Chapter 28: Growth of Responsibilities
- International Monetary Fund
- Published Date:
- February 1996
Gold, Exchange Rates, SDRs, and use of the Fund’s resources constituted the glamorous activities of the Fund during the period of this history. They were the events that captured headlines. Their importance not-withstanding, the major part of the Fund’s day-to-day work in the years 1966–71 was of a more routine nature. Regular contacts with members, technical assistance, the gathering and dispensing of information, and cooperating with other agencies in the solution of financial and economic problems, although less publicized than the Fund’s other endeavors, took up much of the time and effort of the Executive Directors, the management, and the staff. The Fund’s work and responsibilities in these fields so expanded after 1965 that, in effect, a quiet revolution took place.
Sheer expansion of membership alone brought with it an increase in the volume of regular activities. The number of annual consultations with members, for example, expanded pari passu with membership. By the late 1960s the impact of the sharp spurt in membership brought about by the admission of many newly independent African countries in 1963 had begun to make itself felt. But a more significant factor in the expansion of and change in the activities of the Fund was the greater complexity and interdependence of the world economy. Changes in the ways in which the Fund conducted its traditional activities and extensions into new fields could be expected, particularly since the Fund, as a relatively large organization operating on a global scale, could readily make use of the advances being made in communication, transportation, economic theory and methodology, and computer technology, and of the explosion of information that was taking place. Indeed, in the several fields of international economics, international financial statistics, and international law, the Fund was expanding the boundaries of knowledge and developing new techniques.
Increases in Membership
Basic to the expansion and evolving character of the activities of the Fund described in this chapter was the changing nature of the membership. The 17 countries that became members from 1966 to 1971 were, like most of the new members after 1960, if not earlier, developing countries. Hence, at the end of 1971 by far the greater part of the Fund’s membership of 120 countries was in this category. (The 17 new members and the dates on which they became members are indicated in Chapter 16 in connection with their initial quotas; see also Table 5, pages 306–308.
Many of the Fund’s newer members, like the African countries, had only recently become politically independent. Nearly all nonmetropolitan territories, as one of their first acts upon acquiring independence, became separate members of the Fund. For some the motive was that membership in the Fund was a precondition for membership in the World Bank, and they were especially eager for development aid. Several of the newer members were very small. These were referred to in UN discussions as ministates, and their applications had, in fact, raised the question whether a nation had to be of a certain minimum size in order to be admitted to international organizations. In 1966 the management of the Fund, recognizing the significance of membership to the countries concerned, settled on the proposition that the Fund should consider the application of any independent country, regardless of size, but this proposition was subject to review should the United Nations refuse membership to a ministate on grounds of size.
So many newly independent, developing, and small members inevitably meant a broadening of consultation discussions and an increase in technical assistance and in the training of members’ officials.
Although as 1971 came to a close it seemed unlikely that the membership would increase much further, six countries did in fact join shortly thereafter: the Bahamas, Bahrain, Bangladesh, Qatar, Romania, and the United Arab Emirates.
Continued Importance of Annual Consultations
After 1967 there was an increase in the number of special consultations between the Fund and members. Usually these special consultations were in connection with stand-by arrangements, although later on, after 1970, special consultations also began to be held with members with fluctuating exchange rates. Nevertheless, the process of holding an annual consultation with each member continued through 1971 to be the primary vehicle by which both the Executive Directors and the staff kept intimately in touch with the members’ economic and financial situations. Annual consultations were the principal way in which the Fund stayed equipped to handle members’ external payments emergencies. They provided the Fund with the background necessary to enable it to evaluate quickly, for instance, proposals for adjustments in par values or exchange rates, or requests for financial support. They were also the instrument by which the Fund reviewed members’ economic and financial policies with them and pointed out to them the international implications of their policies.
Examples of the role of annual consultations were given in Chapters 18 and 21 in connection with the stand-by arrangements for the United Kingdom and France in the late 1960s. Similarly, we have seen the part played by annual consultations in the Fund’s discussions with a number of members, including Canada, the Federal Republic of Germany, Ghana, and India, as they changed the par values for their currencies in the years covered here. Annual consultations also provided the mechanism by which the Fund was able to review the external economic situations of two members, Japan and the United States, crucial to the international monetary scene, which might not otherwise have come under the Fund’s purview. Neither of these members requested a stand-by arrangement during the period reviewed here nor, until after the Smithsonian agreement in December 1971, did they change their par values. Hence, without the annual consultation procedure, the Fund would not have had a way to hold formal discussions with these members.
For members under Article XIV, the Article which in effect permitted the temporary retention of certain restrictions without the Fund’s explicit approval, consultations were mandatory. Through 1971 the great majority of members remained under this Article. As of April 30, 1971 only 35 members had assumed the obligations of Article VIII, Sections 2, 3, and 4, of which 8 (Argentina, Bolivia, Denmark, Ecuador, Guyana, Malaysia, Norway, and Singapore) had done so after 1965.1 No additional member countries accepted the obligations of Article VIII, Sections 2, 3, and 4, during the remainder of 1971. Annual consultations with members that had accepted the obligations of Article VIII, similar in scope to consultations under Article XIV, although not required by the Articles, were instituted in 1960 and subsequently continued.
As both the Fund and members grew accustomed to having annual consultations, the usefulness of consultations increased. The habit grew, even in the largest industrial members, of using the occasion of a consultation with the Fund for a general internal review of policy by government officials. In the newer developing members, consultations were often also used not only to serve their principal purpose of a thoroughgoing review of monetary and financial policies but also to explore requests for technical assistance. Thus, in addition to the usual staff from the relevant Area Department to consider general economic policy and from the Exchange and Trade Relations Department to consider exchange restrictions and stabilization policies, missions also frequently included a staff member from one of the functional departments responsible for technical assistance, such as the Fiscal Affairs Department, to help to determine the details of a technical assistance request by a member and the kind of expertise required. Sometimes technical assistance, such as with problems of economic data and analysis, was provided then and there, when the staff was able to provide advice based on the experience of other countries facing similar problems.
