Chapter 28. A Supplementary Financing Facility
- International Monetary Fund
- Published Date:
- February 1996
SUPPLEMENTARY FINANCING was Mr. Witteveen’s answer to the anticipated delay in getting quotas enlarged. He proposed that the Fund temporarily borrow from any member in a position to lend to “supplement” the funds that the Fund could make available to members under existing quotas. This was an innovative and imaginative idea, although for the Fund to augment its own resources by borrowing was not new. The Fund had already done so through the General Arrangements to Borrow and for the oil facility. What was new was that the Fund was to borrow not for exceptional circumstances, but because its own quotas and resources were insufficient, albeit temporarily. By proposing that the Fund borrow for a supplementary financing facility, Mr. Witteveen was giving importance to borrowing as a means of obtaining money for the Fund. The Fund was becoming a major financial intermediary, borrowing from some members to lend to others.
The proposal for a supplementary financing facility was so identified with Mr. Witteveen that it was originally referred to as the “Witteveen facility.”
WORKING OUT THE PROPOSAL AND GAINING SUPPORT
Mr. Witteveen, surveying the situation at the end of 1976, feared that the Fund would run short of resources. Drawings in 1976 were nearing SDR 7 billion, largely because drawings under the compensatory financing facility both by developing members and by the more developed primary producing members were numerous after the liberalization of the facility in December 1975. The extended facility that had been introduced in 1974 was also beginning to be used. In addition, Italy and the United Kingdom were deep in discussions with Fund officials for stand-by arrangements totaling close to SDR 4 billion. Many more members were expected to turn to the Fund for stand-by arrangements. The Fund’s oil facility had expired, and public officials and senior officers of commercial banks were concerned, just as they had been in late 1974 and in 1975, that the private banking system could no longer make extensive credit available.
The increases agreed under the Sixth General Review would augment the Fund’s total quotas by only SDR 10 billion. In any event, the prospect for making these quota increases effective quickly was already dim. Members were slow in consenting to the increases and equally slow in approving the Second Amendment necessary for these quota increases to take effect. While the Seventh General Review of Quotas, just getting under way, was likely to yield a larger general increase, getting agreement on those quota increases and on making them effective could take close to two years, as had happened in the Fourth, Fifth, and Sixth General Reviews of Quotas.
In proposing the supplementary financing facility in February 1977, Mr. Witteveen wished to make it possible for a member to draw on the credit tranches in amounts well beyond the limit of 245 percent of quota, agreed in January 1976, which temporarily extended the previous limit of 200 percent of quota. In certain circumstances, access to the supplementary credit alone might be a multiple of a member’s quota, depending on the Fund’s judgment of the member’s need for financing. Conditionality in the first tranche and in the upper credit tranches would be maintained. Following the pattern proposed for the stand-by arrangement with the United Kingdom being discussed at the end of 1976, stand-by arrangements were to be agreed for two years rather than for the traditional one year. Charges for use of supplementary credit would be high enough to give the Fund a margin of income over the interest it would have to pay for borrowing the funds. Mr. Witteveen assumed that, as in the instance of the oil facility, the Fund would have to pay market rates of interest on borrowed funds.
Borrowing would take place under lines of credit that the Fund would seek to establish with governments or central banks of members in strong external payments positions that could readily lend to the Fund in case of need. Repurchases might have to be effected over a longer period than the customary three to five years, and probably up to seven years as in the oil facility. The arrangement would be temporary, terminating when the increase in quotas under the Seventh General Review became effective. Mr. Witteveen wanted the facility to be large enough that confidence in the Fund and in the financial system could be maintained. If the facility was too small, heavy use might give both public and private financial officials the impression that the Fund was becoming illiquid or unable adequately to respond to requests for drawings. Such an impression could destabilize exchange rates or cause panic among private bankers. As lender of last resort, the Fund had to be regarded as commanding resources commensurate with its needs. Although Mr. Witteveen initially had in mind a target of some SDR 14 billion for the supplementary financing facility, he later revised this figure down to $10 billion (about SDR 8.5 billion). He proposed to borrow about half from major oil producing members and half from industrial members.
