international monetary fund annual report 1975 · 1975 summary of transactions and operations in...

ANNUAL REPORT1975

©International Monetary Fund. Not for Redistribution

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INTERNATIONAL MONETARY FUND

ANNUAL REPORTOF THE

EXECUTIVE DIRECTORS FOR THEFISCAL YEAR ENDED APRIL 30, 1975

WASHINGTON, D.G.

Hi


Contents

Letter of Transmittal

Chapter 1. DEVELOPMENTS IN THE WORLD ECONOMYDomestic Economic Activity

Trends in Output and InflationFactors in the Current Inflation and Recession

World Trade and PaymentsVolume of TradeForeign Trade PricesBalance of Payments Developments in 1974Broad Picture of Current Accounts in 1975

Economic and Financial IssuesDomestic PolicyExternal Policy

The Situation of the Non-Oil Developing CountriesCurrent Account Developments and ProspectsSome Major Problems

Chapter 2. EXCHANGE RATES AND INTERNATIONAL LIQUIDITYA. Developments in Exchange Rate Arrangements

Exchange Rate PracticesDevelopments in Exchange Rates

Day-to-Day MovementsShort-Term SwingsExchange Trends and Competitiveness

B. Developments in International LiquidityReserve Changes in 1974Asset Composition of Reserve GrowthFactors Affecting the Adequacy of Reserves

Chapter 3. ACTIVITIES OF THE FUNDCommittees of the Board of Governors

The Committee of TwentyThe Interim CommitteeThe Development Committee

Amendment of the Articles of AgreementSixth General Review of QuotasExchange RatesSpecial Drawing Account

Transactions with DesignationTransactions by Agreement

Page

xiii

1226

1010111215161618202121

2323232526263133333537

4141414242 434546474848

V


CONTENTS

Transactions and Operations Between Participants andthe General Account

ReconstitutionBIS as a Holder of SDKs

Transactions and Operations in the General AccountPurchases in the Tranches and Under Stand-By Arrangements . . . .RepurchasesPurchases Under the Compensatory Financing FacilityBuffer Stock Financing FacilityOil FacilityExtended Fund FacilityUse of Currencies in Fund TransactionsBorrowing Agreements for the Oil FacilityGeneral Arrangements to BorrowCharges and Remuneration and Payment of InterestInterest Payments on Oil Facility BorrowingsIncome Expenses, and ReservesTransactions and Operations in Gold

Declaration on Trade Measures Consultations with Member CountriesTraining and Technical AssistanceRelations with Other International OrganizationsMembership, Quotas, and Participation in the Special Drawing AccountExecutive Directors and Staff

Page

4949505050515252535455555656575758585859606262

APPENDICES

I. The Fund in 1974/75Exchange Rate DevelopmentsSpecial Drawing AccountGeneral Account

GoldGeneral Arrangements to BorrowIncome and Expenses

Administrative Budget and AuditArticle VIIIPublications

II. Principal Policy Decisions of the Executive BoardA. SDR Reconstitution: Amendment of Decision No. 3829-

(72/144) SB. Extended Fund FacilityC. 1974 Oil Facility: Review of Decision No. 4241-(74/67)D. General Arrangements to Borrow: Renewal and Modification E. Borrowing Agreements in Connection with Oil Facility:

Payment of InterestPolicy and Procedure

F. 1974 Oil Facility: Review of Decision No. 4393-(74/121)G. Oil Facility for 1975H. Borrowing in Connection with the Oil Facility for 1975I. Borrowing Agreements in Connection with Oil Facility:

Payment of Interest

vi

65656666676767676767

88

88889091

9292939494

95


CONTENTS

Page

III.

IV.V.

VI.VII.

VIII.

Index

Press Communiques of the Interim Committee and theDevelopment Committee

Interim Committee of the Board of Governors on the InternationalMonetary System

Press CommuniquesFirst Meeting, Washington, October 3, 1974Second Meeting, Washington, January 15-16, 1975Third Meeting, Paris, June 10-11, 1975

Joint Ministerial Committee of the Boards of Governors of theBank and the Fund on the Transfer of Real Resources toDeveloping Countries (Development Committee)

Press CommuniquesFirst Meeting, Washington, October 2, 1974Second Meeting, Washington, January 17, 1975Third Meeting, Paris, June 12-13, 1975

Executive Directors and Voting PowerChanges in Membership of Executive BoardAdministrative BudgetComparative Statement of Income and ExpensesFinancial Statements

Letter of TransmittalMemorandum by the External Audit CommitteeGeneral AccountSpecial Drawing AccountStaff Retirement Fund

96

9696969799

102102102102104107110114116117117118119122124

129

LIST OF TABLES

1.2.3.

4.5.6.7.8.9.

10.

11.12.

13.14.15.

16.

17.

Growth of World Output, 1960-74Price Increases in Developed Countries, 1960-74Price Increases in Less Developed Countries, 1965-Fourth

Quarter 1974World Trade Summary, 1960-74Terms of Trade Developments, 1960-74Global Balance of Payments Summary, 1972-74Industrial Countries: Balance of Payments Summaries, 1972-74Summary of Payments Balances on Current AccountExchange Rate Practices of Fund Members, June 30, 1975Average Daily Changes in Selected Currency Rates Against the U.S.

Dollar, 1973-First Quarter 1975Official Reserves, End of Years 1955-74 and End of March 1975 . . .Distribution of Reserves, End of Years 1950, 1960, and 1970-74 and

End of March 1975Composition of Reserve Change by Area, 1974Composition of Reserve Change, 1968-74Official Holdings of Foreign Exchange, by Type of Claim, End of

Years, 1968-74Use and Receipt of SDRs in Transactions with Designation, Fiscal

Year Ended April 30, 1975Use and Receipt of SDRs in Transactions by Agreement, Fiscal Year

Ended April 30, 1975

34

6111213151624

2634

363738

39

48

49

Vll


CONTENTS

18.

I.I.1.2.

1.3.

1.4.

1.5,

1.6.

1.7.

1.8.

1.9.

1.10.

1.11.

1.12.

1.13.

1.14.

1.15.

1.16.1.17.1.18.

1.19.1.20.1.21.

1.22.1.23.

