Journal Issue
Finance & Development, September 1976

The operation of the Trust Fund: A report on its first two years explains the Trust Fund’s mechanics and provides information on its transactions

International Monetary Fund. External Relations Dept.
Published Date:
September 1978
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Dhruba Gupta

In May 1976 the Instrument to Establish the Trust Fund (the Instrument) was adopted by the Executive Board of the International Monetary Fund (IMF). The objective of the Trust Fund is to provide additional assistance on concessionary terms to eligible developing member countries to support their balance of payments adjustment. Its resources derive largely from the profits from the sale in public auction of 25 million ounces of gold, after the deduction of a proportion of the profits or surplus value of the gold that corresponds to the share of developing countries in Fund quotas on August 31, 1975. The amount deducted is transferred directly to each developing country in proportion to its quota. Until the Second Amendment of the Articles of Agreement of the Fund came into effect, the sales of gold in public auction were conducted by the IMF on behalf of the Trust Fund; since then, the gold has been sold by the IMF directly. It had been agreed by the Interim Committee of the Board of Governors on the International Monetary System that the amount of gold available for sale should be disposed of over a four-year period. As a result of that agreement, the IMF decided that the operations of the Trust would be divided into two separate periods of two years each, with the first period running from July 1, 1976 to June 30, 1978, and that the profits on the sales of one half of the gold would be available for disbursement in each of the Trust’s two periods. This article reviews the first two-year period of the Trust’s operations.

For details on the establishment of the Trust Fund see “The Trust Fund” by Ernest Sturc, Finance & Development, December 1976, pp. 30–31

The profits from the sale of 12.5 million ounces of gold available for the first period amounted to about US$1.3 billion (the equivalent of almost SDR 1.1 billion). Of this total, SDR 841 million was disbursed by the Trust as concessional loans to 43 low-income members that had qualified for balance of payments assistance, and the balance of US$363 million was distributed directly to developing countries. For a number of members, loans from the Trust, or the loans together with use of the IMF’s resources, were a major source of the financing of their assessed payments imbalances (see table).

Setting up the Trust Fund

In view of the considerable difficulties that emerged in the international monetary system in 1974, and, in particular, the balance of payments difficulties of developing countries that arose as a result of a substantial adverse shift in their terms of trade, the Development Committee, at its meeting in January 1975, invited the Executive Boards of the World Bank and the IMF to study the desirability of creating a special trust fund that would provide additional highly concessional resources to meet the requirements of the most seriously affected countries, and the possible modalities of such a fund. (The Development Committee, formally known as the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries, was set up in October 1974.) At the September 1975 meetings of the Interim Committee and the Development Committee, it was agreed in principle that a trust fund should be established using profits derived from IMF gold sales, without neglecting the consideration of other possible sources of financing, for balance of payments assistance primarily to lower-income countries.

The agreement to sell part of the IMF’s gold was part of a highly complicated understanding concerning the problem of gold, including the disposition of the IMF’s holdings, in the context of the then pending Second Amendment to the Articles of Agreement. The Interim Committee agreed that the IMF should sell one third of its gold holdings (50 million ounces). Half that amount was to be sold directly to all members in proportion to their quotas, in so-called restitution operations. The other half was to be sold for the benefit of developing countries, of which a proportion of the profits corresponding to the share of quotas of the developing countries would be transferred directly to each country in proportion to its quota—the so-called indirect restitution to the developing countries. The remainder of the profits would provide the resources of the Trust Fund.

In January 1976, the Interim Committee, at its fifth meeting in Kingston, Jamaica, agreed that the Trust Fund should be established without delay and that its resources, which would derive from IMF gold sales over a four-year period and which should be augmented by voluntary national contributions, should be used to provide balance of payments assistance on concessionary terms to members with lowper capita incomes. Initially, eligible members would be those with per capita incomes in 1973 not in excess of SDR 300. The decision of the Executive Board was adopted on May 5, 1976, and the first gold sales were held by the IMF on behalf of the Trust in June 1976.