Because of their usefulness, the Fund had as its aim to conduct the consultations in connection with Article VIII or Article XIV annually with all members. As a result, consultations constituted both for the Executive Directors and for the staff by far the major, and certainly the most time-consuming, of the Fund’s endeavors. Especially was this true for the staff of the five Area Departments, which had the primary responsibility for relations with members and, insofar as consultations were concerned, the major responsibility for preparing the staff papers and carrying out the review of policies with officials of member governments. Tedious as are long lists of countries, it is perhaps instructive for the reader to realize that during the calendar year 1971 the Fund held consultations at the Executive Board level with 78 members and 2 non-metropolitan territories.2 The members with which consultations were held included the largest industrial ones (Belgium, Canada, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States) as well as 10 other industrial or developed members (Australia, Austria, Denmark, Iceland, Ireland, New Zealand, Portugal, South Africa, Turkey, and Yugoslavia). Consultations were also held with 13 members in Latin America and the Caribbean area (Chile, Colombia, the Dominican Republic, Ecuador, El Salvador, Guyana, Haiti, Honduras, Panama, Paraguay, Peru, Trinidad and Tobago, and Venezuela), with 13 members in Asia (Afghanistan, Burma, Ceylon, the Republic of China, India, Indonesia, Korea, Laos, Malaysia, Nepal, the Philippines, Singapore, and Thailand), with 7 members in the Middle East (Egypt, Iran, Iraq, Israel, Jordan, the Yemen Arab Republic, and the People’s Democratic Republic of Yemen), and with 25 members in Africa (Algeria, Botswana, Burundi, Cameroon, the Central African Republic, Dahomey, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Ivory Coast, Kenya, Liberia, Mauritius, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, the Sudan, Swaziland, Togo, Tunisia, and Zambia). Consultations with the Netherlands were extended to the Netherlands Antilles and Surinam.
A total of 89 professional staff members, primarily from the Area Departments, participated in the missions connected with the consultations listed above. Most missions consisted of 4 or 5 professionals and a secretary; they worked with the officials of members for periods of time ranging from a few days to two weeks before returning to headquarters to write their reports.
Achievement of the goal of holding an annual consultation with each member was not possible for a variety of reasons. The timing of members’ elections and of their budget preparations and presentations, and the availability of their senior monetary officials for discussions with the Fund staff, all influenced the scheduling of missions. Moreover, when special problems with individual members arose claiming priority on the staff’s time, the interval for regular consultations with other members was sometimes lengthened. Thus, in a fair number of instances the period between two regular consultations worked out to be as long as 18 months.
The Executive Directors’ reviews of country situations were anything but cursory. Fourteen of their consultation discussions in 1971 lasted for two hours or more each. In the last half of 1971 the Executive Directors spent an increasing number of hours deliberating on the fundamental problems facing the international monetary system, but consultations and discussions about individual country situations still, as in previous years, took up nearly 40 per cent of their time.
Trends in Exchange Restrictions
Because under the Articles of Agreement the Fund has special responsibilities for exchange restrictions, consultations with members continued to be addressed first to that subject. However, the industrial members had all formally accepted the obligations of Article VIII, Sections 2, 3, and 4, before 1965, and until the disruptions of August 15, 1971 they lived up to these obligations, maintaining no restrictions on current payments or on transfers for invisibles. Indeed, not only did industrial and most developed members virtually eliminate exchange restrictions during the 1960s but, following the Kennedy Round of trade and tariff negotiations completed in mid-1967 in Geneva under the auspices of the gatt, they also greatly reduced quantitative restrictions on imports and tariffs. Concern by international and national officials about restrictions still maintained by industrial countries turned to nontariff barriers to trade.
Even the minor exchange restrictions that the Fund’s industrial members applied from time to time between 1966 and 1971 were not long-lasting. For example, as we have read in earlier chapters, the United Kingdom in 1966 and France in 1968 and 1969 reacted to their balance of payments deficits partly by reinstituting restrictions on exchange allocations for travel. But in 1970 the United Kingdom lifted these restrictions, and France, twice in 1970 and again early in 1971, increased the allocations that it made available for tourism. In 1969 Japan ceased to restrict exchange for travel, and in 1971 increased further the automatic allocations, that is, allocations without license, which authorized banks might make available to tourists.
Advance deposits on imports, to which some industrial members had turned in the late 1960s, similarly were later abolished. Japan suspended the requirement of advance deposits in May 1970; and the United Kingdom, which introduced an import deposit scheme in 1968, gradually reduced the rate of deposit in several steps from 50 per cent to 20 per cent, and then, in December 1970, terminated the scheme.
It is worthy of mention that the turbulence in exchange markets in 1971 did not lead to any significant increase in quantitative restrictions on imports or to an intensification of exchange restrictions. On the contrary, most developed members took further measures to liberalize trade, and following the December 1971 currency realignment, the member countries of the eec and the United States pursued their discussions regarding immediate and longer-term trade arrangements. The United States, the eec countries, and Japan also agreed to have a multilateral review of trade matters within the framework of the gatt.
As 1971 ended, the six eec countries, together with Denmark, Finland, Japan, New Zealand, Norway, Sweden, and the United Kingdom, were starting a system of generalized tariff preferences on selected commodities (primarily manufactures and semimanufactures) originating in developing countries. Industrial countries were also liberalizing imports from countries belonging to the Council for Mutual Economic Assistance (cmea or comecon). That Council consisted in 1971 of Bulgaria, Cuba, Czechoslovakia, the German Democratic Republic, Hungary, Mongolia, Poland, Romania, and the U.S.S.R.