Acquisition of SDKs for Reconstitution from the Fund's GeneralAccount, January 1, 1972-April 30, 1975

Exchange Rates, June 30, 1975, Transfers of Special Drawing Rights, January 1, 1970-April 30,

1975Summary of Transactions and Operations in Special Drawing Rights,

Fiscal Year Ended April 30, 1975Currencies Transferred for Special Drawing Rights, January 1, 1970-

April 30, 1975Transfer of Special Drawing Rights by the General Account, Fiscal

Year Ended April 30, 1975Reconstitution: Average Daily Holdings of Special Drawing Rights

as a Per Cent of Average Net Cumulative AllocationsPurchases of Currencies and Special Drawing Rights from the Fund,

Fiscal Year Ended April 30, 1975Fund Stand-By Arrangements for Members, Fiscal Year Ended

April 30, 1975Purchases and Repurchases Under the Decision on Compensatory

Financing of Export Fluctuations, February 27, 1963— April 30,1975

Summary of Stand-By Arrangements That Became Effective Duringthe Fiscal Years Ended April 30, 1953-75

Summary of Members' Purchases and Repurchases, Years EndedApril 30, 1948-75

Total Repurchase Obligations Incurred in Accordance with Article V,Section 7(£), and Amounts Payable Forthwith by Members,as of April 30, 1974

Repurchases of Currencies from the Fund, Fiscal Year EndedApril 30, 1975

Currencies and Special Drawing Rights Obtained from the Fundby Members in Purchases for Their Own Currencies; Currenciesand Special Drawing Rights Used by Members in Repurchases,Fiscal Year Ended April 30, 1975

Gold Transactions and Operations by the Fund, Fiscal Years EndedApril 30, 1973-75

General Arrangements to Borrow: Amounts of Credit ArrangementsIncome and Expenses, Fiscal Years Ended April 30, 1966-75 . . . .Charges on Transactions Effected After May 1, 1963 and up to

June 30, 1974Charges on Transactions Effected After July 1, 1974Charges on Transactions Effected Under the Extended Fund FacilityCharges on Transactions Effected Under the Oil Facilities After

July 1, 1974Members That Have Accepted Article VIII, April 30, 1975 . . . . . .Publications Issued, Fiscal Year Ended April 30, 1975

Page

4968

71

72

75

76

77

78

79

80

81

81

82

83

84

858585

868686

868687

LIST OF CHARTS

1 . Semiannual Changes in Output and Prices in Industrial Countries, FirstHalf 1973-First Half 1975

2. Industrial Production in Industrial Countries, 1970-Mav 197525

Vlll


CONTENTS

3.

4.

*»6.

78.

9.

10.11.

j

Indices of Prices of Commodities Exported by Primary ProducingCountries 1971-June 1975

Major Industrial Countries: Selected Short-Term Interest Rates, 1973-May 1975

Growth of World Trade 1953-First Half 1975Spot Exchange Rates Against the U.S. Dollar, January 1973-June

1975Short-Term Money Market Rates January 1973— May 1975Indices of Effective Exchange Rates of Major Industrial Countries,

1973-June 1975Effective Exchange Rates and Relative Wholesale Prices of Manufac-

tures, First Quarter 1973-First Quarter 1975Level and Composition of Reserves, End of Period, 1964-March 1975Ratio of Aggregate Reserves to Aggregate Imports of 60 Countries,

1954-74

Page

1

810

7578

79

3735

40

The following symbols have been used throughout this Report:

( . . . ) indicate that data are not available;

( — ) indicates that the figure is zero or less than half the final digitshown, or that the item does not exist;

(-) is used between years or months (e.g., 1969-75 or January-June)to indicate the years or months covered, including the beginningand ending years or months;

(/) is used between years (e.g., 1974/75) to indicate a fiscal year.

"Billion" means a thousand million.

Minor discrepancies between constituent figures and totals are due torounding.

The classification of countries employed in the Report is indicated in Table 1on page 3.

IX


International Monetary Fund

H. Johannes WitteveenManaging Director and Chairman of the Executive Board

William B. DaleDeputy Managing Director

Executive Directors

Sam Y. CrossAnthony K. RawlinsonEckard PieskeJacques Henri WahlKaichi KawaguchiFrancesco Palamenghi-CrispiBernard J. DrabblePieter LieftinckNazih DeifS. Jagannathan

Alternate ExecutiveDirectors

Charles R. HarleyPeter J. BullGerhard LaskeJean Foglizzo x

Mikio WakatsukiJose Luis MoraGeorge ReynoldsTom de VriesMohamed FinaishW. M. Tilakaratna

Executive Directors

Jacques de GrootePer AsbrinkByanti KharmawanR. J. WhitelawHorace R. Monday, Jr.Francisco SuarezAlexandre KafkaJahangir AmuzegarRoberto GavaldaAntoine W. Yameogo

Alternate ExecutiveDirectors

Heinrich G. SchneiderJ0rn H. KjaerMaung SheinR. S. DeaneJ. B. ZuluRoberto GuarnieriClovis L. A. AlbuquerqueCosta P. CaranicasJose Luis ZabalaSamuel Nana-Sinkam

Senior Officers

The General Counsel Joseph GoldThe Economic Counsellor J. J. PolakAdministration Department Phillip Thorson, DirectorAfrican Department Mamoudou Toure, DirectorAsian Department Tun Thin, DirectorCentral Banking Service J. V. Mladek, DirectorEuropean Department L. A. Whittome, DirectorExchange and Trade Relations Department. . Ernest Sturc, DirectorFiscal Affairs Department Richard Goode, DirectorIMF Institute Gerard M. Teyssier, DirectorLegal Department Joseph Gold, DirectorMiddle Eastern Department John W. Gunter, Acting DirectorResearch Department J. J. Polak, DirectorSecretary's Department W. Lawrence Hebbard, SecretaryTreasurer's Department Walter O. Habermeier, TreasurerWestern Hemisphere Department Jorge Del Canto, DirectorBureau of Language Services J. S. Haszard, DirectorBureau of Statistics Earl Hicks, DirectorOffice in Europe (Paris) Leo Van Houtven, DirectorOffice in Geneva Edgar Jones, DirectorInformation Office Jay H. Reid, Director

Chief Editor Norman K. Humphreys

July 25, 1975

1 Effective August 1, 1975.

XI


LETTER OF TRANSMITTALTO THE BOARD OF GOVERNORS

July 25, 1975

Dear Mr. Chairman:

In accordance with Section 10 of the By-Laws of the International MonetaryFund, I have the honor to present to the Board of Governors the Annual Reportof the Executive Directors for the fiscal year ended April 30, 1975.

Yours sincerely,

/s/

H. JOHANNES WITTEVEEN

Chairman of the Executive Board

Chairman of the Board of Governors


Xlll


Chapter 1Developments in theWorld Economy

By traditional standards, the performance of theworld economy during 1974 and the first half of 1975was poor. But by reference to the serious and complexrange of problems that had to be confronted, this per-formance can be characterized as mixed. The slowdownof economic growth in the industrial world that wasin process around the beginning of 1974 developed intoan unexpectedly severe and widespread recession, fea-turing exceptionally high rates of unemployment. Onthe other hand, expansionary policies have beenadopted in a number of industrial countries to fosterresumption of economic growth; essentially because ofthe international recession, progress on the inflationfront has been better than anticipated; and the prob-lems of financing the external current account deficitsassociated with the oil price increase have proved—partly because of the recession—less intractable thaninitially feared.

During the first half of 1975, unemployment andslack in utilization of productive capacity in the largeindustrial countries reached levels not witnessed forseveral decades. The effects of the downturn in theindustrial world had spread progressively to other areasafter mid-1974, making it difficult for many develop-ing countries to maintain satisfactory rates of growthin their real incomes.

However, the downward momentum of late 1974and early 1975 seems to have diminished or disap-peared in very recent months. By the second quarter,the authorities of most major industrial countries hadinstituted fiscal and monetary policies designed to spurrecovery, and the stage appeared to be set for renewedacceleration of economic activity. Although such anupturn was not yet clearly in evidence at mid-1975, itwas generally expected to begin during the second halfof the year.

