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IMF History (1972-1978) Volume 3
Chapter

Communiqués of the Committee of Twenty

Author(s):
International Monetary Fund
Published Date:
February 1996
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The communiqués that were issued by the ad hoc Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) are reproduced below.

September 28, 1972

1. The Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues (the Committee of Twenty) held its inaugural meeting in Washington, D.C., on September 28, 1972. The Committee consists of one member appointed by each country or group of countries appointing or electing an executive director of the Fund, with the participation of Mr. Pierre-Paul Schweitzer, the Managing Director of the Fund. Each member of the Committee may appoint two associates. A list of the members of the Committee and their associates is attached to this communiqué.1

2. The inaugural meeting was convened by the Chairman of the Board of Governors, Mr. Ali Wardhana, to organize the work of the Committee. At the meeting, the Committee selected Mr. Ali Wardhana to serve as its Chairman.

3. In its task of advising the Board of Governors with respect to all aspects of reform of the international monetary system, the Committee will be assisted by the Deputies, who are composed of two deputies appointed by each member of the Committee. Mr. C. J. Morse was selected by the Committee to be Chairman of the Deputies.

4. The Committee took note of the Report of the Executive Directors on Reform of the International Monetary System.2 They exchanged views on the future work of the Committee, and expressed their determination to make rapid progress toward agreement on reform of the international monetary system. They requested the Deputies to develop promptly a program of work in preparation for a meeting which the Committee expects to hold about the end of this year. The Chairman of the Deputies will inform the Chairman of the Committee after each meeting of the Deputies of the progress they have made. The first meeting of the Deputies is to take place on September 29, 1972.

March 27, 1973

1. The Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues (the Committee of Twenty) held their second meeting in Washington on March 26 and 27, 1973, under the chairmanship of Mr. Ali Wardhana, Minister of Finance for Indonesia. By the courtesy of the Organization of American States the meeting was held in the Pan American Union Building. Mr. Pierre-Paul Schweitzer, Managing Director of the International Monetary Fund, took part in the meeting, which was also attended by Mr. Wilhelm Haferkamp, Vice-President of the eec, Mr. René Larre, General Manager of the bis, Mr. Emile van Lennep, Secretary-General of the oecd, Mr. Olivier Long, Director-General of the gatt, Mr. Manuel Pérez-Guerrero, Secretary-General of the Unctad, and Sir Denis Rickett, Vice President of the ibrd.

2. The Committee received a report in which the Chairman of their Deputies, Mr. Jeremy Morse, summarized the Deputies’ discussions to date on the adjustment process and exchange rate mechanism, reserve assets and convertibility, and capital flows.

3. The members of the Committee reaffirmed the need for a world monetary order, based on cooperation and consultation within the framework of a strengthened International Monetary Fund, that will encourage growth of world trade and employment as well as economic development and will support the domestic efforts of monetary authorities throughout the world to counteract inflation.

4. The members of the Committee exchanged views on the substance of international monetary reform in the light of recent developments in exchange markets and of countries’ policy reactions to these developments, and instructed their Deputies to take account of these events and their implications in their continuing work. The members of the Committee recognized that the various elements of reform are interlinked. Their discussion of a reformed system centered on the following points:

  • (a) There should be a better working of the adjustment process, in which adequate methods to assure timely and effective balance of payments adjustment by both surplus and deficit countries would be assisted by improved international consultation in the Fund including the use of objective indicators. It was noted that the Deputies are establishing a technical group on indicators. The importance of effective domestic policies for balance of payments adjustment was underlined. Members of the Committee recognized that exchange rates must be a matter for international concern and consultation and that in the reformed system the exchange rate regime should remain based on stable but adjustable par values. It was also recognized that floating rates could provide a useful technique in particular situations. There was also general agreement on the need for exchange market stability and on the importance of Fund surveillance of exchange rate policies.

  • (b) There should be better international management of global liquidity. The role of reserve currencies should be reduced and the SDR should become the principal reserve asset of the reformed system. The Deputies were asked to study further the conditions for a resumption of general convertibility, including questions relating to consolidation of excess reserve currency balances and to methods of settlement.

  • (c) An intensive study should be made of effective means to deal with the problem of disequilibrating capital flows by a variety of measures, including controls, to influence them and by arrangements to finance and offset them. It was noted that the Deputies are establishing a technical group on disequilibrating capital flows, including those associated with Euro-currency markets.

