Chapter

CHAPTER 18 Evolution of the Fund’s Policy on Drawings

Author(s):
International Monetary Fund
Published Date:
February 1996
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Author(s)
J. Keith Horsefield and Gertrud Lovasy * 

THE ORIGIN AND MAGNITUDE of the Fund’s resources (which are so far derived mainly from subscriptions) were described in Chapter 17. For the purpose of the following discussion it should be kept in mind that each member has a quota in the Fund; that its subscription, which is paid partly in gold and partly in the member’s own currency, is equal to its quota; and that the normal quantitative limitations on the use of the Fund’s resources by each member are determined by its quota.

The basic mechanism of a drawing from the Fund consists of an exchange of the drawing member’s currency for an equivalent amount of other currencies. The effect is therefore to increase the Fund’s holdings of the drawing member’s currency and to decrease its holdings of the currencies that are drawn. The Articles contain provisions the effect of which is to tend to restore the Fund’s holdings of each member’s currency to a level equal to 75 per cent of that member’s quota—i.e., to the level at which the Fund’s holdings would stand if the member had paid the required 25 per cent of its subscription in gold, and the Fund had effected no transactions in that currency (or any transactions effected had canceled one another out).

Annual figures for drawings are given in Table 22 at the end of Chapter 19.

LEGAL PROVISIONS

The provisions in the Articles of Agreement governing the use of the Fund’s resources are extensive and complicated. Since much of the evolution of the relevant policies hinged on the text of these Articles, it is necessary to start by setting them out in some detail. The reader will need to refer back to the following extracts as the argument proceeds.1

Articles of Agreement

The Fund’s resources are to be used in accordance with the purposes of the Fund, which are set out in Article I of the Fund Agreement. Among these purposes are:

  • (v) To give confidence to members by making the Fund’s resources available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  • (vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

The conditions governing the use of the Fund’s resources are set out more precisely in Article V, Section 3, which reads as follows:

(a) A member shall be entitled to buy the currency of another member from the Fund in exchange for its own currency subject to the following conditions:

  • (i) The member desiring to purchase the currency represents that it is presently needed for making in that currency payments which are consistent with the provisions of this Agreement;
  • (ii) The Fund has not given notice under Article VII, Section 3, that its holdings of the currency desired have become scarce;
  • (iii) The proposed purchase would not cause the Fund’s holdings of the purchasing member’s currency to increase by more than twenty-five percent of its quota during the period of twelve months ending on the date of the purchase nor to exceed two hundred percent of its quota, but the twenty-five percent limitation shall apply only to the extent that the Fund’s holdings of the member’s currency have been brought above seventy-five percent of its quota if they had been below that amount;
  • (iv) The Fund has not previously declared under Section 5 of this Article, Article IV, Section 6, Article VI, Section 1, or Article XV, Section 2 (a), that the member desiring to purchase is ineligible to use the resources of the Fund.

(b) A member shall not be entitled without the permission of the Fund to use the Fund’s resources to acquire currency to hold against forward exchange transactions.

Other relevant provisions of the same Article are as follows:

Sec. 4. Waiver of conditions.—The Fund may in its discretion, and on terms which safeguard its interests, waive any of the conditions prescribed in Section 3(a) of this Article, especially in the case of members with a record of avoiding large or continuous use of the Fund’s resources. In making a waiver it shall take into consideration periodic or exceptional requirements of the member requesting the waiver. The Fund shall also take into consideration a member’s willingness to pledge as collateral security gold, silver, securities, or other acceptable assets having a value sufficient in the opinion of the Fund to protect its interests and may require as a condition of waiver the pledge of such collateral security.

Sec. 5. Ineligibility to use the Fund’s resources.—Whenever the Fund is of the opinion that any member is using the resources of the Fund in a manner contrary to the purposes of the Fund, it shall present to the member a report setting forth the views of the Fund and prescribing a suitable time for reply. After presenting such a report to a member, the Fund may limit the use of its resources by the member. If no reply to the report is received from the member within the prescribed time, or if the reply received is unsatisfactory, the Fund may continue to limit the member’s use of the Fund’s resources or may, after giving reasonable notice to the member, declare it ineligible to use the resources of the Fund.

Article V, Section 7, contains provisions designed to restore a member’s position in the Fund after it has made use of the Fund’s resources. These are set out in full in Chapter 19. They may be summarized as follows:

(1) At the end of each of the Fund’s financial years each member must use in repurchase of its own currency from the Fund an amount of its monetary reserves equal in value to one half of any increase that has occurred during the year in the Fund’s holdings of its currency plus one half of any increase, or minus one half of any decrease, that has occurred during the year in the member’s monetary reserves (Section 7 (b) (i)).

(2) But repurchases are not to be made at all if the member’s monetary reserves have decreased more than the Fund’s holdings have increased during the year (Section 7 (b)(i)); or to an extent that would (a) reduce the member’s monetary reserves below its quota (Section 7 (c)(i)); (b) reduce the Fund’s holdings of the member’s currency below 75 per cent of its quota (Section 7 (c) (ii)); (c) increase the Fund’s holdings of any other member’s currency above 75 per cent of that member’s quota (Section 7 (c) (iii)).

The make-up of repurchase requirements, in terms of gold and particular currencies, is stipulated in detail in Schedule B.

Article V, Section 8, details the charges which the Fund makes for the use of its resources. These are discussed in Chapter 19, but mention must be made here of Section 8 (d), which reads in part:

Whenever the Fund’s holdings of a member’s currency are such that the charge applicable to any bracket for any period has reached the rate of four percent per annum, the Fund and the member shall consider means by which the Fund’s holdings of the currency can be reduced.

Elsewhere in the Articles there are a number of other provisions relevant to the use of the Fund’s resources, as follows:

(a) Drawings to finance capital transfers are subject to limitations (Article VI). This is the subject of a later section in this chapter.2

(b) The Fund was not intended to provide facilities for relief or reconstruction or to deal with the international indebtedness arising out of World War II. (Article XIV, Section 1).

(c) The Fund may postpone exchange transactions with any member if its circumstances are such that, in the opinion of the Fund, they would lead to use of the resources of the Fund in a manner contrary to the purposes of the Fund Agreement or prejudicial to the Fund or its members (Article XX, Section 4 (i)).

(d) If a member changes the par value of its currency despite the objection of the Fund, in cases where the Fund is entitled to object, the member shall be ineligible to use the resources of the Fund unless the Fund otherwise determines (Article IV, Section 6).

(e) If a member fails to fulfill any of its obligations under the Articles of Agreement, the Fund may declare the member ineligible to use the resources of the Fund (Article XV, Section 2 (a)).

(f) In its relations with members, the Fund was enjoined to recognize that the postwar transitional period would be one of change and adjustment, and in making decisions on requests occasioned thereby which were presented by any member it must give the member the benefit of any reasonable doubt (Article XIV, Section 5).

(g) In the event of an emergency or the development of unforeseen circumstances threatening the operations of the Fund, the Executive Directors by unanimous vote may suspend for a period of not more than one hundred and twenty days the operation of certain provisions, including those in Article V, Sections 3 and 7. Such suspension may be extended by not more than two hundred and forty days by the Board of Governors, by a vote of four fifths of the total voting power (Article XVI, Section 1 (a) and (c)).

Interpretations

Over the years, these provisions of the Articles of Agreement have been the subject of much discussion in the Executive Board, and many of the relevant phrases have had to be interpreted by decisions of the Executive Directors. Some, but not all, of these were formal interpretations under Article XVIII.3 The most important of these decisions may be summarized as follows:

General purposes of provisions

The U.S. Bretton Woods Agreements Act required the Governor of the Fund for the United States

to obtain promptly an official interpretation by the Fund as to whether its authority to use its resources extends beyond current monetary stabilization operations to afford temporary assistance to members in connection with seasonal, cyclical, and emergency fluctuations in the balance of payments of any member for current transactions, and whether it has authority to use its resources to provide facilities for relief, reconstruction, or armaments, or to meet a large or sustained outflow of capital on the part of any member.4

This question was put by the Governor for the United States to the Governors at the Inaugural Meeting at Savannah, and was by them referred to the Executive Directors.5 The Directors discussed it in September 1946. The answer was complicated by the consideration that the Articles of Agreement provided for the Fund to finance balance of payments deficits as a whole, and not particular types of imports. However, the Directors agreed to report to the Governors at the First Annual Meeting that

authority to use the resources of the Fund is limited to use in accordance with its purposes to give temporary assistance in financing balance of payments deficits on current account for monetary stabilization operations.6

The key words in this interpretation were “temporary” and “current account.” The significance of the former will become apparent in the next section of this chapter; the latter assumed importance, after some years, in connection with the possible use of the Fund’s resources to cope with deficits due to capital transactions, and is discussed in that connection in the next section but one.

Meaning of “the member … represents” (Article V, Section 3 (a) (i))

That the Fund was not obliged to accept the representation of a member had been the view of the U.S. delegation at Bretton Woods.7 The point was discussed in the Board on May 6, 1947, and the conclusion reached (after a slight change of wording on May 29) was as follows:8

  • The word “represents” in Article V, Section 3 (a) (i), means “declares.” The member is presumed to have fulfilled the condition mentioned in Article V, Section 3 (a) (i), if it declares that the currency is presently needed for making payments in that currency which are consistent with the provisions of the Agreement. But the Fund may, for good reasons, challenge the correctness of this declaration, on the grounds that the currency is not “presently needed” or because the currency is not needed for payment “in that currency,” or because the payments will not be “consistent with the provisions of this Agreement.” If the Fund concludes that a particular declaration is not correct, the Fund may postpone or reject the request, or accept it subject to conditions… .

Meaning of “presently needed” (Article V, Section 3 (a) (i))

The decision just quoted concludes with the following sentence:

The phrase “presently needed” cannot be defined in terms of a formula uniformly applicable to all cases, but where there is good reason to doubt that the currency is “presently needed,” the Fund will have to apply the phrase in each case in the light of all the circumstances.

This pronouncement followed a short discussion of the meaning of the phrase, during which it was stated that it implied an intent by the drafters of the Articles of Agreement that members should draw in limited amounts as necessary for immediate payments. When, on April 23, 1947, the first member to apply for a drawing, Ethiopia, sought to obtain $900,000, some Directors thought that since this amount was 15 per cent of the member’s quota, it was more than could be “presently needed,” and Ethiopia was asked to justify the request. As, instead, the request was withdrawn, the point was never cleared up. However, since then the Board’s views on what can be “presently needed” have undergone much change, so that, when in February 1956 Burma asked to draw $15 million (100 per cent of its quota), this was allowed, the question whether the amount was “presently needed” not being raised.

Meaning of “making in that currency” (Article V, Section 3 (a) (i))

The question raised by this phrase was whether a member that conducted its international transactions wholly in terms of a reserve currency could be allowed to draw some other currency from the Fund, in order to convert this other currency into the reserve currency which it needed to settle its international accounts. This question was considered by the Board in April 1961, and although the point was not formally decided, the practice of the Fund has since conformed to the view of the Legal Department that the meaning of Article V, Section 3 (a) (i), is that a member may draw from the Fund any currency which it uses, directly or indirectly, to support its exchange market.

Meaning of “consistent with the provisions of this Agreement” (Article V, Section 3 (a) (i))

The Board decided in March 1948 that the phrase meant

consistent both with the provisions of the Fund Agreement other than Article I and with the purposes of the Fund contained in Article I.9

The significance of this decision, as is explained below, was that it required that a member seeking to draw from the Fund should not only fulfill the specific stipulations of Article V, Section 3, but also be conforming to the general purposes of the Fund, as set out in Article I.

