- International Monetary Fund
- Published Date:
- January 1980
IMF Pamphlet Series: International Monetary Fund Pamphlet Series
(All pamphlets have been published in English, French, and Spanish, unless otherwise stated)
*1. Introduction to the Fund, by J. Keith Horsefield. First edition, 1964. Second edition, 1965. Second edition also in German.
*2. The International Monetary Fund: Its Form and Functions, by J. Marcus Fleming. 1964. In English only.
3. The International Monetary Fund and Private Business Transactions: Some Legal Effects of the Articles of Agreement, by Joseph Gold. 1965.
4. The International Monetary Fund and International Law: An Introduction, by Joseph Gold. 1965.
*5. The Financial Structure of the Fund, by Rudolf Kroc. First edition, 1965. Second edition, 1967.
6. Maintenance of the Gold Value of the Fund’s Assets, by Joseph Gold. First edition, 1965. Second edition, 1971.
7. The Fund and Non-Member States: Some Legal Effects, by Joseph Gold. 1966.
8. The Cuban Insurance Cases and the Articles of the Fund, by Joseph Gold. 1966.
9. Balance of Payments: Its Meaning and Uses, by Poul Høst-Madsen. 1967.
*10. Balance of Payments Concepts and Definitions. First edition, 1968. Second edition, 1969.
11. Interpretation by the Fund, by Joseph Gold. 1968.
12. The Reform of the Fund, by Joseph Gold. 1969.
13. Special Drawing Rights, by Joseph Gold. First edition, 1969. Second edition, with subtitle Character and Use, 1970.
14. The Fund’s Concepts of Convertibility, by Joseph Gold. 1971.
15. Special Drawing Rights: The Role, of Language, by Joseph Gold. 1971.
16. Some Reflections on the Nature of Special Drawing Rights, by J.J. Polak. 1971.
17. Operations and Transactions in SDRs: The First Basic Period, by Walter Habermeier. 1973.
18. Valuation and Rate of Interest of the SDR, by J.J. Polak. 1974.
19. Floating Currencies, Gold, and SDRs: Some Recent Legal Developments, by Joseph Gold. 1976. Also in German.
20. Voting Majorities in the Fund: Effects of Second Amendment of the Articles, by Joseph Gold. 1977.
21. International Capital Movements Under the Law of the International Monetary Fund, by Joseph Gold. 1977.
22. Floating Currencies, SDRs, and Gold: Further Legal Developments, by Joseph Gold. 9177. Concluding section also in German.
23. Use, Conversion, and Exchange of Currency Under the Second Amendment of the Fund’s Articles, by Joseph Gold. 1978.
24. The Rise in Protectionism, by Trade and Payments Division. 1978.
25. The Second Amendment of the Fund’s Articles of Agreement, by Joseph Gold. 1978.
26. SDKs, Gold, and Currencies: Third Survey of New Legal Developments, by Joseph Gold. 1979. Concluding section also in German.
27. Financial Assistance by the International Monetary Fund: Law and Practice, by Joseph Gold. First edition, 1979. In English only. Second edition, 1980.
28. Thoughts on an International Monetary Fund Based Fully on the SDR, by J.J. Polak. 1979.
29. Macroeconomic Accounts: An Overview, by Poul Høst-Madsen. 1979.
30. Technical Assistance Services of the International Monetary Fund. 1979.
31. Conditionality, by Joseph Gold. 1979.
32. The Rule of Law in the International Monetary Fund, by Joseph Gold. 1980.
33. SDRs, Currencies, and Gold: Fourth Survey of New Legal Developments, by Joseph Gold. 1980.
34. Compensatory Financing Facility, by Louis M. Goreux. 1980.
35. The Legal Character of the Fund’s Stand-By Arrangements and Why It Matters, by Joseph Gold. 1980.
36. SDRs, Currencies, and Gold: Fifth Survey of New Legal Developments, by Joseph Gold. 1981.
37. The International Monetary Fund: Its Evolution, Organization, and Activities. First edition, 1981. Fourth edition, 1984.
38. Fund Conditionality: Evolution of Principles and Practices, by Manuel Guitiân. 1981.
39. Order in International Finance, the Promotion of IMF Stand-By Arrangements, and the Drafting of Private Loan Agreements, by Joseph Gold. 1982.
40. SDRs, Currencies, and Gold: Sixth Survey of New Legal Developments, by Joseph Gold. 1983. In English. French and Spanish in preparation.
41. The General Arrangements to Borrow, by Michael Ainley. 1984. In English. French and Spanish in preparation.
42. The International Monetary Fund: Its Financial Organization and Activities, by Anand G. Chandavarkar. 1984. In English. French and Spanish in preparation.
43. The Technical Assistance and Training Services of the International Monetary Fund. In English. French and Spanish in preparation.
*Out of print. Photographic or microfilm copies of all English editions, including numbers that are out of print, may be purchased direct from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Michigan 48106, U.S.A., or, for those living outside the Western Hemisphere, from University Microfilms Limited, 30/32 Mortimer St., London, WIN 7RA, England.