Trust Fund, selected data

(In millions of SDRs)

Gold sales

The Trust is an arrangement separate from the IMF’s own accounts and resources; the IMF administers the Trust Fund as Trustee. As noted earlier, the IMF, until the Second Amendment of the Articles came into force, conducted the sales of gold in public auction on behalf of the Trust Fund. Until then, it was not authorized to sell gold other than at the official price of SDR 35 per fine ounce. In order to be able to sell gold at market prices to realize profits for the benefit of the developing countries, the IMF replenished its holdings of currencies by selling just over 12.5 million fine ounces of gold to creditor members (that is, those members whose currencies were held by the IMF at less than 75 per cent of quota) at the official price, with the understanding that the creditor members would simultaneously sell the gold to the Trust Fund at the same price. The Trust sold the gold to the market and carried working balances in U.S. dollars in order to purchase the gold from the creditor members.

As a result of these replenishment operations, the IMF acquired the equivalent of about SDR 450 million of usable currencies, which provided a welcome boost in its liquidity at a time when demands for its resources were running at exceptionally high levels.

The IMF as Trustee sold 12.5 million ounces of gold in a series of 21 public auctions between June 1976 and May 1978. The profits from these sales amounted to US$1.3 billion, or the equivalent of SDR 1.1 billion (chart). All payments by successful bidders were required to be made in U.S. dollars, although the possibility existed for the use of other currencies if the IMF had so decided. Monetary authorities were precluded by the Articles of Agreement from purchasing gold in excess of the official price and could not therefore participate in the Fund’s auctions prior to the Second Amendment; however, it was understood that the Bank for International Settlements would be able to bid in these auctions.

Distribution of profits

As noted earlier, a portion of the profits from the gold sales was to be distributed directly to eligible developing countries according to their share in IMF quotas on August 31, 1975. There is no definition of “developing countries” in the Articles of Agreement, nor are there generally agreed criteria that may be used to identify such countries. Obviously, per capita income is one important indicator. In July 1977, and after considerable discussion, the Executive Board agreed on a list of eligible developing countries. The list was amended in March 1978; as a consequence, 104 countries that were members of the IMF on August 31, 1975 (plus Papua New Guinea) were regarded as eligible to participate in the direct distribution of profits; the sum of their quotas amounted to 27.8 per cent of total quotas and this proportion of total profits from the gold sales was to be distributed directly to eligible members.

The distribution of profits from the gold sales is made annually through the Trust Fund and is paid in U.S. dollars, based on the U.S. dollar profits realized at each of the auctions during the period. The total of the profit distribution to the 104 members for the first half of the Trust’s four-year period was US$363 million.

In addition, a number of the recipient members of the Organization of Petroleum Exporting Countries (OPEC)—Iraq, Qatar, Kuwait, Saudi Arabia, United Arab Emirates, and Venezuela—made irrevocable transfers to the Trust Fund of their shares of the direct profits in order to increase the resources available to the Trust. Yugoslavia made a similar transfer of one third of its share of the profits. These amounts of irrevocable transfers amounted to about US$33 million. Romania, too, agreed to make a loan to the Trust for a period of ten years, representing 10 per cent of that member’s expected share of the profits over the entire four years. The first part of this loan, amounting to US$850,000, was received by the Trust in July 1978.

Trust Fund loans and related data July 1, 1976 -June 30, 1978(In millions of SDRs)
Member1Quota as of