Meaning of “twenty-five percent” (Article V, Section 3 (a) (iii))

In 1955 the Board interpreted the quantitative limit of 25 per cent of quota in relation to drawing rights under Article V, Section 3 (a) (iii), as follows:

Where the Fund’s holdings of a member’s currency are not less than seventy-five per cent of its quota, and to the extent that such holdings would not be increased above two hundred per cent of its quota, the purchases which the member may make during a period of twelve months ending on the date of a proposed purchase shall be determined as follows:

  • (a) The total purchases shall not exceed twenty-five per cent of its quota;
  • (b) Provided that, if the member has made purchases during the period, it may then purchase an amount equal to the difference between twenty-five per cent of its quota and the total of such purchases adjusted on the basis that a repurchase by the member or sale of its currency during the period is deducted from a previous, but not subsequent, purchase or purchases during the period.10

Meaning of “is using” (Article V, Section 5)

In March 1948 the Board decided that

a member “is using” the resources of the Fund within the meaning of Article V, Section 5, where it is either actually disposing of the exchange purchased from the Fund, or, having purchased exchange from the Fund, the Fund’s holdings of its currency are in excess of 75 per cent of its quota.11

There have been two decisions explaining the Fund’s right to use the powers provided by Article V, Section 5. Three weeks before the decision just quoted, the Board affirmed that

The Fund has, in the case of a member which has had a previous exchange transaction with the Fund, power to declare the member ineligible or limit its use of the resources of the Fund if the member is, in the opinion of the Fund, using the resources of the Fund in a manner contrary to the purposes of the Fund.12

Two meetings later, the Board decided that

if the Fund receives a request from a member to purchase exchange and either, (1) the Fund is considering sending the member a report pursuant to Article V, Section 5, or (2) the Fund finds when the request is before it that action pursuant to that Section should be considered; then the Fund has the authority, pursuant to Article V, Section 5, of the Fund Agreement, to postpone the transfer as permitted under the provisions of Rules and Regulations G-3 for such time as may reasonably be necessary to decide the question of applying Article V, Section 5, and, if it decides to apply it, to prepare and send to the member a report and subject its use of the Fund’s resources to limitations. Under such circumstances the limitations imposed will apply to the pending request for the purchase of exchange as well as to future requests.13

Nevertheless, the Board was reluctant to apply Article V, Section 5, considering this rather a drastic sanction. It had in any case provided, by Rule K-2, that whenever the Board would be authorized to declare a member ineligible to use the Fund’s resources, it could exercise less extreme powers—i.e., it could “indicate the circumstances under which, and/or the extent to which” drawings would be permitted.

Use for “reconstruction” (Article XIV, Section 1)

In July 1947 the Board agreed that

the prohibition in the Fund Agreement, Article XIV, Section 1, was not meant to prevent countries which were undergoing reconstruction from using the Fund’s resources.14

It should be noted that the prohibitions in Article XIV, Section 1, were based on two considerations discussed at Bretton Woods. The first was that long-term tasks of reconstruction were to be undertaken by another agency than the Fund, viz., the World Bank. The second was that the United Kingdom had asked that the possibility of using the Fund’s resources to repay blocked sterling balances should be omitted from the Fund Agreement.15

Postponement under Article XX, Section 4 (i)

The Board has interpreted its powers under Article XX, Section 4 (i), as follows:

The Fund has, in the case of a member which has had no previous exchange transaction with the Fund, the power to postpone exchange transactions with it if its circumstances are such that, in the opinion of the Fund, they would lead to the use of the resources of the Fund in a manner contrary to the purposes of the Agreement or prejudicial to the Fund or its members. This power did not lapse as of the date the Fund began exchange transactions.16

This conclusion was reached in two stages. In February 1947 the Board agreed, in effect, on the decision embodied in the last sentence quoted above; a year later the Directors considered the related problem whether the Fund’s powers lapsed once a member had drawn on the Fund, and decided by a majority that they did.

Use of ineligibility provisions

It will be convenient to note here the few occasions on which members have become ineligible to use the Fund’s resources, or the Board has considered using the provisions of the Articles to render them ineligible.

Before beginning transactions, the Board considered whether to invoke its powers under Article XX, Section 4 (i), to restrain members from drawing if their circumstances were such as to make the short-term use of the Fund’s resources by them unlikely. The Board decided not to invoke its formal powers, but to notify the affected members informally. Ten members were so notified in the winter of 1946–47, although the ban was removed from three of them after a short time.

The first occasion on which a member became ineligible to use the Fund’s resources was in January 1948, when the French Government devalued the franc and introduced measures which created multiple currency practices. The Board was unable to approve these measures and accordingly, under the terms of Article IV, Section 6, France became ineligible to draw upon the Fund. Eligibility was restored by a decision of the Board in October 1954.17

The next occasion was in October 1953, when Czechoslovakia’s unauthorized change in the value of the koruna, and its failure to cooperate with the Fund in other ways, led the Board to invoke Article XV, Section 2 (a), and declare Czechoslovakia ineligible to use the Fund’s resources.18 The ban had not been removed when Czechoslovakia left the Fund early in 1955.

The use of Article XV, Section 2 (a), was again considered by the Board in January 1964, in connection with Cuba’s failure to repurchase a drawing within five years, its failure to supply essential data, and its continuance of exchange restrictions which the Fund had disapproved. However, the provisions of the Article were not, in fact, applied, because Cuba resigned from the Fund before the date set for a meeting at which it was to be given the opportunity to answer the Fund’s complaints.19

In September 1958 Bolivia found itself unable to carry out the conditions under which it had been granted a stand-by arrangement. By that time $2 million out of a total of $3.5 million authorized by the stand-by arrangement had been drawn. The staff recommended to the Board, which agreed, that in the circumstances Bolivia should not be allowed to draw further until it had agreed with the Fund on revised conditions for the stand-by arrangement. Satisfactory new undertakings were given by the member in November, and it was authorized to resume drawing.

The Fund’s powers under Article V, Section 5, and Article XX, Section 4 (i), have never been used expressly, although, as noted above, they have been regarded as authorizing the Fund to impose less drastic conditions than the exclusion of a member from the use of its resources.

FORMATION OF POLICY

Background

The difference of view between Keynes and White on the attitude of the Fund toward applications to draw has been examined in detail in Volume I, and need not be recapitulated here.20 It will suffice to say that White was convinced that the Fund must have the power to question any request to draw on its resources, in order to prevent unjustified drawings which, in the circumstances of 1945, would necessarily have been drawings of U.S. dollars. Keynes, on the other hand, sought to ensure that members would have the right (at least, once convertibility had been achieved) to draw from the Fund, without question, the equivalent of 25 per cent of their quotas annually, up to the point at which the Fund’s holdings of their currencies were equal to 200 per cent of their quotas.

This difference of view found expression in the Articles of Agreement in juxtaposition of Article V, Section 3 (a) (i) and (iii), which are permissive, and Article V, Section 3 (a) (iv), which gives the Fund power to declare a member ineligible to use its resources. The latter subsection was reinforced, among other provisions, by Article XX, Section 4 (i), which empowers the Fund to postpone transactions before a member has drawn, and by Article V, Section 5, which elaborates the powers in Article V, Section 3 (a) (iv), for application once a member has used the Fund’s resources.

After the Board had begun work, the significance of the Sections just quoted led to extensive discussions, in the course of which the issue came to be seen as one between automatic rights to draw on the one hand and conditional rights on the other. Those Directors who took the point of view of Keynes protested that members should be able to draw without question the annual 25 per cent of quota provided by Article V, Section 3 (a) (iii); those who were of White’s opinion claimed that no member should be able to draw from the Fund without the Fund’s explicit consent.

For a short time in 1947 it became the practice for a member to be allowed to draw without the Board’s specific approval sums not exceeding 5 per cent of its quota in any thirty days.21 However, for reasons discussed below, this practice did not last.

The stumbling block which eventually frustrated the application of the principle of automaticity to drawings was the ineffectiveness of repurchase obligations.22 It was generally agreed by Executive Directors that the Fund’s resources were to be used for short-term advances, unlike those of the World Bank. But the provisions of Article V, Section 7, and Schedule B proved inadequate to ensure the brevity of use which was desired.23 The main cause of this was the limitations set out in Article V, Section 7 (c), and especially, at first, the elimination of any repurchase obligation which would bring the member’s monetary reserves below its quota. In the early postwar period many members’ reserves were already below their quotas. This was particularly true of the United Kingdom, whose reserves were offset by such large liabilities that the net amount was below its quota. It was also true of the other countries in the sterling area, because most of their monetary reserves were held in sterling, which was not (until 1961) convertible and so was not included in reserves calculated for the purposes of the Fund.

The Board also realized that the size of a member’s monetary reserves was to a considerable extent within its own power to determine, and accordingly, if a member wished to avoid a repurchase obligation, it had a fairly ready method of doing so.

It was true that the Articles of Agreement provided, in Article V, Section 8 (d), for consultation between the Fund and the member as to means of reducing the Fund’s holdings of the member’s currency after charges had reached 4 per cent. Quite apart from uncertainty as to the outcome of such consultations, however, 4 per cent would not be payable for drawings in the lower credit tranches until they had been outstanding for 6–7 years, and the provision cited would not apply at all to drawings in the gold tranche. The Section was therefore not regarded as adequately ensuring that the Fund’s resources would be revolving.

The first year

Before the Fund could begin transactions, a number of preliminary procedures had to be gone through. Among these was the determination of par values for countries having at least 65 per cent of the total of quotas. For this and other reasons,24 it was not until March 1, 1947 that the Fund was ready to begin to permit the use of its resources. During the previous ten months, two points calling for comment arose in connection with the formation of policy.

In the Annual Report for 1946 (the Board’s first report, which was written in September 1946) emphasis was laid on the temporary nature of the assistance which the Fund could give:

The essential test of the propriety of use of the Fund’s resources is … whether the prospective balance of payments position of the country concerned (including long-term capital movements) will be such that its use of the Fund’s resources will be of relatively short duration.25

At the same time, the Fund would run the risk that some of its resources would be used for other than temporary assistance, and the Directors considered it their duty to bring this risk to the notice of the Board of Governors. This did not, however, mean that the Fund would be undiscriminating. On the contrary, the Directors remarked that “there are certain to be disappointments because of the restraints placed on use of the Fund’s resources by some members.”26 (The ambiguity of this sentence was resolved by the context, which referred to restraints placed by the Fund, not by members.) Mention of these “restraints” was made earlier in this chapter.

References to the Fund’s policy on the use of its resources in the Annual Report for 1947 were confined to two points. One was an exposition of the decision about the meaning of “the member … represents,” which stated that the Board would implement its responsibility for adjudicating on the correctness of representations by keeping itself closely informed at all times of developments in each member country.27 The other pointed out that the Fund was not intended to give assistance for reconstruction, and that, while it could and would provide temporary assistance to members even during the transitional period, in order to attain the objectives of the Fund it must be in a position to provide financial assistance after the transitional period.28 The implicit suggestion that the Fund should meanwhile conserve its resources assumed greater importance six months later.29

Early disagreements

The interpretation by the Board of a number of phrases in Articles V and XX, summarized in an earlier section of this chapter, was not achieved without dissent being expressed. Mr. de Largentaye (France) challenged the advice given by the staff to the Board on the subject of the meaning of “consistent with the provisions of this Agreement” (Article V, Section 3 (a) (i)); he and Mr. de Selliers (Belgium) did not see how a member could be required to make a representation that a drawing was for the purpose of making payments which would be consistent with the purposes of the Fund when it did not know how the Fund would interpret Article I. Mr. de Largentaye also believed that Article V, Section 5, could not be used to postpone a drawing once the member had made application for one. Mr. Overby (United States), on the other hand, could not accept that the Fund’s powers were so limited. The view which the Board adopted of Article XX, Section 4 (i)—that its powers under this Section lapsed when a member drew—was also disputed; Messrs. Overby and Saad (Egypt) argued that the Section remained in force, and was a more suitable sanction for the Board to use than Article V, Section 5.

It was problems like these which the Managing Director had in mind when in January 1948 he sent to the Board a memorandum on the interpretation of the Articles of Agreement. He referred to the ambiguities and inconsistencies that could be found in them, and urged the Board to resolve such questions (where appropriate) by interpretations. His view, as he explained it to the Board, was that where the wording of the Agreement was clear it had to be applied or else a constitutional change had to be sought. However, where the text was ambiguous or even inconsistent, the interpretation should be guided by common sense and the broad principles and purposes of the Fund such as were expressed in Article I.

A similar view was expressed by Mr. Rasminsky (Canada). The minutes of the meeting report him to have said that

he had been Chairman of the Drafting Committee at Bretton Woods. Because of the shortage of time and the conditions of work at the Conference, the result had not always been the optimum. He would be the first to admit that there were ambiguities in the text, some intended and others not. There also were inconsistencies. Hence, he thought, to a greater degree than usual the meaning had to be interpreted in terms of the general principles underlying the Fund. He pointed out the undesirability of reliance on shaky legal interpretations to secure action by members. In such cases, he thought, general statements of the Fund’s policy on nonlegal bases would be preferable as means of securing member support.

These ideas were not, however, shared by all Executive Directors. One view was that

in some cases of interpretation by the Executive Board there had been a tendency to overrule the evident meaning of precise provisions in favor of some general provision in Article I. This was not proper, especially since there might even be conflicts between certain of the enumerated purposes in Article I, such as high levels of employment and expanded international trade.

