- Michael Ainley
- Published Date:
- September 1984
The General Arrangements to Borrow (GAB) were established in 1962 by the Fund in cooperation with eight of the major industrial countries and the central banks of two others.1 They were the first credit lines arranged by the Fund to supplement its ordinary, quota-based resources. They initially totaled the equivalent of US$6 billion, which was then the largest single loan agreement ever entered into.2
The General Arrangements were a product of the times. They were designed to help the Fund deal with growing strains in the par value system caused by the underlying balance of payments problems of the two major reserve centers, the United States and the United Kingdom, and by the greater freedom for short-term capital movements, following the return to external convertibility in Europe and Japan. They were not automatic credit lines. They could be drawn on only with the consent of the participants and only when supplementary resources were needed to “forestall or cope with an impairment of the international monetary system” in the (then) “new conditions” of widespread convertibility.3 They could be used by the Fund only to finance transactions with the participants.
The General Arrangements were strengthened by the association of Switzerland, a nonmember of the Fund, in 1964. They have been activated on nine occasions, the first of which was in 1964, and the most recent in 1978. The General Arrangements have been used to assist in financing large drawings on the Fund by the United Kingdom, France, Italy, and the United States. They have been renewed five times, most recently in 1983, for a further five years.
However, with the important exception of the increase in Japan’s credit line in 1976, the General Arrangements have remained substantially unchanged from their inception...until now. Major changes were agreed in late 1982 and early 1983 and took effect in December 1983. The General Arrangements have been enlarged, and their scope has been broadened. Their importance as a second, if not a first, line of support for the Fund has been significantly increased.
This pamphlet reviews the origins, purpose, and provisions of the General Arrangements. It examines their role in the 1960s and in the 1970s. It then assesses the reasons for the 1982-83 reforms and analyzes the main changes. The pamphlet concludes with a brief look ahead to the role which the revised General Arrangements could play in the mid-1980s.