This paper discusses the employment of women in developing countries in the light of recent changes in emphasis on the strategy and objectives of economic development. The paper highlights that in the vast majority of countries—both developed and developing—the role of women is still limited and their responsibilities restricted. This paper examines automated manufacturing techniques in developing economies. The operations and transactions of the special drawing account are discussed. The paper also analyzes Latin America’s prospects for overcoming historical attitudes and other constraints to achieve wider economic integration.

Abstract

This paper discusses the employment of women in developing countries in the light of recent changes in emphasis on the strategy and objectives of economic development. The paper highlights that in the vast majority of countries—both developed and developing—the role of women is still limited and their responsibilities restricted. This paper examines automated manufacturing techniques in developing economies. The operations and transactions of the special drawing account are discussed. The paper also analyzes Latin America’s prospects for overcoming historical attitudes and other constraints to achieve wider economic integration.

Peter Gourley and Tony Helm

The 118 Governors of the International Monetary Fund assembled in Washington for the 1971 Annual Meeting some six weeks after the President of the United States had announced his new economic program, which included the suspension of the convertibility of the U.S. dollar in terms of gold, and the introduction of a 10 per cent import surcharge. In various forums, Mr. John Connally, U.S. Secretary of the Treasury and Governor of the Bank and Fund for the United States, had explained that the correction of the U.S. balance of payments would involve a trade swing of larger proportions than had been expected, together with the attainment of some other objectives, such as a reapportionment of certain defense burdens. Moreover, a number of members had joined the three major industrial countries who had earlier temporarily set aside their parity obligations under the Fund Agreement. Subsequently, Mr. Pierre-Paul Schweitzer, Managing Director of the Fund, had put forward proposals for a procedure leading out of the apparent impasse.

When the Annual Meeting opened there was general agreement that, although the Bretton Woods system was still valid, it would be difficult for the Fund to continue fulfilling its purposes, unless action were taken as rapidly as possible. In particular, the Governors were disturbed at the departure from what had become the recognized code of international financial behavior for the past quarter of a century. Many speakers, including Mr. Karl Schiller, Governor of the Bank for Germany and Co-Chairman of the Boards of Governors, stressed the need for a return to such a code. Reflecting the feeling of many speakers, Mr. Ghulam Haider Dawar, Governor of the Bank for Afghanistan, said that “there has clearly been a lack of international cooperation and an insufficient realization of collective responsibility.”

Nevertheless, the mood of the Meeting was far from pessimistic. Indeed, in that part of his opening address in which he stated that the disruption which had occurred on August 15 should be regarded as a challenge and a chance for comprehensive reform. Governor Schiller struck a note that was echoed through the speeches of the week. The theme was also taken up by the Managing Director of the Fund who said, in the course of his introductory remarks, “the current situation, while giving cause for great concern, affords a unique opportunity to strengthen the performance of the international monetary system.”

Dislocations Reviewed

Governors stressed that floating exchange rates were only one feature in giving rise to an atmosphere of uncertainty that was proving hostile to the expansion of international trade, to capital flows, and to the promotion of economic growth. References to the “possibility” of exchange rates being manipulated for protectionist purposes and of the U.S. import surcharge provoking retaliatory action were by no means uncommon. On the one hand, Baron Snoy et d’Oppuers, Governor of the Bank for Belgium, observed that “apart from the disastrous uncertainty engendered by the fluctuations in exchange rates, there are the constant temptations to use them for protectionist ends and to re-establish narrow compartmentalizations which strangle possibilities for growth and expansion.” On the other, Mr. Edgar J. Benson, Governor of the Bank for Canada, felt that “there is great danger that [some of the U.S. measures, including the import surcharge] may set the tone for other countries, and that a solution of the imbalance in world trade and payments will be sought through widespread use of protective practices.”

A similar theme was expressed by many Governors from the developing countries, who drew the attention of their colleagues from the industrialized countries to the particular difficulties which developing nations could be expected to encounter if the situation were allowed to persist. As Mr. E.B. Wakhweya, Governor of the Bank and Fund for Uganda, pointed out “a continuation of the present dislocation in the payments system is likely to be followed by a diminution of world trade and the restriction of the flow of capital resources to developing countries, especially for supplementing the efforts of these countries in development. Furthermore, the continued uncertainties in the foreign exchange markets are likely to adversely affect the proceeds realized from the sale of primary products from developing countries and to increase the price of imports into developing countries.”

Another possible outcome of the suspension of convertibility, which several speakers referred to, was the danger that the Fund’s operations in the General and Special Drawing Accounts might be seriously hampered.