It was also pointed out that

some members had thought their particular needs had been safeguarded by one specific provision or another in the Agreement. They would be alarmed if they found these particular provisions being overturned by some general phrasing.

Mr. Gutt’s memorandum had stressed the significance of inflation as evidence of a member’s likely inability to qualify for a drawing from the Fund. This point was also made by Mr. Overby in a contemporary memorandum, in which he proposed that four specific questions should be asked when a member sought to draw from the Fund: (a) Is its exchange rate increasing its balance of payments difficulties, and would an adjustment of the rate reduce them? (b) What are the prospects of the member’s repurchasing? (c) Will the drawing be used for relief, reconstruction, or development? (d) Are the member’s monetary or fiscal policies leading to fundamental disequilibrium? This attempt to categorize the conditions under which a member might have access to the Fund’s resources led to a debate on whether the Board should attempt to establish general policies to follow when considering members’ requests to use the Fund’s resources, or should base its determination on the particular circumstances of the member concerned. The decision reached was that certain broad considerations—such as the existence of inflation and the current general disequilibrium—would in all probability influence the Executive Board’s opinion as to the use of the Fund’s resources by particular members. However, in any case, the particular position of the member would have to be examined. It was probable, the Board concluded, that policies on general aspects would tend to develop as the individual reviews proceeded.

The foregoing discussions, which took place early in 1948, led to a number of interpretations set out at the beginning of this chapter. In reaching these decisions, the Board as a whole moved further away from the concept of an automatic right to the use of the Fund’s resources—a movement that had been started by the interpretation of the phrase “the member … represents” in May 1947.

ERP Decision

The elucidation of general principles was, however, interrupted shortly afterward by the intervention of U.S. aid to Europe through the European Recovery Program (ERP). Expounding the Program to the Board, the U.S. Executive Director and his Alternate explained that the data upon which the U.S. proposals for the ERP had been predicated did not assume any assistance from the Fund to European participants during the four-year period which it covered, chiefly because the data were concerned with the needs of Europe for relief and reconstruction, for neither of which the Fund was intended. They cited several reasons why, in their view, the Fund’s resources should not be used, during the course of the Program, by the countries assisted:

(a) By making dollars available, the ERP would substantially reduce the pressure for dollar currencies to balance the international payments of the receiving countries.

(b) The determination by Congress of the dollar limits of ERP aid implicitly indicated the amount of U.S. production which should be shipped to Europe during the program. Any substantial provision of dollars through the Fund might result in a reconsideration of the amount of ERP aid.

(c) The balance of payments estimates for Europe showed a dollar disequilibrium of $3.5 billion still to be expected in 1952, so that the prospects for repurchase within five years were not bright. (This seems to have been the first occasion on which repurchase within five years was assumed to be normal.)

These arguments were countered by other Directors, who appealed to general principles. Even if the ERP would tend to reduce the need for members to call on the Fund for dollars, these Directors doubted whether this justified a policy limiting the members’ access to the Fund. They believed that under the Articles of Agreement members had certain rights to purchase exchange, and the existence of programs such as the ERP could not diminish members’ legal rights to use the Fund’s resources. Moreover, because the ERP was assisting all European countries, it did not follow that each of them would be in deficit in 1952.

Nevertheless, Mr. Overby pressed the point that the Board’s decision on any request to draw must take into account all the circumstances, and the existence of the ERP was a factor which could not be ignored. While there might be individual circumstances in which a drawing could be justified, he felt that the general effect of the new situation in Europe must be to tighten the Fund’s evaluation of “reasonable doubt.”

The formal decision of the Board was deferred until the ERP was actually in operation, and was then taken in the following terms, Mr. Tansley (United Kingdom) alone dissenting:

Although the Fund recognizes that a general rule is not sufficient basis for all cases, the Fund must, in examining requests for the use of its resources, take into account the European Recovery Program… . Since the ERP is to be handled year by year, related policies on use of the Fund’s resources should be developed at similar intervals. For the first year the attitude of the Fund and ERP members should be that such members should request the purchase of United States dollars from the Fund only in exceptional or unforeseen cases. The Fund and members participating in ERP should have as their objective to maintain the resources of the Fund at a safe and reasonable level during the ERP period in order that at the end of the period such members will have unencumbered access to the resources of the Fund. This objective conforms with the intention of Article XIV, Section 1, that during the transitional period members should not impair the capacity of the Fund to serve its members or impair their ability to secure help from the Fund after the transitional period.30

At the same meeting as that at which the foregoing decision (generally known as the “ERP Decision”) was adopted, Mr. de Selliers asked what would be the Fund’s view of drawings of currencies other than the U.S. dollar. Mr. de Selliers was concerned about this because Belgium was the principal European creditor. The Belgian franc was therefore most likely to be in demand, but extensive drawings of that currency might place a severe strain on Belgium’s balance of payments. Taking this into account, the Board decided as follows:

During the European Recovery Program members of the Fund may wish to use the Fund’s holdings of the currency of a country participating in ERP. No member has the right to veto or limit the Fund’s sales of its currency to other members for use in accordance with the Fund Agreement. The Fund recognizes, however, that such sales should not have the effect of compelling a country to finance a large bilateral surplus with some countries, while it has to make net drawings on its gold and convertible currency reserves for current payments. Such circumstances would fall within the meaning of the “exceptional or unforeseen cases” mentioned in the policy decision of April 5, 1948, made by the Fund concerning the use of the Fund’s resources by ERP countries and would justify requests by a country to purchase foreign exchange from the Fund to make to other members current payments or payments authorized by Article VI, Section 2, but not to build up its monetary reserves. This is in fact the manner in which the Fund is intended to facilitate a system of multilateral payments.31

The foregoing decisions were reproduced in full in the Annual Report for 1948, and the Board took the opportunity to make some general statements bearing on its attitude toward requests to use the Fund’s resources. Having explained that certain members had been asked to refrain from seeking to draw because their situation was “not conducive to the proper use of the Fund’s resources,” and that judgment was necessary to determine whether a particular drawing was likely to be outstanding for a relatively short or a relatively long period, Directors went on:

The Board has had, moreover, within the limits of the Fund Agreement, to weigh the advantages from both its own point of view and the point of view of its members of conserving the resources of the Fund for use in the post-transitional period against the advantages which members could derive from some immediate use of the Fund’s resources. In the grave and unsettled conditions which prevailed, the Fund reached the conclusion that in some doubtful cases there were in general more disadvantages involved in denying members access to its resources than in allowing them such access.32

The last sentence of this quotation was addressed to the point that the Fund was prepared to take risks—a point which, it will be recalled, was made in its first Annual Report. It did not imply that the Board’s attitude to drawings by members in receipt of ERP aid would similarly give them the benefit of the doubt, for immediately after this statement the Board explained its attitude to such drawings along the lines of the U.S. arguments mentioned above, and of the terms of the ERP Decision.33

Formulating criteria

As a result of the ERP Decision, the volume of Fund transactions, which had totaled $606.0 million in the financial year 1947/48, fell in the three ensuing years to $119.4 million, $51.8 million, and $28.0 million, respectively. Such requests as were made by European countries to draw on the Fund while the ERP was in force gave rise to sharp differences of opinion in the Board. The first occasion for such a discussion was a preliminary inquiry from the Netherlands, in October 1948, as to the possibility of drawing Belgian francs. Mr. Beyen (Netherlands) explained that if the Fund’s resources were used in this way it would be to tide his country over temporarily in anticipation of U.S. aid.

Mr. Overby then raised two questions: (1) whether the Fund could properly provide “temporary” financing to a country whose payments deficit arose essentially from a large reconstruction program and other nontemporary needs, and (2) whether a drawing could be considered as being for a relatively short term when all the indications were that the Netherlands’ balance of payments deficit, particularly in convertible currencies, would continue long after 1952. Mr. Beyen’s response was that if the Netherlands did apply to the Fund for a drawing it would be for purposes in accordance with the Articles of Agreement; should the Netherlands wish to finance reconstruction, it would seek assistance elsewhere.

The Director of Research, intervening, drew attention to the fact that the Fund’s decision on dollar drawings by ERP countries indicated that the proper test would be quantitative. So far the drawings by the Netherlands had been very limited, and any need for Belgian francs should be small—probably not over 6 per cent of quota. As for repayment, he believed that the Netherlands’ international accounts would be in balance long before 1955; while they would probably still be short of dollars, they would be long of other currencies which would be convertible for the Fund’s purposes. Some Executive Directors pointed out that in the past the Fund had never required a precise demonstration of the arrangements for repayment; they felt that the burden of proof concerning the prospects of repurchase would be on the Fund. Mr. Ansiaux (Belgium) said that he agreed with that view and noted that Belgium would not object to drawings of its currency from the Fund for the purpose indicated. Mr. Bolton (United Kingdom), expressing his views on the Fund’s policy in more general terms, opposed the increasing number of interpretations reading into the Fund Agreement limitations which were not in the text. Because of such limitations, he said, the Fund was now of no use to its European members; it carried obligations but no benefits.

The occasion for the Netherlands’ request was that it had given an informal undertaking not to draw on the Fund, which it now wished to withdraw. At the conclusion of the discussion Mr. Overby agreed to this course, on the understanding that if a request for a drawing from the Netherlands reached the Board, Executive Directors would be free to challenge it in accordance with Article V, Sections 3 and 5. However, he intervened also when some subsequent requests for drawings, not connected with the ERP, were made (e.g., by Nicaragua and South Africa), questioning either the temporary character of these drawings or the prospects for repurchase.

The differences of opinion which had emerged in the discussions of these transactions contributed to a growing feeling in the Executive Board that a further clarification of the Fund’s policy on the use of its resources was urgently needed. It was obviously desirable that members should know how they stood with the Fund. It was also clear that the confidence which the Fund intended to give to its members would not be assured if the fate of a request for use of its resources were left uncertain while the Fund engaged in a lengthy review of the member’s position.

For the moment, however, the clarification took the form of a restatement of the U.S. position. In a memorandum circulated to the Executive Directors on May 20, 1949, Mr. Southard, who had succeeded Mr. Overby as Executive Director for the United States, reported on the outcome of a review within the U.S. Government of the Fund’s policy and practices on the use of its resources. The position of the United States was that

the use of the resources of the Fund by any member should be subject to close scrutiny to assure that any purchases conform strictly to the general principles and purposes of the Fund, as well as to the specific provisions of the Articles of Agreement. Any doubt should be resolved in favor of the Fund rather than in favor of the member.

The practical principles and criteria which the U.S. authorities had evolved from this position were that drawings by a member which applied exchange restrictions on current transactions or quantitative import controls should not be permitted without four specific determinations by the Fund: (a) that the par value of the member was appropriate; (b) that the circumstances which gave rise to the proposed drawing were due to a temporary rather than to a fundamental disequilibrium; (c) that the proposed drawing could not primarily be attributed, directly or indirectly, to requirements engendered by programs of rehabilitation or development; and (d) that the member was taking all the steps essential to assume, as soon as possible, its full obligations under the Articles of Agreement.

The first occasion on which these tests were applied to a prospective drawing occurred on May 31, 1949, when Brazil sought to draw $15 million. Mr. Southard then accepted that the first of his criteria was satisfied, but said that he wished to be assured that Brazil’s request was prompted neither by a fundamental disequilibrium nor by the requirements of development. Other Executive Directors deprecated this approach, believing that Brazil was entitled to the benefit of “any reasonable doubt” during the transitional period, and questioning whether Mr. Southard’s tests were justified in terms of the Articles of Agreement. At the end of the discussion, Mr. Paranagua (Brazil) said that Brazil would defer its request.

In the middle of July an application by the Netherlands to purchase Belgian francs was deferred after Mr. Southard said that he doubted whether the circumstances satisfied the criteria which he had laid down. By then the probability that European currencies would have shortly to be devalued was becoming increasingly recognized, and this underlay the Board’s attitude not only to the Netherlands’ request but to drawings in general.

In these conditions the Directors did not attempt any fresh description of the Fund’s policies on the use of its resources when they came to write the Annual Report for 1949; they contented themselves with referring to the passage in the Annual Report for 1948 cited above.34

Counterproposals, 1949–51

After the Annual Meeting and the group of major devaluations which immediately followed, Mr. Southard again took the initiative. In a memorandum to the Managing Director dated October 17, 1949, he requested that the following proposal should be placed on the Board’s agenda:

… in the future dollar drawings should be objected to unless the member proposing to draw on the resources of the Fund is willing to make an agreement, or to give a firm commitment, to repurchase its currency from the Fund within a maximum period of five years, preferably according to a definite schedule of repayment.