By the time the Executive Board discussed his proposal in mid-April 1977, Mr. Witteveen, accompanied by a few staff members, had already visited Riyadh and Kuwait City to discuss with Saudi Arabian and Kuwaiti officials the possibility of borrowing for this supplementary financing facility and had ascertained their willingness. Many Executive Directors were receptive to his proposal and had a number of reasons for supporting the facility, depending on their points of view. First, the Fund’s liquidity was inadequate. Second, in accordance with the function established in connection with the oil facility, the Fund should serve as a financial intermediary between members with large payments surpluses and those with large deficits. Channeling greater financial assistance through the Fund, which helped members adopt appropriate policies, helped balance of payments adjustment so that imbalances in world payments would gradually be reduced. It was imperative for members to reduce their payments deficits because the foreign debt that could be accumulated was limited.
Third, the credit that the Fund could provide had declined steeply over time, especially relative to members’ external payments imbalances. Many members were making little use of the Fund because of the limited amounts of money that the Fund could make available. As noted in the previous chapter, public officials were reluctant to undertake the politically unpopular austerity programs needed for balance of payments adjustment and required as a condition for financial support from the Fund if in return they obtained only limited financial assistance. It was therefore urgent that the Fund find ways for members to draw supplementary amounts substantially larger than the limit at that time of 245 percent of quota. Fourth, the Fund was in a good position to borrow. It could readily establish lines of credit, and with the experience gained from the gab and the oil facility, it could negotiate borrowing arrangements reasonably favorable to the Fund.
These Executive Directors also had ideas about specific features they preferred in any new borrowing arrangements. In particular, borrowing arrangements should be more convenient than those of the gab, under which minor amendments, as well as renewal, had to be approved by all ten participants and involved cumbersome and time-consuming parliamentary procedures in some participating countries. For this reason, bilateral borrowing arrangements between the Fund and individual lending governments or central banks, such as had been used for the oil facility, were decidedly preferable to any general borrowing arrangements with a group of countries. The Fund should assure its lenders that they would receive in exchange claims against the Fund that could be considered liquid reserve assets comparable to creditor positions in the Fund. The facility should be open-ended so that other countries could lend to the Fund if improvements in their balance of payments and reserve positions permitted them to do so.
Messrs. Cross and Matsunaga, however, were uneasy about the proposed supplementary financing facility. They were concerned that the Managing Director might be exaggerating the need for the Fund to enlarge its role in financing balance of payments deficits. In their view, the bulk of payments deficits was being financed by private credit and should continue to be so financed. They regarded the Fund’s role as not to replace private financing with official financing but to safeguard the international monetary system from excessive instability. Mr. Whitelaw, moreover, cautioned the Executive Directors against proposing features for the supplementary financing facility that might make members reluctant to use it. Some Executive Directors favored upper credit tranche conditionality. Others wanted to set charges higher than market-related interest rates to allow the Fund a service charge. Still others suggested that members draw on their regular second, third, and fourth credit tranches before having access to the supplementary financing facility. Were the facility to have all these features, Mr. Whitelaw asked, what incentive would there be for members to use it? Despite their differences, the Executive Directors were able to agree on a report to the Interim Committee outlining the main features of a supplementary credit facility. These features related to the size of a facility (about SDR 14 billion), its open-endedness (additional members could lend to the Fund for the facility), the magnitude of access to the facility, conditionality and charges associated with its use, the repayment period, and provisions for ensuring that the claims of lenders were sufficiently liquid.
When the deputies of the Group of Ten met in April 1977, most supported the proposed supplementary financing facility, some warmly. A few were concerned about the relation between the proposal for supplementary financing in the Fund and an earlier proposal for a financial support fund in the oecd (the “safety net” proposal), which staff members of the oecd had been pushing.1 The administration in the United States had changed in January 1977 when Jimmy Carter became President, and U.S. officials were more willing to work with the Fund than they had been for several years. The U.S. deputies endorsed the creation of a new financial arrangement in the Fund rather than in the oecd for a number of reasons. Unlike the financial support fund, proposed by the previous U.S. Administration and to be financed by borrowing from private markets, the Fund’s proposal for a supplementary financing facility involved borrowing almost equal amounts from members of opec and from industrial members. Participation by opec was a virtual precondition to selling any plan to officials of industrial countries. Officials of those industrial countries, especially of the Federal Republic of Germany and of the United States, that would have to provide most of the funds for any financial arrangement argued that opec ought to be the mainstay of the balance of payments support needed by oil importing countries since the decision by opec to raise oil prices created the excessive deficits in the first place.
