New Committees pave way for expanded Fund activities
In the weeks following the 1974 Annual Meetings the Executive Directors of the International Monetary Fund have considered proposals for expanding the size of the Fund under the Sixth General Review of Quotas. They have also worked on draft amendments to the Fund’s Articles of Agreement, as recommended by the Committee on Reform of the International Monetary System and Related Issues (Committee of 20) at its final meeting in June. These draft amendments consist of proposals to establish a Council of Governors; to enable the Fund to legalize the position of countries with floating rates during the interim period; to give permanent force to the voluntary Declaration concerning trade and other current account measures for balance of payments purposes; to authorize the Fund to establish, as and when agreed, a Substitution Account; to amend the present provisions concerning gold; to authorize a link between development assistance and allocation of special drawing rights (SDRs); and to introduce improvements in the General Account and in the characteristics of and rules governing the use of the SDR.
The Executive Directors have also approved a five-year extension from October 1975 of the Fund’s General Arrangements to Borrow. These arrangements enable the Fund to supplement its resources by borrowing up to the equivalent of approximately SDR 5.5 billion in the currencies of ten major industrial countries. Meanwhile, the management and staff of the Fund have been concerned with the resources that may be required for the Fund’s oil facility during the calendar year 1975.
While the problems of the world economy dominated the Governors’ speeches at the Annual Meetings, the meetings were also important for measures taken in the field of international monetary reform. The Governors accepted a composite resolution prepared by the Executive Directors of the Fund that, among other matters, established two new Committees—an Interim Committee of the Board of Governors on the International Monetary System and a Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). Fuller descriptions of the Annual Meetings appear in two special articles in this issue.
The Interim Committee had its first meeting on Thursday, October 3, at which John Turner, the Canadian Finance Minister, was selected as Chairman, rules of procedure were adopted, an exchange of views on the current situation was held, and the future work of the Committee was discussed. The Interim Committee is called upon by its terms of reference to advise the Board of Governors on the management and adaptation of the international monetary system, on proposed amendments of the Articles of Agreement, and on any sudden disturbances that might threaten the system. It will serve pending the establishment, through an amendment of the Fund’s Articles of Agreement, of a Council of Governors with decision-making powers.
Members of the Committee are Governors of the Fund, ministers, or others of comparable rank. Each member of the Fund that appoints an Executive Director and each group of members of the Fund that elected an Executive Director on or after the date on which the last regular election took place are entitled to appoint one member of the Committee and seven associates. An alternate may be designated to participate in the place of a member of the Committee at any meeting when that member is not present. The Managing Director of the Fund is entitled to participate in all meetings of the Committee, and may designate a representative to participate in his place at any meeting when he is not present.
The Committee will meet ordinarily three or four times a year. Its next meeting will be held in Washington on January 15 and 16, 1975, at which time it will consider proposals by the Executive Directors to amend the Articles of Agreement.
Under its terms of reference the Development Committee will maintain an overview of the development process and will advise and report to the Governors of the Fund and the World Bank on all aspects of the transfer of real resources to developing countries, and make suggestions for consideration regarding the implementation of its conclusions. In carrying out its work, it will bear in mind the need for coordination with other international bodies. In addition, it is called on to give urgent attention to the problems of the least developed countries and of those developing countries most seriously affected by balance of payments difficulties in the current situation.
The members of the Development Committee are drawn from Governors of the World Bank, Governors of the Fund, ministers, or others of comparable rank. They shall be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. The members of the Bank have appointed the members of the Committee for the first two-year period. Each member government of the Bank or the Fund, as the case may be, that appoints an Executive Director and each group of member governments that elects an Executive Director is entitled to appoint one member of the Development Committee and up to seven associates, and an alternate with full power to act for a member at any meeting when the member of the Committee is not present.
The Development Committee will meet at the time of the Annual Meetings of the World Bank and the Fund and, in addition, as often as required. It may establish subcommittees or working groups from time to time. The Executive Secretary, supported by a small staff as necessary, and drawing on the staffs of the World Bank and the Fund to the maximum extent feasible, will be responsible for carrying out the work directed by the Committee.
