Measures taken to alleviate present economic difficulties of member states
A decision to seek 5 billion special drawing rights (SDRs) in loans to finance the operation of the International Monetary Fund’s oil facility this year was taken at the first working meeting of the new Interim Committee of the Board of Governors of the International Monetary Fund, which was held in Washington on January 15-16. At the same time the Committee endorsed a recommendation by the Fund’s Managing Director, H. Johannes Witteveen, that a special account should be established to reduce the burden of the interest payable under the oil facility for the most seriously affected member countries.
The Interim Committee, which is to hold its next meeting in Paris in June, also considered matters relating to the world economic outlook, the general increase in Fund quotas, and amendments to the Fund’s Articles of Agreement. The meeting took place against a background of greatly increased Fund activity, resulting from the greater use of Fund resources in the present unsettled world economic situation. In 1974 drawings on the Fund totaled the equivalent of SDR 4,053 million, (including SDR 1,716 million under the 1974 oil facility) the largest amount ever registered in a calendar year and a sharp increase over 1973, when total drawings of SDR 733 million were made. The agreement on the level of financing for the oil facility in 1975, coupled with what is expected to be a substantial use of the Fund’s regular facilities, indicate that the total of Fund drawings in 1975 will be higher than in 1974.
The Chairman of the Interim Committee, John Turner, the Canadian Finance Minister, told a press conference at the end of the meeting that the actions which had been taken constituted “significant progress in assuring world economic stability.” The meeting, he said, “was evidence of cooperation among the nations of the world to deal on a joint basis with a difficult global economic situation…. And we have also minimized the temptation of unilateral national action on the part of countries that might otherwise have wanted to protect their own balance of payments situation, or to compensate for their own deficit positions, by artificial devaluations or trade restrictions, or monetary restrictions.” Mr. Turner also welcomed the decision of the Group of Ten industrial countries, at their meeting at Fund headquarters on January 14, to proceed with the establishment of a financial support arrangement with total quotas amounting to approximately $25 billion.
In its communiqué, the Committee expressed concern at the duration of the present recessionary conditions affecting most countries. It urged that antirecessionary policies should be pursued while continuing to combat inflation and reflected anxiety that adequate financing might not become available to cover the estimated $30 billion in current account deficits that will face non-oil-producing developing countries this year. The total of Fund quotas will be increased, subject to satisfactory amendment of the Articles of Agreement, by 32.5 per cent to SDR 39 billion, the Committee agreed, and the period for the next general review of quotas reduced from five to three years. The Committee also agreed that the share in total quotas of the major oil producers should be doubled and that the collective share of all other developing countries should not be allowed to fall below the present level.
The Committee agreed that the Executive Directors should continue their work on the amendment of the Articles of Agreement. They were asked to submit, as soon as possible, draft amendments on the transformation of the Interim Committee into a permanent Council of Governors; improvements in the General Account, including elimination of the obligation of member countries to use gold to make such payments as quota subscriptions and repurchases, and arrangements to ensure that the Fund’s holdings of all currencies would be usable in its operations; improvements in the characteristics of the SDR; and provision for stable but adjustable par values and the floating of currencies in particular situations.
Following an intensive discussion of future arrangements for gold, the Committee reaffirmed that steps should be taken to give the SDR the central place in the international monetary system. Progress was made toward a complete set of agreed amendments on gold, including the abolition of the official price and freedom for national monetary authorities to enter into gold transactions under certain specific arrangements, outside the Articles of the Fund, to ensure that the role of gold in the International Monetary system is gradually reduced. The Committee also agreed that the Executive Directors should be asked to consider ways of improving the Fund’s facilities for the compensatory financing of export fluctuations and the stabilization of prices of primary products, and to study the possibility of an amendment to the Articles that would permit the Fund to provide assistance directly to international buffer stocks of primary products.