  • (d) There should be a strong presumption against the use of trade controls for balance of payments purposes. Developing countries would, however, be exempt wherever possible from trade and capital controls imposed by other countries and their particular circumstances would be taken into account in assessing controls that they themselves felt it necessary to apply.

5. The members of the Committee recognized the concerns of developing countries under current conditions and their interests in a reformed system. They affirmed the desirability on the occasion of the reform of promoting economic development and the flow of real resources from developed to developing countries.

6. The Committee approved their Deputies’ program of future work. In directing the attention of the Deputies to those aspects of reform which have an important bearing on the current situation, they recognized that procedures are already established for coordinating the work of the Executive Directors of the Fund with that of the Deputies. They noted that the Deputies plan to expand their meeting schedule and to intensify their work between meetings, and they instructed the Deputies to proceed urgently with the preparation of a draft outline of the reform, in which the major issues would be presented to the Committee for decision.

7. The Committee will meet again at a time to be proposed by the Chairman in the light of the progress of the Deputies’ work.

January 18, 1974

1. The Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues (the Committee of Twenty) held their fifth meeting, in Rome, on January 17 and 18, 1974, under the chairmanship of Mr. Ali Wardhana, Minister of Finance for Indonesia. Mr. Johannes Witteveen, Managing Director of the International Monetary Fund, took part in the meeting, which was also attended by Mr. Wilhelm Haferkamp, Vice-President of the eec, Mr. René Larre, General Manager of bis, Mr. Emile van Lennep, Secretary-General of the oecd, Mr. Olivier Long, Director-General of the gatt, Mr. Manuel Pérez-Guerrero, Secretary-General of the Unctad, and Sir Denis Rickett, Vice President of the ibrd.

2. Members of the Committee began by reviewing important recent developments, including the large rise in oil prices and the implications for the world economy. They expressed serious concern at the abrupt and significant changes in prospect for the world balance of payments structure. They recognized that the current account surpluses of oil producing countries would be very greatly increased, and that many other countries—both developed and developing—would have to face large current account deficits. In these difficult circumstances the Committee agreed that in managing their international payments, countries must not adopt policies which would merely aggravate the problems of other countries. Accordingly, they stressed the importance of avoiding competitive depreciation and the escalation of restrictions on trade and payments. They further resolved to pursue policies that would sustain appropriate levels of economic activity and employment, while minimizing inflation. They recognized that serious difficulties would be created for many developing countries and that their needs for financial resources will be greatly increased; and they urged all countries with available resources to make every effort to supply these needs on appropriate terms. The Committee agreed that there should be the closest international cooperation and consultation in pursuit of these objectives. They noted that the International Monetary Fund, the World Bank, and other international organizations are concerned to find orderly means by which the changes in current account positions may be financed, and they urged that these organizations should cooperate in finding an early solution to these questions, particularly in relation to the difficult problems facing non-oil producing developing countries. In particular, while recognizing the uncertainties with regard to future developments in the field of energy, the Committee agreed that the proposal of the Managing Director of the International Monetary Fund for a temporary supplementary facility should be urgently explored. It is recognized that such a facility poses operational problems which must be resolved and would, particularly for non-oil producing developing countries, be only a partial measure, in view of the nature and magnitude of the balance of payments problems created.

3. The Committee expressed its determination to complete its work on the main features of a reformed international monetary system in the coming months. They recognized that, in the light of the recent developments in the world economy noted above, priority should be given to certain important aspects of reform affecting the interests both of developed and developing countries, with a view to their early implementation. Other aspects of reform could be agreed with the understanding that their operational provisions would be developed and implemented at a later date. The Committee agreed that the Deputies should arrange to study the broad question of the transfer of real resources, including all aspects of capitial transfers, and that there should be a report to the next meeting of the Committee.

4. The Committee discussed the valuation and yield of the SDR. They agreed that futher attention should be given to the question of protecting the SDR’s capital value against depreciation. In the present circumstances the Committee agreed that, for an interim period and without prejudice to the method of valuation to be adopted in the reformed system, it would be appropriate to base the valuation of the SDR on a “basket” of currencies. They invited the Executive Board to work urgently on the composition of a basket of currencies, the effective interest rate, and other outstanding questions, with a view to early adoption by the Fund of this method of valuation.