The first 24 transactions under the oil facility, under which resources are made available by the Fund to member countries to assist them in meeting the impact on their balances of payments of increases in the costs of petroleum and petroleum products, were announced by the Fund in September and mid-October. Bangladesh (twice), Cameroon, Chad, Chile, Costa Rica, El Salvador, Fiji, Greece, Haiti, Italy, Ivory Coast, Kenya, Korea, the Malagasy Republic, Nicaragua, Pakistan, Panama, Sri Lanka, the Sudan, Tanzania, Uganda, Uruguay, and Yugoslavia purchased the equivalent of SDR 572.95 million. Purchases under the oil facility are financed by funds borrowed under the agreements announced by the Fund on August 22. At that time, the Fund announced that it had entered into agreements with seven lenders to borrow up to SDR 2.8 billion in national currencies or in U.S. dollars.
The Fund’s Executive Directors reviewed the operations of the oil facility on September 19. As a result of the review, the oil price increase used in the existing formula for maximum access of an oil-deficit member to the facility was modified to reflect an up-to-date assessment of the increase in the global price of oil from 1973 to 1974. Also, the base period volume of net oil imports, which was previously that for 1972, was adjusted upward for each country whose rate of increase in net oil imports from 1972 to 1973 exceeded the median rate of increase. The Executive Directors have agreed to meet by December 31 in order to decide whether and on what terms to permit purchases under an oil facility in 1975.
An extended facility was established under a decision announced by the Fund on September 15 to provide medium-term assistance for members in balance of payments difficulty. Whereas the usual duration of a stand-by arrangement does not exceed 12 months, with repurchase within an outside range of three to five years, an extended arrangement will provide an assurance of support by the Fund under defined conditions for a period of up to three years, with repayment within an outside range of four to eight years from the date of each purchase under an arrangement. The extended arrangement, in its formulation and administration, is likely to be beneficial to developing countries in particular.
Purchases outstanding under the extended facility will not exceed 140 per cent of the member’s quota, nor will they be allowed to raise the Fund’s holdings of the member’s currency above 265 per cent of the member’s quota (excluding purchases under the compensatory and buffer stock financing or oil facilities). Members will pay charges on amounts purchased under the extended facility at an annual rate rising from 4 per cent to 6 1/2 per cent a year.
Drawings on the Fund’s General Account totaled SDR 1,865 million during the third quarter of 1974. These included a purchase by the Government of Italy on August 2 of the equivalent of SDR 518 million, the largest Fund transaction in several years.
Total gross purchases under the General Account since the beginning of Fund operations reached SDR 28,876 million by the end of September, with net drawings equivalent to SDR 4,403 million. Fund holdings of selected currencies at the end of September are shown in Table 1.
|Currency||(SDR millions)||of quota|
Special Drawing Account
Transactions between participants during the third quarter of 1974 included a total of SDR 59.4 million transferred in transactions by agreement between the participants concerned. The users of SDRs in these transactions were Germany and the Netherlands, and the transfers were made in connection with settlements arising from exchange market interventions. The recipients of SDRs were Belgium (SDR 25.7 million) and the Netherlands (SDR 33.7 million).
In other transactions between participants six participants—Australia, Costa Rica, Italy, Kenya, New Zealand, and Sri Lanka—used a total of SDR 316.1 million to acquire currency. The major recipients of SDRs transferred in these transactions were Argentina (SDR 13 million), France (SDR 69 million), Indonesia (SDR 8 million), Iran (SDR 8 million), the United Kingdom (SDR 77 million), and the United States (SDR 103 million); 12 other participants received a total of SDR 38.1 million.
During the quarter the Fund’s General Account received SDR 7.4 million from 9 participants that used SDRs in repurchases in the General Account and SDR 13.2 million from 36 participants in payment of charges relating to their use of the Fund’s resources.
The General Account transferred SDR 30.8 million to 18 participants during the quarter in order to promote reconstitution of their SDR holdings.
The General Account’s holdings of SDRs at the end of September were SDR 480.1 million.
Ian S. McDonald