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Fund activity: Gold sales begin; technical assistance activities; volume of Fund transactions; selected data

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1976
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Gold sales begin; two auctions completed

The Fund, as Trustee for the Trust Fund, held the first of its series of gold auctions on June 2, 1976 with the sale of 780,000 ounces of gold—the total amount offered—at a common price of $126.00 a fine ounce. In all, a total of 25 million ounces of gold from the Fund’s holdings will be sold at auction over a four-year period; during the first two years, 12.5 million ounces will be sold at 16 auctions held at intervals of about six weeks, except during the main holiday seasons. It is planned to offer the same quantity of gold—approximately 780,000 ounces—in each of the gold auctions in the first two-year period.

The first gold auction was a success from the point of view of both the market and the Fund. The prices at which bids were submitted by successful bidders ranged from $134.00 to $126.00 an ounce and averaged $126.98 an ounce.

In its second auction, conducted on July 14, the Fund awarded 780,000 troy ounces of fine gold—the total amount for which bids were invited—to successful bidders at a common price of $122.05 an ounce. Bids were received for a total quantity of 2,114,000 ounces and the prices at which bids were submitted by successful bidders ranged from $122.05 to $126.50 an ounce and averaged $123.02.

The procedure for the gold auction was developed by the Fund as a response to the understandings reached by the Interim Committee of the Board of Governors on the International Monetary System at its meeting in Washington, D.C. in August 1975, and in Kingston, Jamaica, in January 1976. At these meetings the Interim Committee agreed that provisions should be made for the sale over a four-year period of one sixth of the Fund’s total gold holdings (25 million ounces) for the benefit of developing member countries. An additional 25 million ounces was to be sold to members in proportion to quotas at SDR 35 per ounce.

Acting on these decisions, on May 5,1976 the Fund’s Executive Directors established a Trust Fund to provide special balance of payments assistance to developing members with the profits from the sale of the Fund’s gold, and with any financing that may be available from voluntary contributions or from loans. Under the terms of the Trust Instrument, 61 developing member countries of the Fund will be eligible to make drawings from the Trust Fund, provided that the Fund is satisfied that the member has a need for balance of payments assistance and is making a reasonable effort to strengthen its balance of payments position. Loans from the Trust Fund will be repayable within a five-year grace period, and interest will be charged on these loans at a rate of ½ of 1 per cent a year.

The major part of the profits from each gold auction will be available to finance the Trust Fund; however, the portion of the profits corresponding to the shares of eligible developing countries in total Fund quotas will be transferred directly to these countries.

Under the existing Articles of Agreement, the Fund is able to replenish its holdings of members’ currencies that it needs for conducting its transactions. At present the Fund does so by selling gold to augment its holdings of needed currencies to those members that are willing to resell the gold at the Fund’s present official price of SDR 35 per fine ounce to a special account established as a Trust Fund for the benefit of some of the Fund’s needier members. The Trust Fund, which is legally distinct from the Fund’s own accounts and resources, is administered by the Fund as Trustee. In that capacity, the Fund sells the gold in periodic auctions and obtains resources for conducting the transactions of the Trust Fund. In connection with two gold auctions, the Fund has acquired Belgian francs, deutsche mark, Japanese yen, U.S. dollars, and Venezuelan bolívares, through replenishment.

The terms and conditions of the gold auction state that no bid may be submitted by the government or monetary authorities of a member of the Fund or by an agent acting on behalf of these authorities, at a price inconsistent with the Articles of Agreement of the Fund. The Bank for International Settlements may submit bids for its own account. Each bidder is regarded as bidding on its own behalf if it submits a bid in its own name and for its own account and acquires ownership of gold as a result of a bid.

Speaking at a press conference on May 5 following the announcement of the terms and conditions of the gold auction, the Fund’s Managing Director, H. Johannes Witteveen, said that on the basis of prevailing market prices for gold it was probable that annual profits accruing to the Trust Fund from the auctions would be in the range of $500 million. He explained that the two-year plan for the initial series of gold auctions was established because it was expected that the proposed second amendment of the Fund’s Articles, which is now awaiting parliamentary approval in many member countries, will come into force in two years, and by then central banks of member countries will have acquired the right to buy gold direct from the Fund at market-related prices.