U.S. officials favored the Fund plan rather than the oecd plan for other reasons as well. The Fund plan covered developing members as well as industrial and relatively more developed members. It was politically important that any plan for financing payments deficits provide some help for non-oil developing countries. Otherwise the United States in particular, with the largest payments deficit among the industrial countries, might appear self-serving in advocating a plan applicable only to industrial and relatively more developed countries. At the same time, the Fund needed a broad arrangement that would also provide financing to industrial countries; the Fund must not seem to be evolving into an aid agency for developing countries. In addition, the financial support fund of the oecd had come to be adversely perceived as a “bailing out” operation for private commercial banks, in which official funds would help countries repay debts owed to commercial banks. Members of the U.S. Congress, which had to authorize U.S. participation in either plan, especially perceived the financial support fund in this way.
Support of U.S. officials in the Group of Ten advanced the supplementary financing facility. One result of the Fund’s supplementary financing facility was that the financial support fund in the oecd, extensively discussed in 1975 and 1976, never came into being. This was an understandable disappointment to Mr. van Lennep, who had initiated the idea independently of U.S. officials, worked hard in developing the plan, and hoped that the oecd would, for the first time, have ample funds available to it.
To advance the discussions, on April 27, 1977, the evening before the meeting of the Interim Committee in Washington, Mr. Witteveen held an informal dinner meeting with the finance ministers and governors of the central banks of countries that he had approached about extending lines of credit to the Fund. The Interim Committee endorsed the proposed supplementary financing facility, welcomed the willingness of countries to lend to the Fund, and urged the Managing Director to complete, as soon as possible, his discussions with potential lenders on terms, conditions, and amounts. The Committee also requested the Executive Directors to take the necessary steps to make the supplementary financing facility operative as soon as possible.2
A UNIQUE MINISTERIAL MEETING
Agreement on the concept of a supplementary financing facility was easy. How to raise the money was more difficult. Despite general skepticism that adequate funds would be forthcoming, Mr. Witteveen persisted. Of the initiatives that he took in his term as Managing Director, none was more audacious than his request to the finance ministers and governors of central banks of the 13 members expected to lend for the supplementary financing facility to meet with him in Paris to discuss the terms and conditions of the loans. The meeting was planned for Saturday, August 6, 1977. Belgium, Canada, the Federal Republic of Germany, Iran, Japan, Kuwait, the Netherlands, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, the United States, and Venezuela were invited. Representatives of the Swiss National Bank also participated. The list of members not invited was interesting. France, Italy, Sweden, and the United Kingdom, which were members of the Group of Ten and which customarily took part in discussions of world economic and financial problems, were not invited. Adding affront to this exclusion was the invitation to many developing countries not previously represented at such gatherings: Iran, Kuwait, Nigeria, Qatar, Saudi Arabia, and Venezuela. The composition of the invitees exemplified a shift in world economic power. The Executive Directors of some members not included in the Paris meeting protested to the Managing Director, warning him to avoid the emergence of “a permanent creditors’ club.”
An aide-mémoire, based on discussions by the Executive Directors about the borrowing arrangements for the facility and its operational features, served as a basis for discussion with the potential lenders. It explained the suggested period of commitment, the relation to regular tranche drawings from the Fund, the conditionality for supplementary credit, the denomination of loans, the interest rate, the transferability of the loan claims on the Fund, charges, and the repayment period.
At the meeting, which involved lengthy morning and afternoon sessions, it was agreed that supplementary credit should be available “in an equitable manner” to meet the needs of members facing difficult payments problems. “A fair and substantial share” of supplementary credit was to be used to assist developing or nonindustrial members, but was not to be made available in such a way that “too large a proportion would be used by only a few members,” a subtle reference to Italy and the United Kingdom that had used sizable amounts of the oil facility and had been recipients a few months earlier of large stand-by arrangements. This understanding and language were used to compensate officials of Saudi Arabia and other Fund members for the rejection of their proposal that borrowings by the Fund should be used exclusively for the benefit of developing members. To ensure that the needs of many members were met, it was agreed that the use of supplementary credit was to be the subject of a report after one year.