Because of the virulence of the inflation that haddeveloped during the 1972-73 boom, the expansionaryfiscal and monetary measures adopted to combat thesubsequent recession have remained generally cautious.

While rates of inflation have generally been subsidingduring the recession, prices are still rising in most coun-tries at a pace that is extremely high by historicalstandards, and cost-push pressures remain a widespreadproblem. The danger that unduly stimulative policiesmight reactivate an inflationary psychology cannot beignored by national authorities.

These circumstances, given the difficulties and un-certainties of economic forecasting, call for watchful-ness with respect to evolving trends and for flexibilityin the adaptation of national policies. The risks of anexcess of caution that could prolong the wastefulunderutilization of manpower and capital facilities mustbe continually weighed against those of an overlyrapid expansion of demand that could generate renewedinstability of prices.

The massive disequilibrium in international paymentsthat arose from the overlay of higher oil prices on asituation already characterized by sizable imbalancesamong the industrial countries remains a serious prob-lem, but has assumed an altered form. To date, invest-ment of the surpluses of oil exporting countries innational and international financial markets—togetherwith the expansion of official financing (through bothbilateral arrangements and multilateral facilities)—has resulted in a satisfactory channeling of funds intothe financing of the current account deficits of the oilimporting countries. The process of internationalreserve creation that takes place when reserves trans-ferred to the oil exporting countries are replenishedthrough borrowing in the United States or the Euro-currency market has meant that a substantial accrualof reserves by the oil countries could proceed withoutserious reduction of the reserves held by the majorityof oil importing countries.

However, a crucial problem looms for the periodahead inasmuch as the cyclical downturn in the indus-trial countries has resulted in a marked shift ofcurrent account deficits from those countries towardthe primary producing countries. For the latter, con-

1


ANNUAL REPORT, 1975

siderable erosion of earlier gains in the terms of tradewas already evident in 1974; and severe furtherdeclines in their terms of trade, coupled with loss ofbuoyancy in their export markets and the urgent needto maintain essential imports, are tending to raise theircurrent account deficits even higher in 1975 than in1974. Their need for external financing thus remainshigh; and many of the non-oil developing countrieshave already strained their debt-servicing capacity tofinance the greatly enlarged current account deficitsconfronted in 1974.

At best, the non-oil developing countries may haveto contemplate some considerable reduction of theirnet reserve positions to finance the even larger currentaccount deficits in prospect for 1975. For countrieswith the most severely strained borrowing capabilities,the need for larger flows of concessional aid is urgent;and maintenance of the net inflow of private capitalat its high 1974 level will require both care on the partof the borrowing countries to follow policies that defendtheir creditworthiness and cooperative efforts by capitalexporting countries to encourage the needed flows offinancial assistance.

To obtain a satisfactory share of the expanded exportmarkets that should materialize when the expectedupturn of economic activity in the industrial world takesplace, developing countries will require ready access tosuch markets. In this context, it is heartening to notethat the spirit of the Rome communique of January1974 has been observed by most Fund members; withsome exceptions, they have avoided the imposition orintensification of restrictions notwithstanding enlargedcurrent account deficits and the impact of recession. Itis important that vigilance be maintained in this fieldbecause of the damage to the world economy thatwould result from any widespread resort to restrictions.

Domestic Economic Activity

Trends in Output and InflationAfter the 1970-71 economic slowdown, growth of

real gross national product (GNP) in the industrialcountries accelerated and reached an unsustainably highrate of 8 per cent in the first half of 1973; the rateof increase then fell off sharply in the second half ofthat year and became negative in both halves of 1974(Chart 1). These wide fluctuations were in contrastto the growth rate of 4l/2-5 per cent registered by theindustrial countries over the decade of the 1960s(Table 1).

Despite the developing weakness in real activity,price increases grew larger in 1973 and 1974 (Table 2).

Chart 1. Semiannual Changes in Output andPrices in Industrial Countries, FirstHalf 1973-First Half 1975

(Percentage changes in real GNP and GNP deflators frompreceding half year, seasonally adjusted, at annual rates)

1 Include, in addition to the countries shown separately in thechart, Austria, Belgium, Denmark, Luxembourg, the Nether-lands, Norway, Sweden, and Switzerland.

2


DEVELOPMENTS IN THE WORLD ECONOMY

Table 1. Growth of World Output, 1960-74

(Percentage changes in real GNP)

Annual Average

Industrial countriesCanadaUnited StatesJapanFranceGermany, Fed. Rep. ofItalyUnited KingdomOther industrial countries 2

Primary producing countriesMore developed 3

Less developed 4

World 5

1960-70

4.85.24.0

11.25.7\ 4.95.62.74.95.65.85.55.0

1960-65

5.15.64.9

10.25.75.05.33.25.05.35.95.15.1

i1965-70

4.54.83.2

12.15.64.85.92.24.75.85.85.84.8

Change from Preceding Year1970

2.62.5

-0.410.35.85.84.92.15.66.66.06.93.4

1971

3.75.83.36.85.33.01.62.23.25.45.75.24.0

1972

5.76.06.28.75.73.43.13.44.75.75.65.75.7

1973

6.26.95.9

10.26.05.36.35.44.27.16.17.66.4

1974

-0.22.8

-2.1-1.8

3.90.43.40.32.75.63.56.41.0

Sources: National economic reports, secretariat of the Organization for Economic Cooperation and Development, secretariat ofthe United Nations, U. S. Agency for International Development, International Bank for Reconstruction and Development, andFund staff estimates.

1 Compound annual rates of change.2 Austria, Belgium, Denmark, Luxembourg, the Netherlands, Norway, Sweden, and Switzerland.3 Comprise Australia, Finland, Greece, Iceland, Ireland, Malta, New Zealand, Portugal, South Africa, Spain, Turkey, and

Yugoslavia.4 Comprise Fund member countries not listed above as "Industrial countries," or as being "More developed" (footnote 3, above).

In some of the other tables in this chapter, the less developed countries are subdivided to distinguish the "major oil exporters"(Algeria, Bahrain, Indonesia, Iran, Iraq, Kuwait, the Libyan Arab Republic, Nigeria, Oman, Qatar, Saudi Arabia, the United ArabEmirates, and Venezuela) and "other developing countries" (or "non-oil developing countries").

5 Fund member countries (listed in Appendix I, Table I.I) plus Switzerland.

The overall rate of price inflation in the industrialcountries—as measured by the comprehensive GNPdeflators—accelerated to an annual rate of more than13 per cent in the second half of 1974 (Chart 1). Inthat period, exceptionally rapid rates of price inflation,together with low or negative rates of growth in output,were widely prevalent among these countries—a situa-tion unprecedented in postwar history.

During 1974, the extent of weakness in real activityand of strength in price pressures was, in general, notforeseen by national officials, or by private and inter-national forecasters. At mid-1974, as noted in lastyear's Annual Report, inflation was widely regardedas the dominant problem of economic policy; theunderlying demand situation still appeared to be expan-sionary; and most of the major countries were expect-ing an upturn of real GNP during the second half of theyear, although the possibility of international recessionwas not ruled out. As matters developed, judgmentsabout the trend of real activity were wide of the markfor many of the industrial countries, including the threelargest: the United States, the Federal Republic of Ger-many, and Japan.