The use of restrictions on current transactions and of multiple exchange rates by the Fund’s developing members, on balance, also showed a marked tendency to decline after 1965. By early 1971 there were fewer than ten members whose restrictive systems could be characterized as extensive or complex. Those members, including Ecuador, Indonesia, the Philippines, Turkey, Viet-Nam, and Yugoslavia, that had continued to have substantial restrictions or multiple currency practices in the late 1960s, or had reintroduced them, simplified their rate structures and liberalized their restrictions. Continuing an earlier trend, developing members increased their use of export promotion measures, government participation in export financing was enhanced, and there was a tendency toward greater state trading in the purchase of imports.
In contrast to the continued liberalization of trade and current transactions, industrial members, especially in 1971, introduced dual exchange markets, primarily to discourage excessive capital flows, and took steps to control destabilizing capital flows. The two separate exchange markets, one for current and one for capital transactions, that existed in Belgium in the 1950s and 1960s continued into 1970 and 1971. There was the introduction in August 1971 by France as well of two exchange markets, together with similar action by the operations account countries of the French franc area that the reader will recall from Chapter 26. In September 1971 the Netherlands created a security currency market by prescribing that nonresidents could acquire listed guilder bonds only with the proceeds from the sale of such bonds by nonresidents to residents. This mechanism was to prevent net new investment by nonresidents in officially listed guilder bonds. What was called the “O-guilder” in this bond circuit went to a small premium. The investment currency market in the United Kingdom remained in operation and, indeed, was considerably enlarged after the end of 1971 as a result of portfolio investment in securities of the overseas sterling area being channeled into it.
After 1965, tighter direct measures to stem capital flows were also applied. A variety of controls designed to curb outflows were put into effect in the late 1960s and early 1970s. In 1971 these controls were supplemented by measures aimed at reducing inflows. Many of the measures taken were of a monetary nature, intended to decrease capital flows indirectly by influencing the operations of the banking system. Increasingly, however, direct controls limiting, or prohibiting outright, certain capital transactions were adopted.
Like developed members, developing members took steps against capital flows. Mainly, measures were enacted to control inward capital movements. These measures were motivated not so much by the immediate monetary and balance of payments consequences of capital inflows, the motivating factor in industrial countries, as by concern by developing members over the extent of foreign ownership in their economies.3
Developments in Annual Consultations
Broadening of Discussions
Annual consultations necessarily continued to include reviews of existing exchange restrictions. Especially were consultations with developing members often the occasion for working out exchange reforms, for examining reversals of liberal exchange policies, or for discussing changes in the form of restrictions and exchange practices.
In general, however, in the period reviewed here, the Fund’s annual consultations with members began to shift away from the subject of restrictions, and an ever-widening range of financial and economic topics became primary. Increasingly, consultations aimed at assessing members’ monetary and fiscal policies and the effects of those policies on the member’s own balance of payments position and on the world’s financial situation. After 1967, when the international monetary system started to malfunction seriously, consultations with industrial members included in particular detailed discussions about the causes of recurrent exchange crises. Furthermore, as inflation became of paramount concern to all members, as it proved to be exceedingly difficult to restrain, and as the anomaly of the coexistence of rising prices and increasing unemployment baffled monetary officials and economists everywhere, consultations centered more and more on ascertaining the effectiveness of different techniques and policies for combating inflation.
Consultations with developing members were also extended. They began to cover more fully the consequences of economic development efforts, both in the short run and in the somewhat longer run, for prices, production, monetary and fiscal policies, and the balance of payments; problems of joblessness and measures to increase employment opportunities; the size and servicing of external indebtedness; and members’ relationships with regional organizations, as the latter multiplied in number and strength (the last two topics are discussed at some length in the following chapter). In addition, we have already noted in Chapter 18 that consultation discussions with developing members were increasingly devoted to obtaining the background information and appraisal essential for deriving the monetary, fiscal, and other targets included in the financial programs associated with stand-by arrangements.
Changes in the Process
The process by which the Fund’s consultations were conducted remained much the same during the years 1966–71 as that which had evolved by the end of 1965.4 However, to relieve the expanding workload of consultations on the staff and the management, on the Executive Directors, and on the officials of member countries, some important changes were introduced. More extensive preparatory work was done by the staff at headquarters, and junior staff usually arrived in the field in advance to assemble factual data before senior staff arrived to conduct policy talks. To facilitate the consideration of consultation reports by the Executive Board, the basic staff reports on the policy discussions, formerly called Part I, were shortened to a maximum of 20 pages. These reports were redesigned so as to put less emphasis on the reporting of factual information and more on the assessment of both the member’s current economic situation and the policies it was pursuing or formulating.
The title of the economic background report, formerly called Part II, was altered to “Recent Economic Developments,” and the paper was issued separately from the basic staff report on the policy discussions. Much greater use was made of graphs, charts, and other visual aids, both to improve the quality of the reports and to stimulate the younger economists who were involved in the long and painstaking work of preparing such reports. More econometric techniques were used to quantify the relationships between economic variables. In some instances, notably in reports on industrial countries, the quantitative techniques used included new analytical methods developed by academic economists or other experts outside the Fund. The Executive Board, regarding the consultations as an extremely useful and major part of the Fund’s activities, approved all these changes in scope and procedure.
Despite the broadening of consultations, the economies of members had become so interrelated and so subject to abrupt change that by the beginning of 1971 thought was being given by the Executive Directors, the management, and the staff to ways in which the annual consultations might be supplemented. It was evident that many of the problems faced by members were problems they had in common. All of them had, for example, cost-push inflation coexisting with unemployment, a novel economic phenomenon. Among industrial members, balance of payments emergencies for any one of them were much more likely to arise from shifts of capital than from changes in trade balances. The problems of developing members were closely related to what happened in the industrial members. As the latter tightened their monetary policies, raising their interest rates, the cost of borrowing by developing members went up. As industrial members faced balance of payments deficits, the outflow of capital to developing members went down. Hence, among developing members the usual problems of development financing became more and more aggravated by the upheavals in international money markets, by relative declines in the receipt of foreign capital, and by the heavier burden of servicing foreign debt.