The interest rate payable to creditors was a subject of intense discussion and negotiation. Some industrial countries were willing to accept a modest discount from the rate on five-year U.S. Treasury bills, but opec members favored a premium. A reasonable compromise was agreed upon. An initial rate of 7 percent would apply until June 30, 1978. For each period of six months thereafter, the interest rate was to be the average yield for that period for U.S. Government securities with five years to run, rounded upward to the nearest ⅛ of 1 percent. The amounts each country would lend received even greater attention. As the discussion progressed, representatives slipped from the meeting to telephone higher officials in their governments for agreement on how much could be committed.
The amount committed was expected to reach at least SDR 8.435 billion and possibly exceed SDR 8.6 billion ($10 billion), Mr. Witteveen’s target. While commitments were reasonably firm, in some instances they had to be confirmed at the cabinet level or ratified by legislative bodies.
All in all, the response was heartening. Mr. Witteveen’s efforts were crowned with success. In one day, he had managed to borrow $10 billion on terms that involved only commercial considerations, that is, without political concessions, such as changes in Fund quotas or a restriction reserving the use of borrowed resources to developing members. When he reported to the Executive Board a few days later that the $10 billion seemed to be in hand, he was unanimously congratulated by the Executive Directors. A few weeks later, at the 1977 Annual Meeting, he was also to receive the grateful accolades of Governors from both industrial and oil importing developing members.
THE FACILITY AGREED
Although several Executive Directors observed that the finance ministers of a few creditor members had usurped one of the main functions of the Executive Board, making policy on use of the Fund’s resources, the Executive Directors adopted on August 29, 1977 two decisions agreeing to the supplementary financing facility. One decision established the facility; the second set out the borrowing arrangements.3
Under the decision establishing the facility, a member contemplating use of the Fund’s resources in the three credit tranches beyond the first (that is, in the upper credit tranches) that would include supplementary financing was to consult the Managing Director before making a request. The request was to be met only if the Fund was satisfied: (i) that the member needed financing that exceeded the amount available in its four credit tranches, and its problem required a relatively long period of adjustment and a maximum period for repurchase longer than the three to five years under the credit tranche policies; and (ii) that the member’s program would be adequate for the solution of its problem and compatible with the Fund’s policies on the use of its resources in the upper credit tranches or under the extended Fund facility.
Supplementary financing was to be available only if the Fund had approved a stand-by arrangement in the upper credit tranches, or beyond, or an extended arrangement in support of an agreed program. The stand-by or extended arrangement was to be in accordance with the Fund’s policies on conditionality, phasing, and performance criteria. The period of a stand-by arrangement approved under the decision was normally to exceed one year and might extend up to three years in appropriate cases. The period of an extended arrangement was to be in accordance with the decision setting up the extended facility, described in Chapter 19 above.
The amounts available to a member under a stand-by or extended arrangement were to be apportioned in a complicated way between the Fund’s ordinary resources and the amounts obtained by supplementary financing. So long as the size of the first credit tranche remained at 36.25 percent of a member’s quota, that is, until the Second Amendment of the Articles of Agreement became effective, the use of the first credit tranche was not to be accompanied by any use of the supplementary financing facility. For drawings in each of the three upper credit tranches, supplementary financing up to 34 percent of a member’s quota could be available. After the temporary enlargement of the first credit tranche had lapsed, a member could draw under the supplementary financing facility an amount equivalent to 12.5 percent of its quota along with the unused portion of its first credit tranche and 30 percent of its quota along with each of the upper credit tranches. In special circumstances, drawings might be made beyond the upper credit tranches, but these drawings were to be made wholly under the supplementary financing facility. For drawings under an extended arrangement, supplementary financing was to be available in an amount not exceeding 140 percent of a member’s quota. Drawings under an extended arrangement were to be financed with the Fund’s ordinary resources and with supplementary credit in a ratio of one to one.