Underlying this proposal was the realization, explained earlier, that the repurchase provisions in the Articles of Agreement were inadequate to ensure the prompt repayment of sums drawn from the Fund. Mr. Southard called attention in particular to the position in the sterling area and in member countries with centrally planned balances of payments. He agreed that his proposal would apply logically to drawings in all currencies, and not only in dollars, and suggested that it should be considered in those terms.

A counter memorandum by Mr. Beyen pointed out that while the Articles of Agreement defined, although negatively, the purposes for which drawings might be made, they said nothing about the period for which they might be held by the member. Mr. Southard’s proposal therefore, in Mr. Beyen’s view, cut right across the provisions of the Agreement. Mr. Beyen also argued that the repurchase provisions of Article V, Section 7, and Schedule B were not meant to be the normal mechanism for securing repurchases, but rather to become operative if members failed to repurchase spontaneously.

A discussion of Mr. Southard’s and Mr. Beyen’s memoranda on December 19, 1949 showed that most Executive Directors shared Mr. Beyen’s point of view. Several questioned the legality and propriety of the Fund’s imposing requirements as to the time of repurchase. Some went further, and believed that most members would be much concerned at a proposal like Mr. Southard’s. Before accepting the Articles of Agreement, members had carefully weighed the benefits and obligations which were entailed, and many, at least, had never believed that the Articles involved such a severe limitation of drawing rights as was suggested. While agreeing that the use of the Fund’s resources should be temporary, Directors thought that the proper course was for the Fund to work out ways to ensure this without imposing conditions which might force members, in order to repurchase drawings, to introduce measures which would be inimical to the Fund’s basic aims. The debate was continued at two further meetings in January 1950.

Early in December the staff had put before the Board a recommendation that a circular letter should be sent to all members pointing out that proper use of the Fund’s resources required that members should adopt corrective measures to ensure repayment. The staff suggested that as a general rule members should consult the Fund before drawing; however, the Board should as soon as possible review each member’s prospects, and if these were satisfactory the request to consult before drawing could be canceled. This proposal was refined and elaborated by a staff Working Party which reported in May 1950. The Working Party emphasized the need for member countries to know in advance whether they could draw on the Fund. To enable the Board to inform them on this point, the Working Party proposed a system of prior review and assessment of the eligibility of each member, coupled with criteria on the basis of which it could be determined whether the member was following appropriate policies with regard to its exchange rate, etc.

The Board discussed this report at several informal sessions, but it was not favorably received. Objections were raised on various grounds. It was argued, in particular, that the procedure might lead to a kind of blacklisting of members, and that unless the reviews were frequently repeated they would be ineffective. In July the Board agreed to resume discussion of the problem after the Annual Meeting. No reference to the controversy was made in the Annual Report for 1950. A further informal session held in October showed that the Directors’ views were unchanged.

In an attempt to break the deadlock, the Managing Director proposed early in November a procedure which would tie drawings to programs of action by the drawing members. He suggested that where a member was in difficulties the staff might assist it to work out a suitable policy for the recovery of equilibrium, and that this policy might then be supported by a drawing. This was discussed at several meetings during the ensuing six months and eventually accepted by the Board for use “in addition to and without prejudice to existing procedures, or policies.” Objections to it were, however, maintained by Mr. de Largentaye and by Mr. Stamp (United Kingdom), the former on both legal and practical grounds, and the latter because the British Government objected to “any suggestion that the right of members to come to the Fund would in any way depend upon their carrying out policies with which they did not agree.” As it turned out, the new procedure had little practical result, partly because discussions aimed at designing a program of action for a member in difficulties were bound to be lengthy.

The change of attitude toward drawing rights which was implicit in the Managing Director’s proposal was brought into the open by Mr. Beyen. In the discussion in the Board in November 1950, and again in a memorandum three months later, he pointed out that the plan to tie drawings to programs of action involved changing the concept of eligibility from automaticity to conditionality. It was on this note that Mr. Gutt’s tenure of the Managing Directorship ended.

The Rooth Plan

After the arrival of Mr. Rooth as Managing Director, the search for an effective policy for the use of the Fund’s resources was actively resumed. On October 19, 1951, Mr. Rooth proposed to the Board a revision of the scale of charges for drawings. These changes, and the resulting new scale, are discussed in Chapter 19; here it will suffice to say that the general effect of the changes proposed was to emphasize the short-term character of drawings by reducing the cost of using the Fund’s resources for a very short period, and increasing the cost for longer periods. It was even more important that the changes also reduced the length of time for which a drawing could remain outstanding before the member was required to consult the Fund about ways of reducing the Fund’s holdings of its currency.

Three weeks later Mr. Rooth outlined to the Board some principles which in his view would enable the Fund to make its resources more readily available. He suggested that, in order to preserve the revolving character of the Fund, the time limit for repurchases should normally be three years, with an outside limit of five years. He proposed also that there should be special terms for drawings within the gold tranche (i.e., drawings which increased the Fund’s holdings of the member’s currency to not more than 100 per cent of its quota), and for very short-term drawings (i.e., drawings for not more than eighteen months).

In the discussion that followed, most Executive Directors commented favorably on Mr. Rooth’s proposals. The only strong objection came from Mr. de Largentaye, who argued that the Articles of Agreement permitted the imposition of special conditions as to repurchases in accordance with Article V, Section 4, only for drawings above the limits of 25 per cent of quota a year and 200 per cent of quota in all. Where such special circumstances did not exist, members would find it very difficult to give up their rights under Article V, Section 3. Mr. de Largentaye also made a comment on the Managing Director’s proposal for special terms for drawings in the gold tranche; while he regarded these as commendable, his own view was that such drawings were a matter of right, and not one of special privilege.

Encouraged by the general support of the Board, the Managing Director appointed a new staff Working Party to make definite recommendations. This Working Party’s report was circulated on January 19 and was debated at two informal and two formal sessions of the Board, resulting on February 13, 1952 in a decision approved by all the Directors present except Mr. de Largentaye, who abstained on legal grounds. This decision became known as the Rooth Plan, and with only minor changes it has governed the use of the Fund’s resources ever since. The text will be found in Volume III.35 The following features of the decision should, however, be specially noted:

(1) An introductory statement by the Managing Director suggested that sometimes “discussions between the member and the Fund may cover its general position, not with a view to any immediate drawing, but in order to ensure that it would be able to draw if, within a period of say 6 or 12 months, the need presented itself.” This proposal contained the germ of the stand-by arrangements which have since become one of the most important features of the Fund’s work; these arrangements are discussed in detail in Chapters 20 and 21.

(2) By paragraph 2.a., “exchange purchased from the Fund should not remain outstanding beyond the period reasonably related to the payments problem for which it was purchased from the Fund. The period should fall within an outside range of three to five years.”

(3) By paragraph 3, a “member can count on receiving the overwhelming benefit of any doubt respecting drawings which would raise the Fund’s holdings of its currency to not more than its quota”—i.e., for drawings in the gold tranche.

(4) By paragraph 2.e., a member seeking to draw from the Fund “will be expected to include in its authenticated request a statement that it will comply” with the principles of the decision.

Waivers

Six months later, on October 1, 1952, the Board adopted a decision which made detailed provision for stand-by arrangements.36 The details of this decision are discussed in Chapter 20. Here it need only be noted that while such arrangements were expected to be, in general, for not more than a quarter of the member’s quota—the limit mentioned in Article V, Section 3 (a) (iii)—the decision provided that the Fund would not regard itself as precluded from granting stand-by arrangements for a larger proportion of the quota. This would be done, of course, by invoking the provisions in Article V, Section 4, for a waiver.

The first waiver granted was to Turkey in August 1953, in connection with a drawing equivalent to 47 per cent of its quota. At first, recourse to a waiver was regarded as exceptional, and indeed as late as December 1954 the granting of a waiver was described as “unusual in itself.” But in 1956 waivers were granted for all the 8 stand-by arrangements approved, and for all the 8 drawings not made under stand-by arrangements, and during the ten years 1956 through 1965 only 11 out of 157 stand-by arrangements and 32 out of 76 direct drawings did not involve a waiver.

The first drawing equivalent to 100 per cent of quota was made, as already mentioned, by Burma in 1956.37 In 1961 Chile was given a drawing and stand-by arrangement which together committed the Fund, for the first time, to increase its holdings of a member’s currency beyond 175 per cent of the member’s quota. In October 1963 the United Arab Republic, by drawing $16 million, increased the Fund’s holdings of its currency to 215 per cent of quota. This was the first time that the limit of 200 per cent had been exceeded, and resulted from the Fund’s new policy for the compensation of export fluctuations, described in the final section of this chapter. The largest drawing by any member down to the end of 1965 was one of $1,400 million (72 per cent of quota) by the United Kingdom in May of that year.

Credit tranche policy

The decision of February 13, 1952 differentiated only between drawings in the gold tranche and all other drawings. During the next three years the Board was cautiously exploring the possibilities opened up by the decision, and especially by the introduction of stand-by arrangements. By 1955, sufficient experience had been gained to enable the Board to begin to refine upon its policies in respect of drawings beyond the gold tranche. In its Annual Report for 1955 the Board first stated that “unless there are overwhelmingly strong reasons for not doing so, the Fund will invariably grant members’ requests for gold tranche drawings,”38 and then went on to distinguish among larger drawings, as follows:

… The larger the drawing in relation to a member’s quota the stronger is the justification required of the member.

In practice, the Fund’s attitude toward applications for drawings within the first credit tranche (i.e., drawings that raise the Fund’s holdings of a member’s currency above 100 per cent but not over 125 per cent of its quota) is a liberal one. Members are aware that, if they face balance of payments problems of a temporary nature, they may confidently expect a favorable response from the Fund to a request for a drawing within the first credit tranche, provided they are themselves making reasonable efforts to solve their problems.39

For drawings beyond the first credit tranche, the Report explained, there was not as yet the same body of precedent, but “should the need arise, and should the justification be substantial, members need not doubt that drawings on subsequent tranches will be permitted.”40

By 1958 the necessary experience had been gained, and in the Annual Report for that year the Board set out its policy toward drawings beyond the first credit tranche. This was repeated in the following year in a recapitulation which has since served as the classic statement of policy on the use of the Fund’s resources:

Members are given the overwhelming benefit of the doubt in relation to requests for transactions within the “gold tranche”… . The Fund’s attitude to requests for transactions within the first credit tranche … is a liberal one, provided that the member itself is also making reasonable efforts to solve its problems. Requests for transactions beyond these limits require substantial justification. They are likely to be favorably received when the drawings or stand-bys are intended to support a sound program aimed at establishing or maintaining the enduring stability of the member’s currency at a realistic rate of exchange.41

The undertaking to give gold tranche drawings “the overwhelming benefit of any doubt” was intended to encourage members to regard the right to draw in the gold tranche as part of their reserves. In the Annual Report for 1963, in a table showing monetary reserves, the Board included for the first time members’ gold tranche drawing rights as part of these reserves.42 Some members were, however, unable to accept this concept; opposition to it was expressed on several occasions, notably by Mr. van Campenhout (Belgium)—chiefly on the ground that requests to draw in the gold tranche were not legally immune from challenge.

Considering what could be done to strengthen the claim of gold tranche drawing rights to be regarded as reserves, the staff suggested in December 1963 that steps should be taken to streamline the procedure for such drawings. Up to that time they had been handled by the normal drawing procedure, which involved the preparation of a staff recommendation to the Board, its consideration at a Board meeting, and the subsequent giving of instructions to the relevant depositories to transfer the required currencies to the drawing member. The whole procedure took about a week.

As the General Counsel pointed out at an informal session in January 1964, to go further and make such drawings wholly automatic (as was suggested by Mr. Saad) would conflict with the tradition, founded on the interpretation of “the member … represents,” that the Fund had the right to challenge any request for a drawing. However, the opportunity for a challenge could be given by a brief notification by the Managing Director to Executive Directors that a request for a gold tranche drawing had been received, on the understanding that if no objection was raised within, say, twenty-four hours, the drawing would proceed. This proposal was further considered by the Board in August 1964 and was approved. The decision was:

When a duly authenticated request to draw in the gold tranche is received from a member, the request shall be notified to the Executive Board on the day it is received, whenever possible, or on the next business day, and unless, by the close of that business day, the Managing Director decides or an Executive Director requests that the matter be placed on the Board’s agenda for discussion, the Fund shall, at the close of the first business day following the date of the receipt of the request, instruct the appropriate depository to make the transfer on the next business day after the instruction or as soon as possible thereafter.43

It should be added that while this change in procedure shortened the time needed to effect a gold tranche drawing to about three days, it did not satisfy those members that had hesitated to regard the rights to such drawings as reserves. Their doubts were expressed, for example, by Mr. Ansiaux, Governor for Belgium, at the Annual Meeting in 1965. As will be seen, these doubts expressly included drawings that raised the Fund’s holdings of the member’s currency from below 75 per cent to 75 per cent of quota (sometimes known as the “super gold tranche”). Mr. Ansiaux said:

… The use of the gold tranche and even of the super gold tranche remains juridically and, therefore, potentially in fact, conditional. … It is, therefore, impossible for central banks to incorporate them in their reserves on the same footing as gold or convertible currencies.44

It was a recognition of this difficulty that prompted the change in the Articles of Agreement, effected in 1969, which made gold tranche drawings legally immune from challenge.45

There was, as time went on, a natural tendency for drawings to reach higher tranches in members’ quotas—i.e., for the Fund’s holdings of the members’ currencies to increase relative to quotas. On the other hand, in 1961, 1962, and 1964, there were drawings in the “super gold tranche.” These tendencies are summarized in Table 15.