It was evident, too, that no adequate solutions to common problems were being found. There were more questions than answers. How useful were monetary and fiscal policies for restraining inflation? Were incomes policies workable? And it had become clear also that the solution of most problems plaguing the international monetary system would require joint action by several members.
In these circumstances, the Executive Directors began to seek ways to supplement the bilateral “micro-approach” of an annual consultation with each member. To obtain broader views of the international monetary situation, the Executive Directors began, in January 1971, to hold informal sessions at least once a year, usually just after the turn of the year, on the world economic outlook. They hoped that, as a minimum, broad discussions would point to solutions to some of the common economic problems, and would enhance the consistency of the recommendations on economic policy made to individual members. Possibly, too, the Fund might find a way to help in resolving problems that were of an international nature, as distinct from those of individual countries.
To widen the view obtained by consultations between the Fund and each individual member, the staff by 1971 was experimentally introducing multinational analysis and forecasting into the consultations process. Nonetheless, it appeared that before long the Fund might have to supplement its bilateral consultations, that is, between the Fund and a member country, with some kind of wider consultations. It was not yet clear what form such wider consultations might take. Possibly, they might be multilateral in character, that is, conducted with a small group of countries that had similar economic concerns. Alternatively, a series of relatively brief bilateral consultations might be held with a number of countries, either at the same time or in close succession to one another.
In addition, the Fund began to give more attention than previously to the role of fiscal policy in promoting internal and external stability. Traditionally, the Fund had been cautious in examining fiscal policies because they involved the social objectives of members. However, at the Annual Meeting in Copenhagen in 1970, Mr. Witteveen (Netherlands) explicitly urged that the Fund pay greater heed to fiscal policy. He said:
Regarding monetary policy, I have great appreciation for the work done by the Fund in recent years in explaining its importance and introducing quantitative targets for domestic credit creation, though this has been limited to an ad hoc basis.
In the field of public finance we are unfortunately less advanced. It would be a contribution toward more internal stability in the world at large if here too the Fund would be able to elaborate some concepts with operational value which would come to be accepted by member countries as part of their internal policy considerations regarding acceptable expansion of demand even if the balance of payments does not pose an immediate problem.5
Subsequently, Mr. Lieftinck (Netherlands), referring to this statement, urged that the Fund add to its work program a special study of the role of public finance and of fiscal policy in the fight against inflation.
Technical Assistance Evolves into a Large Program
Since the Fund’s earliest days, members requested and received technical advice on banking, finance, taxation, and other monetary and fiscal matters.6 After 1965 the technical assistance provided by the Fund grew rapidly and became one of the Fund’s primary endeavors. More complete and regular reporting and evaluating procedures had to be introduced as part of the Fund’s internal procedures. Whereas the names and functions of outside experts on duty in member countries had previously been circulated to the Executive Directors periodically, usually once a year as an annex to the administrative budget, beginning in March 1967 detailed lists of both staff and outside experts were circulated twice each year; a list covering assignments for the six months from March 1 to August 31 was distributed in mid-September, just prior to the Annual Meeting; and another list, covering the whole year from March 1 to the end of February, was distributed in late March, just before the Executive Directors considered the Fund’s administrative budget. In addition, beginning in March 1968 the staff made an annual report to the Executive Directors describing and evaluating the technical assistance activities undertaken in certain specialized fields.
As has been mentioned above, some technical assistance occurred rather routinely in the course of annual consultations. Consultation missions were often the occasion for the staff to advise officials of member countries on particular problems, usually relating to economic data or analysis. Consultations also gave members an opportunity to discuss their financial and economic problems with international officials familiar with the experiences of many other countries, and to gain information helpful for assessing alternative policies. In addition, resident representatives whom the Fund frequently assigned to members that were implementing Fund-approved stabilization programs in connection with stand-by arrangements often gave technical advice along with their other duties.
Important as were these types of technical advice, what the Fund customarily called technical assistance was something more specialized: (1) the assignment for extended periods of personnel, either staff members or outside experts specially recruited by the Fund, to governments or central banks in advisory, executive, or operational positions; and (2) staff missions of shorter durations to advise members on specific problems in particular fields. It was the growth of this specialized technical assistance that gained great momentum in the late 1960s and early 1970s.
Technical Assistance in Central Banking
Within a few years after its establishment at the end of 1963, the Central Banking Service became the principal source in the world for meeting the needs of numerous developing countries for technical assistance in all matters pertaining to central banks—their organization, their administration, and their operation. In the earlier phases of its activities, and continuing through the first part of 1968, members mainly requested assistance in setting up central banks. They wanted legislation drafted and senior officials supplied as managers. Many of the newly independent countries that joined the Fund in the late 1950s and in the 1960s had no central banks of their own. Some maintained joint central banks with other countries (that is, multinational banks) but desired separate ones. Several older members wanted to revise their central banking laws. Thus, in 1966 and 1967, the Central Banking Service sent advisory missions composed of its own staff and some staff from the Legal Department to 18 members, primarily to help draft central banking legislation, and also supplied to 31 members 48 outside experts, most of whom served for a year or longer as central bank governors, deputy governors, or general managers. By the end of 1967 the Fund had helped to establish central banks in Burundi (May 19, 1964), Rwanda (May 19, 1964), Tanzania (June 14, 1966), Uganda (August 15, 1966), and Kenya (September 14, 1966); and Cyprus, the Democratic Republic of Congo (known as Zaïre from October 27, 1971), Guinea, Guyana, Iraq, Jordan, Malta, Nepal, Sierra Leone, the Sudan, Trinidad and Tobago, and Viet-Nam had received technical assistance in the form of drafting central banking legislation or of managing central banks.