Copies (unless out of print) may be requested from:
External Relations Department, Attention: Publications International Monetary Fund, Washington, D.C. 20431, U.S.A.
Telephone number: 202 623-7430
Cable address: Interfund
STABEX is a shorthand expression for stabilization of export earnings; the scheme was established under the terms of the 1975 Lomé Convention between the European Community and some 50 countries located in the African, Caribbean, and Pacific regions (see Appendix IV).
By analogy with terminology used for commercial loans, repurchase corresponds to repayment of the principal.
Article V, Section 7(b) of the Fund’s Articles of Agreement specifies that the member will be expected normally to repurchase earlier “because of an improvement in its balance of payments and reserve position,” and Decision No. 6172-(79/101) (Annual Report of the Executive Board for the Financial Year Ended April 30, 1979 (Washington), p. 138) provides guidelines for early repurchase under Article V, Section 7(b).
The member may receive more timely compensation by using an early drawing procedure which allows the member to estimate earnings for up to 6 months of the shortfall year for merchandise exports and up to 12 months for services (see pp. 27–28).
In these examples, export earnings would increase at a constant rate if it were not for a disturbance which may occur in year 0.
In order to measure the purchasing power of exports, nominal export earnings should be divided by the average import unit value of the country concerned. An algebraic demonstration of this is given in the last section of Appendix III.
See pp. 44–45, below.
The overall balance of payments deficit is calculated by netting out the items of the current and capital accounts shown “above the line.” The financing of the deficit is calculated by netting out items “below the line,” such as changes in the level of international reserves and use of Fund credit. In the absence of Fund credit, a balance of payments deficit would normally result in a reduction of gross international reserves. The drawing under the facility is one way of restoring reserves to an appropriate level.
Taking excesses as negative shortfalls, the value shortfall is equal to the volume shortfall plus the price shortfall plus 1 per cent of the product of the volume and price shortfalls. If either the volume shortfall or the price shortfall is small, the value shortfall can be approximated by adding up volume and price shortfalls (see Appendix III, p. 76).
When the demand for imports is sensitive to changes in industrial activity, as occurs for some metals and agricultural materials, and when the supply of exports is highly responsive to price changes, both volume and price tend to fall in periods of recession and to rise in periods of high industrial activity.
Real price indices are obtained by dividing the index of nominal commodity prices by the United Nations’ index of the price of manufactures exported by industrial countries.
At free market prices.
L. M. Goreux, “Compensatory Financing: The Cyclical Pattern for Export Shortfalls,” International Monetary Fund, Staff Papers, Vol. 24 (Washington, November 1977).
This is strictly true only when shortfalls (excesses) are defined as downward (upward) deviations from the five-year arithmetic average centered on the shortfall year, as was done for the purpose of drawings under the facility until August 1979 (see Appendix III, p. 77).
STABEX and the Fund facility approach were used above as shorthand expressions for eligibility based on gross and net shortfalls. In practice, countries with well-diversified export earnings may not be better off with STABEX than with the Fund facility, because eligibility to draw under STABEX is subject to dependency and fluctuation thresholds; the first eliminates commodities accounting for a minor share of the country’s earnings, the second eliminates small commodity shortfalls (see Appendix IV).
Re-exports are a substantial fraction of total exports in countries which serve as entrepôt centers, like Singapore.
The offsetting effect would be substantial in a country which imports crude oil and exports refined oil products, or imports raw diamonds and exports polished diamonds. It could also be significant for manufactured exports if account were taken of the direct and indirect import content of exports, or for exports of multinational corporations if services and income transfers were taken into account. In the latter instances, however, it would be very difficult to assess the exact amount which should be deducted from export earnings. In practice, a deduction for the import content could not be made in many cases and the determination of the threshold for making such deduction would inevitably contain an element of arbitrariness.
Receipts from travel and workers’ remittances are subject to sizable fluctuations often caused by circumstances largely beyond the member’s control. Tourism is important for a number of countries in the Mediterranean and Caribbean areas. Workers’ remittances are important for many low-income countries located in the neighborhood of industrial and oil exporting countries.
A member using the early drawing procedure must represent in its request that it shall repurchase promptly the excess drawn, if it had been overcompensated on account of an underestimation of its export earnings during the shortfall year.
Several members used the early drawing procedure more than once during that period.
Under the 1975 decision (Decision No. 4912-(75/207), Selected Decisions of the International Monetary Fund and Selected Documents, 8th issue (Washington, May 10, 1976), p. 62), earnings in the two post-shortfall years could be derived from earnings in the two pre-shortfall years by applying a three-year growth factor taken as the ratio of earnings in the three-year period ended in the shortfall year over earnings in the preceding three-year period (see pp. 72–73). This simple extrapolation formula would provide an exact forecast when export earnings increase at a steady rate, but could lead to large errors when the growth rate fluctuates widely. For this reason, the 1975 decision provided that a judgmental forecast could be used instead of the extrapolation formula whenever the results obtained with the latter were considered not reasonable. As the extrapolation formula under the 1975 decision was seldom used, reference to the formula was deleted when a new decision was adopted in August 1979. Since then, earnings in the two post-shortfall years have been estimated by judgmental forecast only.
