Journal Issue
Share
Finance & Development, March 1982
Article

Fund activity: Loans and purchases reach new high in 1981; data on Fund transactions and new loan commitments; Manaqinq Director’s speech at Davos

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1982
Share
  • ShareShare
Show Summary Details

Highest ever level of new loans and purchases reached in 1981

The financial activity of the Fund in 1981 surpassed by a wide margin all previous levels in terms of the total amount of resources committed under stand-by and extended arrangements, the magnitude of actual purchases and the number of arrangements with members involving high conditionality in the use of the Fund’s resources. Total new loan commitments in 1981 were an unprecedented SDR 15.2 billion, more than twice the previous record high of SDR 7 billion the year before (see Table 1). All of these commitments were in favor of developing countries. The volume of purchases by members (including Trust Fund loans) last year also exceeded all previous peaks, amounting to SDR 7.1 billion, compared with SDR 4.6 billion in 1980 and with the previous peak of SDR 6 billion attained in 1960 (see Table 2). All of the purchases were by developing countries.

Table 1New loan commitments and other use of Fund resources, 1978–81(In billions of SDRs)
Calendar year
1978197919801981
1.a.New loan commitments11.92.27.015.2
Industrial countries0.1
Developing countries1.82.27.015.2
1.b.Purchases20.70.71.01.5
Industrial countries0.1
Developing countries0.60.71.01.5
2.Trust Fund loans disbursed
(Developing countries only)0.70.51.30.4
Total (1 + 2)3.33.49.317.1
Source: IMF, Treasurer’s Department.Note: Components may not add to totals due to rounding.—Signifies zero.

Under stand-by and extended arrangements in period including supplementary financing facility and enlarged access to resources where applicable. No deduction has been made for undrawn balances under arrangements cancelled during the period. These arose from 1978 as follows: 1978: SDR 0.1 billion; 1979: SDR 0.5 billion; 1980: SDR 0.2 billion; and 1981: SDR 2.5 billion.

Other than purchases under stand-by and extended arrangements (i.e., credit tranche, compensatory financing, buffer stock, and oil facility).

Source: IMF, Treasurer’s Department.Note: Components may not add to totals due to rounding.—Signifies zero.

Under stand-by and extended arrangements in period including supplementary financing facility and enlarged access to resources where applicable. No deduction has been made for undrawn balances under arrangements cancelled during the period. These arose from 1978 as follows: 1978: SDR 0.1 billion; 1979: SDR 0.5 billion; 1980: SDR 0.2 billion; and 1981: SDR 2.5 billion.

Other than purchases under stand-by and extended arrangements (i.e., credit tranche, compensatory financing, buffer stock, and oil facility).

Table 2Selected data on Fund’s assistance to members—disbursements and repurchases, 1978–81(In billions of SDRs)
Calendar year
1978197919801981
Purchases under all Fund
facilities (excluding reserve
tranche purchases) plus Trust
Fund loan disbursements1.92.24.67.1
Industrial countries0.1
Developing countries1.82.24.67.1
Of which Trust Fund
loan disbursements(0.7)(0.5)(1.3)(0.4)
Repurchases14.84.23.32.1
Industrial countries2.82.61.40.5
Developing countries2.01.61.91.6
Net purchases (+) and net
repurchases (–) (all members)–2.9–2.01.35.0
Of which repaid to lenders(2.6)(2.8)(0.9)(1.1)
Industrial countries–2.7–2.4–1.4–0.5
Developing countries–0.30.52.75.5
Source: IMF, Treasurer’s Department.Note: Details may not add to totals due to rounding.—Signifies zero.

The first Trust Fund loan repayments are not due until July 1982.

Source: IMF, Treasurer’s Department.Note: Details may not add to totals due to rounding.—Signifies zero.

The first Trust Fund loan repayments are not due until July 1982.

Since repurchases in 1981 amounted to SDR 2.1 billion, net purchases by all members totaled an unprecedented SDR 5 billion, higher even than the 1976 total of SDR 4.7 billion and more than three times the 1980 volume. There were 23 stand-by arrangements in effect at the end of 1981, as well as 15 extended arrangements, all but three of which were under highly conditional facilities. The undrawn balance under these arrangements on December 30, 1981 was SDR 13,104 million.

Table 3Summary of transactions, 1978–81(In millions of SDRs)
Calendar year
1978197919801981
Total purchases3,744.31,842.83,752.77,081.7
Reserve tranche purchases2,535.5147.1359.2310.4
Credit tranche purchases421.0853.11,798.63,436.6
Of which, supplementary
financing facility(—)(205.4)(943.1)(1,468.9)
Of which, enlarged access(—)(—)(—)(305.5)
Compensatory financing
purchases577.7572.0980.41,242.5
Extended facility purchases174.0233.0614.52,092.2
Of which, supplementary
financing facility(—)(101.5)(275.2)(570.7)
Of which, enlarged access(—)(—)(—)(480.6)
Buffer stock purchases36.137.7
Total repurchases4,845.24,215.33,344.82,109.8
Trust Fund loans688.1526.61,256.0367.7
Source: IMF, Treasurer’s Department.—Signifies zero.
Source: IMF, Treasurer’s Department.—Signifies zero.

