Report of the Executive Directors to the Board of Governors (December 24, 1969)
- International Monetary Fund
- Published Date:
- February 1996
1. At its 1969 Annual Meeting in Washington, the Board of Governors adopted the following Resolution: †
Whereas the Executive Directors have been considering the question of an appropriate adjustment of the quotas of Fund members; and
Whereas the Executive Directors have been considering this question in relation to the allocation of special drawing rights; and
Whereas the Board of Governors has adopted a Resolution on the allocation of special drawing rights for a first basic period of three years beginning on January 1, 1970; and
Whereas the Fifth Quinquennial Review of Quotas is to begin not later than the end of 1969; and
Whereas Governors have expressed their views on the Fifth Quinquennial Review and the adjustment of quotas;
Now, therefore, the Board of Governors hereby resolves:
That the Executive Directors proceed promptly with the consideration of the adjustment of the quotas of members of the Fund and submit an appropriate proposal to the Board of Governors not later than December 31, 1969.
2. Pursuant to the foregoing Resolution the Executive Directors have considered the adjustment of the quotas of members and recommend that the Board of Governors propose to members the increases in quotas set forth in the Annex to the proposed Resolution which is attached to this Report. The reasons for this recommendation are outlined in this Report.
3. Article III, Section 2, of the Articles of Agreement states in part that:
“The Fund shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members.”
The periodic general review of quotas which is required by this provision facilitates an adjustment of the size of the Fund to the growth of the world economy; it also offers an opportunity to adjust individual quotas to reflect changes in the position of members in the world economy.
4. The increase in Fund quotas which may be appropriate from time to time must be assessed chiefly on the basis of factors affecting the need for international liquidity in general and the need for conditional liquidity in particular. In connection with the Managing Director’s proposal on the allocation of special drawing rights for the first basic period, certain quantitative studies were undertaken that have a bearing on these questions. As was noted in the 1969 Annual Report of the Executive Directors, conditional and unconditional liquidity, although serving to some extent the same broad purpose, cannot be freely or fully substituted for each other. Decisions with respect to the creation of conditional liquidity should, therefore, be taken in the light of developments and decisions in the area of unconditional liquidity.
5. In the light of these considerations the Executive Directors propose increases in Fund quotas which, if all members were to avail themselves of the opportunity to increase their quotas to the maximum proposed to them, would bring Fund quotas to an approximate total of $28,900 million.
6. The individual quota adjustments that are recommended have been determined by the kind of considerations that have been applied by the Fund in the past. These considerations will be reviewed for the purpose of future adjustments. Changes in the economic and financial position of members have been taken into account in arriving at the proposed adjustments, as well as the maintenance of a balanced distribution of quotas within the whole membership of the Fund.
7. Under the proposed Resolution, a member will be able to consent to the increase in its quota at any time on or before November 15, 1971. Therefore, unless this period is extended by the Executive Directors, members will have until November 15, 1971 to take whatever action may be necessary under their laws to enable them to give their consent.
8. The increase in a member’s quota under the Resolution will take effect when the member has consented to the increase in quota and has paid the increase in subscription, provided that no increase will take place before October 30, 1970. In other words, the increase in a member’s quota will take effect on the latest of the following three dates:
(a) the date on which the Fund receives the member’s consent to the increase in quota,
(b) the date of the payment of the increase in subscription,
(c) October 30, 1970.
9. Under the Resolution, a member may pay the increase in its subscription at any time before it is due. If a member pays before the increase in its quota takes effect, the increase in subscription will be kept in a separate suspense account of the Fund. A member is required to pay its increase in subscription not later than 30 days after the later of (a) the date of its consent to its quota increase and (b) October 30, 1970.
10. The increased quotas recommended in the attached Resolution are the maximum amounts to which quotas could be increased under the Resolution. Any member consenting to an increase under the Resolution may consent to a smaller increase in its quota than the amount shown against its name but the quota consented to should be a whole number in millions of U.S. dollars. At any time not later than November 15, 1971, or any later date to which the Executive Directors extend the period for consent, a member may consent to further increases up to the amount shown in the attached Resolution if it has not yet consented to the full increase.
11. Under the proposed Resolution, any member consenting in one step to the full increase in its quota as shown against its name in the Annex may consent to the increase by installments. Any member consenting to an increase by installments must pay an initial installment of the increase in subscription, and an installment in each period of 12 months thereafter. Each installment will be not less than one fifth of the full increase, but members may accelerate payment under this installment schedule. Each installment of the increase in quota would correspond to the amount of gold and currency paid by the member as an increase in subscription.