Procedural Considerations and Role of Fund

Many Governors reacted favorably to the three-phase procedural approach put forward earlier by the Managing Director, most notably in London in mid-September. Mr. N. Diederichs, Governor of the Bank and the Fund for South Africa, for example, observed that the issues of exchange rate realignment, the price of gold, wider margins, and trade restrictions were interrelated and that it would have been ideal if they could have been negotiated simultaneously, but he agreed with the Managing Director that their time dimensions differed and endorsed the latter’s proposal to deal with them in stages. While recognizing that a piecemeal approach to the problem would prove inadequate, Governors emphasized the need to take quick action.

Referring to the great interest in procedure that the developing countries had expressed, Mr. E. W. Barrow, Governor of the Fund for Barbados, urged that “in the solution to the present problem and in the working out of any new arrangements there must be a mechanism for ensuring that the views of the developing countries are heard, because whatever decisions are ultimately taken will have the most profound impact, not only on the standards of living, but also on the very quality of life of many of our peoples.” A number of Governors felt that the world could not afford to be “divided between a Group of Ten and the rest,” as the Governor of the Bank and Fund for Kenya, Mr. Mwai Kibaki, frankly put it. While the legitimate interest of particular groups of nations in the reform of the international monetary system was acknowledged, any suggestion that they had a right to impose solutions upon the rest of the world was rejected.

Echoing the sentiments of some of his colleagues, Mr. Kuo-Hwa Yu, Governor of the Fund for China, said that “the International Monetary Fund—an organization representing all members, economically developed and developing—is the logical organization to seek a solution to the problem and should bear the main responsibility.” Indeed, there was widespread agreement that the authority of the Fund should be strengthened; it was regarded as the appropriate institution responsible for international consultation and cooperation. “A number of speakers have already emphasized,” observed Governor Connally, “that, whatever the particulars of new monetary arrangements, a fundamental need will remain for fair, widely understood, and enforceable international codes of conduct in trade and monetary matters.” He endorsed that view and went on: “The further corollary is that the International Monetary Fund, itself, should play a central role in developing and monitoring such codes.”

Proposals for Short-Term Action

The Governors discussed at some-length the measures which might help to resolve the prevailing state of affairs. Many endorsed the Managing Director’s view that first priority should be accorded to the establishment of an appropriate new structure of parities or official exchange rates and to the removal of the U.S. import surcharge. Mr. Mario Ferrari-Aggradi, Governor of the Fund for Italy, observed: “A sine qua non condition for the renovation of the system is the gradual elimination of the deficit in the U.S. balance of payments, mainly through a differentiated realignment of parities which would restore normal conditions of competitiveness.”

Some difference of opinion, however, arose as to how the realignment of parities should be achieved. A number of Governors, like Mr. R.J. Nelissen. Governor of the Bank for the Netherlands, believed that “realignment should include, as an essential element, a change of parity of the U.S. dollar, because … it is necessary that the special drawing rights, for which we see an important future role in the monetary system, hold their value as against currencies in general.” Other speakers conceded Governor Connally’s point that “a change in the gold price is of no economic significance and would be patently a retrogressive step in terms of our objective to reduce, if not eliminate, the role of gold in any new monetary system.” Some of them, nevertheless, felt that a small increase in the dollar price of gold might prove helpful in achieving a general realignment of exchange rates.

Many Governors expressed the hope that a general realignment of parities would be accompanied by the elimination of the 10 per cent surcharge imposed by the United States. The U.S. position, however, was firmly stated by Governor Connally: “We … fully understand that our surcharge—while applied across the board in a nondiscriminatory way—as a practical matter affects products and countries unevenly. We are conscious of the political sensitivities of decisions on exchange rates. Yet … I must say plainly that we find a certain inconsistency between the expressed concerns and proposed remedies…. Removal of the surcharge prior to making substantial progress toward our objectives, would accomplish nothing toward correcting the balance of payments deficit. Nor can measures by others to resist exchange rate realignment or other adjustment measures by controls, restraints, or subsidies help the process of resolving the situation promptly and effectively. … If other governments will make tangible progress toward dismantling specific barriers to trade over coming weeks and will be prepared to allow market realities freely to determine exchange rates for their currencies for a transitional period, we, for our part would be prepared to remove the surcharge.”

There was general agreement that re-establishment of fixed exchange rates should be accompanied by a limited degree of flexibility. In the words of Mr. Alberto Monreal Luque, Governor of the Bank for Spain: “the difficulties of readjustment make it all the more desirable to establish parity bands wider than the present ones [perhaps for short periods as well as for the longer run]. Moreover, this would reduce needs for international liquidity, and could be a factor in discouraging speculative movements.” Similarly, Governor Schiller suggested that “the Fund should be empowered to permit, in special cases, even [the] suspension [of the margins] on a temporary basis.”

