Fund activity: 1979 in retrospect; Trust Fund operations; gold sales; Fund transactions

This paper highlights that the flow of IMF-related resources to member countries was maintained at a high level during 1979, amounting to the equivalent of SDR 6,917 million, compared with SDR 4,955 million in 1978. Some SDR 3.77 billion became available to non-oil developing countries in 1979. Repurchases in the General Resources Account by all members—at SDR 4.2 billion—exceeded their purchases of SDR 1.8 billion by an unprecedented SDR 2.4 billion. These large repurchases reflected the substantial improvement in the balance of payments of some industrial member countries that had large outstanding drawings.

Abstract

This paper highlights that the flow of IMF-related resources to member countries was maintained at a high level during 1979, amounting to the equivalent of SDR 6,917 million, compared with SDR 4,955 million in 1978. Some SDR 3.77 billion became available to non-oil developing countries in 1979. Repurchases in the General Resources Account by all members—at SDR 4.2 billion—exceeded their purchases of SDR 1.8 billion by an unprecedented SDR 2.4 billion. These large repurchases reflected the substantial improvement in the balance of payments of some industrial member countries that had large outstanding drawings.

Fund widens access to its resources in 1979

The flow of Fund-related resources to member countries was maintained at a high level during 1979, amounting to the equivalent of SDR 6,917 million, compared with SDR 4,955 million in 1978. Some SDR 3.77 billion became available to non-oil developing countries in 1979.

Flows to these countries included:

(In millions of SDRs)

article image

Drawings from the General Resources Account were partly offset by repurchases of SDR 1,236.4 million by this group of countries.

Repurchases in the General Resources Account by all members—at SDR 4.2 billion—exceeded their purchases of SDR 1.8 billion by an unprecedented SDR 2.4 billion. These very large repurchases reflected the substantial improvement in the balance of payments of some industrial member countries that had large outstanding drawings. The pronounced contraction from the SDR 3.7 billion purchased in 1978 was almost entirely attributable to the sharp drop in the use of the reserve tranche, from SDR 2.5 billion in 1978 to SDR 147 million in 1979, Credit tranche purchases more than doubled, to SDR 853.1 million. Reserve tranche purchases are effectively an exchange of reserve assets held by a member, while use of the Fund’s resources in the credit tranches is conditional on the member having an agreed financial program with the Fund. Other purchases remained virtually unchanged from the previous year.

Nearly half the members’ repurchases in 1979—some SDR 2.2 billion—were in repayment of drawings under the 197475 oil facility, which enabled the Fund to reduce its obligations to the original contributors of these resources by the same amount. The Fund also reduced its obligations under the General Arrangements to Borrow by SDR 588 million in 1979, while borrowing about SDR 307 million for the supplementary financing facility. The total proceeds of the Fund’s gold sales in 1979 were $1,409 million, compared with $1,080 million in 1978, $645 million in 1977, and $320 million in 1976.

The measures designed to increase the size and availability of the Fund’s resources consisted mainly of steps to expand the role of SDRs in the international monetary system and to improve members’ access to conditional funds through the introduction of the supplementary financing facility and the liberalization of the compensatory financing facility.

Drawings from the Fund’s General Resources Account, 1978-79

(In millions of SDRs)

article image
Source: IMF Treasurer’s Department

Summary of Fund operations in the General Resources Account, 1976-79

(In millions of SDRs)

article image
Source: IMF, Treasurer’s Department.Note: Details may not add to totals due to rounding.

Includes Swiss National Bank.

Trust Fund profits and loans distributed

In August 1979, the Fund distributed, through the Trust Fund of which it is Trustee, profits from the sale of gold totaling US$396 million to 104 developing member countries. This latest distribution of profits to developing member countries was the third operation of this kind. Previously, profits from the sale of gold totaling US$363 million were distributed to the same 104 members. A fourth distribution of profits is expected to be made in July 1980. Certain members have agreed to transfer all or part of their share to the Trust Fund for making loans. At the end of 1979, these countries were Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates, Venezuela, and Yugoslavia.

The Fund also announced on August 29, 1979 that, as Trustee for the Trust Fund, it was making interim loan disbursements totaling the equivalent of SDR 229 million to 28 member countries. Trust Fund loans totaling the equivalent of SDR 841 million were made to 43 members in the Trust’s first period, from July 1, 1976 through June 30, 1978. The Trust’s second period runs from July 1, 1978 through June 30, 1980. The first three interim loan disbursements in this second period amounted to the equivalent of SDR 526 million. Further disbursements for the Trust’s second period are scheduled to be made at the end of January and April. The final disbursement is expected in July 1980.

Principal measures taken during 1979

  • The supplementary financing facility became operational on February 23, 1979. It is designed to assist those members that require balance of payments (BOP) financing in larger amounts and for a longer period than would be available under the regular credit tranches. The amount available for the facility under the borrowing agreements with lenders at the end of 1979 was SDR 7.477 billion.