Structural adjustment problems in the industrial countries

The following are excerpts from a speech by Mr. Jacques de Larosière, Managing Director of the Fund, before the European Management Forum’s Davos Symposium on January 30,1982. The full text of the speech is available in the IMF Survey of February 1 (French and Spanish) and February 8 (English).

For more than a decade now, the industrial countries have been experiencing high rates of inflation, sluggish growth, and rising unemployment. All these conditions add up to what we know as stagflation….

The harsh and costly effects of stagflation are easily seen. Perhaps its most tragic manifestation is in the high and rising levels of unemployment that now exist in so many of the industrial countries….

Yet, stagflation is not only damaging to the industrial countries. It has been a poison to the world economy at large. In particular, it has created enormous problems for the oil-importing developing countries….

It is … imperative—from the standpoint of global equilibrium as well as from the domestic standpoint—that the industrial countries break loose from stagflation….

What is now clear is that policies of demand restraint—though vital—are not enough. To minimize the damage to output and employment and to shorten the path back to sustainable growth, the industrial countries will have to tackle a number of deep seated structural rigidities….

Protectionism

In the post-war years, we have seen a dramatic expansion of international trade….

The scale of international trade is a measure of the integration of the world economy. Integration accelerates the pace of change and increases the need for it. But the growing interdependence that accompanies it limits the policy options that are open to a country. It also increases the penalties from failure to adjust….

So far governments have succeeded in resisting pressures for across-the-board trade restrictions. But recent protectionist tendencies affecting certain manufactured goods are a cause of growing concern. Meanwhile, the longstanding problem of protection accorded to agriculture in industrial countries persists….

International trade brings benefits to all countries. In the short run, however, it can lead to dislocations for declining industries that are vulnerable to international competition. The tendency for governments to step in and subsidize these so-called “lame-duck” industries is another important threat to effective adjustment in the industrial countries…. Such short-sighted actions, which often involve large budgetary costs, are not the right way to try to save jobs. They are detrimental to efficiency and structural change upon which sound and lasting economic growth and high employment ultimately depend.

Wages and prices

…There is an urgent need for a more realistic alignment of wage demands with the prospective growth of real output and employment. In particular, it must be recognized that the scope for real wage increases has become more limited than it once was, for three main reasons:

  • the marked slowing of productivity gains in most industrial countries during the past decade or so;

  • the substantial deterioration in the external terms of trade, mainly because of the oil price increases; and

  • the squeeze on business profits, with its implications for investment incentives and, ultimately, for productivity and real income gains, and employment….

The restoration of adequate profit margins—to provide the incentive and the resources for growth—clearly requires that real wage increases be kept below productivity gains for some time to come….

A special problem arises in those countries—and there are many of them—where indexation schemes now exist—whether formally or informally. Schemes of this sort are a many-headed evil.

A basic objection to indexation is that it makes changes in relative prices difficult to bring about. How can corrective adjustments be made in the prices charged by public enterprises or utilities—or how can higher oil import prices be passed through—if they only trigger a further round of wage increases?

Wage indexation arrangements also blunt the impact of a devaluation by frustrating or offsetting its effects on the relative prices of traded and nontraded goods….

Fiscal rigidities

… The broadest and most serious of these is the way in which governments exercise their role as intermediaries for the transfer of income among groups of citizens. Almost everywhere governments have been much more responsive to pressures by those who wanted improved benefits than to the need for taxes to support those benefits….

Since the political and social pressures behind the expansion of welfare benefits were not matched by public enthusiasm for commensurate increases in taxes, it is not surprising that the welfare expansion has contributed greatly to larger government deficits….

I also want to draw attention—as a more general matter—to the rigidity that can be observed in the fiscal deficits of many countries. In the past, large budget deficits in the industrial countries were usually associated with periods of recession. The deficits tended to disappear in the upswing. But today, increasingly, deficits appear to persist and ride over the upswings too.

Large or persistent budget deficits can also contribute to economic stagnation. This occurs when government borrowing to finance the deficit preempts an excessive share of available funds, forces interest rates up, and crowds out productive investment. This is a special risk in countries—like the United States—where saving is relatively low compared with the Government’s borrowing requirement and the potential demand for credit by the private sector….

If the industrial countries are to grapple successfully with stagflation, policy measures will have to be taken over a broad front. Demand management policies, though essential, are not enough by themselves.

Elimination of the rigidities and impediments to resource mobility and structural change is equally necessary…

A view that is sometimes heard, especially in Europe, is that the time has come to give the top priority to job creation—putting the fight against inflation in second place. But today’s high unemployment is in large measure the price we have to pay for the lax economic policy of past years. To boost demand before inflation has been beaten and supply conditions have been improved can only drive the roots of stagflation deeper….

Other Resources Citing This Publication