THE INTERNATIONAL MONETARY FUND 70. OPERATIONS OF THE INTERNATIONAL MONETARY FUND DURING THE PERIOD JANUARY 1-JUNE 30, 1961: Report of the National Advisory Council on International Monetary and Financial Problems, Submitted May 10, 1962 (Excerpt) 12 In the period under review, 11 member countries relinquished the transitional arrangements under Article XIV of the Fund Agreement 13 and accepted the formal obligations of Article VIII, which prohibits the imposition of restrictions on current payments, discriminatory currency arrangements, and multiple currency practices without the prior approval of the Fund. Twenty-one member countries have now accepted these obligations. Two member countriesGermany and the Netherlands-adjusted the par value of their currencies, and an initial par value was established for the Greek drachma. Over 70 percent of currency sales (members' drawings) during the period were made in currencies other than U.S. dollars. During recent periods, attention was directed to the problem of balance-of-payments deficits arising in whole or in part from capital movements. With convertibility of the major currencies used in international payments and well-developed exchange markets, international capital flows have become of substantial magnitude and importance in the balances of payments of a number of countries. The meaning of the Fund Articles of Agreement was clarified with regard to capital movements by the Executive Directors who agreed that, pursuant to Article VI and the other provisions of the Articles of Agreement, the Fund's resources may be made available to mitigate the unfavorable effects of capital transfers. The Fund also began to study proposals under which substantial amounts of currencies might be borrowed by the Fund from the main industrial countries under general arrangements pursuant to the provisions of Article VII. MEMBERSHIP AND QUOTAS In March 1961, Portugal and Nigeria became members of the Fund with quotas of $60 million and $50 million, respectively, and during the Fund fiscal period, applications for membership were received from the Republic of the Congo (Léopoldville), Liberia, Senegal, Sierra Leone, and Togo. During the half-year period under review, increases in quotas totaling $17.6 million became effective for the following countries: Costa Rica ($500,000), Tunisia ($2.1 million), and Uruguay ($15 million). As of June 30, 1961, the membership 12 H. Doc. 402, 87th Cong., pp. 2-7. Part II of the NAC report. 13 Text in A Decade of American Foreign Policy: Basic Documents, 1941– 1949, pp. 273-304. For the IMF Feb. 15, 1961, announcement of this action, see the Department of State Bulletin, Mar. 6, 1961, pp. 346–347. of the Fund included 70 countries, with quotas totaling $14,868.3 million. (See appendix table D-1).14 Fund consultations EXCHANGE PRACTICES Member countries maintaining exchange restrictions under Article XIV of the Fund Agreement continued their annual consultations with the Fund concerning the further retention of such restrictions. As indicated in the Fund's Annual Report, during the fiscal year ended April 30, 1961, Fund staff members visited 38 member countries not only for the purpose of reviewing restrictive exchange systems but also to provide technical facilities and advice on a variety of related economic and financial problems. In some cases, the consultations have been associated with use of the Fund's resources in support of stabilization programs or other efforts to protect the currency. More recently, a number of consultations were concerned with an examination of the conditions under which member countries could move from Article XIV status to an acceptance of all of the obligations of Article VIII. For those countries which have accepted the obligations of Article VIII, annual consultations are mandatory only when these members maintain or introduce restrictions requiring Fund approval under this Article. However, in its Executive Board decision of June 1, 1960, it was the opinion of the Fund that "there is great merit in periodic discussions between the Fund and its members even though no questions arise involving action under Article VIII." As a result of this decision, regular consultations, on a voluntary basis, with members having accepted the obligations of Article VIII began in May 1961. Convertibility In its Twelfth Annual Report on Exchange Restrictions, issued in May, the Fund noted the substantial progress achieved when 11 additional countries-Belgium, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Peru, Saudi Arabia, Sweden, and the United Kingdom-relinquished the transitional period arrangements under Article XIV and accepted all of the obligations of convertibility for their currencies under Article VIII. The currencies of these countries had in fact been externally convertible for some time. The total number of countries under Article VIII is now 21, since 10 countries had previously accepted the obligations of that Article.15 Under Article VIII of the Fund Agreement, these countries are required to avoid restrictions on current international payments, multiple exchange rates, and discriminatory currency practices. Resort to such measures would require consultation with and prior approval of the Fund. Almost every currency used in financing international trade and payments is presently convertible in terms of 14 'Not reprinted here. See instead table E-1, appended