12. The maximum quotas recommended in the attached Resolution take account of the special adjustment of their present quotas that a few members could still obtain under the Fund’s Decision on “Compensatory Financing of Export Fluctuations” (Executive Board Decision No. 1477-(63/8), February 27, 1963). Therefore, the policy on the special adjustment of quotas under that Decision together with the related Executive Board Decision (No. 1529-(63/33), June 14, 1963) will be regarded as having been superseded by the terms of the attached Resolution in those cases in which increases under Decision No. 1477 have not yet been approved by the Board of Governors.
13. Under Article III, Section 4 (a), each member increasing its quota must pay an increase in its subscription equal to the increase in quota, of which 25 per cent must be in gold and the balance in the member’s currency. Payment of both portions of the increase in subscription must be made before the increase in a member’s quota can become effective, even if, under a Membership Resolution, the member has not yet been required to pay its original subscription.
14. Article III, Section 4 (a), provides in part that “If, … on the date when the member consents to an increase, its monetary reserves are less than its new quota, the Fund may reduce the proportion of the increase to be paid in gold.” The date for the calculation referred to in the provision is the date on which the member consents to the increase even if the increase will not become effective until later. The Executive Directors have again considered whether the Fund should exercise its discretion under the provision to reduce the portion of the increases in subscriptions payable in gold. The Executive Directors have concluded that on this occasion it would be desirable to exercise this discretion and that any member that would qualify should be permitted to pay in gold only that proportion of 25 per cent of the increase in quota which the member’s monetary reserves bear to the increased quota to which the member has consented and the balance of the increase in quota in currency. If a member wishes to pay in currency more than 75 per cent of the increase in its subscription in accordance with this paragraph, the Fund will calculate the member’s monetary reserves as of the date of each consent to an increase in quota, whether it be to an increase to the maximum amount, or to an increase less than the maximum amount, or to increases by successive amounts (see paragraph 10), or to increases by installments (see paragraph 11).
15. In connection with paragraph 14, the Executive Directors have felt that, as a condition of the exercise of the power to reduce the gold payment, the Fund should require that any additional currency subscription beyond 75 per cent of the increase in quota be repurchased by the member unless the Fund’s holdings of that currency are otherwise reduced. Repurchase must be made in five equal annual installments commencing one year after the date on which the quota increase becomes effective. When paying less than 25 per cent of its subscription in gold a member must undertake to repurchase in accordance with this paragraph. Members will be able to discharge these repurchases in the same reserve assets as may be used in other repurchases.
16. Many members will pay the increases in their gold subscriptions from their own gold holdings, but it is likely that in some cases members will purchase gold from other members. In order to mitigate the impact of these gold purchases, the Executive Directors believe that the Fund should take the action which is indicated in the following paragraphs and for which appropriate provision is made in the attached Resolution.
17. In connection with purchases of gold by members for the purpose of paying their increases in subscription under the proposed Resolution, it will be the policy of the Fund to sell gold under Article VII, Section 2 of the Articles of Agreement up to a maximum amount equivalent to US$700 million when the Fund needs to replenish its holdings of the currencies of members from which gold has been purchased by other members. As in the past, it may be expected that most members wishing to purchase gold for the purpose of paying their increases in subscription will buy that gold from the United States and that, therefore, to a very large extent the sale of gold by the Fund will be for the purpose of replenishing its holdings of U.S. dollars. To the extent that the Fund does not have a need to replenish its holdings of U.S. dollars, it will be suggested to members that they purchase the gold needed for the payment of their increases in subscription from members which agree to sell gold and the currencies of which the Fund needs to replenish.
18. Replenishment by the Fund of its holdings of the currency of a member in accordance with paragraph 17 above would normally take place on the same value date as the sale of gold by that member. Alternatively, this replenishment of a currency could take place on the occasion of sales of that currency to other members.
19. Under Article XII, Section 2 (b (ii), the power to take the action with respect to the payment of increases recommended in paragraphs 14 and 15 is reserved to the Board of Governors, and under Article III, Section 4 (c) exercise of the power requires a majority of eighty-five per cent of the total voting power. The same rules apply to the action recommended in paragraphs 16 and 17 for the purpose of mitigating the effects of providing gold for payment of the gold portion of increases in the subscriptions of other members. Appropriate provision has been made in the attached Resolution for the Board of Governors to take the necessary action to give effect to these recommendations.
20. The Executive Directors recommend the adoption of the attached Resolution. This Resolution is designed to enable the Board of Governors to vote at one time on all matters connected with the increases in quotas under the Resolution, including those referred to in paragraph 19, which, under the Articles of Agreement, as amended, are reserved to the Board of Governors. To be adopted, the Resolution will need to receive the affirmative vote of eighty-five per cent of the total voting power of members. To be valid, votes on the Resolution as a whole must be received at the seat of the Fund on or before February 9, 1970.