Local personnel were trained as quickly as possible to take over the top positions in new central banks, and by 1968 requests for officers to fill senior management posts had begun to taper off. Nevertheless, as members’ economies became increasingly monetized and as the newly formed central banks took on greater responsibility for monetary policy, requests were made for technicians to assist with a number of specialized tasks: to help in setting up facilities for recruiting and training personnel, to evolve or strengthen research capabilities, to improve the managerial and administrative structures of new central banks, and to demonstrate how to prepare financial accounts and how to conduct foreign exchange operations. As a result, requests for outside experts did not abate and even increased.
Most advisory missions, composed of staff as distinct from outside experts, still devoted themselves to drafting central banking legislation for, and setting up, new central banks, but they also began to deal with more complex topics. Members sought advice on how central banks could best apply the various instruments of monetary policy, such as interest rates and reserve requirements; on how they might mobilize financial savings; and on how they might regulate the expansion of bank credit. Assistance was also sought in drafting legislation for general banking systems, in reforming whole banking structures, and in working out appropriate relations between the central bank and commercial banks. Also, advice was sought concerning dealings between central banks in the same geographic area.
There was a growing tendency for members to request more than one staff member or outside expert and more than one advisory mission. As the number of advisory missions expanded, the Central Banking Service drew primarily from its own staff but, more and more, staff of the Area Departments, the Legal Department, and the Treasurer’s Department also participated in these missions or worked in Washington on members’ requests. At times, outside experts were added to the missions. Several central banks had as many as three outside experts at a given time.
A few statistics suggest the magnitudes of the Central Banking Service’s technical assistance from 1968 to 1971. In 1968, assistance was received by 32 members, 7 (Indonesia, the Malagasy Republic, Mauritius, Pakistan, Panama, Tunisia, and Zambia) for the first time: there were 6 advisory missions; 58 experts served in 27 member countries, of which 18 were receiving experts for the first time; and a new central bank was established in Malta (April 17, 1968). In 1970, 13 members received advisory missions, 2 more than in 1969, and the number of experts serving during the year rose to 80, in 36 member countries. The Republic of China, Nicaragua, Nigeria, the Yemen Arab Republic, and the People’s Democratic Republic of Yemen received central banking experts for the first time, and other members, not previously mentioned, that received central banking assistance included The Gambia, Laos, Malawi, Malaysia, Sierra Leone, Singapore, Somalia, and the Sudan. New central banks were established, with the Fund’s assistance, in Equatorial Guinea (October 9, 1969) and Guyana (October 16, 1969).
In 1971 there were further interesting developments. The Central Banking Service continued to help in establishing new central banks, which were inaugurated in Singapore (January 1), The Gambia (March 1), the People’s Democratic Republic of Yemen (July 14), and the Yemen Arab Republic (July 26). Requests increased for reorganizing existing central banks so as to make them more effective in formulating and implementing monetary policy. Especially were members eager for help in selecting and training staff for their banks. In 1971, for instance, the Central Banking Service set up a training institute in Djakarta, Indonesia, to retrain staff for both the central bank and the commercial banking community. More members began to ask for appraisals of their entire financial systems.
One innovation during 1971 was the provision of technical assistance by the Central Banking Service to a regional monetary institution. An expert in national accounts was assigned to the Executive Secretariat of the Central American Monetary Council, a council serving Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which had as one of its primary functions the standardization of the statistical data of these countries. Also for the first time, a staff member from the Central Banking Service accompanied a mission of the International Finance Corporation in 1971 to study possible improvements in the structure of a member’s capital market.
In 1971 the number of members to which advisory missions were sent was 15, and the number of experts 81. Several experts still served as heads or senior officials of central banks, although the number in such capacities had declined. For example, from 1968 to 1971 a Cypriot served as manager of the Central Bank of Kenya; experts from Denmark and New Zealand served, successively, as Director-General of the Bank of Tanzania; and a staff member from the Fund was Director-General of the Bank of Zaïre. When the Central Bank of The Gambia was opened, a Burmese expert who had helped in the planning stayed on as its general manager. The Central Banking Service developed a series of ways to monitor the progress of these experts: correspondence, information gathered by staff missions from other departments of the Fund, formal and informal contacts with the authorities of the members in which the experts served, and, most importantly, inspection visits by the staff of the Central Banking Service, generally at the time of an advisory mission to a nearby country, and often jointly with staff from the Administration Department.
The names of the member countries given above indicate that most of the recipients of the Fund’s technical assistance in the field of central banking were in Africa. In the eight years from the establishment of the Central Banking Service to the end of 1971, a total of 177 experts served in 56 member countries and one regional organization. Of these, 92 served in Africa, 31 in Asia, 26 in the Western Hemisphere, 19 in the Middle East, and 9 in Europe.
Two other aspects of the technical assistance provided by the Central Banking Service are especially worthy of note. One, the aid rendered was purely technical. The purpose was to assist members in organizing or reorganizing their financial institutions or systems so that these could function more effectively in the national environments of the members concerned. In other words, the aim was to enable members better to develop and implement “sound monetary and financial policies” by advising them on how to improve their institutional framework. The choice between particular monetary and financial policies was regarded as being outside the scope of the Central Banking Service.
Two, there was broad participation not only by recipient countries but also by the countries that furnished experts. Experts were recruited from developing countries as well as from developed ones. In addition to the examples of experts from Burma and Cyprus already cited, central banking experts were drawn from Egypt, Guatemala, India, the Khmer Republic, Pakistan, Peru, the Syrian Arab Republic, and the Sudan. Moreover, the extent to which experts came from developing members was increasing. In the first year of the program, 1964–65, two thirds of the 19 experts were provided by European countries, whereas, of the 81 experts in 1971, 36 came from Europe, 20 from the Western Hemisphere, 17 from Asia, 4 from the Middle East, 2 from Africa, and 2 from other regions.
