Some possible implications for the IMF’s role in the area of current and capital account convertibility, exchange rate regimes, and cross-border payments arrangements emerge from the above review.

Some possible implications for the IMF’s role in the area of current and capital account convertibility, exchange rate regimes, and cross-border payments arrangements emerge from the above review.

Current Account Convertibility

Over the years, the IMF has developed a well-defined policy that “before members give notice that they are accepting the obligations of Article VIII Sections 2, 3, and 4, it would be desirable that, as far as possible, they eliminate measures which would require the approval of the Fund, and that they are not likely to need recourse to such measures in the foreseeable future” (Executive Board Decision No. 1034–(60/27)). Experience suggests that this policy should be maintained by encouraging members to avoid assuming Article VIII obligations while they maintain transitional restrictions and their balance of payments outlook is uncertain, to prevent countries that have adopted Article VIII status from reverting to exchange restrictions to a significant degree.

While the existing procedures, adopted in 1993, have been effective, the issue of how to accelerate progress toward the achievement of the IMF’s objectives under Articles I and VIII would be considered if progress were to slow.

The question also arises as to whether the time outstanding under Article XIV status is relevant to the issue of the IMF’s representation to the member of the case for it to adopt Article VIII obligations. Clearly, the very long time periods currently involved for some members raise issues as to the meaning in the Articles of the term “transition.”

Separate issues relate to exchange restrictions maintained by countries that have already accepted Article VIII status. Current procedures call for explicit identification and discussion of a member’s restrictive exchange practices in the consultation report for that member.

External payments arrears are evidence of a form of ad hoc restriction with particularly serious implications for the international payments system, and the IMF’s approach has been not to encourage a member to accept the obligations of Article VIII status when the remaining restrictions are not slated to be eliminated quickly. In some instances, the elimination of exchange restrictions evidenced by payments arrears may depend upon action by other IMF members. Examples are the rescheduling of external payments arrears by creditors and the renegotiation of bilateral payments agreements between the bilateral or regional partners. In those instances, the IMF would normally make representations to the partner countries (for example, in the Paris Club) to accelerate the elimination of the arrears or the bilateral agreements.

Countries whose restrictive exchange practices have not been approved are not barred from using IMF resources. Only when the practice would affect macroeconomic performance under the program has the issue dominated consideration of use of resources.

Capital Account Convertibility

Controls on capital movements raise questions about the role of the IMF in three broad areas: (1) the impact of controls on capital movements for overall macroeconomic management, including for exchange rates, interest rates, and balance of payments; (2) the role of capital account liberalization as part of programs of structural reform, and (3) the role of IMF jurisdiction. These issues are not readily separable. On the question of the role of the IMF in the area of capital account convertibility, the following issues arise:

First, as a practical and operational matter, the IMF’s detailed examination of exchange systems has focused primarily on its jurisdictional responsibilities under the Articles, that is, on the freedom to make payments and transfers for current international transactions. One implication of this approach is that by focusing on current international payments and transfers, the application of the IMF’s jurisdiction has led to its covering a diminishing share of total exchange transactions. As an increasing number of members have eliminated exchange restrictions on most current transactions, the IMF’s main jurisdictional effort has become focused on a smaller range of exchange transactions and payments arrangements that have become less important for the majority of members. On the other hand, difficulties in separating these nontrade current account transactions from capital transactions in administering controls may have impeded acceptance of Article VIII obligations. It may therefore now be an appropriate time to review the practical implications of the IMF’s remaining jurisdictional responsibilities for the implementation of its broader responsibilities and objectives.

Second, potential links between the IMF’s jurisdictional responsibilities and its examination of countries’ exchange systems lead naturally to the question of whether the IMF should be responsible for payments and transfers and multiple currency practices related to international capital movements. No other international agency exercises jurisdiction over such transactions. The OECD codes apply to only a fraction of the IMF’s membership, do not cover all exchange restrictions and multiple currency practices, and are subject to countries’ reservations on items in the codes. Under the General Agreement on Trade in Services, recently signed as part of the Uruguay Round under the auspices of the GATT, countries may commit to liberalizing capital transfers related to specific services, and such commitments would be overseen by the World Trade Organization.

Third, the 1985 Executive Board discussion on IMF jurisdiction over multiple currency practices related to capital transfers left the matter open for further consideration, and it is timely to return to this subject. However, few such practices are currently being applied, so such a discussion would be limited and should not preclude a broader review of the IMF’s jurisdiction over payments and transfers related to international capital movements. Such a review would focus on whether the IMF’s jurisdictional responsibilities remain consistent with its broader objectives to facilitate the exchange of goods, services, and capital among countries, and whether they need to be modified.

Exchange Rate Regimes

The Executive Board has discussed issues of exchange rate regimes on several occasions and has broadly endorsed the case-by-case approach implied by a member’s freedom to adopt the regime of its choice. Nevertheless, it is important that the IMF continue to offer guidance on the main factors worthy of consideration in the choice of regime and the technical assistance in putting in place efficient and stable foreign exchange markets.

Most recent multiple exchange rate systems have been transitional—a halfway house toward a liberalized exchange system. However, one-fifth of the IMF membership still maintains such systems, raising the question of whether the conclusions of the IMF’s 1984–85 review of multiple exchange rates should be revisited, and members encouraged to remove the practices as soon as possible.

Forward exchange markets are developing rapidly in industrial countries, where they are virtually free of restrictions. Elsewhere, forward markets have been slower to emerge, because they have proven sensitive to the state of overall liberalization and development of a country’s financial markets. On the other hand, official provision of forward cover has proved risky and has constituted a significant source of fiscal and quasi-fiscal losses in a number of countries.

Regionalism and Bilateralism in Cross-Border Payments

The accession to IMF membership of the former centrally planned economies has once again highlighted the importance of payments arrangements. The disruption of trade and payments among this group of countries has been accompanied by an increase in the importance of bilateral payments and countertrade and barter arrangements. Although the number of bilateral payments arrangements among other members has declined, the number of countries participating in regional payments arrangements has remained significant, and some countries of the former Soviet Union have contemplated a regional arrangement. The consistency of these developments with the multilateral objectives of the IMF is an issue.

Although regional payments arrangements could be viewed as an improvement over bilateralism in some respects, they may also involve discriminatory features between groups of members and the membership as a whole. When the IMF’s policy toward bilateral payments agreements is fully implemented, in view of the very small fraction of world trade affected under the agreements, policy toward regional payments arrangements would probably involve (1) an in-depth review of regional payments arrangements to identify restrictions that are inconsistent with Article VIII, including those that may be maintained under the transitional provisions of Article XIV; and (2) encouragement of the members of the regional arrangements to eliminate these restrictive features. Similarly, restrictive features of payments agreements subject to Article VIII would not normally be approved by the IMF. The IMF’s technical assistance services would, of course, be available to advise members on the necessary reforms to regional arrangements to eliminate the exchange restrictions.