5. The Committee discussed certain aspects of the future structure of the International Monetary Fund. They agreed that in the reformed system it would be desirable to establish, between the full Board of Governors and the Executive Directors, a permanent and representative Council of Governors with twenty members. They agreed that the Council should meet regularly, three or four times a year as required, and should have the necessary decision-making powers to manage and adapt the monetary system, to oversee the continuing operation of the adjustment process, and to deal with sudden disturbances which might threaten the system, while maintaining the role of the Executive Board. As an interim step, pending the establishment of the Council, it was agreed that a Committee of the Board of Governors should be created, with an advisory role in the same areas as the Council and with the same composition and procedures. This Committee would come into being when the Committee of Twenty has completed its work. The Executive Board was invited to prepare for the Board of Governors a draft resolution to create such a Committee, giving due consideration to the need for adequate consultative machinery and the protection of the interests of all Fund members.

6. The Committee received reports form the Chairman of the Deputies on the progress of the Technical Groups set up after the Nairobi meeting and urged them to complete their work if possible before the next meeting of the Deputies. They also received a report on the Deputies’ preliminary discussion of conditions and rules for floating in the reformed system. They instructed the Deputies, in cooperation with the Executive Board, to continue to work on these questions and to report to the next meeting of the Committee.

7. The Committee discussed their future program. They agreed that, following meetings of the Deputies in March and May, the Committee would aim to complete its work on the reform at a meeting to be held in Washington on June 12-13, 1974.

June 13, 1974

1. The Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues (the Committee of Twenty) held its sixth and final meeting in Washington on June 12-13, 1974, under the chairmanship of Mr. Ali Wardhana, Minister of Finance for Indonesia. Mr. Johannes Witteveen, Managing Director of the International Monetary Fund, took part in the meeting, which was also attended by Mr. Gamani Corea, Secretary-General of the Unctad, Mr. Frederic Boyer de la Giroday, Director of Monetary Affairs of the eec, Mr. René Larre, General Manager of the bis, Mr. Emile van Lennep, Secretary-General of the oecd, Mr. Olivier Long, Director-General of the gatt, and Sir Denis Rickett, Vice President of the ibrd.

2. The Committee concluded its work on international monetary reform; agreed on a program of immediate action; and reviewed the major problems arising from the current international monetary situation.

3. The program of immediate action is as follows;

  • (a) Establishment of an Interim Committee of the Board of Governors of the Fund with an advisory role, pending establishment by an amendment of the Articles of Agreement of a Council with such decision-making powers as are conferred on it.

  • (b) Strengthening of Fund procedures for close international consultation and surveillance of the adjustment process.

  • (c) Establishment of guidelines for the mangement of floating exchange rates.

  • (d) Establishment of a facility in the Fund to assist members in meeting the initial impact of the increase in oil import costs.

  • (e) Provision for countries to pledge themselves on a voluntary basis not to introduce or intensify trade or other current account measures for balance of payments purposes without a finding by the Fund that there is balance of payments justification for such measures.

  • (f) Improvement of procedures in the Fund for management of global liquidity.

  • (g) Further international study in the Fund of arrangements for gold in the light of the agreed objectives of reform.

  • (h) Adoption for an interim period of a method of valuation of the SDR based on a basket of currencies and of an initial interest rate on the SDR of 5 per cent.

  • (i) Early formulation and adoption of an extended Fund facility under which developing countries would receive longer-term balance of payments finance.

  • (j) Reconsideration by the Interim Committee, simultaneously with the preparation by the Executive Board of draft amendments of the Articles of Agreement, of the possibility and modalities of establishing a link between development assistance and SDR allocation.

  • (k) Establishment of a joint ministerial Committee of the Fund and the World Bank to carry forward the study of the broad question of the transfer of real resources to developing countries and to recommend measures.

  • (l) Preparation by the Executive Board of draft amendments of the Articles of Agreement for further examination by the Interim Committee and for possible recommendation at an appropriate time to the Board of Governors.

These measures are described in more detail in the statement attached to this communiqué.

4. Members of the Committee expressed their serious concern at the acceleration of inflation in many countries. They agreed on the urgent need for stronger action to combat inflation, so as to avoid the grave social, economic, and financial problems that would otherwise arise. They recognized that, while international monetary arrangements can help to contain this problem, the main reponsibility for avoiding inflation rests with national governments. They affirmed their determination to adopt appropriate fiscal, monetary, and other policies to this end. In the discussion members of the Committee urged that the multilateral trade negotiations in the framework of the gatt should continue to be regarded as a matter of priority.