This unsatisfactory experience of the industrial coun-tries with respect to output became even worse in early1975. For these countries as a group, real GNP isestimated to have fallen at an annual rate of 4 percent from the second half of 1974 to the first half of

1975; the declines were widespread, the largest beingthat for the United States, estimated at 8 per cent.However, the spreading of recession during 1974 andthe early months of 1975 has had the effect of bringingabout some noticeable success on the inflation front,and the weighted-average increase of GNP deflators forthe industrial countries is estimated to have declinedfrom the peak annual rate of more than 13 per cent inthe second half of 1974 to a rate of about 10 per cent inthe first half of 1975—still far above the average priceincrease of about 2V& per cent experienced by theindustrial countries in the early 1960s. Although priceinflation has accelerated almost steadily over the pastten years, the main change occurred after 1972; inthat year, when inflation was already considered aworrisome problem, GNP deflators rose on the averageby "only" about 5 per cent.

Compared with the semiannual GNP figures, a some-what sharper perspective on recent and current develop-ments is afforded by monthly data on industrial pro-duction and on consumer prices. The production data,as summarized in Chart 2, indicate that there have beensubstantial declines of activity in the industrial sectorsof most industrial countries. These declines have beenin the neighborhood of 19 per cent for Japan, 13 percent for the United States, 11 per cent for Franceand Italy, and 9 per cent for the Federal Republic ofGermany, while the downward tendency of industrial

3


ANNUAL REPORT, 1975

Table 2. Price Increases in Developed Countries, 1960-74

(Percentage changes in GNP deflators)

Annual Average ^

Industrial countries2

CanadaUnited StatesJapanFranceGermany, Fed. Rep. ofItalyUnited KingdomOther industrial countries 2> 3

More developed primary producingcountries 2

AustraliaSpainOther countries 2» 4

1960-70

3.43.02.74.84.33.54.44.34.5

4.82.95.85.2

1960-65

2.61.91.44.94.13.65.53.64.4

4.72.26.65.0

1965-70

4.24.24.14.74.43.43.55.04.5

4.93.65.05.4

1970

5.94.75.56.75.57.16.67.35.9

6.24.64.97.4


5.43.24.54.65.67.96.68.97.2

9.06.57.4

10.6

1972

4.84.93.45.06.05.95.97.77.3

9.47.68.9

10.2

1973

7.08.45.6

11.17.25.9

10.37.47.9

14.0

11.813.816.8

1974

11.713.810.320.99.66.6

16.312.69.8

16.516.212.919.5

Sources: National economic reports, secretariat of the Organization for Economic Cooperation and Development, and Fundstaff estimates.

1 Compound annual rates of change.2 Average of percentage changes for individual countries weighted by the U. S. dollar value of their GNPs at current prices in

the preceding year.3 Austria, Belgium, Denmark, Luxembourg, the Netherlands, Norway, Sweden, and Switzerland.4 Finland, Greece, Iceland, Ireland, Malta, New Zealand, Portugal, South Africa, Turkey, and Yugoslavia.

production in Canada and the United Kingdom hasbeen less marked.1 Meanwhile, there has been awidespread easing of consumer price increases exceptin the United Kingdom. From December 1974 to May1975 (the latest month for which consumer price dataare presently available),increases averaged about 9 percent at an annual rate, down from the rate of 14 percent recorded for the third and fourth quarters of 1974.

The economic slowdown or recession that has devel-oped in all the industrial countries since 1973 has pro-duced an extraordinary degree of economic slack. Thisis directly evident from officially reported unemploy-ment figures, but is measured most comprehensively interms of the gap between actual GNP and "potential"GNP.2 This broad measure of underutilization ofresources is subject to a number of conceptual andstatistical difficulties that prevent its serving as a preciseguide to policy. For recent periods, it is especially diffi-cult to make adequate allowances for the impact ofchanges in costs of energy, for the existence of obsoleteplant capacity, and for the inhibiting influence of bottle-necks in particular sectors. Nevertheless, with due

xThe figures are based on comparison of the latest threemonths for which data are available with the three monthsembracing the previous peak (which in each instance occurredin 1974 or in late 1973).

2 Potential GNP purports to measure what an economywould produce in a given period if all its resources were"fully" utilized, in a sense more or less consistent with reason-able price stability, given the technology and institutionalarrangements existing at the time. The measurement of GNPgaps, therefore, is an attempt to quantify a concept that, byits nature, cannot be closely defined.

caution regarding such deficiencies, the "gap" measurecan be of some use as a general indication of com-parative economic conditions in the present circum-stances. According to "gap" estimates of the Fundstaff drawing on national sources to the extent possible,the degree of slack prevailing in the seven major indus-trial countries during the first half of 1975 was gen-erally substantial both in absolute terms and in relationto prior periods; the indicated underutilization ofresources was much larger in the United States andJapan (some 12-14 per cent) than in Canada, the Fed-eral Republic of Germany, and Italy (7-8 per cent) orin France and the United Kingdom (around 5 percent).

The statistical picture of the current economic situa-tion is much less adequate for the primary producingcountries than for the industrial countries. However,the available figures for the more developed primaryproducing countries indicate that the average rate ofgrowth in real GNP slowed down from about 6 percent in 1973 to some 3V2 per cent in 1974 (Table 1).While a majority of the more developed primary pro-ducing countries experienced slower real growth in1974 than in 1973, economic activity in some of them(e.g., South Africa and Turkey) expanded at substan-tially higher rates. The overall price increase reachedthe high rate of 17 per cent in 1974 in the more devel-oped primary producing countries (Table 2), withalmost all the countries comprising this group experi-encing double-digit inflation. In 1973, the rate of infla-tion in these countries, averaging 14 per cent, had been

4



Chart 2. Industrial Production in Industrial Countries, 1970-May 1975

(Indices adjusted for seasonal variation; 1970 = 100)

1 Austria, Belgium, the Netherlands, Norway, and Sweden.

about twice as high as that recorded in the industrialcountries.

Total real output in the less developed primary pro-ducing countries seems to have risen in 1974 by about61/2 per cent—not far from the average for the past tenyears. Growth rates for the oil exporting countries wererelatively high (about 9 per cent, on average), reflectingthe effects of stepped-up domestic expenditures madepossible by increased oil revenues. In the other (non-oil) developing countries, the volume of both domesticdemand and imports maintained a high rate of increasefrom 1973 to 1974, broadly similar to that from 1972to 1973; however, a sharply reduced rate of growth inforeign demand apparently resulted in some slowing of

overall output growth from 1973 to 1974. Moreover,trade indicators suggest that the pace of economicactivity slowed considerably in the course of 1974.