For 11 of the requests made in the early part of 1976, the forecast value for the two post-shortfall years was not specified in the staff report. It was only stated that the forecast exceeded the minimum required to justify the purchase requested. As it happened, actual post-shortfall earnings exceeded the minimum required for 10 of these 11 requests. For 42 other requests, a comparison could be made in April 1980 between ex ante and ex post shortfalls. These were the same in 3 cases; ex ante shortfalls were over-estimated in 18 cases and underestimated in the remaining 21 cases. The sum of the 42 ex ante shortfalls was 14 per cent lower than that of the ex post shortfalls. Excluding 2 cases in which actual exports increased by more than 60 per cent per annum, ex post growth rates in the two post-shortfall years averaged 19.7 per cent per annum, compared with 16.7 per cent per annum on the basis of the forecasts made at the time of request.
For commodities which may cease to be exported in a given year, the geometric shortfall would be meaningless. The trend value calculated as a five-year geometric average would be zero if export earnings were zero in any of the five years included in the calculation. Consequently, if exports fell to zero in a given year, there would be no shortfall in that year.
Making an adjustment only in these cases contains an element of arbitrariness and the method used for avoiding double compensation may need to be reviewed.
It could be argued that countries need compensatory financing assistance only when they experience substantial export shortfalls, and that assistance could be provided subject to a deductible amount defined as a given percentage of the trend value of export earnings. With a given amount of resources, if countries receive less when they had small shortfalls, they could receive more when they had large shortfalls. Simulation experiments suggest that, if a 2 per cent deductible was introduced, the quota limit could be raised from 100 per cent to 150 per cent of quota without changing significantly the total amount drawn. The possibility of introducing a deductible (1 per cent or 2 per cent) was considered by the Executive Board in 1979, but it was decided not to do so at that time.
See pp. 35–36, above.
Article V, Section 3(£)(ii) of the Fund’s Articles of Agreement.
International Monetary Fund, Balance of Payments Manual, 1977.
Article V, Section 7(c) and Executive Board Decision No. 5703-(78/39), adopted March 22, 1978, effective April 1, 1978, in Selected Decisions of the International Monetary Fund and Selected Documents, Supplement to 8th issue (Washington, December 4, 1978), p. 43.
See paragraph c of Decision No. 5704-(78/39), Selected Decisions of the International Monetary Fund and Selected Documents, Supplement to 8th issue (Washington, December 4, 1978), p. 42.
See p. 28, above.
The ordinate of the point where the upper branch of the hyperbola of Chart 2 intersects the vertical axis is (2π)-1/2Σiαiσi.
In the most straightforward case of a demand and supply model, i.e., when the demand and supply equations (10) and (11) can be satisfactorily estimated by ordinary least squares, demand and supply fluctuations can be considered as independent E(udtust) ≃ 0.
The effect of price stabilization on export earnings fluctuations would depend on the value of coefficient bi. As appears from equation (13′), earnings would be stabilized for bi >—½ they would not be affected for bi =—½ and they could be destabilized for bi <—½.
A similar scheme is open to 18 “overseas countries and territories.”
Consider a country for which the 6.5 per cent threshold is applicable and suppose that, for a commodity covered by STABEX, the value of exports of that country to the European Community averages 100 in the period 1976 through 1979. If the value of exports exceeded 93.5 in 1980, the country would not be eligible for a transfer. The country could, however, be compensated for the full amount of its shortfall if the value of its exports fell below 93.5 in 1980; for example, if it fell to 93, the country could receive 7. The threshold values quoted above are those applicable under the 1979 Lomé Convention.
Transfers on account of coffee were equivalent to 17 per cent of all transfers made for 1975, but no transfer was made on account of coffee in 1976 and 1977 because of the sharp price increase which occurred in those two years. Similarly, because of the high cocoa prices, no transfer was made on account of cocoa, except to Western Samoa where the volume of exports fell sharply.
The allocation for the first period amounted to EUA 400 million, consisting of EUA 375 million for the original ACP states; EUA 5 million for three states having acceded to the Lomé Convention; and EUA 20 million for overseas countries and territories. The allocation for the second period consists of EUA 550 million for ACP states and EUA 9 million for overseas countries and territories.
Consider a country for which the 6.5 per cent threshold is applicable. Suppose that the country exports groundnuts in the form of seeds, oil, and cakes, and suppose that each of the three products accounts for 3 per cent of the country’s total export earnings. Under the 1975 Convention, the country could not have received any compensation for its exports of groundnuts and groundnut products. Under the 1979 Convention, the country could satisfy the dependency threshold by treating groundnuts and groundnut products as a group instead of as separate commodities. The amount of the transfer would then be calculated as the net shortfall for the group and not as the sum of gross shortfalls for each commodity component. For 22 of the 44 STABEX commodities, eight groups have been defined; for each group, the member may opt for the group treatment or for the commodity treatment.
Insofar as these are not covered by STABEX.
As a general rule, this share should have exceeded 15 per cent during the four preceding years. For least developed countries, the minimum share is reduced to 10 per cent.