5. The Committee noted that, as a result of inflation, the energy situation, and other unsettled conditions, many countries are experiencing large current account deficits that need to be financed. The Committee recognized that sustained cooperation would be needed to ensure appropriate financing without endangering the smooth functioning of private financial markets and to avert the danger of adjustment action that merely shifts the problem to other countries. Particular attention was drawn to the pressing difficulties of the most severely affected developing countries. Members of the Committee therefore strongly emphasized their request to all countries with available resources and to development finance institutions to make every effort to increase the flow of financial assistance on concessionary terms to these countries.

6. In concluding its work on international monetary reform, the Committee agreed to transmit a final Report on its work, together with an Outline of Reform, to the Board of Governors. These documents will be published shortly.3

Detailed Statement of Immediate Steps to Assist the Functioning of the International Monetary System

Introduction

1. The Committee recognizes that it will be some time before a reformed system can be finally agreed and fully implemented. It therefore proposes that, in the interim period, the Fund and member countries should pursue the general objectives set out in paragraph 1 of the Outline and should observe, so far as they are applicable, the principles contained in Part I of the Outline. It further proposes that a number of steps should be taken immediately to begin an evolutionary process of reform and to help meet the current problems facing both developed and developing countries, and calls upon members to collaborate with the Fund and with each other to give effect to those proposals as set out below.

Interim Committee of the Board of Governors on the International Monetary System

2. The Committee recommends the establishment of an Interim Committee of the Board of Governors on the International Monetary System, with an advisory role in those areas in which the Council referred to in paragraph 31 of the Outline will have decision-making powers, namely, in supervising the management and adaptation of the monetary system, overseeing the continuing operation of the adjustment process, and dealing with sudden disturbances which might threaten the system. It notes that the Executive Directors are accordingly preparing for adoption by the Board of Governors a resolution to establish the Interim Committee. It is envisaged that the new Committee will hold its first meeting at the time of the Annual Meeting in September.

The adjustment process

3. The Committee recognizes that in the interim period, with significant changes in prospect for the world balance of payments structure, there is a need for close international consultation and surveillance of the adjustment process. It recommends that countries should be guided in their adjustment action by the general principles set out in paragraph 4 of the Outline. It calls upon members to cooperate with one another and with international institutions, during the current period of exceptional and widespread payments imbalances, to find orderly means to deal with these imbalances without adopting policies that would aggravate the problems of other countries, and to promote equilibrating capital flows: in this connection the Committee has endorsed the immediate establishment of a facility in the Fund to assist members in meeting the initial impact of the increase in oil import costs. The Committee calls upon the Fund to exercise surveillance of the adjustmnt process through the Council (or, for the time being, the Interim Committee of the Board of Governors) and the Executive Directors, on the lines of the procedures set out in paragraphs 5-10 of the Outline, and subject for the time being to the following provisos, namely that:

  • (a) the Fund will seek to gain further experience in the use of objective indicators, including reserve indicators, on an experimental basis, as an aid in assessing the need for adjustment, but will not use such indicators to establish any presumptive or automatic application of pressures;

  • (b) determination of what is a disproportionate movement in reserves will be made in the light of the broad objectives of member countries for the development of their reserves over a period ahead, as discussed with the Fund; and

  • (c) the pressures which may be applied to countries in large and persistent imbalance will continue to be those at present available to the Fund.

Exchange rates

4. The Committee stresses that, during the interim period, exchange rates will continue to be a matter for international concern and consultation and attaches particular importance to the avoidance of competitive depreciation or undervaluation. The Committee notes with satisfaction that in accordance with its recommendation the Executive Directors are adopting a decision on guidelines for the management of floating exchange rates during the present period of widespread floating.

Controls

5. The Committee recommends that, during the interim period, countries should be guided by the principles set out in paragraphs 14-17 of the Outline in relation to controls and to cooperative action to limit disequilibrating capital flows. The Committee attaches particular importance to the avoidance of the escalation of restrictions on trade and payments for balance of payments purposes during the interim period. The Committee invites members to subscribe on a voluntary basis to the Declaration concerning trade and other current account measures for balance of payments purposes.4 The Committee invites the Executive Directors to establish the necessary procedures in connection with the Declaration, and to make arrangements for continuing close coordination with the gatt.