Table 15.Fund Transactions by Tranches, 1947–65(In per cent)
Calendar

Years
Annual Average of

Amounts Drawn

($ million)
Percentage of Amounts Drawn That Increased the Fund’s Holdings

to the Following Percentages of Quotas
0–100101–125126–150151–175Over 175
1947–511626832
1952–56219484561
1957–6185131136302
1962–651,325382162014123
Source: Mookerjee, op. cit., p. 430, supplemented by IFS, December 1965-February 1966.

Includes 1 per cent in the member’s “super gold tranche.”

Includes 3 per cent in the member’s “super gold tranche.”

Includes 0.3 per cent, raising the Fund’s holdings above 200 per cent of quota.

Source: Mookerjee, op. cit., p. 430, supplemented by IFS, December 1965-February 1966.

Includes 1 per cent in the member’s “super gold tranche.”

Includes 3 per cent in the member’s “super gold tranche.”

Includes 0.3 per cent, raising the Fund’s holdings above 200 per cent of quota.

Drawings against gold collateral

It will be remembered that Article V, Section 4, requires that the Fund, when deciding whether to waive any of the requirements for a drawing set out in Section 3 (a), shall take into consideration “a member’s willingness to pledge as collateral security gold, silver, securities, or other acceptable assets having a value sufficient in the opinion of the Fund to protect its interests,” and empowers the Fund to require such collateral security if it so wishes. The power to require collateral security has never been exercised. When the request by Burma to draw the equivalent of 100 per cent of its quota was being considered, Mr. Lieftinck (Netherlands) suggested that the Fund should call for collateral security to cover one third of the sum, but this was not adopted by the Board.46 This appears to have been the only time that an Executive Director has suggested that the Board should require the deposit of collateral security. However, a deposit of gold as security has on four occasions been offered by members wishing to draw from the Fund, and such a deposit has three times been accepted.

On the first occasion when an offer was made, by Iran in February 1953, it was withdrawn before a decision had been reached in the Board. In the three other instances, the proposal was made by the United Arab Republic. The first time was in December 1958, but the member then decided, after its offer had been accepted by the Board, to withdraw its request for a drawing. The other two offers were made in 1962, and both were carried through. The relevant drawings increased the Fund’s holdings of Egyptian pounds to 155 per cent of the member’s quota.

It was, however, not without some hesitation that the Board approved the United Arab Republic’s proposals. In the first place, Directors considered that gold collateral was not an adequate substitute for a stabilization program, such as would normally have been required as a condition for permitting a drawing reaching into the third credit tranche. Secondly, the offer made by the member was to earmark gold in Cairo, whereas the Board felt that gold accepted as collateral should be deposited in one of the Fund’s own gold depositories (which did not include Cairo). The Board therefore readily agreed to the release of the gold when in April 1962 the United Arab Republic sought a stand-by arrangement in connection with which it undertook to implement a stabilization program.

As a result of the foregoing experience, the staff was asked to draft standard terms for drawings against gold collateral. Proposing these to the Board in March 1963, the staff suggested that such drawings should be regarded as exceptional, but that they might have a value in special circumstances, as for example if the member was planning a stabilization program but had not yet been able to bring it into effect and needed assistance meanwhile. The terms for a drawing against gold collateral should be the same as for an ordinary drawing, except that the drawing would normally be expected to be repurchased within six months. The member should pay any incidental charges in connection with the transfer of the gold to a depository named by the Fund, where it should be retained until the drawing was repurchased. If the repurchase was not completed in the agreed time, the gold would be used by the Fund to repurchase the drawing. These proposals were accepted by the Board and embodied in a decision taken on July 1, 1963.47 There was, however, no other drawing against gold collateral during the period covered by this volume.

Drawings by new members

On three occasions during the twenty years 1945–65 the Board reviewed the link between the establishment of a par value and the right to use the Fund’s resources. This link, and in particular the problems of new members in this respect, have been discussed in detail in Chapter 4 of this volume (pages 65–73). A brief recapitulation here will be sufficient to round out the discussion of the Fund’s policy on the use of its resources. It will be remembered that the link in question was created by Article XX, Section 4 (c), which reads, in part:

When the par value of a member’s currency has been established … the member shall be eligible to buy from the Fund the currencies of other members to the full extent permitted in this Agreement… .

This is modified by Article XX, Section 4 (d) (ii), to permit members that had been occupied by the enemy to use the Fund’s resources after they had proposed a par value, even though this had not been accepted by the Fund. Original members—that is, countries that had signed the Articles of Agreement by December 31, 1946—could utilize Article XX, Section 4 (d) (ii), automatically, but new members could do so only if an appropriate reference was made, in the Membership Resolution admitting them to the Fund, to the privileges accorded by that Section. Such a reference was made in the Membership Resolution for Italy, but it was thought cumbersome to repeat it for members joining later, and this was not done. This omission gave rise to the first review by the Board of the conditions under which new members might draw on the Fund.

The occasion for this review arose in 1952, when at the Annual Meeting the Governor for Thailand asked that consideration should be given to permitting his country—which was not an original member—to draw on the Fund even though it did not have, and was not able to propose, a par value.48 When the Board looked into the matter, it appeared that Thailand and Indonesia were unique in that their Membership Resolutions made no provision for utilizing Article XX, Section 4 (d) (ii). (Burma would have been in a similar position except that it was on the point of agreeing with the Fund a par value for the kyat.) The Board accordingly decided to invite the Governors to amend the Membership Resolutions for Thailand and Indonesia so as to include a reference to Article XX, Section 4 (d) (ii), and this was done.49

Ten years later a new point arose. The Membership Resolutions for all members from 1947 onward had provided that the member should not draw until thirty days after a par value for its currency had been agreed. The original purpose of this provision had been to allow time for the completion of formalities, such as the calculation of the member’s net official holdings and of its gold and currency subscriptions, the last of which could not be determined until the par value was known. When, however, Afghanistan sought the Fund’s agreement to a par value at the beginning of 1963, and wished also to draw from the Fund, Executive Directors questioned whether the interval of thirty days was necessary. The staff then agreed that since 1947 it had become the custom to settle all technical points before a par value was actually agreed, so that the need for the interval no longer existed. The Board accordingly recommended to the Governors that the Membership Resolutions should be amended so as to permit members to draw as soon as a par value had been agreed and put into operation. The Governors agreed.50

So far, it will be observed, eligibility to draw on the Fund remained linked to at least the proposal of a par value; members that had not been occupied by the enemy had to have a par value established before a drawing could be permitted. The third review by the Board of this subject was concerned with the necessity for retaining this link at all.

The proposal that it should be discarded was made by the staff early in 1964. There were then 28 members, including most of the newly joined African members, that had not established a par value, and the staff suggested that it was anomalous that such members might not draw from the Fund, even if they had a stable exchange rate, while other countries, having par values, were permitted to do so, even though their effective exchange rates departed widely from their par values. The staff also believed that there would be positive advantages in severing the link between par values and eligibility to draw on the Fund. For one thing, it would discourage members from proposing possibly unrealistic exchange rates as par values in order to qualify for a drawing; for another, a drawing might in some instances assist a member to achieve a stable exchange rate, and a viable par value, which might otherwise be beyond its power to attain.

Preliminary discussions of the matter with Executive Directors showed that the Board was sensitive to the need to avoid diminishing the importance which the Fund attached to the establishment and maintenance of par values. The staff therefore amended its proposal by adding to the proposed decision a declaration safeguarding this point. In this amended form the Board accepted the staff’s recommendation, and decided as follows:

(a) Where the Fund prescribes the conditions and amount of an exchange transaction by a member before the establishment of an initial par value, the member will be required to complete the payment of its subscription on the basis of a provisional rate of exchange for its currency proposed by the member and agreed by the Fund.

(b) In deciding whether to permit exchange transactions before the establishment of an initial par value, the Fund, in accordance with the last sentence of Article I, will be guided by the purposes of the Articles; the Fund will encourage members to follow policies leading to the establishment of realistic exchange rates and to the adoption at the earliest feasible date of effective par values, and will take into account the efforts that are being made to achieve this objective… .51

The decision concluded with an assurance that the Fund would give the overwhelming benefit of any doubt to a request for a gold tranche drawing, and would implement drawings under the compensatory financing decision (see the final section of this chapter). Appropriate amendments to the Membership Resolutions of members without par values were proposed to the Governors and accepted on June 1, 1964.52

The Fund’s attitude today

It is right to conclude this description of the evolution of the Fund’s policy on drawings by saying that in recent years the legal limitations on members’ rights to draw have ceased to preoccupy the Board. This development has been made possible by three things: the decision of February 13, 1952, with its specific provisions for repurchases within three to five years; the increasingly detailed knowledge of members’ situations which has been built up over the years; and the emergence of unwritten but clearly understood guidelines as a result of the Board’s consideration of the several hundred drawings already made. The existence of these guidelines has enabled the staff to advise member countries, when they wish to draw, what steps they should take in order to ensure favorable consideration for their requests. This in turn enables members to make formal requests for drawings with confidence that they will not be rejected. It can be fairly said that in present circumstances the Board would wish never to withhold approval of a drawing; at the most, Directors would criticize during the discussion any features which they considered to be unsatisfactory, in order to guide the staff in its future advice to members.

DRAWINGS FOR CAPITAL TRANSFERS

The terms of the Articles

The principal provisions of the Articles of Agreement on the subject of capital transfers are as follows:

Article VI. Capital Transfers

Section 1. Use of the Fund’s resources for capital transfers.—(a) A member may not make net use of the Fund’s resources to meet a large or sustained outflow of capital, and the Fund may request a member to exercise controls to prevent such use of the resources of the Fund. If, after receiving such a request, a member fails to exercise appropriate controls, the Fund may declare the member ineligible to use the resources of the Fund.

(b) Nothing in this Section shall be deemed

  • (i) to prevent the use of the resources of the Fund for capital transactions of reasonable amount required for the expansion of exports or in the ordinary course of trade, banking or other business, or
  • (ii) to affect capital movements which are met out of a member’s own resources of gold and foreign exchange, but members undertake that such capital movements will be in accordance with the purposes of the Fund.

Sec. 2. Special provisions for capital transfers.—If the Fund’s holdings of the currency of a member have remained below seventy-five percent of its quota for an immediately preceding period of not less than six months, such member, if it has not been declared ineligible to use the resources of the Fund under Section 1 of this Article, Article IV, Section 6, Article V, Section 5, or Article XV, Section 2 (a), shall be entitled, notwithstanding the provisions of Section 1 (a) of this Article, to buy the currency of another member from the Fund with its own currency for any purpose, including capital transfers. Purchases for capital transfers under this Section shall not, however, be permitted if they have the effect of raising the Fund’s holdings of the currency of the member desiring to purchase above seventy-five percent of its quota, or of reducing the Fund’s holdings of the currency desired below seventy-five percent of the quota of the member whose currency is desired.

Sec. 3. Controls of capital transfers.—Members may exercise such controls as are necessary to regulate international capital movements, but no member may exercise these controls in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments, except as provided in Article VII, Section 3 (b), and in Article XIV, Section 2.

Article XIX (i) defines, though not exhaustively, payments for current transactions as “payments which are not for the purpose of transferring capital,” and includes certain items which in ordinary parlance would be regarded as capital transactions, viz., “payments of moderate amount for amortization of loans or for depreciation of direct investments.” The paragraph also empowers the Fund to determine, after consultation with the members concerned, whether certain specific transactions are to be considered current transactions or capital transactions.