The objectives of the intricate provisions on amounts were to ensure that a member (i) would not unfairly use ordinary resources, thus avoiding use of borrowed resources, and (ii) would not repurchase in respect of borrowed resources ahead of ordinary resources. Rules were adopted to achieve equity and uniformity for all members.
Furthermore, the decision provided that in exceptional circumstances supplementary financing might be available under a stand-by arrangement even though the credit tranches had been used in full, or under an extended arrangement even though the limit of 140 percent of quota had been reached and the cumulative amounts of supplementary financing available in respect of the credit tranches and the limit of 140 percent of quota had been utilized. No limitation was placed on supplementary financing not associated with the credit tranches or with the limit of 140 percent of quota. The supplementary financing facility defined certain uses of the Fund’s resources under the policy in terms of quota, but it was recognized that a member’s needs might be too large and uncertain for a definition of this kind. The policy therefore permitted uses that were not defined in terms of quota and was the first that was open-ended in this sense.
To the extent that a drawing under the supplementary financing facility was financed with ordinary resources, it was subject to the same practices on periodic charges and repurchases that applied to a drawing in the credit tranches or under the extended Fund facility. To the extent that a drawing was made with supplementary financing, it was to be repurchased in equal semiannual installments that began not later than three and one-half years after the drawing and was to be completed not later than seven years after the drawing.
The claims on the Fund that creditors received were to be what Mr. Witteveen called “desirable international reserve assets, with an attractive rate of interest and a high degree of liquidity.”4 They were encashable on demand by the Fund if the creditor represented that it had a balance of payments need. Without prior reference to the Fund, lenders could transfer these claims to any other lender, to any Fund member, or to other official entities at prices agreed between the transferor and the transferee.
The decision establishing the supplementary financing facility was to be reviewed not later than two years after the facility came into existence or when the Seventh General Review of Quotas became effective. The facility was to become effective on the date on which borrowing agreements by the Fund and lenders to the facility were completed for a total of at least SDR 7.75 billion, including at least six agreements in an amount of not less than SDR 500 million each. The rationale of this timing was to make certain that the United States obtained from Congress the necessary authority to participate. U.S. officials had successfully pressured the officials of the other lending countries to obtain authority to participate in the supplementary financing facility and then, as we shall see later in this chapter, had difficulty in obtaining from Congress the necessary authority. A report on the use of supplementary financing was to be made one year after the facility became effective.
In September 1977 the Executive Board set the charges on the Fund’s holdings of currencies resulting from drawings under the supplementary financing facility. Members would pay the rate of interest that the Fund had to pay on its borrowed funds (plus the usual service charge of ½ of 1 percent of the amount of the transaction) plus an additional ⅕ of 1 percent a year for drawings outstanding for up to three and one-half years plus a further ⅛ of 1 percent a year for drawings outstanding for more than three and one-half years. The resulting schedule is shown in Table 19 below.
Prior to the Second Amendment, the Articles of Agreement required that charges take the form of a progression of at least three steps, depending on the length of time drawings were outstanding. Consequently, the decision on the charges for the supplementary financing facility called for a further charge of ⅛ of 1 percent a year for drawings outstanding for more than four and one-half years, that is, the rate of interest paid by the Fund plus 0.450 percent. This third-layer charge was made inapplicable, however, by a provision of the decision stating that until the Articles were amended, the charges on drawings under the supplementary financing facility were not to exceed the rate of interest paid by the Fund plus 0.325 percent. Hence, in Table 19, three steps of charges are listed, but the charge for drawings outstanding from three and one-half to four and one-half years and the applicable charge for drawings outstanding for more than four and one-half years are the same.
|Charges in percent a year1 payable on holdings for period stated|
|Up to 3½ years||Rate of interest paid by the Fund|
|plus 0.20 percent|
|3½ to 4½ years||Rate of interest paid by the Fund|
|plus 0.325 percent|
|Over 4½ years||Rate of interest paid by the Fund|
|plus 0.325 percent|
Except for service charge, which was payable once per transaction and was expressed as a percentage of the amount of the transaction.
Except for service charge, which was payable once per transaction and was expressed as a percentage of the amount of the transaction.