Technical Assistance in Fiscal Affairs
The specialized technical assistance rendered by the Fiscal Affairs Department, which was established on May 1, 1964, expanded rapidly both in dimension and complexity. From the beginning, this program utilized both staff members of the department and experts drawn from a fiscal panel made up of senior officials in government service, retired officials, and economists from the academic world specializing in public finance. The subjects on which assistance was provided were far ranging: the preparation of budgets and their execution; particular forms of taxation; tax administration, including customs administration; general taxation policy and the prospects for raising revenue; budgetary classifications; and accounting and reporting systems.
There was a marked growth of the program in 1967, when 16 new assignments were undertaken. Of all the assignments operating in that year, 23 were for six months or more and were undertaken in 14 member countries—Costa Rica, Indonesia (2), Iran, Liberia (2), Morocco, Pakistan (2), Peru (5), Rwanda, Sierra Leone (2), Somalia, the Sudan (2), Tanzania, Tunisia, and Zaïre. In March 1968, when the report on technical assistance for the year ended February 29, 1968 was circulated, 25 members had received technical assistance in the fiscal field. Of these, 15 were in Africa, 5 in the Western Hemisphere, 3 in Asia, and 2 in the Middle East; 7 members—Ghana, Indonesia, Liberia, Pakistan, Peru, Sierra Leone, and the Sudan—had received intensified assistance.
The program gradually grew, both in the number of members served and in the topics covered. In the year ended March 15, 1969, the Fiscal Affairs Department gave technical assistance to 21 members; in the calendar year 1969, to 23 members; in the calendar year 1970, to 20 members and 1 regional organization, the East African Community; and in the calendar year 1971, to 24 members and the same regional organization. In terms of manpower, the program grew from 105 man-months in 1966 to 191 in 1971.
The majority of the recipients were in Africa. But a number of members in Asia and Latin America also received technical assistance in fiscal affairs. Several members wanted assistance on more than one subject. From early 1967 onward, a group of fiscal experts operated in Indonesia, and by 1971, teams of two advisors each were operating in several countries.
While general fiscal advisors concerned with the day-to-day problems of finance ministries were provided, requests were also received for advice in specific areas. Short-term missions were requested to advise on reforming tax structures, especially in countries that had inherited tax systems from pre-independence days. Advice was often requested in setting up specific taxes, such as sales, corporation, or property taxes, whether the country was introducing new taxes or developing and modernizing existing taxes. Rate structures were also reviewed, for example, where members wished to make the burden of individual taxation more progressive or to make sure that similarly situated persons were treated uniformly; customs tariffs were revised, to remove rate inconsistencies or to reclassify tariff schedules in accordance with the more customarily used tariff classification. Assistance was also often given for the improvement of tax administration, for the reorganization of tax departments, and for the improvement of procedures for assessment and collection of taxes. Help was given in implementing new taxes, including drafting legislation, recruiting and training staff, and preparing instruction manuals and information for the public.
In regard to budgetary matters, the Fund’s technical assistance in fiscal affairs ranged from providing high-level advisors in financial management who considered the major policy questions facing finance ministers in developing countries, to supplying specialists in government accounting. The latter helped, for example, with the mechanization of accounts and the use of electronic data processing equipment. In between were subjects of budget preparation and expenditure control. Technical assistance in fiscal matters was also extended to financial problems of local governments.
By the end of 1970, the number of staff and the number of panel experts engaged in technical assistance in fiscal affairs were about equal, though panel experts had spent three times as long in the field. Employment of staff members on technical assistance duties enabled the Fund to respond more promptly to member governments’ requests than would ordinarily have been possible if only panel experts had been recruited, and the accumulation of experience so gained enhanced the staff’s capacity to deal with problems presented. However, in 1971 the number of staff employed in the field fell to 15, compared with 26 panel experts, and in total length of assignments to 26 man-months, compared with 165 for panel experts. Nevertheless, by reason of the increased volume of technical assistance work, the staff of the Fiscal Affairs Department devoted a substantial amount of time at headquarters on correspondence with field experts and on support and supervision of their work.
The Area Departments were consulted both in regard to the initiation of technical assistance in their areas and in the assignments. The Legal Department collaborated with the Fiscal Affairs Department in reviewing the increased volume of draft legislation. Moreover, to avoid duplication with other agencies providing technical assistance in fiscal affairs, regular exchanges of information and discussions took place with representatives of the United Nations and of the Organization of American States and the Inter-American Development Bank. Informal discussions were also carried on with the World Bank staff in respect of activities in countries in which the World Bank was particularly interested, and contacts were maintained with some of the national agencies promoting technical assistance in fiscal affairs on a bilateral basis.
As 1971 came to a close, the Fund’s programs of technical assistance in fiscal affairs were increasing sharply.
Technical Assistance in Statistics
For some years the Balance of Payments Division of the Research Department had assisted members in compiling balance of payments statistics. Some of this assistance was discharged in connection with regular missions of the Fund, such as those connected with consultations or with stand-by arrangements, but there were also special missions to help members with balance of payments data and methodology. In the calendar years 1966–68 staff members were stationed in Jamaica and in Malaysia for a year, in Chad for two months, and in Indonesia for three weeks, and there were missions not formally designated as technical assistance missions but actually for that purpose to 5 French-speaking members in Africa—Chad, the Democratic Republic of Congo (Zaïre), the People’s Republic of the Congo, Mali, and Tunisia. In the internal reporting year ended in March 1970, technicians from the Balance of Payments Division undertook short-term assignments ranging up to a month’s duration in 11 countries in Africa and the Middle East.
In much the same way, that is, in association with the Fund’s regular missions or through special missions, the Statistics Division of the Research and Statistics Department had for years provided technical assistance in financial statistics. Although this technical assistance was directed primarily to obtaining the data which the Fund needed for its own work, advice was often given to local officials about their statistical problems.