We are not here concerned with the main purpose of this definition, which was to clarify the obligations of members, set out in Articles VIII and XIV, in connection with exchange restrictions. It is sufficient to note that the special definition of current transactions given in Article XIX (i) does not invalidate the prohibition, in Article VI, Section 1, on the use of the Fund’s resources to meet large or sustained outflows of capital.

Application of the Articles

The Board has not formally adopted any rules or guiding principles to help it to apply the prohibition in Article VI, Section 1, or the interpretation given, in response to the United States in 1946 (quoted above), to requests to use the Fund’s resources. In practice emphasis has been laid, in discussing requests for drawings, upon the existence of a current account deficit, whether or not a capital account deficit also existed. In 1961 the position was transformed, as described below, by the clarification of the interpretation given in 1946. Before then there had been a number of transactions where the presence of a capital account deficit was taken into consideration in reaching the Board’s decision.

The first example of such a transaction was one with Mexico in connection with the devaluation of the peso in 1954. Mexico had never employed exchange controls, and its representatives had several times informed the Board that it would be impracticable to do so. As a result, when a strong speculative outflow of capital funds was added in 1954 to the current account deficit which had persisted since 1951, an exchange crisis developed. It was at this point that Mexico approached the Fund with a proposal to devalue the peso by 30 per cent in order to correct a fundamental disequilibrium, and asked at the same time for a stand-by arrangement for $50 million (about 55 per cent of Mexico’s quota at that time).

During the discussion of this request, Mr. Southard observed that the degree of devaluation had to be large enough to provoke a backflow of capital (thus implying that the Fund’s resources would not be used to finance a further capital outflow), and supported the stand-by request in view of the assurances given by Mexico with regard to the financial policies it would pursue. When some other Directors questioned the need for a stand-by arrangement as well as the devaluation, the representative of Mexico explained that the authorities believed that a second line of reserves was needed to strengthen the exchange position. Mr. Saad supported the request for a stand-by arrangement because, as he said, he had always understood that one of the purposes to be served by such an arrangement was to provide psychological assistance to a member in circumstances such as those of Mexico. The approval of the stand-by arrangement thus appeared to establish the principle that such arrangements could assist a member in dealing with the problems of capital outflow by helping to restore and maintain confidence in its currency.

Somewhat similar considerations arose when Cuba came to the Fund for a gold tranche drawing and a stand-by arrangement in December 1956. Cuba, which was also without exchange controls at that time, feared that too large a decrease in reserves, which might result from the imminent settlement of some short-term and medium-term debts incurred to meet past deficits on current account, would lead to capital flight. Some doubts were expressed by members of the Board as to the need for the stand-by arrangement, but it was in fact approved.

Four days later the United Kingdom came to the Fund for a drawing of $561.47 million and a stand-by arrangement for $738.53 million, amounting together to 100 per cent of the British quota. The request was prompted by the crisis of confidence in sterling which resulted from the Suez Canal conflict. While the British authorities believed that measures already taken should ensure a satisfactory current account balance for 1956–57, they were afraid that this result would be endangered if the loss of confidence in sterling were not overcome. Both in the staff’s memorandum to the Board and in the discussion of it by Executive Directors, the need to restore confidence in sterling was cited as the most cogent justification for the drawing and the stand-by arrangement, which were approved.

In March 1958 the Union of South Africa approached the Fund for a gold tranche drawing and a stand-by arrangement covering the first credit tranche. At that time, South Africa’s reserves had been drawn down because of balance of payments deficits on both current and capital account, that on capital account being the more important. The current account deficit resulted mainly from a sharp expansion of imports, which had reached a high stage of liberalization following relaxation of import restrictions in 1957. The capital outflow was primarily connected with a reduction in the intake of foreign investments and the sharp increase in interest rates abroad, particularly in the United Kingdom. Mr. Fleming (Australia), Alternate to Mr. Callaghan, who had been elected by South Africa, explained that the drawing and stand-by arrangement were needed to enable the South African Government to avoid reimposing import restrictions. The request was approved on these grounds.

In March 1960 the Fund agreed to a one-year stand-by arrangement for Venezuela which would, if fully utilized, raise the Fund’s holding of bolivares to 142 per cent of Venezuela’s quota, as this would be when the first general increase in quotas took effect.53 Venezuela’s international reserves had been drawn down by substantial amounts in 1958 and 1959, in contrast to large gains in 1956 and 1957. However, the deficits on current account in its balance of payments were not large, the principal cause of the decline in reserves being a substantial outflow of capital. This was due in part to repayment of foreign-held floating debt created by the preceding Government.

On this occasion the prohibition in the Articles against financing “large or sustained” outflows of capital was expressly introduced into the discussion in the Board. Mr. Toussaint (Belgium) pointed out that if a continuation of such substantial capital exports as had been observed recently was to be expected in the coming months, it would not be appropriate, in view of the language of Article VI, Section 1 (a), that the Fund’s resources should be used to cover the deficit. However, he took note of the special and nonrecurrent character of a large part of the capital outflow over the previous two years, and of the staff’s judgment that the effect of the stabilization measures then being taken by the Venezuelan authorities would be to reduce the net sales of exchange by the Central Bank in the coming months to an amount which could be financed from foreign bank credits then under negotiation.

It will be observed that Mr. Toussaint’s intervention was based on Article VI, Section 1 (a), and not on the interpretation given in response to the request from the U.S. Government in 1946. The General Counsel commented on this in a memorandum to the Managing Director later in 1960. Surveying the Board’s practice in connection with drawings which involved consideration of capital transfers, he said:

It has been the growing tendency of the Fund not to examine closely whether there exists a current account deficit in the case of drawings within the gold tranche or, to some extent, in the first credit tranche. However, the Board has never said that the [1946] interpretation does not apply to such drawings. In the case of Venezuela, on the other hand, where drawing rights in upper tranches were involved, the question of capital outflow was raised.

By the time that this memorandum was written, international short-term capital movements were again threatening to cause serious dislocation on the international monetary scene. The restoration of external convertibility for European currencies at the end of 1958 had partially opened the way for such movements, and it was apparent that when the major countries which were relying on Article XIV came to accept the obligations of Article VIII, Sections 2, 3, and 4 (as they were shortly expected to do), the risk of such movements would be enhanced. It was, indeed, very shortly after ten countries had accepted these obligations, in February 1961, that the problem created by the 1946 interpretation was raised in the Board.

Before then there was one more transaction which involved a deficit on capital account. Late in December 1960 South Africa, which had repaid its earlier drawing from the Fund, sought to draw $18.75 million, which would raise the Fund’s holdings of its currency from 75 per cent to 87.5 per cent of its quota. On this occasion, South Africa’s balance of payments on current account was in surplus, and the large decline in reserves which prompted the member’s request was caused by a substantial outflow of capital. A large part of the outflow consisted of the withdrawal of foreign capital invested in South Africa, both portfolio and direct investment, and of contractual repayments on loans. It appeared doubtful whether the capital outflow would end during the ensuing year, especially in view of further contractual repayments falling due. As the Managing Director pointed out to the Board, such repayments would count as current transactions under the definition in Article XIX (i).

Commenting on the request, Mr. Lieftinck said that everyone would agree that the case would have been stronger if the strain on the balance of payments had been concentrated on the current account instead of the capital account. However, the drawing would be within the gold tranche, which the Fund had agreed belonged to the free reserves of the member countries. For that reason he supported the drawing, which was approved. It would appear that the consideration which Mr. Lieftinck advanced was regarded as decisive.

Clarification of 1946 decision

On February 10, 1961, the Managing Director proposed to the Board for consideration five issues concerned with the future activities of the Fund. The fifth of these was set out by Mr. Jacobsson as follows:

In recent years there have been a number of movements of international reserves between monetary centers, for which capital as well as current transactions have been responsible. Some of these movements are a normal feature of international business under conditions of widespread convertibility and freedom of transfers, which are most certainly welcomed by the Fund. The manner in which the Fund’s resources can be made available to countries whose reserves are temporarily reduced by certain of these movements involves a number of questions. Some of these questions have arisen from time to time during discussions in the Board and it has been pointed out that the concept of “current” transactions under the Articles is a good deal wider than it is in common statistical usage. These questions merit examination in the light of the needs of the member countries under present-day circumstances.

In two informal sessions, on February 24 and 27, the Board discussed the Managing Director’s statement. It was generally agreed that the Fund should consider the problem of capital transfers, and several Directors expressed the view that the use of the Fund’s resources in the conditions described by the Managing Director would be proper and useful. However, the three Executive Directors who had been on the Board when the 1946 interpretation was given—Messrs. de Largentaye, Rasminsky, and Saad—drew attention to the legal difficulties which would arise if it was proposed to change that interpretation. The Legal Department was therefore asked to prepare a memorandum on the subject.

The results of the Legal Department’s researches were distributed to the Board on May 24, 1961. The Department’s memorandum threw doubt on the adequacy of the 1946 interpretation, since this ignored the provisions in Article VI, Section 1 (b) (i), permitting the use of the Fund’s resources for certain capital transfers. The interpretation also failed to allow for the fact that Article V, Section 3 (a), did not specifically limit the use of the Fund’s resources to the financing of current account deficits, but permitted them for payments “which are consistent with the provisions of this Agreement.” These provisions included Article VI, Section 1, which barred only drawings to meet a “large or sustained outflow of capital.” Thirdly, the interpretation overlooked that Article VIII, Section 4, implied that it was permissible to use the Fund’s resources for capital transfers, since it provided that a member might be required to convert foreign-held balances of its currency subject to certain conditions, one of which was that the holder of the balances was entitled to use the Fund’s resources (and therefore presumptively to draw from the Fund to finance the conversion of its balances).

Taking into account all the provisions in the Articles, the staff concluded that there were three purposes for which the Fund’s resources might be used: (1) to meet current account deficits; (2) to meet deficits on capital account that were neither large nor sustained; and (3) to meet deficits stemming from the special types of capital transaction mentioned in Article VI, Section 1 (b) (i).

A second memorandum, submitted to the Board by the Exchange Restrictions Department and the Research Department, pointed out the desirability, from the Fund’s point of view, of its resources being available to meet deficits caused by international capital movements. The two Departments proposed that such drawings should be approved on the same terms as had been established for other drawings; and that whether the capital outflow was “large” should be judged in relation to the Fund’s resources, possibly augmented by borrowing, rather than in relation to the member’s balance of payments.

The Board devoted five meetings to a consideration of these memoranda. Four different solutions to the problem created by the 1946 interpretation were suggested: (1) widening the definition of current transactions; (2) amending the Articles of Agreement; (3) revising or repealing the interpretation by a new decision; and (4) adding a sentence to the interpretation to clarify the Board’s understanding of what it meant. The first three of these were rejected. Little reference was made to the first possibility, but the Board appears to have felt that any distinction between current and capital transactions would be difficult to apply. The second was discarded because, in the words of Mr. Pitblado (United Kingdom), “there appeared to be no desire on the part of anyone to change the Articles of Agreement.” The third possibility—revising or repealing the earlier interpretation—was regarded as impracticable, if only because there was no agreement whether the powers of the Board would permit it to amend an interpretation. This left the solution that was ultimately adopted—the clarification of the interpretation.

A proposal to this effect was tabled by Mr. Saad at the first of the five meetings, and a streamlined version of it was eventually accepted. The Board’s decision was:

After full consideration of all relevant aspects concerning the use of the Fund’s resources, the Executive Directors decide by way of clarification that Decision No. 71-2 [the 1946 interpretation] does not preclude the use of the Fund’s resources for capital transfers in accordance with the provisions of the Articles, including Article VI.54

COMPENSATORY FINANCING OF EXPORT FLUCTUATIONS

The term “compensatory official financing” was originally used by the Fund to mean transactions undertaken by monetary authorities for the purpose of meeting temporary balance of payments disequilibria regardless of their origin.55 In this sense it covers, for example, reserve movements, drawings from the Fund, and official borrowing from official or private sources. Compensatory financing of this kind has been the domain of the Fund since its inception. The present section, however, refers to the narrower concept of compensatory financing provided by the Fund and intended specifically to offset the effects of fluctuations in export earnings of primary producing countries.

Early plans

Efforts to deal with instability of exports of primary products have a long history; the traditional means to cope with the problem have been commodity agreements designed to maintain prices and/or export receipts within agreed ranges. The fact that such agreements could be applied to a limited number of commodities only, that negotiations have generally proved difficult and often abortive, and that even where established such agreements have not always been successful, has prompted the search for a different approach. Reducing the effects of export fluctuations by compensatory financing could take the place of, or could supplement, commodity agreements. Discussions along these lines have been held, and various proposals have been made, within the framework of the United Nations and that of the Organization of American States, in both instances with the active participation of the Fund itself. What emerged in the end was what has become known as “the special compensatory facility” established in 1963 by the Fund—less ambitious than some of the schemes proposed, but readily available to member countries experiencing export shortfalls which endanger their balance of payments.