The available data on consumer prices for the lessdeveloped countries show that domestic price inflation,after accelerating sharply in 1973, leveled off at a veryhigh rate during 1974 (Table 3). In line with theexperience of recent years, inflation in the oil export-ing countries in 1974 tended to be lower (about 20per cent, on average) than in the non-oil countries(more than 30 per cent). In each of four broad regions,the rate of inflation of consumer prices increasedmarkedly from 1973 to 1974, to rates of some 17 percent in Africa and the Middle East, and to rates of

5


ANNUAL REPORT, 1975

Table 3. Price Increases in Less Developed Countries, 1965-Fourth Quarter 1974(Percentage changes in consumer prices)1

Less developed countriesIn AfricaIn AsiaIn the Middle EastIn the Western Hemisphere

AnnualAverage1965-70 2

136

163

415


10665

15

1972

12586

20

1973

219

181029 3

1974

2917311736 3

Fourth Quarter 1973to

Fourth Quarter 1974

29172817363

Sources: IMF Data Fund and Fund staff estimates.1 Calculated from weighted geometric means of country indices expressed in terms of local currency. Weights are proportional

to GDP (in U. S. dollars) in 1970.2 Compound annual rates of change.3 Excluding one high-inflation country, the Asian figure in the first column would be 7 per cent; with a similar exclusion, the

Western Hemisphere figures in the last three columns would be 20 per cent, 25 per cent, and 27 per cent, respectively.

over 30 per cent in Asia and the Western Hemisphere.By the fourth quarter of 1974 and the early months of1975, however, rates of inflation had generally stabi-lized in developing countries and were beginning tocome down in some of them.

GNP estimates for the first half of 1975, or projec-tions for the year, are not available for the primaryproducing countries, but it is nonetheless clear thatgrowth-depressing influences are at work. Because ofthe slowdown or recession in industrial countries andother factors, the volume of exports of both the moredeveloped primary producers and the non-oil develop-ing countries is unlikely to show any increase at all in1975 (over 1974) even if, as is generally expected,demand and output in the industrial countries show anupturn in the second half of the year. In 1974, bothgroups of primary producing countries experienced apartial reversal of the gains in terms of trade realizedin the 1972-73 boom, and the non-oil developing groupis also being hit by a sharp deterioration of the termsof trade in 1975. Although the growth of import vol-ume of this latter group was maintained surprisinglywell in 1974, the associated impairment of externalfinancial positions—through heavy foreign borrowingand a decline in the real purchasing power of reserves—is expected to lead to a considerable decline of importvolume in 1975; this would inevitably affect domesticgrowth rates and development plans. For the moredeveloped primary producers also, a decline of importvolume from 1974 to 1975 is likely, and a furtherslowing of real GNP growth is in prospect, as many ofthese countries undertake to reduce their still high ratesof inflation and to deal with increasingly severe balanceof payments problems.

The major oil exporting countries are in a very differ-ent position by reason of the large improvement thathas occurred in their terms of trade since late in 1973.Without exception, the governments pf those countries

are endeavoring to bring about a faster rate of eco-nomic growth and development. In a number of casesthe rapid increases in domestic liquidity, together withrising import costs, are exerting strong pressures ondomestic prices and wages, as domestic demand surgesupward while local productive resources are insufficientto meet the added demands associated with the over-all boom in spending.

Factors in the Current Inflationand Recession

Any review of factors responsible for the steep accele-ration of inflation in the period 1973-74, and for theonset of the severe 1974-75 recession, must start withthe unusually high degree of coincidence in the phas-ing of business expansion in many countries during1972 and 1973. In practically all the developed coun-tries, economic activity advanced sharply and aggre-gate demand rose to new high levels during this period.

The 1972-73 upsurge of global demand was to someextent attributable to miscalculations in the conductof monetary and fiscal policies. In relation to the buoy-ancy of private demand that materialized, these policiesproved excessively expansionary from the standpoint ofcontrolling inflation. They fueled a widespread invest-ment boom that was further driven, during its laterstages, by emerging limitations on productive capacity.

As was pointed out in last year's Annual Report,several distinctive features of the boom help to explainwhy a sharply higher rate of price inflation developedin 1973 and 1974. Among these were the high rates ofprice increase sustained through the 1970-71 economicslowdown and the upward momentum thus already pre-vailing at the beginning of the 1972-73 upswing—amomentum doubtless reflecting the evolution of publicattitudes and institutional practices that, particularlysince the mid-1960s, have become geared to an assured

6



expectation of continuing advances in costs, prices, andrates of remuneration.

A second distinctive feature of the recent boom wasthe magnitude of the increase in many primary com-modity prices, even apart from oil (Chart 3). Theupsurge of commodity prices from the beginning of1972 through the early months of 1974 had no parallelwith earlier peacetime experience—a fact suggestingthat this upsurge may have stemmed in part from fac-tors essentially independent of the general process ofinflation in the world economy. Such factors includedshortages attributable to crop failures resulting fromdrought or flood, as well as changes in stock positionsemanating from earlier shifts of agricultural policy inkey countries. In important respects, however, theescalation of commodity prices must be seen as respon-sive to the boom itself; a special aspect of this response—especially during the latter part of 1973 and theearly months of 1974—was anticipatory buying ina climate of inflationary expectations, real or threat-ened shortages of various materials, and uncertaintiesregarding the future values of currencies.

The cost-raising influences of the oil price rise andtemporary embargo of late 1973 and early 1974 com-prised another special feature of the recent boom thatcontributed to inflation. Because of the relatively lowelasticity of demand for oil and its pervasive use inproductive processes (given also the short-run limita-tions of supply), an increase in the price of petroleumof the magnitude witnessed inevitably became an addi-tional element in the ongoing inflationary process.

Still another distinctive feature of the recent infla-tionary upsurge was the way in which increases in theprices of oil, primary commodities, and capital goodsbecame a form of imported cost inflation in many coun-tries that was very difficult to influence or control.These elements of import cost tended to enter into thedomestic cost structure through the process of linkingwages to prices, both in formal contractual arrange-ments and in de facto patterns of labor market adjust-ment. Moreover, producers usually continued raisingtheir prices to cover at least the additional costs, andwere able to raise them by larger amounts in the manysituations permitting imperfectly competitive pricingpractices. In a more general sense, it became increas-ingly apparent during 1973 and 1974 that the problemof retarding the momentum of price advances wasgreatly complicated by the ease with which impulsesoriginating in one area were transmitted to other partsof the world through their influence on the cost ofliving, wage demands, and business costs. Followinga long period of near stability, foreign trade prices 3

went up by 12 per cent from 1972 to 1973 and bymore than 50 per cent (at an annual rate) in the firsthalf of 1974.

During the first two or three quarters of 1974,policies pursued in the industrial countries generallyreflected the continuance of very high rates of priceinflation and the indications that aggregate demandremained strong. While expansionary fiscal measureswere adopted in some countries (e.g., the FederalRepublic of Germany, the Netherlands, and Sweden)in late 1973 or early 1974, the fiscal posture in mostindustrial countries through at least the first half of1974 either remained moderately restrictive (as, e.g.,in the United States) or was further tightened (as, e.g.,in Denmark, France, and Japan). Concurrently, thethrust of monetary policy became more generally

Chart 3. Indices of Prices of CommoditiesExported by Primary Producing Countries,1971-June 1975

(Expressed in U. S. dollars; 1968-70 = 100)

3 As measured by world export unit values in terms of SDKs.

7


ANNUAL REPORT, 1975

restrictive because of apprehensiveness over inflationand in some cases also because of the need to inducecapital inflows to finance the large current accountdeficits that emerged because of the oil price rise. Inthe Federal Republic of Germany, Switzerland, andseveral other countries, rates of monetary expansionhad already been sharply reduced during 1973, and thetendency toward a tightening of monetary conditionsbecame more general in 1974; this was reflected notonly in reduced rates of increase in monetary aggre-gates during much of the year, but also in a heighten-ing of interest rates in a number of countries (Chart 4).