  • The Executive Board adopted, in March 1979, a new set of guidelines on condition-ality in the use of the Fund’s general resources in the upper credit tranches. The new guidelines replace an earlier set of guidelines, formulated in 1968.

  • The Fund resumed the allocation of SDRs, last made in 1970-72, with an allocation of SDR 4 billion on January 1, 1979 to the 137 members that were participants in the Fund’s Special Drawing Rights Department on December 31, 1978. The allocation, which brought the total of SDRs in existence to SDR 13.3 billion, was made in accordance with a Resolution of the Board of Governors providing for further allocations of about SDR 4 billion as of January 1 in each of the years 1980 and 1981.

  • In accordance with one of the major objectives of the Second Amendment to the Fund’s Articles, the Fund took several decisions toward enhancing the role of the SDR as the principal international reserve asset by improving its yield, providing for a wider range of uses, and reducing the reconstitution requirement.

  • For the first time, the Fund extended financial assistance under its buffer stock facility to member countries to help them meet their obligations under the 1977 International Sugar Agreement.

  • The Fund reviewed its policies under the compensatory financing facility in August 1979 and decided to change its provisions to provide greater access to members—particularly the primary producing countries—encountering BOP difficulties arising from temporary export shortfalls. Under the present further liberalization of the facility, the Fund will be prepared to authorize drawings of up to 100 per cent of a member’s quota, provided that requests for drawings that would increase the drawings outstanding under the decision beyond 50 per cent of the member’s quota will be met only if the Fund is satisfied that the member has been cooperating with the Fund in an effort to find appropriate solutions for its BOP difficulties.

  • The Interim Committee of the Board of Governors on the International Monetary System, at its meeting in Belgrade on October 1, 1979, requested the Executive Board to continue to direct priority attention to designing a substitution account plan; this account, administered by the Fund, would accept deposits of U.S. dollars from members on a voluntary basis in exchange for an equivalent amount of SDR-denominated claims. Since the Annual Meetings, the Executive Board has continued to work on the design of the account and it is expected that a plan will be submitted to the next meeting of the Interim Committee in Hamburg in April.

  • In December, the Fund announced that it had improved its extended facility by increasing the maximum period for making repurchases from eight to ten years. Lengthening the period of repayments under this facility is likely to be beneficial for developing member countries seeking to correct structural imbalances in production, trade, and prices. The decision to lengthen the repurchase terms of the extended facility came as members were increasingly seeking the Fund’s assistance under extended arrangements to meet growing BOP problems. Drawings under an extended arrangement may take place over a period of up to three years. Purchases outstanding under the extended facility may not exceed 140 per cent of a member’s quota.

  • In December, the Fund also announced that it had reviewed and increased both the interest rate on the SDR and the rate at which it pays remuneration on members’ creditor positions. The increase in both rates reflects a sharp rise in the combined market rate of interest, which is used to determine the SDR interest rate. Under the Fund’s rules, the interest rate on the SDR shall be 80 per cent of the combined market rate, rounded to the nearest ¼ per cent, and the rate of remuneration shall be 90 per cent of the SDR interest rate, unless the Fund decides otherwise.

New members

Two new countries joined the Fund in 1979, raising total membership to 140 countries. The two new members are St. Lucia, and St. Vincent and the Grenadines.

Gold sales net $3.45 billion

The Fund’s four-year gold sales program for the benefit of developing countries will end in May 1980. In the period between the first auction, held on June 2, 1976, and the fortieth, held on December 5, 1979, the Fund awarded 21,298,800 fine ounces of gold to competitive bidders and 1,479,600 fine ounces to noncompetitive bidders, for a total of 22,778,400 fine ounces. In that period the average award price ranged from $109.40 an ounce at the auction of September 15, 1976 to $426.37 an ounce at the fortieth auction, on December 5, 1979. Net of the payment for the capital value of the gold (equivalent to SDR 35 an ounce), the total amount accrued from the 40 auctions held prior to December 31, 1979 amounted to $3.45 billion. This sum reflects annual proceeds of $320 million, $640 million, $1,080 million, and $1,410 million during the period 1976-79.

Aldo W. Zanzi

New World Bank Publications

Education

April 1980

Revised Sector Policy Paper emphasizes the pervasive role of education in development, the quality of learning, and the institutional aspects of educational development. Suggests the continuation of the policy adopted in 1974 to increase aid to primary education, project-related training, and educational components in urban and rural development projects. Draws extensively on the Bank’s experience in education for two decades and close collaborative ties with other international agencies, individuals, and institutions of developing countries.

Environment and Development

November 1979

Booklet sets forth the range and variety of environmental effects stemming from traditional practices and development projects. Cites Bank efforts and procedures to limit or reverse these effects. Draws attention to the complexity and urgency of environmental issues.

Finance & Development, March 1980
Author: International Monetary Fund. External Relations Dept.