Of the total drawings of SDR 4,053 million in 1974, SDR 2,337 million were under the Fund’s regular facilities and SDR 1,716 million under the oil facility, representing purchases by 33 member countries. Between the time the oil facility was established in June 1974 and the end of the year, purchases were made by Italy (SDR 675 million); India (SDR 200 million); Yugoslavia (SDR 139 million); Pakistan (SDR 97.94 million); Korea (SDR 90 million); and New Zealand (SDR 90 million). Nine lenders agreed to make resources available to the oil facility in 1974 totaling the equivalent of SDR 3.05 billion. The Fund received requests for purchases under the 1974 facility until February 28, 1975.
Mr. Witteveen (left) told the press at the end of the Interim Committee meeting that the amount left over from the 1974 oil facility could be used to finance its continuation in 1975. He added that if the SDR 5 billion in financing that would be sought for the facility in 1975 should prove insufficient, this could be supplemented either through the use of some of the Fund’s own resources or through further borrowing. The proposed special account, he explained, would be financed by both industrial and oil-producing countries. He expected that the amount the most seriously affected members would draw under the oil facility in 1975 would be in the order of SDR 1.33 billion. The aim is to reduce the rate of interest on the oil facility by 5 percentage points for this group of countries.
General Arrangements to Borrow
In October 1974, the Fund’s Executive Board approved an extension of the General Arrangements to Borrow (GAB) for a five-year period dating from October 24, 1975. This enables the Fund to replenish its resources by borrowing up to the equivalent of about SDR 5.5 billion in the currencies of ten of its industrialized members (the United States, Germany, the United Kingdom, France, Italy, Japan, Canada, the Netherlands, Belgium, and Sweden). These arrangements entered into force in October 1962 and have been twice renewed, in 1966 and 1970. The present renewal involves several modifications intended to bring the operational provisions of the GAB up to date. They provide the Fund with a useful supplement to its resources which it can use when any of the ten participants makes a purchase from the Fund.
Member countries purchased the equivalent of SDR 2,337 million under the regular facilities of the General Account in 1974, with repurchases amounting to the equivalent of SDR 606 million. Net drawings outstanding at the end of the year were the equivalent of SDR 5,627 million. Total gross purchases under the General Account since the beginning of Fund operations reached SDR 30,306 million by the end of December. Fund holdings of selected currencies at the end of the year are shown in Table 1.
|Currency||Amount (SDR millions)||Per cent of quota|
|Ecuadoran sue res||23.8||72.0|
|South African rand||238.6||74.6|
Six developing countries, meeting shortfalls in their export earnings, used the Fund’s compensatory financing facility for drawings in 1974 equivalent to SDR 107.15 million. During the year the Fund approved stand-by arrangements for 15 member countries for a total amount equivalent to SDR 1,381.8 mil lion, of which SDR 433 million was still available at the end of the year. Members and amounts of stand-by arrangements at the end of 1974 are shown in Table 2.
|Member||Amount agreed||Amount purchased (SDR millions)||Undrawn bale! nee|
Special Drawing Account
There were 139 transactions and operations in the Special Drawing Account during the final quarter of 1974 and these transfers totaled SDR 195.8 million. SDRs were used in transactions between participants, both by agreement and through the designation procedures to obtain foreign exchange, and to repurchase and pay charges in the General Account. Participants also acquired SDRs from the General Account, mainly to reconstitute their SDR holdings.
Transfers of SDRs in the year 1974 totaled SDR 1,037 million. This total was made up as follows: SDR 448 million in transactions involving designation; SDR 379 million in transactions by agreement to settle EEC balances; SDR 80 million used for repurchases and payment of charges; SDR 120 million acquired by participants for reconstitution; SDR 10 million received by participants from the General Account in purchases and in payment of remuneration.
Consultations and technical assistance
The Fund completed 90 regular consultations with member countries in 1974. The demand for technical assistance from members was also at a high level. During the year, 35 staff members were on assignments of more than six months each in 22 countries as Fund representatives or advisors. In addition, 115 outside experts were on long-term assignments in 53 member countries under Fund technical assistance. The IMF Institute in Washington, which provides training courses to officials of member governments and their financial organizations, conducted eight courses for 209 participants in 1974. This year it is planned to expand the number of participants to 225.
Ian S. McDonald