Apart from the effects of steeply higher petroleumcosts, a factor that clouded perception of the demandsituation in the first half of 1974 was a sharp increasein the volume of exports from the industrial countriesto the rest of the world. Not only did the imports of theoil exporting countries expand rapidly, as was to beexpected in view of their enlarged export earnings, butthe volume of imports into other primary producingcountries also continued to increase at an exceptionalrate. Moreover, anticipatory buying and speculativeinventory accumulation associated with inflationaryexpectations appear to have been a significant influencehelping to sustain the rise of domestic demand in early1974. Capital spending plans and orders for durablegoods showed continued strength in some countries, andcertain elements of demand—for example, for steel andraw materials—remained quite buoyant. Internationalprices of metals—which normally are sensitive tochanges in business cycle conditions in the industrialcountries—rose to a peak in the first half of 1974(Chart 3).

In general, however, major components of privatedemand in key countries were considerably weaker inthe first two or three quarters of 1974 than they werejudged to be at the time. In the unexpectedly sharpdecline of economic activity that occurred in several ofthe major industrial countries during the closing monthsof 1974 and the early part of 1975 (Chart 2), oneimportant element was a weakening of consumer out-lays in real terms, and especially of those for consumerdurable goods. This development touched off a processof unplanned inventory accumulation and of subsequentliquidation, with sharply adverse impact on industrialoutput. The slower pace of real consumer spendingseems to have reflected a fairly general loss of confi-dence in the prospects for maintenance of employmentlevels and real purchasing power. Also, the persistencethrough the second half of 1974 of extremely highrates of increase in consumer prices, following a periodof rather active buying stimulated by expectations ofsuch price increases, was probably a factor underlyingthe subsequent slowing of real spending in a number of

Chart 4. Major Industrial Countries: SelectedShort-Term Interest Rates, 1973-May 1975

(In per cent)

countries. The further deceleration or decline in thevolume of private investment during the latter part of1974 and early 1975 was the most direct and obviousmanifestation of monetary restraint, which bore espe-cially heavily in a number of countries on residentialconstruction (reflecting the familiar chain of -associa-tion running from tight credit and high interest ratesto scarcity of funds for home building, and hence to adrop in such activity).

Mention might be made of three other contributingelements in the 1974-75 weakening of economic activ-ity in the industrial countries: the reaction to oil deficits,the squeeze on profits, and the downturn in exports.

The increase of petroleum prices not only would addto inflation through its cost-raising effects but alsocould be expected, in the absence of offsetting changes,

8

Note: All series are monthly averages except for Italy wherethe final month in each quarter is used.



to have a deflationary effect stemming from the muchgreater increase of imports than of exports that wouldoccur in the trade of oil importing countries with theoil exporting countries.4 A deflationary effect would befelt to the extent that larger payments for oil werefinanced through diversion from other expenditures;this effect would be averted to the extent that such pay-ments were financed out of consumer or businesssaving, or to the extent that government measures ofexpansion provided an offset. In the event, it wouldappear that, by and large, the deflationary effect of theoil price increase was not averted by autonomous andgovernment-induced forces of expansion in 1974; mone-tary and fiscal policies were generally restrictive becauseof the severity of the inflation problem.5

In many industrial countries the profit picture seemsto have worsened during 1974 and early 1975, castinga depressing influence on investment plans. Intensifica-tion of the process of wage-push inflation was a princi-pal factor underlying this development. The rise in foodprices, which peaked only near the end of 1974, com-bined with rapidly adjusting internal prices of energyand with other factors to keep consumer prices in mostcountries on a steep upward path through the end of1974. Reactions of labor groups to this inflation of con-sumer prices tended to counteract, at least in the shortrun, any tendencies for wages to slacken in response tothe weakening demand for labor. In the second half of1974, escalation of nominal wages, combined with thedownturn in productivity, was reflected in sharpincreases of unit labor costs in the industrial countries,at a time when the onset of recession was cutting intosales volumes.

Also important in the evolution of recession in theindustrial world was the weakening of foreign demand.Growth in import volume of the non-oil primary pro-ducing countries, although strong in the first half of1974, was virtually halted in the second half. The totalvolume of imports of the industrial countries fell off inthe latter period, and the decline intensified in the firsthalf of 1975. Imports of the oil exporting countries,however, accelerated dramatically during 1974. Overall,the volume of world trade ceased growing in the secondhalf of 1974 and declined considerably—by perhaps5 per cent—in the first half of 1975; the impact of this

4 The maximum potential effect was appreciable, ranging asa percentage of GNP from 5l/2 in Italy and 4 in Japan, to2l/2-3l/2 in several other industrial countries, and to ll/2 in theUnited States. (These figures relate to the change in thebalance of trade in oil from 1973 to 1974 as a percentage ofnominal GNP in 1973.)

5 In most industrial countries, it may be noted, there wasa substantial increase in personal direct taxes from 1973 to1974. This reflected mainly the effect of steep inflation rates,which pushed taxpayers into higher brackets and thus, per-versely, brought about effective tax increases at a time of eco-nomic slowdown.

unusual development on the exports of individual coun-tries was quite uneven, depending (inter alia) on acountry's trade position in the expansive market of themajor oil exporters and on the capacity to supply goodsfor export, as well as on the general composition of thecountry's exports.

Among the many influences that contributed to the1974-75 international recession, one deserving particu-lar attention—indeed, it would appear in retrospect tohave been the proximate cause of this recession—is theunexpected strength of price pressures that developedin the course of 1974. Demand management policieshad not allowed for the full strength of such pressuresinasmuch as they were geared to lower price expecta-tions.6 In the circumstances, output growth might havecontinued with a higher degree of monetary expansion,but such a course of policy probably would have exacer-bated the already severe problem of inflation and madethe inevitable—postponed—adjustment still morecostly.

The period 1973-74, as discussed earlier, was one ofgeneral monetary tightening in the industrial world inreaction to the excessive monetary expansion of1971-72—an expansion that evidently was a powerfulforce propelling prices upward during 1973 and 1974.7

During 1974 monetary policy was restrained becauseof concern over inflation, notwithstanding the poten-tially deflationary effect of the higher oil prices.

