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Recent Activity-International Monetary Fund

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1971
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Quarter’s SDR Transactions Reach Record Total Net Drawings from General Account Drop to Lowest Level Since 1965

• During the quarter ended March 31, a total of 331.9 million special drawing rights (SDRs) were used in transactions between participants in the Special Drawing Account.

• Outstanding drawings from the Fund’s General Account were $4,157.5 million at the end of March 1971, the lowest month-end level since June 1965, when they totaled $3,993.3 million. The present low level of outstanding drawings emphasizes that repayments are meeting or anticipating schedules and that the revolving nature of the Fund’s resources is being well maintained.

Special Drawing Rights

On January 1 the Fund made the second allocation of special drawing rights, to 109 participants in the Special Drawing Account. The allocation totaled SDR 2,949.2 million, raising the total of special drawing rights created by the Fund to 6,363.3 million. During the quarter 22 participants used a total of 106.9 million of special drawing rights in transactions to acquire foreign exchange from other participants designated by the Fund. The United States also used SDR 125 million to acquire U.S. dollar balances from Belgium and the Netherlands. Total use of SDRs in transactions between participants thus reached a first-quarter total of SDR 331.9 million, the highest quarterly total since the activation and first allocation of SDRs in January 1970. The quarterly total of SDRs used between participants compared with SDR 164 million in the fourth quarter of 1970, which included use of SDR 110 million by the United States in agreement with Belgium to acquire dollar balances held by that country. Comparable use of SDRs in the first quarter of 1970 was SDR 153 million.

Twenty-two participants used a total of SDR 227.8 million during the first quarter in repurchases of previous drawings from the General Account of the Fund. The General Account held SDR 521.1 million on March 31, 1971.

Drawings, Repurchases, and Fund Holdings of Member Currencies

Drawings on the Fund by 13 members totaled the equivalent of $333.1 million during the first quarter of 1971 (see table), against $706.28 million by 12 members during the same period of 1970. Total gross purchases from the beginning of Fund operations to March 31, 1971, reached $22,341.2 million.

The $333.1 million figure includes drawings in Netherlands guilders and Belgian francs equivalent to $250 million made by the United States in January. This was within the U. S. “super gold tranche,” or credit position built up by Fund use of U.S. dollars in transactions with other members, and did not involve a repurchase obligation.

In February, Israel purchased from the Fund the equivalent of $20 million in foreign currencies, of which the equivalent of $15 million was in deutsche mark and the balance in Italian lire. The purchase was intended to assist the Israeli Government in its efforts to maintain and reinforce its policy of fiscal and monetary restraint in order to moderate the rate of growth of internal demand and improve the external position.

The largest drawings of the quarter also included the purchase made by the Philippines in March of the equivalents of $15 million in deutsche mark and $5 million in Italian lire, under the stand-by arrangement approved a week earlier (see Stand-By Arrangements below).

Repurchases during the first quarter of 1971 totaled $830.6 million, against $481.5 million during the corresponding period of 1970. Total repurchases from the beginning of Fund operations to March 31, 1971 stood at $12,543.7 million.

The high figure for repurchases during the first quarter of 1971 reflected largely the repurchase equivalent to $684.75 million made at the end of March by the United Kingdom in respect of the $1.4 billion purchase made by that country in June 1968. The repurchase was made with SDR 160 million, the equivalent of $144.75 million in Japanese yen, the equivalent of $110.00 million in Netherlands guilders, and the balance in Argentine pesos, Australian dollars, Austrian schillings, Belgian francs, Canadian dollars. Mexican pesos, Norwegian kroner, Swedish kronor, and U.S. dollars.

Total drawings outstanding at the end of March were $4,157.5 million, compared with the record of outstanding drawings of $5,654 million reached in June 1968.

Fund holdings of selected currencies at the end of March 1971 expressed in U.S. dollar equivalents were as follows: U.S. dollars $5,020 million or 74.9 per cent of the U.S. quota; deutsche mark $616 million or 38 per cent of the German quota; Belgian francs $187 million or 29 per cent of the Belgian quota; Canadian dollars $634 million or 58 per cent of the Canadian quota; Netherlands guilders $251 million or 36 per cent of the Netherlands quota; Japanese yen $842 million or 70 per cent of the Japanese quota; pounds sterling $3,941 million or 141 per cent of the United Kingdom quota; French francs $2,109 million or 141 per cent of the French quota; and Italian lire $709 million or 71 per cent of the Italian quota.

General Arrangements to Borrow

At the end of March, the Fund repaid the equivalent of $70 million to participants in the General Arrangements to Borrow (GAB). This amount was outstanding from a total of $476 million borrowed by the Fund under the GAB to help finance the $1.4 billion purchase by the United Kingdom in June 1968. Total borrowings outstanding under the GAB at the end of March amounted to $415 million.