Technical assistance in financial statistics intensified after 1965. In 1966 and 1967 the Statistics Division sent special missions to Indonesia and to the Syrian Arab Republic. In 1968 the Bureau of Statistics7 sent missions to Colombia, East Africa (Kenya, Tanzania, and Uganda), Indonesia, Iran, Mali, Mauritania, Portugal, and the Syrian Arab Republic, four of which were labeled as technical assistance missions and lasted from two weeks to two months. Later on, assistance for financial statistics was usually rendered as part of the Fund’s regular missions. In 1970, for instance, statistical assistance was given in this way to Afghanistan, Algeria, Costa Rica, Malta, the Syrian Arab Republic, the Yemen Arab Republic, and the People’s Democratic Republic of Yemen. In 1971 similar assistance was given to Oman and again to the Yemen Arab Republic, and at the request of the Bank of Spain there was a special visit to Spain to discuss statistical concepts, electronic data processing, and other statistical matters.
New Program for Central Bank Bulletins
After 1968, what is described above was only a relatively small part of the Fund’s technical assistance in financial statistics. After a year of planning, the Bureau of Statistics in February 1969 launched a special program to help members to establish or improve their central bank bulletins, or similar bulletins containing basic financial and general economic statistics. This program was set up on the premises (1) that there is a body of interrelated statistics, including data on international reserves, money and banking, government finance, balances of trade and payments, prices, production, and the national accounts, that are relevant to the analysis of problems of inflation or deflation and the balance of payments deficit and surplus and are very useful for the formulation of financial and monetary policies; and (2) that the assembly and the publication in one place of such statistics are helpful for the authorities of the member concerned, the Fund, and others interested in monetary and payments problems. By concentrating on the publication of bulletins, the Fund’s technical assistance work, it was believed, would have continuity and be more assured of success. A bulletin, once established, would be a “living medium.”
The program was designed to make use of the staff of the Bureau of Statistics rather than of outside experts. It represented an extension of the regular work of the Bureau in reviewing national bulletins and in sharing with the technicians of member governments the experience of the Bureau’s staff in organizing statistics so that data could be made useful for analyzing monetary problems. Over a 12-month period, participating central banks received four staff visits of 2 weeks’ duration each; two visits were concerned with money and banking statistics, one with government finance statistics, and one with general statistics. About 20 central banks a year could be assisted, of which 15 would be central banks for which aid was initiated during the year and 5 would be central banks for which assistance had been previously begun.
In the first year of the program, ended early in 1970, 94 visits were made to 26 central banks. In the second year, roughly comparable to the calendar year 1970, 13 staff members from the Bureau of Statistics and, by special arrangement, 2 staff members from the Western Hemisphere Department made a total of 57 visits to 15 central banks. During 1971 the program involved 74 visits to 21 central banks. These visits involved intensive evaluation of existing statistical bulletins and examination of ways in which available data could be improved or new statistics assembled.
From the start of the program early in 1969 until the end of 1971, 48 members received assistance in the compilation and presentation of statistics for central bank bulletins. Several central banks were publishing bulletins where none had existed before, and several were bringing out substantially improved bulletins more frequently than they had before.
The scope of the technical assistance work of the Bureau of Statistics was being broadened as 1971 came to a close. The Bureau of Statistics, in cooperation with the Fiscal Affairs Department, was inaugurating a project for the assembly and eventual publication of government finance statistics, and a Government Finance Statistics Division was being set up in the Bureau of Statistics. The project reflected an increasing concern of the Fund both with government finance statistics and with members’ fiscal, as distinct from monetary, policies and was aimed at establishing standard formats designed to produce greater uniformity in the ways in which national government finance statistics could be presented.
General Technical Assistance
Specialized help in central banking, fiscal affairs, and statistics made up what might be termed the Fund’s systematic programs of technical assistance: requests were received and filled more or less on a regular basis. In addition, the Fund over the years gave assistance to members asking for help on an ad hoc basis. In 1966–71 members asked and obtained technical assistance from the Fund, for example, to reform exchange rate systems; to simplify exchange control or customs duty procedures; to reduce or eliminate exchange restrictions; to alter interest rate structures; to revise interest rate policies; to evaluate current economic and financial conditions; to revamp monetary policies; to consider national debt problems; to implement stabilization programs; and even to prepare for membership in the Fund. One member requested that a study be made of the feasibility of establishing a local bond market. Another wanted assistance in setting up a small library of the best materials on money and finance.
In response to members’ requests, staff personnel frequently made short visits, that is, for a few days, a few weeks, or at most a few months, to give technical advice. In addition, as part of a complex of arrangements between some members and the Fund, usually involving stand-by arrangements, staff representatives were stationed for at least six months but more commonly for a year or two in many member countries as resident representatives or as advisors in other capacities. Many of the long-term residency assignments were carried forward after the lapse of the period originally agreed upon, and the staff representatives initially assigned were replaced by others. Depending on the nature of the request and on the current availability of staff, these short-term technical assistance and long-term residency assignments were filled by staff from the Fund’s five Area Departments, the Exchange and Trade Relations Department, the Joint Bank-Fund Library, the Legal Department, and the Research Department. Occasionally, the Administration Department and the Treasurer’s Department also provided staff for technical assistance assignments.
Like the Fund’s programs of specialized technical assistance, these other forms of technical aid expanded after mid-1960 as did the number of staff representatives stationed in member countries. During the years 1966 through 1971 the countries in which long-term staff representatives resided included many Latin American members (Argentina, Bolivia, Costa Rica, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama, Paraguay, Peru, and Uruguay), several African members (Ghana, Liberia, Mali, Sierra Leone, Somalia, and the Sudan), and several Asian members (Afghanistan, Indonesia, Korea, Laos, and the Philippines). The members receiving short-term technical assistance, other than that described in previous sections of this chapter, included Costa Rica, El Salvador, Ethiopia, Indonesia, Kenya, the Khmer Republic, Laos, Malaysia, Morocco, Nicaragua, Peru, Singapore, Togo, Trinidad and Tobago, and Viet-Nam. Aid was also given to the nonmetropolitan territories of British Honduras and the Netherlands Antilles.