to doc. 64, ante. Canada, Cuba, the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Mexico, Panama, and the United States. [Footnote in source text.] the Fund Agreement, and most of the trade of the other Fund members is conducted in these convertible currencies. Payments restrictions In general, the decline in trade and payments restrictions continued during the period. Notwithstanding some progress toward the ultimate unification of multiple exchange rates, 11 member countries still maintained multiple exchange rate systems which might be considered complex. There was also a further decline in the number of bilateral payments arrangements. Early in 1961, the Fund's resources were used directly for the first time to assist in the termination of a bilateral payments arrangement-that between Chile and Argentina. PAR VALUES In order to restrain expansionary pressures on their domestic economies, Germany and the Netherlands appreciated the par values of their currencies after consultation with the Fund. Also the Fund agreed to an initial par value for the Greek drachma. Initial par values have now been established with all but 10 member countries. Germany The Government of the Federal Republic of Germany changed the par value of the Deutschemark from DM 4.20 to DM 4.00 per U.S. dollar, effective March 5, 1961. The initial par value of DM 4.20 per U.S. dollar had been established with the Fund in January 1953. The present change was made under Article IV, section 5(c) of the Fund Agreement which permits a member country, after consultation with the Fund, to effect a change in its initial par value not in excess of 10 percent. Netherlands In March, the Fund concurred in a proposal of the Government of the Netherlands for a similar adjustment in the par value of the guilder from fl. 3.80 per U.S. dollar, established in September 1949, to fl. 3.62 per U.S. dollar. The change, which became effective on March 7, did not apply to the currencies of Surinam or the Netherlands Antilles. Greece Also in March, the Government of Greece, in agreement with the Fund, established an initial par value for the Greek drachma of 30 drachmas per U.S. dollar. FUND TRANSACTIONS As the result of the widening area of formal convertibility, there has been a significant and encouraging change in the pattern of Fund transactions toward a greater use of currencies other than the U.S. dollar. From the beginning of Fund operations through 1957, practically all currency purchases (members' drawings) were made in U.S. 748-787-65- -20 dollars, with repayments in U.S. dollars or gold. In the 3-year period 1958 through 1960, U.S. dollar drawings amounted to 68 percent of total drawings, and in the half-year period under review, dollar drawings ($119 million) amounted to 28 percent of total drawings. (See table 1.) 16 The move to full convertibility by the European countries referred to above has also resulted in making their currencies eligible for use in repurchases from the Fund. In February, for the first time, sterling was used in a repurchase transaction. Currency sales In contrast to the pattern of Fund transactions during the preceding 3 years when repayments exceeded drawings, total drawings in the current period ($418 million) were substantially in excess of total repayments ($181 million). These drawings, by 10 member countries, ranged in amount from $1.5 million by Nicaragua to the equivalent of $175 million in 7 currencies by Australia. In terms of currencies other than U.S. dollars, drawings included the equivalent of $134 million in deutschemarks, and the equivalent of $165 million in pounds sterling, Italian lire, Netherlands guilders, Canadian dollars, Argentine pesos, and French francs. As in previous periods, most of the transactions were designed to facilitate the adoption or the continuation of stabilization programs. From the beginning of Fund operations in March 1947 to June 30, 1961, total drawings by 43 member countries amounted to the equivalent of $4.1 billion. Currency repayments Compared with repayments of $408 million and $273 million in the 2 preceding semiannual periods, 14 countries repurchased a total of $181 million of their currencies held by the Fund during the first 6 months of 1961. (See table 2.)17 Over 70 percent of this total was accounted for by three countries- India ($64.2 million), Spain ($50 million), and Argentina ($16 million).18 The remaining repurchase transactions, which ranged in amount from $710,000 by the UAR (Syrian Region) to $13.5 million by Indonesia, included a repurchase in the equivalent of $4 million by Burma in which sterling was used for the first time as a currency of repurchase. On June 30, 1961, total repayments amounted to approximately $3 billion, including $2.7 billion in repurchases of previous drawings and $301 million in other countries' drawings having the effect of repurchases. Drawings outstanding on June 30, 1961, amounted to $1.1 billion. Stand-by arrangements During the period under review, member countries continued to avail themselves of stand-by arrangements in order to deal with current or anticipated payments problems. The Fund approved 16 Not reprinted here. 17 Not reprinted here. 18 This transaction involved a Fund drawing equivalent to $16 million in Argentine pesos by Chile, the first to be made in a Latin American currency, and had the effect of a repurchase by Argentina. [Footnote in source text.] |