Global liquidity

6. (a) The Committee calls upon members to cooperate with the Fund during the interim period in seeking to promote the principle of better management of global liquidity as set out in paragraph 2(d) of the Outline. It recommends that the Fund should assess global reserves and take decisions on the allocation and cancellation of SDRs in accordance with paragraph 25 of the Outline, and should periodically review the aggregate volume of official currency holdings in accordance with paragraph 19 of the Outline and, if they are judged to show an excessive increase, should consider with the countries concerned what steps might be taken to secure an orderly reduction.

(b) The Committee further recommends that the Fund should give consideration to substitution arrangements.

(c) Finally, the Committee recommends that there should be further international study in the Fund of arrangements for gold in the light of the agreed objectives of reform.

Valuation of the SDR

7. The Committee notes with satisfaction that, following its recommendation concerning the interim valuation and interest rate of the SDR, the Executive Directors are adopting decisions on these questions.

The special interests of developing countries

8. The Committee recognizes the serious difficulties that are facing many developing countries, and agrees that their needs for financial resources will be greatly increased. It urges all members with available resources to make every effort to supply these needs on appropriate terms. To this end it calls upon countries with available resources and upon development finance institutions to make arrangements to increase the flow of concessionary funds, and to give consideration to various measures, including the redistribution of aid effort in favor of countries in greatest need, interest subsidies, and short-term debt relief on official loans in the special case of countries without access to financial markets. The Committee urges the Executive Board to proceed to an early formulation and adoption of a new facility in the Fund under which developing countries would receive longer-term balance of payments finance. The Committee is not unanimous on the question of establishing a link between development assistance and SDR allocation. The Committee is agreed that the Interim Committee should reconsider, simultaneously with the preparation by the Executive Board of draft amendments of the Articles of Agreement, which it is envisaged would be presented for the approval of the Board of Governors by February 1975, the possibility and modalities of establishing such a link.

Ministerial committee on the transfer of real resources

9. The Committee recommends the establishment of a joint ministerial committee of the Fund and the World Bank to carry forward the study of the broad question of the transfer of real resources to developing countries, and to recommend measures to be adopted in order to implement its conclusions. It invites the Managing Director to discuss with the President of the World Bank the preparation of appropriate parallel draft resolutions on the establishment of such a joint ministerial committee for adoption by the respective Boards of Governors. It recommends that the joint ministerial committee should also give urgent attention to the problems of the developing countries most seriously affected by exceptional balance of payment difficulties in the current situation, bearing in mind the need for coordination with other international bodies, and that preparatory work on this aspect should be started immediately, in advance of the establishment of the committee.

General review of quotas

10. The Committee notes that work has started on the current general review of Fund quotas and urges the Executive Directors to complete their work as soon as possible, bearing in mind the general purposes of the reform.

Amendments of the Articles of Agreement

11. The Committee has asked the Executive Board to prepare draft amendments of the Articles of Agreement, as needed to give effect to Part II of the Outline or as otherwise desired, for further examination by the Interim Committee, and for possible recommendation at an appropriate time to the Board of Governors. In particular, draft amendments should be prepared on the following proposals:

  • (a) to establish the Council referred to in paragraph 31 of the Outline;

  • (b) to enable the Fund to legalize the position of countries with floating rates during the interim period;

  • (c) to give permanent force to the voluntary pledge described in paragraph 5 above concerning trade or other current account measures for balance of payments purposes,

  • (d) to authorize the Fund to establish, as and when agreed, a substitution account;

  • (e) to amend the present provisions concerning gold;

  • (f) to authorize the Fund to implement a link between development assistance and SDR allocation; and

  • (g) to introduce improvements in the General Account and in the characteristics of and rules governing the use of the SDR, as well as any other consequential amendments.

It is envisaged that such draft amendments, if agreed, would be presented for the approval of the Board of Governors at latest by the date fixed for completion of the current general review of Fund quotas, i.e., by February 1975.

The list has been omitted here. The list, as well as a list of those attending the meetings of the Committee, may be found in International Monetary Reform: Documents of the Committee of Twenty (Washington: International Monetary Fund, 1974).

Above, pp. 19-56.

The Report and the Outline of Reform were made public the following day, i.e., on June 14, 1974. See above, pp. 165-96.

See Appendix to Part II of the Outline, above, p. 176-77.

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