Preparing for Jamaica
The Fund’s Executive Board has recently been focusing on a large number of important issues. This is in preparation for the next meetings of the Interim Committee of the Board of Governors on the International Monetary System, and the Joint Ministerial Committee of the Boards of Governors of the World Bank and the Fund on the Transfer of Real Resources to Developing Countries (the Development Committee), to be held in Kingston, Jamaica, early in January 1976.
The issues include increases in the quotas of individual members of the Fund, the future role of gold, and the exchange rate provisions to be included in the amendment of the Fund’s Articles of Agreement. They have been studied by the Executive Board following the discussions at the Annual Meetings (see articles elsewhere in this issue), and the understandings reached at the last meetings of the Interim Committee and the Development Committee, which were held on August 31 and September 2, 1975, respectively.
Much work has already been completed in connection with the Sixth General Review of Fund Quotas. In January 1975, when the Interim Committee met in Washington, it was agreed that the total of present quotas in the Fund should be increased by almost one third to SDR 39 billion and that the quotas of the major oil exporters should be substantially increased by doubling their share in the enlarged Fund. At its August 31 meeting the Interim Committee noted that agreement had been reached on the individual quotas of almost all members of the Fund, including all the industrial member countries.
Agreement was also reached in the Interim Committee that one sixth of the Fund’s gold (or approximately 25 million ounces) should be sold for the benefit of developing countries, and one sixth restituted to members at the official price in amounts proportional to their quotas. The rest of the Fund’s gold would be subject to provisions in an amendment to the Fund’s Articles that would create enabling powers exercisable by an 85 per cent majority under which any decisions relating to the rest of the Fund’s gold would be taken.
Other matters relating to the future role of gold on which agreement was reached in the Interim Committee are the abolition of the official price of gold, as well as the elimination of the obligation to use gold in transactions with the Fund and the Fund’s authority to accept gold in transactions, unless the Fund so decides by an 85 per cent majority.
The concept of a special Trust Fund administered by the Fund to provide highly concessional resources to meet balance of payments needs of lower-income developing countries over the next few years has been endorsed by both the Interim and the Development Committees. The Fund’s Executive Directors have been pursuing their work on this proposal.
Summarizing the progress made in these areas, the Fund’s Managing Director, H. Johannes Witteveen, told a press conference at the conclusion of the Annual Meetings that: “We have reached agreement on some important issues and this opens possibilities that I think can be very helpful in the difficult situation of the world economy that we are still facing. These agreements are important of themselves. I think it is also encouraging that we have seen more convergence of views than has sometimes been the case. There has been a willingness to compromise and a recognition of the need for cooperation at the present time, both in the Interim Committee, the Development Committee, and in the speeches in the annual meeting itself.”
Despite the substantial agreement that was reached at the meetings on the two important issues of quotas and gold, differences remain between some Fund member countries on the subject of exchange rate provisions, and the Executive Directors will seek agreed changes in the Articles of Agreement in this area. The Executive Directors have also been considering other proposed amendments to the Fund’s Articles, relating to a number of improvements in the functioning of the General Account and in the characteristics of special drawing rights.
Many developing countries face severe problems owing to fluctuations in their export earnings, frequently created by circumstances beyond their control, such as a drop in world demand for a product or adverse weather. Recognizing this, the Executive Directors have been considering possible improvements in the Fund’s compensatory financing facility. As part of their review of this subject, the Executive Directors considered the proposal first put forward by the U.S. Secretary of State, Henry Kissinger, in a speech read on his behalf at the United Nations on September 1, as well as suggestions made by the authorities of the Federal Republic of Germany.
Membership of Grenada and Papua New Guinea
Grenada became a member of the Fund and the World Bank on August 27, 1975, and Papua New Guinea on October 9, 1975. Grenada’s quota in the Fund is equivalent to SDR 2 million and that of Papua New Guinea is equivalent to SDR 20 million. The total number of Fund member countries is now 128 and total quotas in the Fund amount to SDR 29,211,400,000.
Extended Fund facility
On July 7, 1975, the Fund approved the first extended arrangement for a member country, when the Executive Directors approved a request from the Government of Kenya for the use of Fund resources under the extended Fund facility to the equivalent of SDR 67.2 million, to be purchased over the next 36 months. The extended facility was established by the Fund in September 1974 to provide medium-term assistance to member countries that need to undertake medium-term structural adjustments in order to correct balance of payments difficulties. The extended facility, in its formulation and administration, is likely to be beneficial to developing countries in particular (see Table 1).
|Member||Amount agreed||Amount purchased||Undrawn balance|
|Extended Fund facility|
Kenya’s use of resources under the extended facility arrangement will be in support of a three-year program aimed at achieving an annual growth rate of 5 per cent in real gross domestic product during the period 1975-78, at keeping the rate of domestic price increases to about half that of import prices, and at eliminating the need for balance of payments assistance after five years. In addition, the program will promote the Kenyan Government’s long-term objectives of expanding employment and improving the distribution of income.
In the third quarter of 1975 member countries purchased the equivalent of SDR 328.7 million under the regular facilities of the Fund’s General Account, with repurchases amounting to the equivalent of SDR 60.5 million. Total drawings outstanding as of September 30, 1975, including drawings under the oil facility, were SDR 8,510.9 million. Fund holdings of selected currencies as of September 30, 1975, are shown in Table 2.
|South African rand||320.0||100.0|
John N. Turner resigned as Chairman of the Interim Committee on September 15 following his resignation as Canadian Finance Minister. Mr. Turner had served as the Interim Committee’s Chairman since its first session, which was held in Washington on October 3, 1974.
Oil facility purchases
During the third quarter of 1975, 15 member countries of the Fund made purchases totaling SDR 1,422.62 million under the Fund’s oil facility for 1975. The largest purchases were by Italy (SDR 780.24 million), India (SDR 201.34 million), and the Philippines (SDR 96.87 million).
The Fund approved five stand-by arrangements for member countries during the third quarter of 1975. In order of approval, these were for Haiti (SDR 4.75 million), Afghanistan (SDR 8.5 million), Bangladesh (SDR 62.5 million), Tanzania (SDR 10.5 million), and Grenada (SDR 500,000).
In addition, on July 18, 1975, the Fund approved a request from the Government of Greece for the purchase of foreign currencies equivalent to SDR 34.5 million, and on July 24, 1975 the Fund agreed to a purchase by the Government of New Zealand of the equivalent of SDR 50.5 million under the Fund’s compensatory financing facility.
Special Drawing Account
In the third quarter of 1975, Indonesia and Western Samoa used a total of SDR 50.2 million to acquire currency through the designation procedures. The major recipients of SDRs transferred in these transactions were France (SDR 16.0 million), Iran (SDR 4.0 million), and the United States (SDR 21.2 million).
During the same quarter the Fund’s General Account received SDR 1.8 million from one participant that used SDRs in a repurchase in the General Account, and SDR 75.0 million from 50 participants that paid charges relating to their use of the Fund’s resources. The Fund transferred a total of SDR 37.0 million to 14 participants in transactions to promote reconstitution of their SDR holdings, and SDR 1.6 million to one other participant in payment of interest for the borrowings made to finance transactions under the oil facility.
Holdings of SDRs by the General Account on September 30, 1975 were SDR 563.0 million.
Ian S. McDonald