Dec. 31, 1975

balance of

payments deficit

plus repurchases2
Total loan

Total purchases

during 12-month

program period

Credit tranchesCompensatory







Bangladesh (March 1978)12571.551.8
Benin (November 1978)135.65.4
Bolivia (April 1979)3731.015.3
Burma (March 1978)6049.224.935.004.9830.11
Burundi (December 1976)1912.17.9
Cameroon (December 1978)3525.514.5
Cent. Afr. Emp. (December 1978)138.75.4
Chad (December 1978)139.65.4
Congo, P.R. (December 1977)1310.25.413.232.034.706.50
Egypt (March 1978)1881,228.077.9105.0063.00
Ethiopia (May 1979)2779.011.242.00
Gambia, The (May 1978)
Grenada (December 1977)2low reserves0.80.410.230.810.18
Guinea (June 1978)2412.49.98.708.70
Haiti (June 1977)19low reserves7.93.003.00
Ivory Coast (March 1979)5255.921.6
Kenya (June 1977)4882.419.924.0024.00
Lao P.D.R. (May 1979)1313.255.4
Lesotho (March 1978)5low reserves2.1
Liberia (January 1977)29low reserves12.04.564.56
Madagascar (December 1978)2616.510.89.4369.436
Malawi (March 1978)
Mali (September 1978)22n.a.9.1
Mauritania (December 1977)1320.05.44.714.71
Mauritius (December 1978)2210.89.116.495.4911.00
Morocco (December 1976)113115.046.8143.7028.2440.9656.5018.00
Nepal (January 1977)14412.05.87.613.114.50
Niger (March 1979)135.95.4
Pakistan (March 1978)235146.097.4107.0080.0027.00
Papua New Guinea (April 1979)2025.08.3
Philippines (December 1976)155268.764.2222.6677.5055.1690.00
Senegal (September 1978)3417.014.1
Sierra Leone (June 1978)2514.
Sri Lanka (November 1978)98134.640.655.0021.9333.07
Sudan (May 1979)72197.529.84.70
Tanzania (December 1977)42n.a.17.44.70
Thailand (June 1978)134160.055.5
Togo (November 1978)1515.56.2
Upper Volta (November 1978)137.05.4
Viet Nam (May 1979)628.325.7
Western Samoa (December 1977)
Yemen, P.D.R. (March 1977)2932.512.113.185.767.42
Zaïre (December 1976)113107.946.8129.4940.9656.0032.53
n.a. denotes data not available.

Dates in parentheses signify end of the 12-month program period.

Projected balance of payments deficit when program presented to Fund excluding possible financing by the Fund plus repurchases due in program period as provided in Section II. paragraph 3 (f) of Trust Instrument. “Low reserves” means that member has very low level of reserves and was deemed to have unlimited need.

The loans were in proportion to members’ quotas at December 31, 1975.

Amount to which Nepal had consented as at December 31, 1975.

Total resources available for loan assistance in the first period.

Just prior to beginning of program period.

n.a. denotes data not available.

Dates in parentheses signify end of the 12-month program period.

Projected balance of payments deficit when program presented to Fund excluding possible financing by the Fund plus repurchases due in program period as provided in Section II. paragraph 3 (f) of Trust Instrument. “Low reserves” means that member has very low level of reserves and was deemed to have unlimited need.

The loans were in proportion to members’ quotas at December 31, 1975.

Amount to which Nepal had consented as at December 31, 1975.

Total resources available for loan assistance in the first period.

Just prior to beginning of program period.

Since some members wished to receive their direct profits in gold, it was decided that an eligible developing country member wanting gold would also have the option, after the Second Amendment entered into effect, to submit noncompetitive bids in the gold auctions for up to its share of the total amount of gold to be sold (25 million ounces). About 40 countries elected to have the option to submit noncompetitive bids, which, if exercised, would be for a maximum of approximately 3.7 million fine ounces of the 12.5 million ounces that remain to be sold at market prices in the second half of the gold sales program. It has been decided that noncompetitive bids can be submitted in one or more of the auctions held before May 31, 1979. Members electing to take the option will continue to receive their share of profit distributions from time to time in U.S. dollars. Members that submit noncompetitive bids in the auctions will have to purchase the gold sold to them in the gold auctions with foreign exchange. There is no direct link in timing or amount between a member’s entitlement to submit noncompetitive bids and the distribution of profits to it.

Finance for loans

The amount available for loans for the Trust’s first period was the balance after making the direct distribution of profits from the gold sales and after receipt of the irrevocable transfers and the loan from Romania mentioned earlier, plus all investment income less expenses of conducting the operations of the Trust. Income from investments pending disbursements over the two-year period totaled SDR 50 million, and SDR 1.1 million was received as income to June 30, 1978 from the loans already made by the Trust; against this were set the expenses of SDR 2 million for the administration of the Trust (including the handling of the gold auctions) and SDR 59 million for exchange valuation losses. The total available for loan assistance was SDR 841 million.