In order to implement the supplementary financing facility, the Executive Board also took a decision in November 1977, setting forth in detail the form of the stand-by arrangement and the form of the extended arrangement to be used when these arrangements provided for supplementary financing.5
DELAY IN PUTTING THE FACILITY INTO OPERATION
The United States, the second largest contributor to the facility, was among the creditors that had to obtain approval of its legislature to lend money to the Fund. Under Section 5 of the Bretton Woods Agreements Act, as amended, the U.S. Congress had to authorize the Secretary of the Treasury to make available the SDR 1,450 million for the supplementary financing facility to which Mr. Blumenthal had tentatively agreed on behalf of the U.S. Government; the Congress then had to appropriate the money.
As President Carter told the Governors on September 26 at the opening session of the 1977 Annual Meeting, the U.S. Administration fully supported the new facility.6 U.S. officials submitted the request for approval of the money for the supplementary financing facility to Congress in September 1977, as soon as possible after the Executive Board had taken the decisions establishing the facility. Anticipating reluctance by some members of Congress to approve money for the Fund, Administration officials took the position that the transaction with the Fund was unlike other expenditures for foreign aid and was more in the nature of an exchange of monetary assets. The United States provided dollars to the Fund and in return received claims on the Fund. These claims increased the automatic drawing rights of the United States on the Fund, forming part of the U.S. reserve position in the Fund. They were also highly liquid claims that could readily be transferred should the U.S. Government later need the money. Thus, the money lent to the Fund was part of the international reserves of the United States.
Members of Congress were cool to this line of argument. They debated the Administration’s request for funds for the supplementary financing facility with virtually the same detailed scrutiny as they did requests for all foreign aid, which was becoming an unpopular cause. Several members of Congress and several witnesses called to testify in the hearings customarily preceding U.S. legislation were, moreover, strongly opposed to the U.S. Government giving more money to the Fund. Different groups had different reasons for objecting to the Fund. Some members of Congress and some witnesses took what was regarded as a conservative line with regard to social and economic issues. In general, they preferred as little use of government institutions and regulations as possible, including regulation through international governmental institutions, and favored reliance on private entities and markets instead. Hence, they questioned the extent to which the Fund should assist its members in financing their payments deficits. Could not private commercial banks adequately finance the payments deficits of other countries? Was not the U.S. economy suffering because private banks were lending abroad in huge amounts at high interest rates and hence were not lending enough for domestic investment? Did not continuing payments deficits by countries abroad increase the likelihood of default to U.S. banks, so that there was danger of commercial bank failures? Was it not better for the Fund to borrow in private capital markets than from its member governments and their central banks?
Some members of Congress, angry at “the opec cartel” for raising prices for crude oil, insisted that opec finance the greater bulk of the resulting balance of payments deficits of the non-oil developing countries. They wanted to reject participation by the United States in the supplementary financing facility to force opec to provide the needed financing directly to oil importing countries and to accept the risk involved in this financing.
Members of Congress and some of the witnesses testifying at the hearings who regarded themselves as liberals on social and economic issues had quite different misgivings about the Fund and its policies. They saw the Fund as an advocate of excessively austere financial and economic policies, such as balancing governmental budgets at the expense of necessary social welfare programs. They worried that social welfare programs would be cut at the expense of desperately poor consumers in poor developing nations. They raised questions about the effects of the Fund’s stabilization programs on the ability of developing members to finance basic human needs. Some members of Congress even suggested that the Executive Director for the United States submit regular reports to Congress evaluating the effects of the monetary and fiscal policies worked out with members in their stand-by arrangements with the Fund on satisfying basic human needs in developing members.
Some members of Congress also raised questions about the Fund’s attitude toward the political circumstances in members to which the Fund lent money. Inasmuch as the Fund extended funds to Third World countries on the basis of economic considerations and customarily did not take the political character of governments into account, some members of Congress were concerned about “the Fund’s support of repressive governments.” Some of these members of Congress wanted the Fund to include human rights as a consideration in the policies governing use of its resources and urged that human rights be taken into account whenever any drawing was made from the Fund. As a compromise among members of Congress so that U.S. participation in the supplementary financing facility could be obtained, a provision was included in the Bretton Woods Agreements Act requiring the Secretary of the Treasury to make an annual report on the subject of human rights insofar as the policies of international organizations were concerned.7 Members of Congress of all political persuasions questioned the salaries of the staffs of the Fund and the World Bank.