IMF Board of Governors Resolution on the International Monetary System

WHEREAS the present international monetary situation contains the dangers of instability and disorder in currency and trade relationships but also offers the opportunity for constructive changes in the international monetary system; and

WHEREAS it is of the utmost importance to avoid the aforesaid dangers and assure continuance of the progress made in national and international wellbeing in the past quarter of a century; and

WHEREAS prompt action is necessary to resume the movement toward a free and multilateral system in which trade and capital flows can contribute to the integration of the world economy and the rational allocation of resources throughout the world; and

WHEREAS consideration should be given to the improvement of the international monetary system and the adjustment process; and

WHEREAS the orderly conduct of the operations of the International Monetary Fund should be resumed as promptly as possible in the interest of all members; and

WHEREAS all members of the Fund should participate in seeking solutions of the aforesaid problems;

NOW, THEREFORE, the Board of Governors hereby RESOLVES that:

  • I. Members of the Fund are called upon to collaborate with the Fund and with each other in order, as promptly as possible, to

    • (a) establish a satisfactory structure of exchange rates, maintained within appropriate margins, for the currencies of members, together with the reduction of restrictive trade and exchange practices, and

    • (b) facilitate resumption of the orderly conduct of the operations of the Fund.

  • II. Members are called upon to collaborate with the Fund and with each other in efforts to bring about

    • (a) a reversal of the tendency in present circumstances to maintain and extend restrictive trade and exchange practices, and

    • (b) satisfactory arrangements for the settlement of international transactions which will contribute to the solution of the problems involved in the present international monetary situation.

  • III. The Executive Directors are requested:

    • (a) to make reports to the Board of Governors without delay on the measures that are necessary or desirable for the improvement or reform of the international monetary system; and

    • (b) for the purpose of (a), to study all aspects of the international monetary system, including the role of reserve currencies, gold, and special drawing rights, convertibility, the provisions of the Articles with respect to exchange rates, and the problems caused by destabilizing capital movements; and

    • (c) when reporting, to include, if possible, the texts of any amendments of the Articles of Agreement which they consider necessary to give effect to their recommendations.

      • Resolution No. 26-9, adopted October 1, 1971

However, a note of caution was sounded by Governors from the smaller and the developing countries. Mr. N.M. Perera, Governor of the Bank and Fund for Ceylon, remarked that the advantages of greater flexibility “would have to be carefully weighed against those of a regime of fixed exchange rates, so long as developing countries were obliged to maintain substantial reserves in the form of key currencies whose real value would vary with the degree of flexibility being envisaged…. There is a clear need for some system which enables the developing countries to maintain the purchasing power of their reserves in terms of the imports of some base year.” The Governor of the Fund for New Zealand, Mr. R.D. Muldoon, believed that the advantages of widening margins and legitimizing temporary floating exchange rates, compared with alternative courses of action to limit undersirable capital inflows, were doubtful, particularly so for countries which traded in products especially vulnerable to price fluctuations.

International Capital Movements and Controls

The advantages and disadvantages of imposing controls on international capital flows received attention from several Governors. Speaking for the five Nordic countries, Mr. Per Kleppe, Governor of the Bank for Norway, among others, favored the introduction of restrictions where appropriate. “A widening of margins of an acceptable magnitude,” he explained, “can barely be expected to be adequate to contain massive speculative capital flows. Consequently, member countries should take appropriate measures before such transactions assume proportions that frustrate their own domestic policies…. Direct investments and other long-term capital flows between developed countries should be regulated if such transactions impose too great a burden on the balance of payments.” The reservations felt by some Governors were voiced forcibly by Governor Schiller, who noted that the Executive Directors had stated in the Fund’s 1971 Annual Report that “the integration of the world economy and the rational allocation of resources throughout the world owe too much to wide opportunities for the movement of capital … to justify a general recommendation that countries should have comprehensive exchange controls.” He went on to assert that “this warning is even more true, as experience in many countries shows that comprehensive capital restrictions are complicated to administer, are uneven in their application, and are never evasion-proof. Countries would give up the advantages of freedom in international transactions without obtaining the desired effect.”