These observations regarding inflation as a causalfactor in the current recession are intended to flag theimportance of bringing the current inflation down toacceptable levels and of avoiding overly expansionarypolicies that might lead to its continuance or resurgence.Unfortunately, this clear lesson of recent experiencecannot readily be translated into precise guidelines forcurrent policy, inasmuch as the present situation is sodifferent from that in previous postwar periods—moreeconomic slack and more inflation—as to make it verydifficult to judge the degrees of monetary or fiscal expan-sion that might prove sufficient to restore adequatelevels of resource utilization at a satisfactory pace with-out touching off new difficulties regarding inflation; theissues involved are controversial, among both econo-mists and the general public. Moreover, the scope forgeneralizations on this matter is limited because of thefact that the major industrial countries differ markedly

(5 In general, authorities in the industrial countries wereoptimistic at the beginning of 1974, expecting both a fairlysatisfactory rate of economic growth and a decline in priceinflation. Their projections of nominal GNP expansion—likethose of forecasters generally—often proved rather accurate,but the projected growth and price elements were badly inerror.

7 The time lags involved in the effects of monetary policyare believed to be considerably longer with respect to pricesthan with respect to output.

9


ANNUAL REPORT, 1975

as to the degree of economic slack and price inflationthat currently prevail, as well as to balance of paymentspositions. In a number of countries, one inhibiting influ-ence in the formulation of demand management policiesto reverse recessionary trends and to foster sustainedrecovery is the inflexibility of the budget instrument—the lack of any assurance that, in the upward phase ofthe cycle, taxes could be raised or expenditures cut.

It is now widely expected that, on the basis of expan-sionary shifts in fiscal and monetary policies duringrecent months, together with the working of correctiveforces in the cyclical process, an economic upturn willoccur in the industrial countries during the second halfof 1975 and extend into 1976. This prospect—andsome of the policy issues involved—is discussed later.

World Trade and PaymentsDuring the year that has elapsed since the prepara-

tion of the 1974 Annual Report, world trade develop-ments have been dominated by the onset and deepen-ing of the current international recession. First in theindustrial countries and later in the primary producingcountries (other than the oil exporters), the previousupward momentum of import volume gave way to apervasive weakness of import demand. The total volumeof world trade appears to have stopped growing in thesecond half of 1974 and to have turned downward inthe first half of 1975. The slowing of growth in tradewas accompanied by deceleration of the earlier increasesin foreign trade prices. Because the changes in pricemovements varied sharply in timing and degree amongdifferent types of products, they resulted in markedshifts in the terms of trade for various groups of coun-tries. The uneven character of both the volume changesand the terms of trade shifts was reflected, of course,in altered patterns of current account balances andexternal financing problems.

Volume of TradeThe impact of the recession on world trade volume

is clearly evident even in the annual data summarizedin Table 4. Total world trade rose in real terms by5 per cent in 1974, after having expanded by 13 percent in 1973 and by an annual average of 8Y2 percent over the decade of the 1960s. The only segmentstill expanding vigorously in 1974 and early 1975 wasthe flow of imports into the oil exporting countries.These imports increased by nearly 40 per cent in 1974,and continued to expand rapidly in the first half of1975. The industrial countries as a group, despitetheir role as principal suppliers to the oil exporters,experienced a sharp drop in the rate of increase inexport volume during 1974, and the incomplete dataavailable indicate an outright decline in the first half

of 1975. Even weaker trends were evident during 1974and early 1975 in the imports of the industrial coun-tries and, correspondingly, in the volumes of exportsof all groups of primary producing countries (includingthe oil exporters).

The last major segment of world trade to be affectedby the recession in the industrial world was the flowof imports into the non-oil primary producing coun-tries; this flow was strongly sustained—to the detrimentof the external financial positions of many of the coun-tries concerned—through about the middle of 1974.By early 1975, however, maintenance of these importsin real terms would appear to have been no longerfeasible.

Chart 5 depicts the recent changes in volume ofworld trade in a broad historical perspective. Alsoindicated in the chart are the wide fluctuations in valueof world trade in recent years—attributable to thesharp variations in foreign trade prices that have ac-companied the volume changes.

Chart 5. Growth of World Trade, 1953-First Half1975

(Percentage changes from preceding year) 1

1 Based on approximate averages of growth rates for worldexports and world imports.

2 Compound annual rates of change.3 Estimated change from first half of 1974 to first half of 1975.

10



Table 4. World Trade Summary, 1960-74 x

(Percentage changes in volume, in U. S. dollar value, and in unit value of foreign trade)

World Trade 3 VolumeU. S. dollar valueUnit value 4

AnnualAverage1960-702

m101


9!/2

14Vi5V2

1971

612

51/2

1972

9188

1973

1338'/222'/2

1974

54740

Imports

Volume

Unit value4

Exports

Volume

Unit value 4

Sources: National1 For classification

Industrial countries

Primary producing countriesMore developed countriesMajor oil exportersNon-oil developing countries







economic reports, IMF Data Fund,

10

94V*

6

I

W21

1

9V*

1V296

IV*

2-1

IV*

and Fund

9

136V*

8V*

5V*

544

9V*

81161/2

6

425

6

3V*10'/2

6V*

51/2

656

6V*

5V*

88

5

422V*

-3V2

11V4

IVi121

7'/2

988

9V*

137

lO1/!

8

121/213

8V*

12

161813

22V*

21V*18V*19V*

13V*

21214V*

20

3638!/227

J/2

9'/2

3712

41

4225V*38V*

7V*

-V*-1

2

25

2718633

staff estimates.of countries in groupings shown here, see Table 1 (and especially footnotes 2-4).

- Compound annual rates of change.3 Fund member countries (listed in Appendix I, Table

for world exports and world imports.I.I) plus Switzerland. Based on approximate averages of growth rates

4 Based on indices in U. S. dollar terms.

Unit value4

Exports

Volume

Unit value 4

Foreign Trade PricesMovements of foreign trade prices, after having been

dominated in the first half of 1974 by the oil priceincrease and the upsurge of many primary commodityprices to peak levels, were much smaller and lessuneven in the second half of 1974. Further upwardmovements in the latter period and in the early monthsof 1975 were primarily reflections of the continuingmomentum of inflation, especially in the industrialcountries, and of the lags between changes in marketprices of primary commodities and the ensuing changesin unit values of goods moving in international trade.Although the average of such market prices had turneddownward before the middle of 1974, the correspond-ing export unit values continued to rise in the secondhalf of that year. Nevertheless, average rates of increasein export unit values of all the primary producing areaswere greatly diminished after mid-1974; this was par-ticularly true of the oil exporting countries, whose oilexport prices were raised only slightly further during

the subsequent months. To a lesser extent, rates ofincrease in export unit values for industrial goods werealso subsiding in the course of 1974.

Despite the slowing of foreign trade price increasesduring 1974, the average of such prices for the yearas a whole exceeded the corresponding average for theprevious year by an extraordinarily wide margin,reflecting the high rates of inflation in the industrialcountries during the second half of 1973 and early1974, the steep rise in primary commodity prices overthe same period, and the tripling of oil export pricesat the beginning of 1974. In terms of U.S. dollars,world trade prices (i.e., unit values) rose by an averageof some 40 per cent from 1973 to 1974.

By the second half of 1974, however, the averageannual rate of increase in world trade prices (in U. S.dollars) had receded to about 20 per cent (by com-parison with the immediately preceding half year), anda further drop, to about 12 per cent, is suggested bythe available data for the first half of 1975. The esti-mated average for the latter period comprises an actual

11


ANNUAL REPORT, 1975

decline in export unit values for primary commodities(non-oil), as well as a considerably reduced rate ofinflation in prices of industrial goods.