The process of prior Congressional approval for the funds needed for the U.S. contribution to the supplementary financing facility was thus prolonged. From these discussions Fund officials feared that the institution was losing some of its support and goodwill on Capitol Hill and with the U.S. public. Both conservatives and liberals seemed to be increasingly critical of the Fund’s policies.8
The delay of over six months in getting the facility into operation after the decision on its establishment caused members of the Interim Committee, meeting in Mexico City in April 1978, to express their concern: “In view of the need of a number of members for prompt financial assistance on the scale envisaged by the supplementary financing facility, the Committee urged that all necessary steps be taken for bringing the facility into operation at the earliest possible date.”9 The delay also had consequences for other discussions in the Fund in 1977 and 1978. During the consideration of the Seventh General Review of Quotas, for example, U.S. officials were so concerned about the debate in Congress over the supplementary financing facility that they hesitated for many months before indicating the size of a general quota increase that they could support.
In the end, however, supporters of the Fund in the U.S. Administration, among members of the U.S. Congress, and among the witnesses called to testify won approval of U.S. participation in the supplementary financing facility. On October 25, 1978, 13 months after the initial request of the Administration, Secretary of the Treasury Blumenthal informed Mr. de Larosière that the legislation necessary for the United States to participate in the facility for $1,832 million (SDR 1,450 million) had been enacted into law.
Despite U.S. participation, the facility was still not ready for operation because sufficient funds were not yet available from other members. The SDR 700 million expected from Iran, which was supposed to be the fourth largest contributor, was not forthcoming because of the revolution in that country. In addition, among the other participants at the Paris meeting, Abu Dhabi and Saudi Arabia lent less to the Fund for the facility than had been expected, and Qatar did not participate. Hence, the supplementary financing facility was not yet in existence as 1978 ended.
The facility came into existence shortly thereafter, however. To help acquire the amounts needed, the Fund appealed to other countries and obtained small amounts from Austria and Guatemala. The facility entered into force on February 23, 1979, when the Austrian National Bank agreed to lend SDR 50 million to the Fund and joined 12 other members or institutions that had concluded agreements to lend to the Fund, raising the total to SDR 7,754 million to finance transactions under the facility. The agreement with Guatemala for SDR 30 million was concluded on April 16, 1979, raising the total amount available to SDR 7,784 million. The 14 individual lenders and the amounts committed (in millions of SDRs) were as follows:
|Austrian National Bank||50|
|National Bank of Belgium||150|
|Banco de Guatemala||30|
|Central Bank of Kuwait||400|
|The Netherlands Bank||100|
|Central Bank of Nigeria||220|
|Saudi Arabian Monetary Agency||1,934|
|Swiss National Bank||650|
|Central Bank of Venezuela||500|
Participation in the financing of the facility remained open to other lenders with strong external payments and reserve positions.
This proposal for a financial support fund in the oecd was described in Chap. 18.
Communiqué of Interim Committee, April 29, 1977, par. 3; Vol. III below, p. 231.
E.B. Decisions Nos. 5508-(77/127) and 5509-(77/127), August 29, 1977; Vol. III below, pp. 512–15, 550.
Opening Address by the Managing Director, Summary Proceedings, 1977, p. 19.
E.B. Decision No. 5585-(77/161), November 30, 1977; Vol. III below, p. 518.
Address by the President of the United States, Summary Proceedings, 1977, p. 2.
Sec. 31 of Public Law 435, 95th Cong., October 10, 1978, 92 Stat. 1051.
See U.S. Congress, Senate, Committee on Foreign Relations, Subcommittee on Foreign Economic Policy, The Witteveen Facility and the opec Financial Surpluses: Hearings, 95th Cong., 1st Sess. (Washington: Government Printing Office, 1978).
Communiqué of Interim Committee, April 30, 1978, par. 7; Vol. III below, p. 238.