Members’ Policies and International Coordination

Many Governors held the view that recent monetary crises had stemmed from the inability or the unwillingness of some members to adhere to the rules of the adjustment process. It was pointed out that aggregate demand in some countries had become excessive, thus causing inflationary pressures, and that countries had been reluctant to make appropriate par value adjustments. As Mr. B.M. Snedden, Governor of the Bank and Fund for Australia, said “We should be very careful about abandoning the system before we find a better [one] to take its place. The fault may lie not in the system but in ourselves, and in our individual failures to observe and abide by the rules.”

Inflation was judged to be one of the important factors leading to fundamental disequilibria. Referring to the 1971 Annual Report, Mr. Wolfgang Schmitz, Governor of the Fund for Austria, noted that it rightly cited inflation as the chief economic policy problem and felt that a substantial reduction in the U.S. balance of payments deficit would eliminate one source of imported inflation. Many Governors, including those from smaller and developing countries, expressed concern about the quickening pace and the general nature of inflation transmitted by developed countries, and urged those countries to bear in mind the international consequences of their domestic policies.

One technique which was discussed for improving the adjustment process was that of widening the margins on either side of par. A representative view was expressed by Mr. Y. B. Chavan, Governor of the Bank and Fund for India, who said that “the international monetary system itself should be endowed with a degree of flexibility without in any way impairing the essential stability of the par value system which is so essential to the normal operation of the world’s business. Perhaps there is a general consensus now that an enlargement of the present margins would ensure the right place between a reasonable degree of stability and the kind of flexibility needed to discourage disruptive capital flows and to serve as an early warning system for emerging disequilibria.”

Speakers were also of the opinion that countries should pay much more attention to coordinating their domestic policies. Mr. Janko Smole, Governor of the Bank for Yugoslavia, for example, stressed the point by saying that “interdependence of world economy and finance has now reached such a degree that it is necessary to attain as good a coordination of national policies as feasible, otherwise hardly any monetary system would be capable of providing the necessary stability in world economic relations.” Speaking on behalf of 20 countries in the Western Hemisphere, Mr. Rodrigo Llorente, Governor of the Bank for Colombia, emphasized the need to coordinate the conduct of monetary and fiscal policies within a framework of multilateral consultation.

Reform of Reserve Asset System

The reform of the reserve asset system, speakers thought, would have to be part and parcel of any lasting reform of the international monetary system. On the place of gold in any new system, however, the Governors’ opinions differed. Mr. A.H. Jamal, Governor of the Fund for Tanzania, for instance, held the view that gold should be demonetized. On the other hand. Governor Diederichs remarked that gold still constituted about 37 per cent of total reserve assets; it would be both wise and realistic to recognize that gold should continue to perform its important international monetary function in the short term.

Regarding the place of the dollar in reserve portfolios, Mr. Valery Giscard d’Estaing, Governor of the Bank for France, observed that some members’ paradoxical desire to refuse to acquire dollars but to keep the U.S. deficit would have to be abandoned. Many Governors felt that it was anachronistic to rely on a national currency to supply a large part of world reserves. Governor Connally stated that a monetary system dependent on U.S. deficits was no longer tolerable for either the United States or other countries, adding that in taking the difficult decision to suspend the convertibility of the dollar, the United States was committed to negotiating a monetary order responsive to the needs and conditions of the present generation.

Many speakers also spoke of the need for the creation and management of reserves on a collective basis to relieve the strain on reserve currencies and gold. Governor Barrow, for example, noted that developments over the past decade had indicated both the inadequacy of supplies of gold vis-à-vis world trade and the major difficulties involved in having the same currency serve as a reserve unit and as a trading currency. Collectively managed reserves, it was hoped, would have the advantage of being independent of national balance of payments developments.

To that end, a number of proposals were made for developing the special drawing rights scheme. Mr. Anthony Barber, Governor of the Fund for the United Kingdom, proposed a plan for reform built around the following central points: “First, the SDR could become the numeraire in terms of which parities are expressed and in relation to which currencies are revalued and devalued. The second point is that the SDR could become the main asset in which countries hold their reserves. Eventually–it would no doubt take time-the SDR could become the major element, with currency holdings largely confined to working balances. Thirdly, arrangements would be needed to provide for the controlled creation of adequate but not excessive world liquidity without reliance on the deficit position of one or more countries. This was indeed the intention of the existing SDR scheme. We need to carry this forward to make it effective.”

The following speakers generally supported plans of this sort. Mr. Emmanuel Fthenakis, Governor of the Bank for Greece, hoped that further allocations of special drawing rights would be made in the future and that such allocations would gradually come to play a fundamental role in the world monetary system.