Establishment of the “facility” came just one decade after the first suggestion for compensatory financing had been made by a group of experts convened by the United Nations in 1953. This group, in its report,56 proposed compensatory financing in the form of countercyclical lending, intended to avoid disturbances arising from fluctuations in industrial countries’ import demand. The authors suggested that such lending might be channeled through the Fund; though conceptually not distinct from current operations by the Fund, it “would involve a radical change in scale of action” and would necessitate extension of the Fund’s resources.

The Board of the Fund responded to this suggestion by confirming that it was one of the Fund’s “important functions to make available to its members temporary assistance in meeting a decline in their international receipts arising out of a fall in the value of their exports in time of depression.”57 This was consistent with the Articles of Agreement; rules and procedures governing transactions were intended to allow countercyclical lending. While there were various other important uses for the Fund’s resources, these resources could be a significant factor in connection with a (world) depression; moreover, it might be expected that in the case of a severe depression the Fund would consult with its members on the desirability of additions to its resources.

The Funds first report

Postwar recessions have so far been mild, and the need for countercyclical lending on a wide scale has not arisen. But fluctuations in export proceeds resulting from various other causes have continued to plague primary producing countries. The general decline in the prices of primary products, which started in the second half of the 1950’s, aggravated their problems. The question of providing compensatory financing in order to alleviate the effects of export shortfalls was taken up again, in March 1959, by the UN Commission on International Commodity Trade (CICT). It was decided, as a first step, to explore the role of the Fund in this connection, and the Fund was invited to inform the Commission about its policies and procedures as they bore on the subject.58 In response to this request the staff prepared a report, “Fund Policies and Procedures in Relation to Compensatory Financing of Commodity Fluctuations.”59 Though this report has been superseded by later documents announcing the Fund’s decision to establish a special compensatory facility, it contributed much by way of clarifying issues and explaining the Fund’s attitude; it also laid the foundation for methods of measuring export shortfalls. It is, therefore, worthwhile to recall here some of its findings and conclusions.

In the first part of the report attempts were made to determine the magnitude of fluctuations in export receipts of primary producing countries in the interwar and postwar (1948–58) period; for that purpose deviations were measured relative to a five-year moving average centered on the current year. However, the report recognized that for practical purposes of compensatory financing this norm cannot be derived from export data known at the time action has to be taken. In consequence, subsequent studies have attempted to develop statistical approaches for estimating the norm on the basis of exports in past years.

Part II of the report discussed the concept of compensatory financing in the broad sense, as understood by the Fund, and its implications for the policies of countries making use of it; the principles guiding the use of the Fund’s resources; and the attitude of the Fund to automatic access to these resources in the event of export shortfalls. The report explained that compensatory financing, as understood by the Fund, was not confined to international transfers in the form of loans or grants, but encompassed, in addition, the use of a country’s own reserves. The need for compensatory financing did not stop at export shortfalls; it applied to the balance of payments as a whole. If countries wished to mitigate the effect of short-term fluctuations in their exports, they could do so by drawing on their reserves, supplemented by short-term borrowing; the Fund was among the principal sources for such temporary assistance. But reserves have to be replenished and loans have to be repaid. Hence countries needed to aim at maintaining approximate equilibrium in their international accounts over a reasonable period of time. The report then described the criteria for the use of the Fund’s resources which had been developed in the course of the years: the larger the drawing in relation to the member’s quota, the higher the degree of justification for it that was expected. This policy constituted one reason for rejecting automatic access to the Fund’s resources in the event of export shortfalls: the causes of such a shortfall, as well as the country’s balance of payments situation as a whole, had to be taken into account.

However, in its concluding remarks the report stressed that member countries that were taking appropriate steps to preserve internal financial stability and to maintain their balance of payments in equilibrium, taking good years with bad, and that were otherwise making satisfactory progress toward the fulfillment of the Fund’s purposes, could anticipate with confidence that financing would be available from the Fund which, in conjunction with a reasonable use of their own reserves, should be sufficient to enable them to overcome temporary payments difficulties arising from export fluctuations.

The report was presented to the May 1960 session of CICT. Discussions at this session centered around the question whether assistance by the Fund could adequately solve the problem arising from export fluctuations. Doubts were expressed in various respects: the Fund was limited to short-term operations; a country might be ineligible on account of earlier drawings or because it was not fulfilling Fund requirements concerning internal stability; the resources the Fund could devote to compensation of export fluctuations might not be adequate.

UN and OAS proposals

A group of experts appointed for the purpose of “assisting CICT in its consideration of commodity problems … with special reference to compensatory financing”60 suggested that enhancement of the compensatory role of the Fund was desirable; member countries had not fully tested the Fund’s willingness to provide resources in order to meet difficulties arising from commodity fluctuations and should be encouraged to do so. But, unless the basic structure of the Fund was altered, a large increase in automatic drawing rights was not practicable. One of the experts added a note which suggested that primary producing countries should be entitled to look to the Fund for automatic compensation of export shortfalls, determined by a formula estimating the trend on the basis of a moving average of the preceding three years. In that event the Fund should make available resources up to “say, an amount which causes the Fund’s holdings of the country’s currency to equal 125 per cent of its quota.”61 When, subsequently, export proceeds were above trend, the excess earnings should be used automatically to repay the drawings. Nevertheless, the group as a whole shared the doubts expressed by CICT members and proposed the setting up of a special scheme called a Development Insurance Fund (DIF) which would provide automatic compensation to countries experiencing export shortfalls. Compensation would take the form of loans, repayable if (and within the limits to which) exports within the next three years exceeded the trend; any balance outstanding after three years would be written off. An alternative variant of the scheme would give compensation in the form of outright grants.62

The Conference of the Organization of American States (OAS), held in Punta del Este in August 1961, also concerned itself with compensatory financing and the Fund’s possible contribution to the problem. In pursuance of a resolution taken by this Conference, an expert group developed yet another scheme for automatic compensation of export shortfalls, in the form of loans to be repaid not later than five years from the date of extension.

Both the DIF and the OAS schemes were discussed by CICT63 and were referred for further study to a technical working group with which the Fund would be closely associated. At the same time, the Fund was requested to prepare a report on any possible expansion of its own role with respect to compensatory financing. Hope was expressed that the Fund might be persuaded to play a more active part in the compensation of export shortfalls.

The Board had closely followed the emergence of the schemes developed and the staff undertook extensive studies on their technical aspects.64 Statistical methods of estimating the medium-term trend value of exports in any given year, with a view to measuring shortfalls from this trend, were explored in great detail and a number of variants of repayment conditions were analyzed, with regard to their bearing on both benefits derived and cost involved. Experience gained in the course of these studies proved valuable not only for appraising the proposed schemes but also for revising the Fund’s own policy.

Establishment of Fund facility

While the Fund staff was actively participating in the work of the technical working group, the Board proceeded to consider ways in which it could extend special assistance to members experiencing balance of payments difficulties arising from temporary export shortfalls. The result was the development of what has become known as the Fund’s “compensatory financing facility.” The Fund report announcing its establishment, with immediate effect, was issued late in February 1963 and presented to CICT at its meeting in May 1963.65

In essence the new facility, set out in Part V of the report, provided that a compensatory drawing would be made available where (a) a shortfall in export receipts was of short-term character and largely caused by circumstances beyond the member’s control, and (b) the member was willing to cooperate with the Fund in an effort to find appropriate solutions for its balance of payments difficulties, where such solutions were needed.

In order to identify shortfalls of a short-term character, the Fund, in conjunction with the member concerned, would seek to establish reasonable estimates of the medium-term trend of the country’s exports; such estimates would be based partly on statistical data and partly on qualitative information regarding export prospects.

Provided conditions (a) and (b) above were satisfied, a country was assured that its request for a compensatory drawing would be met in amounts not normally exceeding 25 per cent of its quota. Such drawings would be subject to the Fund’s established policies and practices on repurchase, i.e., exchange purchased from the Fund should not remain outstanding beyond a period reasonably related to the payments problem for which it was purchased, which period should normally fall within an outside range of three to five years.

In order to enable members to have the full benefit of the facility, the Board declared its willingness to waive the provision in the Articles limiting the Fund’s holdings of a member’s currency to 200 per cent of quota.

The report also announced that in those instances where adjustments of quotas would be appropriate to make them more adequate in the light of fluctuations in members’ export proceeds, the Fund would be willing to give sympathetic consideration to requests for such adjustments.

Reflections on the decision

Over the previous decade the Fund had been dealing increasingly with the specific problems of primary producing countries. The establishment of the compensatory facility marked a further step in that direction. It has been said that the Fund’s decision represented a development in thought but not a departure from its major principles.66 The report repeated the Fund’s rejection of automatic recourse to its resources. It explained that the exercise of judgment based on an analysis of causal factors was required when appraising the nature of a shortfall and deciding whether it was temporary. Moreover, the country’s balance of payments position as a whole had to be examined. Automatic access to the Fund’s resources in case of an export shortfall would ignore such requirements. Hence the indication of an export shortfall by a mathematical formula could not, per se, entitle a member to make a drawing.

The report also reiterated that the Fund’s resources should supplement the use of domestic reserves and should not be regarded as the sole source of finance to meet short-term needs. However, the Board recognized that declining trends in the prices of primary products over a number of years had adversely affected the export earnings of many of the Fund’s members and thus increased the strain on their reserves. The special facility was designed to assure effective support to members faced with fluctuations in exports.

The main respects in which the new facility involved a change in established procedures were the following: (1) A member with an export shortfall due mainly to factors beyond its control might draw on the Fund, if it was willing to cooperate with the Fund in an effort to find solutions, where required, to its balance of payments difficulties. It would not be necessary for such a country, even if it had already drawn the equivalent of a substantial part of its quota, to have an approved program worked out and agreed with the Fund before the drawing took place, as would be required under the Fund’s normal policies for drawings in higher tranches. (2) The Board’s willingness to waive the 200 per cent limit on drawings would permit a member to obtain compensatory financing of an export shortfall even if the Fund’s holdings of its currency had already reached that limit.

Experience with the facility

Up to the end of 1965 experience with the new facility was limited. Export developments for primary producers were favorable. Prices rose through 1963 and well into 1964; in spite of a subsequent downturn, part of the previous gain was still maintained in 1965. As a result, only three countries—Brazil, the United Arab Republic, and the Sudan—applied for and made compensatory drawings. Export shortfalls were calculated ex post for the latest twelve-month period for which, at the time of the request, relevant data were available. The trend value against which shortfalls were measured has been defined as the five-year moving average of exports, centered on the shortfall year. This trend value was estimated, in part, by forecasting exports in the two years following the shortfall year and, in part, on the basis of a formula developed by the Fund, using a weighted average of exports in the shortfall year (with a weight of 50 per cent) and in the preceding two years (each with a weight of 25 per cent). For two of the three members the shortfall so derived was less than 25 per cent of the country’s quota and was met in full; for the third, where the shortfall exceeded the limit, compensation was confined to 25 per cent of the country’s quota.

Sixteen countries applied for quota increases so as to make their quotas more adequate, as suggested in the Fund’s report. In all cases the increase was granted.

Reactions to the facility

The new facility attracted many comments and some suggestions. It was hailed by CICT as a significant contribution toward the problems arising for primary producing countries through short-term fluctuations in their export proceeds. Similarly the OAS Committee on Basic Products welcomed the facility, although it suggested that it should be widened and further liberalized. The facility was again discussed in the wider framework of compensatory financing at the UN Conference on Trade and Development (UNCTAD) in 1964; earlier proposals were reiterated and a resolution was passed suggesting to member governments of the Fund that consideration should be given to revising the decision along the following lines: (1) increasing the amount allocated to compensatory financing from 25 per cent to at least 50 per cent of quota; (2) placing compensatory credits entirely outside the structure of the gold and credit tranches, ensuring that such credit would in no way prejudice a member’s ability to make an ordinary drawing; (3) exploring ways of possible refinancing of drawings in the event of a persistent export shortfall beyond the control of the country affected; (4) giving greater weight to the country’s actual experience in the preceding three years when determining the export shortfall.

Suggestions along similar lines, particularly with respect to raising the amount allocated for compensatory financing and to placing drawings under that title entirely outside the tranche structure, were put forward at the Annual Meeting in 1965. It also was suggested, in the course of this Meeting, that compensatory assistance should be tied to a deterioration in the terms of trade rather than to an export shortfall.