Par Values

The Government of Malawi introduced a new monetary unit called the kwacha to replace the Malawi pound, effective February 15. The new unit is equivalent to ten shillings of the perevious currency. A par value for the Malawi kwacha, at 1 Malawi kwacha = US$1.20, was established by agreement between the Malawian Government and the Fund. The change in the monetary unit of Malawi did not involve any appreciation or depreciation of the currency of Malawi.

The Government of Yugoslavia proposed and the Fund concurred in a change in the par value of the Yugoslav dinar, effective January 23. The new par value is Din 15.00 = US$1; the previous par value was Din 12.50 = US$1.

Stand-By Arrangements

During the first quarter of 1971, the Fund approved seven stand-by arrangements for a total amount equivalent to $240.25 million (see table).

The stand-by arrangement of $51.75 million for Yugoslavia was in support of a program designed to halt the inflationary trends and to eliminate the overall deficit in the balance of payments, while allowing a rate of growth in the economy that will absorb the increase in the labor force. The stabilization program involves restraints on the growth of public expenditure, domestic credit, personal incomes, and prices, and a simplification and liberalization of the trade and payments system. This stand-by arrangement, which followed a change in the par value of the Yugoslav dinar, is the fourth for Yugoslavia.

The $50 million stand-by arrangement for Brazil is in support of a financial program aimed at continuing high growth, a satisfactory balance of payments performance, and increased price stability. The cautious fiscal and credit policies followed by the authorities are directed toward gradual deceleration of the rate of price increases,’ continued strong economic growth, and a further improvement in the foreign reserve position. The arrangement is the seventh in support of a series of programs carried out by Brazil to achieve financial stability.

The Philippine stand-by arrangement of $45 million provides support for the prudent fiscal and credit policies which the Philippine authorities continue to pursue so as to consolidate the gains already made, reduce the rate of price increases, improve production, and meet foreign debt payments. The arrangement is the eighth for the Philippines.

DRAWINGS BY FUND MEMBERS DURING THE FIRST QUARTER OF 1971
MEMBERMONTHAMOUNT ($ millions)
BurundiFebruary1.50
Central African RepublicFebruary1.33
CeylonMarch7.00
Dominican RepublicJanuary7.50
El SalvadorJanuary9.00
IsraelFebruary20.00
MauritaniaFebruary1.00
NicaraguaJanuary3.00
PanamaJanuary1.01
PhilippinesMarch20.00
TunisiaJanuary2.50
United StatesJanuary250.00
YugoslaviaMarch9.30
Total drawings in the first quarter of 1971333.13
Total net drawings at the end of the first quarter of 19714,157.5

Morocco’s $30 million stand-by arrangement, the seventh for that country, is in support of a financial program aimed at further economic growth, maintenance of price stability and a favorable balance of payments, and a further liberalization of trade and payments.

The $25 million stand-by arrangement for Korea is in support of policies aimed at reducing the inflationary pressures which emerged during the country’s very rapid economic expansion in the late 1960s. The program introduced last year brought improvements. This year’s program is designed to consolidate the gains already made, slow down price increases, and lay the basis for adequate growth in a stable financial climate. This is the seventh stand-by arrangement for Korea.

Ceylon’s $24.5 million stand-by arrangement is in support of a program aimed at stabilizing the domestic monetary situation and strengthening the balance of payments. The Government’s policy is to reduce the expansionary gap in the budget, to relieve the inflationary pressure both by increased mobilization of savings and by control of credit, to enhance the country’s export earnings by improving productivity and offering incentives, and finally to pursue a vigorous program of import substitution. Ceylon has had four previous stand-by arrangements.

The $14 million stand-by arrangement for Panama is in support of efforts by the authorities to strengthen the country’s fiscal situation and the liquidity position of the National Bank of Panama, while pursuing an investment program designed to promote rapid and sustained economic growth. The financial program for 1971, similar to the previous one, is aimed at strengthening “the Government’s budget position and at supporting a cautious credit policy on the part of the National Bank, which will permit a continuation of the marked improvement in its liquidity position which started last year. This stand-by arrangement is the fifth for Panama.

FUND STAND-BY ARRANGEMENTS APPROVED DURING THE FIRST QUARTER OF 1971
MEMBERMONTHAMOUNT ($ millions)
KoreaJanuary25.00
BrazilFebruary50.00
YugoslaviaFebruary51.75
PhilippinesMarch45.00
MoroccoMarch30.00
CeylonMarch24.50
PanamaMarch14.00
240.25

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