Technical assistance for Fund members

The Fund’s technical assistance to its members in the central banking, fiscal, and statistics fields has long been an important part of the Fund’s activities. Assistance in these three areas is provided mainly through the Fund’s Central Banking Service Department, the Fiscal Affairs Department, and the Bureau of Statistics.

This work generally consists of the provision of expert advice, either through short-term advisory services provided by the Fund staff to deal with special problems or through resident experts. The technical assistance in financial and general statistics has generally taken the form of three to four short-term visits to countries by Bureau of Statistics staff over a program period, usually 12 months, under the central bank bulletin project.

During 1975, technical assistance was provided through the Central Banking Service to 50 requesting institutions, including two multinational monetary institutions—the Banque Centrale des Etats de I’Afrique de I’Ouest and the East Caribbean Currency Authority. As in the previous year, the majority of the institutions receiving assistance were in Africa. Advisory or expert services were also provided to 11 Asian, 8 Middle Eastern, and 10 Western Hemisphere countries and territories. The Cayman Islands, Chile, the Netherlands Antilles, the Solomon Islands, and Venezuela, in addition to the two multinational institutions mentioned above received assistance for the first time in 1975.

Advisory services were provided to 15 of these institutions by the Central Banking Service, often in cooperation with other Fund departments.

Technical assistance in the fiscal field was extended through the Fiscal Affairs Department to 24 countries and one intergovernmental institution in 1975. Altogether, 48 experts drawn from Fund staff and outside provided advice in such fields as tax policy, customs administration, tax administration, budgetary systems and procedures, accounting and auditing, and general financial management. In addition, tax legislation was prepared with the assistance of the Legal Department. Technical assistance on fiscal matters was extended in 1975 for the first time to Burma, Egypt, Portugal, and Senegal, as well as to the secretariat of the Mano River Union, whose members are Liberia and Sierra Leone.

The central bank bulletin project of the Bureau of Statistics is designed to assist national technicians in member countries by providing a framework for assembling statistics relevant to the analysis of monetary and payments problems and improving the data or establishing new data for existing or planned bulletins of monetary authorities. During 1975, the Fund staff made 26 visits to 17 member countries and covered such subjects as money and banking, trade prices and production, and government finance.

Apart from work in individual countries, the Bureau of Statistics also conducted three regional seminars in 1975 and two in the first month of 1976 on government finance statistics. Altogether, 309 participants representing 111 countries and 15 international organizations attended the regional seminars on government finance statistics, which were held in different areas of the world. Discussion at the seminars is to be reflected in a revision of the Fund’s Draft Manual on Government Finance Statistics, which is due to be completed early in 1977. Staff from the Bureau also participated in the fifth Inter-American Seminar on Budgeting, in Quito, Ecuador.

Important training facilities at Fund headquarters are offered to officials of member governments and their financial organizations through the IMF Institute, which in 1975 conducted eight courses for 209 officials of member countries.

Fund holdings of selected currencies as at June 30, 1976(In millions of SDRs)
AmountPer cent

of quota
Austrian schillings41.615
Belgian francs60.79
Brazilian cruzeiros298.768
Canadian dollars714.965
Ecuadoran sucres17.854
French francs740.249
Deutsche mark65.14
Irish pounds67.155
Japanese yen168.714
Kuwaiti dinars8.313
Luxembourg francs15.075
Malta pounds5.233
Netherlands guilders218.731
Norwegian kroner124.652
Qatar riyals3.618
Swedish kronor189.858
U.A.E. dirhams0.96
U.S. dollars3,910.058
Venezuelan bolívares51.216
Summary of transactions, January 1-June 30, 1976(In millions of SDRs)
Total purchases4,907.6
Gold tranche purchases845.5
Credit tranche purchases965.6
Compensatory financing purchases953.2
Oil facility purchases2,143.4
Total repurchases717.3
Note: Details may not add to total due to rounding.
Note: Details may not add to total due to rounding.
Selected data as at June 30, 1976(In millions of SDRs)
Gold Account
Bars5,345.3
SDRs in General Account547.4
Stand-by arrangementsAmount

agreed
Amount

purchased
Undrawn

balance
Afghanistan8.58.5
Bangladesh62.541.021.5
Burundi6.56.5
Grenada0.2250.225
Guyana7.257.25
Haiti4.753.251.5
Liberia5.05.0
Nepal4.4954.495
Panama9.09.0
Romania95.077.517.5
South Africa80.080.0
Tanzania10.510.5
United Kingdom700.0700.0
Western Samoa0.50.5
Zaïre40.9640.96
Subtotal1,035.18915.245119.935
Extended arrangements
Kenya22.617.714.9
Philippines90.0290.0
Total1,147.78922.945224.835