Review and suggestions by the staff

In the course of 1965 the staff reviewed the experience gained so far, as well as problems deemed likely to arise in the future. Policies and procedures embodied in the decision of 1963 were re-examined and various possible alterations were considered, taking into account the suggestions made at the Annual Meeting and at the UNCTAD Conference. As a result, a memorandum entitled “The Fund’s Compensatory Financing Facility Reconsidered” was prepared and sent to the Board on December 10, 1965. The main changes suggested concerned (1) the relationship of compensatory to other drawings and (2) the limit of compensation in relation to quota.

(1) The separation of compensatory from other drawings, in a quantitative sense, had already been provided for under the decision; as pointed out earlier, the Fund had declared its willingness to waive the 200 per cent limit on holdings of a member’s quota in order to accommodate compensatory drawings above that limit. However, such drawings, which were likely to be made after a country had used its gold tranche, and probably its first credit tranche, would be taken into account when subsequent requests for drawings were received. Accordingly, these further requests would be subject to the increasingly stringent criteria applicable to drawings in the higher tranches. To follow the suggestion made by UNCTAD, and again at the Annual Meeting, that compensatory drawings should be treated as entirely outside the tranche structure, would eliminate this effect, so that compensatory drawings would become additional in both a quantitative and a qualitative sense. Even though such a concession would obviously weaken somewhat the Fund’s ability to secure satisfactory corrective programs in connection with ordinary drawings, the staff expressed itself in favor of accepting this proposal.

(2) The second suggestion made by UNCTAD and at the Annual Meeting was to extend the limit on compensatory drawings from (normally) 25 per cent of a member’s quota to a straight 50 per cent of the quota. Commenting on this proposal, the staff pointed to the qualifying word “normally” in the decision, which would permit the Board at its discretion to exceed the limit of 25 per cent of quota. This was not, however, sufficient to assure a country that it could depend on compensatory drawings beyond that limit. That a larger drawing might sometimes be desirable was shown by the experience of the three drawings made before the end of 1965. In connection with one of these, as mentioned above, the shortfall as determined by the Fund actually exceeded the limit of 25 per cent of the member’s quota; in one of the other two 86 per cent of that limit was absorbed, and in the other 71 per cent.

Moreover, larger drawings might bring “export availabilities,” defined as export proceeds plus compensatory drawings or minus repurchases, closer to the desired goal, the true trend value; statistical tests covering 48 countries and 15 years (1951–64) showed that schemes allowing drawings up to 50 per cent of quota would be superior in this respect. On the other hand, to extend the maximum from 25 per cent of quota to 50 per cent would further weaken the “conditionality” of drawings, which would already be somewhat reduced by placing compensatory drawings outside the ordinary tranche structure.

The staff nevertheless suggested that the limit should be extended to 50 per cent of quota, subject to the following two qualifications: (a) the net expansion of compensatory drawings outstanding should not, in any twelve-month period, exceed 25 per cent of quota, and (b) a compensatory drawing which would raise the increase in the Fund’s holdings of a member’s currency, caused by compensatory drawings, beyond 25 per cent of quota, would be granted only if the member had been following policies “reasonably conducive to the development of its exports.”

The foregoing recommendations by the staff were both adopted, and were incorporated, with some minor modifications in wording, in Compensatory Financing of Export Fluctuations: A Second Report by the International Monetary Fund, published in September 1966.67

A third suggestion put forward by UNCTAD was that the Fund should give consideration to ways of refinancing members’ obligations in the event of a persistent shortfall in export receipts beyond the country’s control. In this connection the staff pointed out that refinancing was entirely possible under existing procedures: repurchase at any time would restore the compensatory facility, and if an export shortfall of the type mentioned persisted, the member would be able to apply immediately for a new drawing.

In the broader context of repayments provisions, the staff raised the more fundamental issue whether repayment should be requested in any year in which exports exceeded the estimated trend value. Under such a system repurchases might be made exclusively in years (and to the extent) of such excesses; alternatively, under a “mixed” system any outstanding balance would have to be repaid before the end of the fifth year. In testing these two variants—a fully and a partially “compensatory” repayment system—it was assumed that for the purpose of repurchases the trend value would be determined by the mathematical formula only; that the full amount of an excess (unless it exceeded the outstanding drawing) would be used for repurchase and, in the second variant, that amounts outstanding after three years (if any) would be repaid in the fourth and/or fifth year. The statistical tests indicated that the results of either variant would be superior to those under existing repurchase provisions—superiority being again measured by success in bringing export availabilities closer to the trend value.

This concept of “compensatory” repurchases, and the statistical evidence in its favor, were brought to the attention of the Board, but no specific recommendation was made by the staff. The Board decided not to include any mandatory provision along these lines, but to suggest that exports in excess of the trend value should in fact be used for the repurchase of compensatory drawings. A recommendation to that effect was included in the second report.

A fourth recommendation made by UNCTAD, that in the formula for calculating the trend greater weight should be given to the three years preceding the shortfall, was also examined by the staff. Statistical tests, however, indicated that the formula devised by the staff was superior, and no change was suggested.

The related issue, of substituting fully automatic determination of the trend value for a combination of statistical and qualitative estimation, was not re-examined. However, the staff gave some thought to the problem of the relative weight to be given to the statistical evidence and to the element of judgment when determining the trend. It was found by experience that short-term forecasts by the Fund and by other expert bodies had yielded results that were closer to the truth than even the best statistical formula. On the other hand, statistical calculations, if taken by themselves, would enable member countries to foresee more accurately what compensatory financing they would be able to rely upon. Thus the weight to be given to the automatic element would itself be a matter of judgment, and might well differ in individual cases.

Commenting on the suggestion that compensation should be provided for a deterioration in the terms of trade rather than in export proceeds, the staff pointed out that such compensation would not cover changes in the volume of exports, such as those arising, not infrequently, from crop failures. Such a change might, therefore, do more harm than good. It was true that there was much to be said for taking account of variations in import prices in the determination of export shortfalls, thus aiming at compensating for a decline not in their money value but in their real value. This was not, however, practicable; for a number of countries import price indices are lacking, for others they are not reliable, and for yet others they become available only after great delay.

For the reasons given in the preceding paragraphs the staff suggested no changes in the procedure for determining the magnitude of shortfalls, or in the nature of the shortfalls to be compensated.

One further point taken up by the staff concerned the problem of double compensation for shortfalls. This might arise in the event of a country making two consecutive compensatory drawings or, more probably, making an ordinary drawing, perhaps under a stand-by arrangement, followed within less than twelve months by a drawing under the compensatory financing decision. It was conceivable, under these conditions, that the payments situation leading to the first drawing was caused, in part, by a shortfall in exports for which a compensatory drawing was subsequently claimed. The staff pointed out that there was no way of determining to what extent such a shortfall had been responsible for the payments difficulties experienced; or, consequently, what proportion of the shortfall should be regarded as met by the original drawing. For practical purposes, however, standard procedures have been laid down which provide guidelines for determining what part of such a shortfall should be deemed to have been covered by the original drawing, and not eligible for additional compensation.

It may be added, in conclusion, that the years 1963 to 1965 were the formative years of the compensatory financing facility. It was not until after the end of 1965 that this type of financial assistance from the Fund became a routine source of drawings, widely used by member countries.

*

The first three sections of this chapter were written by Mr. Horsefield; the last section, on the Compensatory Financing of Export Fluctuations, by Miss Lovasy. In the earlier parts of the chapter, use has been made of an article by Mr. Subimal Mookerjee entitled “Policies on the Use of Fund Resources,” Staff Papers, Vol. XIII (1966), pp. 421–42.

1

In what follows no account is taken of the amendments to the Articles effected in 1969, of which a summary appears in Part V of this volume. The full text of the Articles of Agreement as approved at Bretton Woods is reproduced below, Vol. III, pp. 185–214 The amendments to the Articles are reproduced in Vol. III, pp. 521–41.

2

Below, pp. 410–16.

3

For an explanation of the Fund’s powers of interpretation, see below, pp. 567–73.

4

Public Law 171, 79th Cong., 1st sess., Sec. 13.(a); Selected Decisions, p. 155.

5

Resolution IM-6, Selected Documents, p. 19.

6

E.B. Decision No. 71-2, September 26, 1946; below, Vol. III, p. 245.

7

See above, Vol. I, p. 72.

8

E.B. Decision No. 284-4, May 29, 1947, reaffirmed March 10, 1948; below, Vol. III, p. 227.

9

E.B. Decision No. 287-3, March 17, 1948; below, Vol. III, p. 228.

10

E.B. Decision No. 451-(55/52), August 24, 1955; below, Vol. III, p. 228.

11

E.B. Decision No. 292-3, March 30, 1948; below, Vol. III, p. 235.

12

E.B. Decision No. 284-3, March 10, 1948; below, Vol. III, p. 234.

13

E.B. Decision No. 286-1, March 15, 1948; below, Vol. III, p. 234. For Rule G-3 see below, Vol. III, p. 292.

14

E.B. Decision No. 196-2, July 31, 1947; below, Vol. III, p. 268.

15

See discussion in Vol. I above, p. 52.

16

E.B. Decision No. 284-2, March 10, 1948; below, Vol. III, p. 272.

17

See above, Vol. I, pp. 202, 412.

18

See above, Vol. I, p. 361.

19

See above, Vol. I, p. 549.

20

See above, Vol. I, pp. 67–77.

21

See above, Vol. I, pp. 190–92.

22

See above, Vol. I, pp. 276–77.

23

See below, pp. 441–43.

24

See details in Vol. I, pp. 157–60.

25

Annual Report, 1946, p. 13.

26

Ibid.

27

Annual Report, 1947, p. 31.

28

Ibid., p. 18.

29

See below, pp. 394–96.

30

Annual Report, 1948, p. 74.

31

Ibid., p. 75.

32

Ibid., p. 47.

33

Ibid., pp. 48–50.

34

Annual Report, 1949, p. 43.

35

E.B. Decision No. 102-(52/11), February 13, 1952; below, Vol. III, p. 228.

36

E.B. Decision No. 155-(52/57), October 1, 1952; below, Vol. III, p. 230.

37

See above, p. 386.

38

Annual Report, 1955, p. 84.

39

Ibid., pp. 84–85.

40

Ibid., p. 85.

41

Annual Report, 1959, p. 22.

42

Annual Report, 1963, pp. 40–41.

43

E.B. Decision No. 1745-(64/46), August 3, 1964; below, Vol. III, p. 243.

44

Summary Proceedings, 1965, pp. 131–32.

45

See below, p. 601.

46

See above, p. 386.

47

E.B. Decision No. 1543-(63/39), July 1, 1963; below, Vol. III, p. 240.

48

Summary Proceedings, 1952, p. 65.

49

Resolutions 8-4 and 8-5, Summary Proceedings, 1953, pp. 96–97.

50

Resolution 18-2, Summary Proceedings, 1963, pp. 227–29.

51

E.B. Decision No. 1687-(64/22), April 22, 1964; below, Vol. III, p. 243.

52

Resolution 19-8, Summary Proceedings, 1964, pp. 260–61.

53

On the first general increase in quotas, see above, pp. 358–59.

54

E.B. Decision No. 1238-(61/43), July 28, 1961; below, Vol. III, p. 245.

55

For a discussion of this concept, see above, Vol. I, pp. 345–47.

56

Commodity Trade and Economic Development; Submitted by a Committee appointed by the Secretary General, United Nations, Department of Economic Affairs (New York, 1953), pp. 67 ff.

57

ECOSOC: Official Records, 17th Session, 765th meeting, April 7, 1954, p. 55.

58

ECOSOC: Official Records, 28th Session, Supplement No. 6 (E/3225), p. 15.

59

Reproduced in Staff Papers, Vol. VIII (1960–61), pp. 1–76.

60

General Assembly Resolution 1423 (December 1959).

61

International Compensation for Fluctuations in Commodity Trade, United Nations (New York, 1961), p. 81.

62

Ibid., pp. 39 ff.

63

Tenth Session of CICT, held in Rome in May 1962.

64

The main results of these studies have been reported in Marcus Fleming, Rudolf Rhomberg, and Lorette Boissonneault, “Export Norms and Their Role in Compensatory Financing,” Staff Papers, Vol. X (1963), pp. 97–149.

65

Compensatory Financing of Export Fluctuations, February 1963 (E.B. Decision No. 1477-(63/8)); below, Vol. III, pp. 238, 442–57.

66

Statement of the Fund observer in presenting the report to CICT.

67

Reproduced below, Vol. III, pp. 469–96.

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