Resolution Submitted to the Board of Governors †
Whereas the Executive Directors have considered the adjustment of the quotas of members in accordance with the Resolution of the Board of Governors of the International Monetary Fund at its 1969 Annual Meeting:
That the Executive Directors proceed promptly with the consideration of the adjustment of the quotas of members of the Fund and submit an appropriate proposal to the Board of Governors not later than December 31, 1969;
Whereas the Executive Directors have submitted to the Board of Governors a Report entitled “Increases in Quotas of Members—Fifth General Review”; and
Whereas the Executive Directors have recommended the adoption of the following Resolution of the Board of Governors, which Resolution proposes increases in the quotas of members of the Fund as a result of the fifth general review of quotas and deals with certain related matters, by vote without meeting pursuant to Section 13 of the By-Laws of the Fund;
Now, therefore, the Board of Governors, noting the said Report to the Executive Directors, hereby resolves that:
The International Monetary Fund proposes that, subject to the provisions of this Resolution, the quotas of members of the Fund shall be increased to the amounts shown against their names in the Annex to this Resolution, provided that any member (a) may consent to an increase in its quota which is smaller than that shown in the said Annex and (b) may consent thereafter to further increases up to the said amount.
An increase in a member’s quota under this Resolution shall become effective when the member has notified the Fund that it consents to the increase and has paid in full the increase in the quota, provided, however, that no increase in quota shall become effective before October 30, 1970. The increase in the quota of a member which has notified the Fund of its consent and has completed payment of the increase at any time prior to October 30, 1970, shall become effective on that date.
Notices in accordance with paragraph 2 shall be executed by a duly authorized official of the member.
Notices in accordance with paragraph 2 shall be received in the Fund not later than November 15, 1971, provided that the Executive Directors may extend this period as they may determine.
Subject to paragraph 6 (b) each member shall pay to the Fund the increase in its quota within 30 days after the date on which it notified the Fund of its consent or October 30, 1970, whichever is later. Twenty-five per cent of the increase shall be paid in gold and the balance in the member’s currency, provided, however, that, if on the date when a member consents to any increase under paragraph 1 or paragraph 6 its monetary reserves are less than the new quota to which it has consented, the member may pay in gold that proportion of 25 per cent of the increase in quota which the member’s monetary reserves on the date of consent bear to the quota to which the member has consented and the balance of the increase in quota shall be paid in currency. A member which, in accordance with this paragraph, pays more than 75 per cent of the increase in currency shall undertake to repurchase the currency paid in excess of 75 per cent of the increase. Unless the Fund’s holdings resulting from such payment are otherwise reduced, repurchase shall be completed in five equal annual installments commencing one year after the date on which the increase becomes effective.
(a) In giving notice in accordance with paragraph 2, any member consenting to the increase in its quota to the full amount shown against its name in the Annex to this Resolution may consent to that increase as increases by installments.
(b) Notwithstanding paragraph 2, a member increasing its quota by installments shall pay not less than one fifth of the increase in gold and currency in accordance with paragraph 5 within 30 days after the date on which it notified the Fund of its consent or October 30, 1970, whichever is later, and shall pay further installments of gold and currency of not less than one fifth of the increase in each twelve months after the first payment until the full amount has been paid. For the purpose of determining under paragraph 5 the gold and currency portions of an installment subsequent to the initial installment, a member shall be deemed to have consented to the increase in its quota equivalent to the installment 30 days before it pays the installment.
(c) Subject to paragraph 2, on the completion of the payment of each installment of the increase, the member’s quota shall be increased by an amount equal to the installment.
The Fund shall replenish its holdings of the currencies of members which sell gold to other members to enable the latter members to pay the increases in their quotas under this Resolution. Replenishment under this paragraph shall be by the sale of gold in accordance with the provisions of Article VII, Section 2 and shall not exceed an amount equivalent to US$700 million.
|Proposed Maximum Quota (In millions of U.S. dollars)||Proposed Maximum Quota (In millions of U.S. dollars)|
|10.||Burma||60||35.||Germany, Federal Republic of||1,600|
|14.||Central African Republic||13||38.||Guatemala||36|
|21.||Congo, Democratic Republic of||113||45.||Indonesia||260|
|98.||Syrian Arab Republic||50|
|70.||Mauritius||22||102.||Trinidad and Tobago||63|
|74.||Netherlands||700||106.||United Arab Republic||188|
|75.||New Zealand||202||107.||United Kingdom||2,800|
|83.||Peru||123||116.||Yemen Arab Republic||10 ‡|
Added by Board of Governors’ Resolution No. 25-4, June 15, 1970.
Added by Board of Governors’ Resolution No. 26-1, December 8, 1970.
Added by Board of Governors’ Resolution No. 25-4, June 15, 1970.
Added by Board of Governors’ Resolution No. 26-1, December 8, 1970.
Resolution No. 24-15.
Resolution No. 25-3, adopted by the Board of Governors effective February 9, 1970.