The remainder, equal to $40.02 million, was placed in the General Reserve.
On August 9, Turkey and the Fund agreed upon a new par value for the Turkish lira, at LT 15= US$1. The previous par value was LT 9 per U.S. dollar. This adjustment was followed by complementary measures designed to reduce existing inflationary pressure in the economy.
It was announced on August 16, that Ecuador had proposed and the Fund had concurred in a change in the par value of the Ecuadoran sucre. The new par value is S/ 25 = US$1, against S/ 18 per U.S. dollar, previously. The adjustment was one of the features of comprehensive exchange reform measures.
An initial par value for the Congo zaire, at Z1 = US$2, was established on September 2, by agreement between the Government of the Democratic Republic of Congo and the Fund.
An initial par value for the new Taiwan dollar, at NT$40 = US$1, was established on September 4, by agreement between the Government of the Republic of China and the Fund.
Article VIII Status
On September 11, it was announced that Ecuador had notified the Fund that it accepted, effective August 31, 1970, the obligations of convertibility expressed in Article VIII of the Fund’s Articles of Agreement. Ecuador is the 35th member thus to move to convertibility. Since joining the Fund as one of its original members it had availed itself of the transitional arrangements of Article XIV.
A one-year stand-by arrangement with Nicaragua for the equivalent of $14 million was approved on August 12 in support of a program aimed at achieving the maximum rate of economic growth compatible with a moderate balance of payments surplus and a reasonable degree of domestic price stability, while permitting an increase in public investment and maintaining the exchange system virtually free from restrictions.
On August 14, the Fund approved a one-year stand-by arrangement for the Government of Turkey authorizing the purchase of up to $90 million in foreign currencies, in order to support Turkey’s reserves and to back a program designed in particular to increase the rate of savings, encourage optimum allocation of resources, and adapt economic institutions to the changing character of the economy. Immediate steps of the program are fiscal and credit measures to moderate demand and to halt the generation of inflationary purchasing power. Strengthening the balance of payments remains the primary aim of economic and financial policy.
On September 11, a one-year stand-by arrangement for the equivalent of $22 million was approved for Ecuador, in support of a program designed to strengthen the fiscal situation and allow an improvement in the net international reserves. Ecuador is following a policy which seeks to maintain financial stability while allowing for the expansion of domestic credit to the extent necessary to sustain a satisfactory rate of economic growth.
Replenishment of Fund’s Currency Holdings
In September the Fund replenished its holdings of the currencies of 12 members in an amount equivalent to US$325 million. The equivalent amounts of the currencies of the following members were acquired: Australia $14.79 million, Austria $14.36 million, Belgium $12.38 million, Canada $36.37 million, Finland $1.14 million, Germany $2.08 million, Ireland $3.38 million, Japan $56.84 million, Mexico $5.26 million, the Netherlands $40.43 million, Norway $6.08 million, and the United States $131.89 million. The replenishment was made by the sale of gold, but three members, exercising an option provided by the Fund, received a total of SDR 67.51 million in place of gold (Canada SDR 36.37 million, Finland SDR 1.14 million, the United States SDR 30.0 million).
Partial Liquidation of the Fund’s Investments
Also in September, the Fund decided to reduce by $400 million the $800 million invested in short-term U.S. Treasury securities. The investments were made in 1956, 1959, and 1960 to raise income in order to meet the Fund’s past administrative deficits and to provide a reserve toward meeting possible future deficits. These investments were made with the proceeds of sales of gold by the Fund to the United States for dollars. In accordance with decisions under which the sales of gold were made, the Fund reacquired from the United States an amount of gold equivalent to $400 million.
Purchases of South African Gold
Fund purchases of gold from South Africa during the third quarter of the year were $35 million, raising to $342.25 million the total purchased since January 1 under the agreement with South Africa announced in December 1969.
RISK ANALYSIS IN PROJECT APPRAISAL
by Louis Pouliquen
WORLD BANK STAFF OCCASIONAL PAPER NUMBER 11
In the first year of using probability analysis, the Bank applied it to three transport projects in Africa, to one pre-project analysis, and to a telecommunications project. This is basically an account by one of the economists of the practical problems met, with some preliminary conclusions on the pragmatic advantages and disadvantages of the approach. Particularly interesting is the description of how the appraiser helps the technical expert to construct a probability profile of an event.
Mr. Pouliquen is currently an economist with the Transportation Project Department of the World Bank.
Available in English only. $2.50