Elaborating on the working of the special drawing rights system, Governor Jamal said that “internationally, as nationally, any reserve unit should meet four tests. It should be virtually costless to create and manage. It should be subject to planned allocation in amounts to meet the needs of sound economic management. It should impose similar obligations on all users. It should be readily acceptable.” Mr. Mohamed A. Merzeban, Governor of the Bank for the Arab Republic of Egypt, said that by having a gold guarantee and enjoying the collective backing of the major currencies and universal acceptability by all participants, special drawing rights could acquire new functions in the field of international reserves and payments. In a similar vein, Mr. Habibullah Mali Achaczai, Governor of the Fund for Afghanistan, thought that all restrictions on their use ought to be abolished.

Many speakers urged that in any reform of the international monetary system in general, and the special drawing rights scheme in particular, the interests of the developing countries would have to be taken into account more than in the past. Mr. Mustapha Faris, Governor of the Bank for Morocco, stated that the terms on which special drawing rights had been allocated (i.e., in proportion to the relative size of each member’s quota) did not meet the needs of the developing countries, which were constantly looking for additional resources with which to finance their economic growth. Others felt that the present rate of return on special drawing rights was not sufficiently high to make them competitive with other reserve assets.

Problems and Needs of Developing Countries

Mr. Avraham Agmon, Governor of the Fund for Israel, voiced concern about problems of longer standing when he said that “we cannot but conclude that too little has been done during the last decade to improve the relative position of developing states…. The existing mechanism of international trade has been ineffective in bridging the gap between them and the developed countries. Free market forces cannot be relied upon to close this gap.” Referring to trade barriers, Mr. Hugo B. Margain, Governor of the Bank and the Fund for Mexico, declared that “the unilateral, unjustified adoption of measures restricting the expansion in developing countries’ very exports which are the most dynamic … has aggravated the crisis and spread it to … other countries.”

The Fund’s special facilities for drawings by primary producing countries met with mixed reception. Mr. J.M. Mwanakatwe, Governor of the Bank and Fund for Zambia, expressed disappointment over the progress that had been made with the use of buffer stock financing. On the other hand. Governor Achaczai was convinced that the compensatory financing facility offered just the right means for assisting his country to restore its balance of payments equilibrium. More specific criticism was made by Mr. Tan Siew Sin, Governor of the Bank for Malaysia, who said that for a country to qualify for drawing under the compensatory or buffer stock financing facilities, it had to demonstrate a balance of payments need, as defined by the Fund. It was, in his view, ironic that a country that had exercised domestic monetary discipline and had done what the Fund required, was penalized in that it could not make use of these facilities.

The concept of a link between special drawing rights and development, which had been widely discussed at the previous Annual Meeting in Copenhagen, was again the subject of comments by many Governors from developing countries. Indeed, many regretted that not only had a link not been established, but that the 1971 Annual Report had only mentioned it in passing. Mr. C.A. Kamara-Taylor, Governor of the Bank for Sierra Leone, for instance, said that “the reform of the international monetary system should provide an opportunity for meeting [the goals of the Second United Nations Development Decade] through the establishment of a link between the creation of new liquidity and additional development finance.”

Regarding aid, Governor Wakhweya, noted that because of the continued deterioration in the terms of trade to the detriment of most, if not all, developing countries, the apparent increase in the flow of official assistance over the period 1960-70 had had very little impact. Speaking on behalf of five Central African nations, Mr. Bernard Bidias a Ngon, Governor of the Fund for Cameroon, said that “the industrialized nations are shifting the burden onto private financing, which is naturally the most costly type of aid for the developing countries, which are already finding it difficult to keep their domestic public finances in a state of equilibrium.” Referring to the impact of the monetary crisis on aid. Governor Benson observed that the situation faced by developing countries was serious and that Canada hoped that assistance provided by countries other than the United States would be maintained and, indeed, increased.

In his concluding remarks, Mr. Schweitzer emphasized his belief that the atmosphere of the Meeting had been constructive and that a consensus had emerged on some important issues. He noted that both of those features were reflected in the Resolution of the Board of Governors on the International Monetary System (see box). He went on to say that the lasting value of the Meeting “will depend on translating into action the principles of international cooperation on which we have all agreed. … I believe we have made a good start in marking out a generally acceptable path toward solution of the present difficulties, but the world will judge us solely by our actions. I continue to feel the sense of urgency that I expressed in my opening remarks.”

BANK GROUP ANNUAL MEETING

The report in this issue of Finance and Development of the Bank Annual Meeting is greatly condensed, touching only upon a small portion of the speeches and activities.

A more complete record of the Meeting will be published shortly by the Bank in a volume entitled Summary Proceedings. It is available free on request from

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