The Instrument which established the Trust provides that, with the concurrence of the member whose currency is used for investment, the Trustee may invest balances of currency held in the Trust in marketable obligations of international financial organizations or in marketable obligations issued by, and denominated in the currency of, the country whose currency is used to make the investment. The temporary investments of the Trust’s liquid assets were held throughout the first period in U.S. Government obligations, with the concurrence of the United States. Since the assets of the Trust are expressed in SDRs, and the U.S. dollar weakened against the SDR over the period, an exchange valuation loss was incurred in terms of the SDR.

The investment practice of the IMF as Trustee is to invest funds, where possible, as soon as they are available, with maturities matching the expected timing and amounts of Trust disbursements. In June 1978 the Executive Board decided that since the Trust’s assets are valued in SDRs, it would be desirable to maintain the currency assets of the Trust in SDRs or in a combination of currencies that would tend to maintain the value of the assets in terms of the SDR. As a start to executing this decision, the Managing Director was authorized to make SDR deposits with the Bank for International Settlements (which has decided to accept SDR deposits) from part of the proceeds of the auctions held between July 1 and September 30, 1978 if the return on these deposits is sufficiently attractive. The Executive Board will review this decision by early October 1978, and, before this review, the staff have been directed to complete arrangements for investment in the currencies of members who are included in the SDR basket and who issue obligations in their currencies that the Trust could hold.

Loans in the first two years

A member qualifies for loan assistance either by presenting to the Executive Board a program for 12 months that is similar to one that would have entitled it to a first credit tranche drawing (which both establishes a need for balance of payments assistance and shows that a reasonable effort is being made to strengthen the payments position) or through a 12-month program already presented to the IMF. The Trust Instrument provides that eligible members may qualify, with programs agreed with the IMF, for balance of payments assistance in either or both of the two separate periods into which Trust operations are divided. A total of 61 members were eligible in the first period, of which 43 qualified for Trust Fund loans (the complete list of eligible members was shown in the IMF Annual Report for 1976, pages 116 -17). For the second period, 59 members were eligible, with the exclusion of Guatemala, Mauritius, and Paraguay from the members for the first period and the addition of Zambia (see Annual Report, 1977).

As regards the amount of assistance a member may receive, the Instrument specifies that loans to qualified members must be the same percentage of their quotas at December 31, 1975, subject to any limitation of need. A re-examination is possible for disbursements after the end of the program period, if the members’ circumstances have changed substantially. Such a re-examination was not necessary for any of the members whose program periods had ended in the Trust’s first two-year period.

The Trust Fund loans bear interest at a rate of ½ of 1 per cent per annum and, unless otherwise decided, are to be repaid in ten semiannual installments between six and ten years from the dates of the loan disbursements. Moreover, there is the provision that toward the end of five years after the first interim disbursement, namely, around January 1982, the Trustee shall review the terms of repayment on the basis of uniform criteria.

On the timing of disbursements, the Executive Board has decided that the Trust shall make loans at half-yearly intervals, in January and July of each year. Three interim loan disbursements were made in the first period for a total of SDR 300 million to members that had qualified by the dates of those disbursements; the final payments, totaling SDR 541 million, were made in July 1978. All loan disbursements have been made in U.S. dollars, though loans are denominated in SDRs, and this practice is expected to continue.

The amounts of loans made in the Trust’s first period were not insignificant (see table), representing over 40 per cent of the members’ quotas (the equivalent of more than one and a half tranches) or one half or more of assessed need for almost three fourths of the qualified members. Moreover, 23 of these qualified members also used the Fund’s resources during the period, through purchases under various facilities (see table), most of which carried the same or lesser conditionality than that needed to be eligible for Trust loans. For almost all the members that used the Fund’s resources and received Trust loans, the total of Fund-related financing covered the assessed needs in the program periods. In addition, of course, all the 43 members qualified to receive loans—as well as other developing countries—received distributions of profits for the two-year period, although these amounted to only about 10 per cent of the loan disbursements. These members also participated in two distributions of gold, amounting to 12.5 million ounces, that were made to all Fund members.

Taking the two years of the first period ending on June 30, 1978, Trust assistance (including the distribution of profits) exceeded the amount of balance of payments financing received from the Fund itself; furthermore, the two sources combined amounted to about 20 per cent of the qualified members’ inflow of official balance of payments and other financing during the period. On this count alone, the Trust has been very successful in its aim of providing additional balance of payments assistance to the low-income developing countries.

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