First phase through June 30, 1976 of a three-year arrangement totaling SDR 67.2 million.

First phase through December 31, 1976 of a three-year arrangement totaling SDR 217 million.

First phase through June 30, 1976 of a three-year arrangement totaling SDR 67.2 million.

First phase through December 31, 1976 of a three-year arrangement totaling SDR 217 million.

Fund transactions reach a new high level

The nine-month period leading up to the thirty-first Annual Meeting of the Fund, which will be held in Manila, the Philippines, on October 4-8, 1976, has been marked by an increased volume of drawings from the Fund. In the first six months of 1976, drawings from the Fund totaled the equivalent of SDR 4,907.65 million, bringing net drawings outstanding at the end of June 1976 to a new high level of SDR 13,503.60. (Net drawings from the Fund were SDR 9,386.40 million in December 1975, and at the end of June 1975 they were SDR 6,891.80 million.) As an indication of the volume of transactions in recent months, total drawings between January 1 and June 30, 1976 exceeded the previous record level for the entire 1975 calendar year, when drawings totaled SDR 4,658.40 million.

As the Fund’s Managing Director, H. Johannes Witteveen, observed in a June speech to the International Monetary Conference in San Francisco, California, the rise in Fund activity came as a response to two international economic problems of exceptional severity: the increases in oil prices at the end of 1973 and the most serious recession since the 1930s (see Mr. Witteveen’s article in this issue).

With the ending in May 1976 of operations under the oil facility, which had always been intended to fill a temporary role, other Fund facilities have come into increasing use. Last January, following the recommendations of the Jamaica meeting of the Interim Committee of the Board of Governors on the International Monetary System, the Executive Directors decided that, until the effective date of the proposed amendment of the Articles, the size of the members’ credit tranches in the Fund should be extended by 45 per cent, increasing a country’s conditional drawing rights on the Fund by that amount.

The greatest proportionate increase in Fund transactions in the first six months of 1976, compared with previous years, has been in purchases under the compensatory financing facility, which is designed to assist members encountering balance of payments difficulties caused by temporary export shortfalls. The increase in drawings resulted from the impact of the recent recession on primary producers, the phasing out of the oil facility, and the liberalization of access to the facility at the end of 1975. Under the new decision on the compensatory financing facility adopted on December 24, 1975, the Fund is prepared to authorize drawings up to 75 per cent of a member’s quota (instead of 50 per cent, which was the case under the 1966 decision), provided that, except in disasters or major emergencies, drawings outstanding will not be increased by a net amount of more than 50 per cent (previously 25 per cent) in any 12-month period. Also, under the new decision, the basis on which a shortfall is calculated has been liberalized, and the Fund is now in a position to provide assistance to a member at an earlier stage in the development of a shortfall.

At the end of June 1976, the member countries having the largest amounts of outstanding net drawings from the Fund were Italy, with SDR 2,707.3 million, the United Kingdom, SDR 2,400 million, India, SDR 712.5 million, Spain, SDR 670.9 million, Chile, SDR 461.2 million, Argentina, SDR 454.1 million, and Pakistan, SDR 445.0 million. Of the total net drawings outstanding, SDR 5,501.2 million represented drawings by less developed countries, SDR 5,111.4 million by industrialized countries, SDR 2,340.8 million drawings by other European countries, and SDR 550.2 million by New Zealand and South Africa.

The Fund’s holdings of all members’ currencies at the end of June 1976 totaled SDR 30,876.7 million; its holdings of gold were equivalent to SDR 5,345.3 million; and its holdings of special drawing rights were SDR 547.4 million.

Ian S. McDonald

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