Special Program for Zaïre Ended
The special program of technical assistance to Zaïre (formerly the Democratic Republic of Congo) with which the Fund had been preoccupied since June 1960 was phased out in 1967 and 1968.8 Six experts were on duty under this program in the course of 1966, but four of the appointments involved were allowed to expire during the year. Of the remaining two experts under the program, one completed his assignment in June 1967 and the other in February 1968. The Fund then supplied several experts through the Central Banking Service. Experts under the auspices of the Central Banking Service were still on duty in Zaïre at the end of 1971.
Growth of IMF Institute
The training of officials was another important and growing part of the Fund’s assistance to its members in the years 1966–71. This training was carried out through the IMF Institute, with the object of enabling participants in the training programs of the Institute to discharge their responsibilities more effectively after they returned to their home countries.9 Although the great majority of participants in the Institute’s training courses were from developing members, there were also some from industrial members.
As more space in the Fund’s headquarters became available to the Institute, it was able to add to the courses offered, to lengthen the duration of courses offered, and to enroll more participants. As the period here reviewed came to a close, the five courses offered each year had been increased to seven, and the number of participants had risen to about 175 a year.
At the end of 1971 the main course offered continued to be that on Financial Analysis and Policy. It was conducted each year for 20 weeks in English, French, and Spanish, in effect constituting three courses. The principal aims of the course were to examine the modern tools used in economic analysis and how they were applied to policy problems; to survey the instruments of monetary, fiscal, and balance of payments policies; and to assess their effectiveness in achieving given policy objectives in various economic circumstances. The course was progressively reoriented so as to place more emphasis on experience and practice, particularly on the experience accumulated by the Fund in dealing with developing countries.
The Institute continued also to provide two shorter courses. An 8-week course on Balance of Payments Methodology was held in collaboration with the Balance of Payments Division of the Research Department in English, French, and Spanish, but in only two of the languages in each year. This course concentrated on the balance of payments concepts and definitions used in the Fund’s Balance of Payments Manual and aimed at assisting members to improve their balance of payments statistics. The sessions took up such questions as the coverage of real and financial assets, the double-entry accounting system, and such fundamentals of balance of payments recording as valuation, timing, and the choice of a unit of account.
The other, a 10-week course on Public Finance, first offered in English in 1967, repeated in 1969 and 1970, and offered in French in 1971, was organized in cooperation with the Fiscal Affairs Department and covered the objectives, instruments, and procedures of public finance, with special attention to the fiscal problems of developing countries. It covered, for instance, the requirements that a tax system should meet; tax administration; the procedures and techniques of budget formulation, execution, and control; and the role of fiscal policy in relation to economic development and stability.
By the end of the fiscal year 1971/72 the IMF Institute, since its inception in 1964, had conducted 40 courses, which were attended by 906 participants from 111 member countries.
During 1971 the Fund purchased outright two apartment buildings adjacent to one another and about half a mile from the headquarters building. The Fund had previously rented one of these buildings on behalf of both the Fund and the World Bank to house participants of the IMF Institute and the Bank’s Economic Development Institute. The expanded facilities could house 80 instead of 50 participants. The World Bank continued to rent part of the space from the Fund. Toward the end of 1971 it was decided to renovate the older of the two apartment buildings. The larger instructional space in the Fund’s hew headquarters, to be opened in a year or two, and the additional housing space would enable the Institute, for the first time, to hold three courses simultaneously. Thus eight courses for approximately 200 participants could be conducted during a given year.
In addition to its regular courses, the Institute provided lectures to other training institutes from time to time. In the years 1966–71 staff members gave lectures, for example, in the training program of the Center for Latin American Monetary Studies (cemla) in Mexico City and arranged a program of lectures for cemla participants during their visit to Washington. Several staff members gave lectures at the Latin American Institute for Economic and Social Planning in Santiago, Chile; at the African Institute for Economic Development and Planning in courses held in Abidjan, Ivory Coast; Cairo, Egypt; Lomé, Togo; and other African countries; and at the Asian Institute for Economic Development and Planning in Bangkok, Thailand. During the years reviewed here, the IMF Institute also received groups of officials, bankers, professors, and students from member countries, and provided them with lectures and source material.
El Salvador, Guatemala, Mexico, Panama, and the United States assumed the obligations of Article VIII, Sections 2, 3, and 4, shortly after the Fund came into existence, and Canada, the Dominican Republic, Haiti, and Honduras did so in the early 1950s. In 1961–62 Austria, Belgium, France, the Federal Republic of Germany, Ireland, Italy, Luxembourg, the Netherlands, Peru, Saudi Arabia, Sweden, and the United Kingdom took up Article VIII obligations, followed in 1963–65 by Australia, Costa Rica, Jamaica, Japan, Kuwait, and Nicaragua.
Following the pattern that began on April 1, 1952, the Fund’s “consultation year” continued to run from April 1 to March 31 of each year until March 31, 1972, when it was then decided that confusion between the calendar year and the consultation year should be avoided by making the two coincide. The consultation year 1973 was accordingly made “a nine-month year” to end on December 31, 1973, so that the 1974 consultation year could start on January 1, 1974.
This description of trends in members’ restrictions is necessarily very brief. Since 1952 the Fund has published an Annual Report on Exchange Restrictions describing in detail the exchange system of each member and containing several pages summarizing the main developments in restrictions for the year. For the situation at the end of 1971, see Twenty-Third Annual Report on Exchange Restrictions (1972).
Statement by the Governor of the World Bank for the Netherlands, Summary Proceedings, 1970, pp. 97–98.
See History, 1945–65, Vol. I, pp. 185–86, 286–87, 391–94, 428, 545, and 551–54.
The Statistics Division was separated from the Research and Statistics Department and became the Bureau of Statistics on May 1, 1968.
See History, 1945–65, Vol. I, pp. 551–52.
The origin of the IMF Institute in 1964 and the evolution of its program through the fiscal year 1969/70 were described in History, 1945–65, Vol. I, pp. 554–55 and 604.