The movements of foreign trade prices in recent yearshave resulted in sizable changes in the terms of trade formajor groups of countries. With respect to the indus-trial group, whose composite terms of trade had de-clined slightly in 1973 and then fell sharply in 1974(chiefly because of the oil price increase), there was somerise in the terms of trade during the first half of 1975.For the two groups of non-oil primary producing coun-tries shown in Table 5, deterioration of the terms oftrade from 1973 to 1974 reversed most of the upwardmovement of their terms of trade that had occurredfrom 1972 to 1973; the deterioration accelerated in thelatter part of 1974 and the first half of 1975 for thenon-oil developing group. Factors in this accelerateddecline include not only the downward movements ofraw material and food prices but also continuing priceincreases for many imported industrial products. Theother major group of countries—the oil exporters—experienced negative terms of trade changes in thelatter part of 1974 and the first half of 1975; thesedeclines represented a fraction of the rise in the oilexporters' terms of trade that resulted from the increasesin oil prices late in 1973 and at the beginning of 1974.

Balance of Payments Developments in 1974Changes in payments balances and in the structure

of the underlying transactions from 1973 to 1974 werestrongly conditioned by three major influences. Thesewere the prevalence, since the first quarter of 1973,of generalized floating of major currencies; the crestingof the boom in economic activity in the industrial coun-tries; and the sudden increase in the price of oil at thebeginning of 1974.

The oil price rise in 1974 produced a radical trans-formation of the global pattern of balance of paymentsrelationships. The major oil exporters, whose combined

balance of payments was already in surplus in 1973,were able to raise their collective surplus on currentaccount to an estimated $70 billion in 1974, comparedwith $6 billion in 1973. A significant part of thisunprecedented total (as recorded on the accrual basiscustomary for balance of payments statistics) repre-sented export credits (in the nature of accounts receiv-able) for oil shipped out of the producing countriesduring 1974 and valued in their balance of paymentsstatistics at the new prices that went into effect at thebeginning of that year, but not yet received or paid forby the importers within the same period. However, theoil exporters also added an amount estimated at morethan $50 billion to their net international financial posi-tions, including $37 billion of net additions to theirofficial reserve assets.

The counterpart of the increase in current accountsurpluses of the oil countries from 1973 to 1974 wasspread widely among the oil importing countries, allmajor groups of which were left in substantial deficit(Table 6). Their combined deficit, based upon theirown balance of payments statistics (in which thehigher-priced oil imports were reported appreciablylater than in the statistics of the exporting countries),amounted to about $51 billion in 1974, comparedwith a small surplus in 1973. Considerably more thanhalf of the adverse shift in this aggregate balance wasabsorbed by the primary producing countries, andespecially by the non-oil developing countries, manyof which had to pay substantially higher prices forfood, fertilizers, and other essential imports, as well asfor oil. These developing countries, being characteris-tically importers of capital, already had a combinedcurrent account deficit of $9 billion in 1973; in 1974,it soared to about $28 billion—the financing of whichrequired very heavy borrowing. In contrast to the build-up of reserves in 1973, there was virtually no reserveaccumulation in 1974.

The availability of such large amounts of credit for

Table 5. Terms of Trade Developments, 1960-74

(Percentage changes)

Industrial countriesPrimary producing countries

More developed countriesMajor oil exportersNon-oil developing countries

AnnualAverage

1960-702

V2

V2-2

V2


Vfc

-1-2-1

1971

-1/2

-11/217-9

1972

1/2

31/2

51/2

1973

_2

12161/2

61/2

1974

-IP/2

-101/2128-4

Sources: National economic reports, IMF Data Fund, and Fund staff estimates.1 For classification of countries in groupings shown here, see Table 1 (and especially footnotes 2-4).2 Compound annual rates of change.

12

1



Table 6. Global Balance of Payments Summary, 1972-74(In billions of U. S. dollars)

Industrial countries 3

Major oil exporters 3

Other primary producing countries 3

More developed areas

Less developed areas

In Africa

In Asia

In the Middle East

In the Western Hemisphere

Total, all countries 5

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

Trade

11.211.0

-10.0

13.021.683.4

-9.6-11.3-40.8

-2.9-5.0

-18.5

-6.7-6.3

-22.3

0.10.90.5

-3.3-2.5-9.6

-2.3-4.1-5.9

-1.2-0.5-7.3

14.621.332.6

Balance onServices

andprivate

transfers

-0.9-0.8-1.6

-10.4-16.0-13.4

2.23.71.0

4.66.36.6

-2.4-2.6-5.5

-1.6-1.9-2.4

0.80.90.9

1.72.11.5

-3.2-3.8-5.5

-9.1-13.2-13.9

Currentaccount

10.310.2

-11.5

2.65.6

70.0

-7.4-7.7

-39.8

1.71.3

-12.0

-9.1-8.9

-27.8

-1.5-1.1-1.9

-2.5-1.6-8.7

-0.6-2.0-4.4

-4.4-4.3

-12.8

5.58.2

18.7

CapitalAccountBalance l

- l l .O 4

- 10.6 4

-4.54

1.3-1.3

-33.6

21.718.436.3

6.21.17.3

15.517.329.0

1.71.52.1

4.84.1

10.0

1.43.14.6

7.68.7

12.3

12.06.5

-1.4

OverallBalance 2

-0.7-0.3

-16.1

3.94.3

36.8

14.310.7

-3.5

7.92.4

-4.7

6.48.41.2

0.20.40.1

2.32.51.3

0.71.10.3

3.14.4

-0.5

17.514.717.2

Sources: Data reported to the International Monetary Fund and Fund staff estimates.1 This balance is computed residually as the difference between the overall balance and the current account balance; it includes

net errors and omissions, as well as reported capital movements, government transfers, and, for 1972, allocations of SDRs.- Overall balances are measured by net changes in official gross reserve assets (gold, SDRs, reserve positions in the Fund, and

foreign exchange assets) and in certain reserve-related liabilities (such as Fund credit and various liabilities to foreign officialinstitutions). In Table 7, the conventionally measured overall balances of the industrial countries are disaggregated into their assetand liability components. Some deficiencies of the overall balance concept under present circumstances are noted in the accom-panying text.3 For classification of countries shown here, see Table 1 (and especially footnotes 2-4).

4 See footnote 5.5 Global balance of payments aggregations inevitably contain many asymmetries arising from discrepancies of coverage or classi-fication, timing, and valuation in the recording of individual transactions by the countries involved. A major area of asymmetricalclassification during recent years concerns the recording of official claims placed in Euro-currency markets. These transactions,although treated as changes in reserve assets by the investing countries, are recorded as capital inflows by the recipient industrialcountries. Had such transactions been recorded symmetrically, the global summations would show both a larger net capital outflowand a lower aggregate of overall surpluses. If identified Euro-currency reserve placements (shown in terms of SDRs in Table 14of this Report) are excluded from the recorded net capital account balances of the industrial countries, their adjusted net capitaloutflows amount to $21.3 billion, $18.3 billion, and $19.8 billion over the years 1972, 1973, and 1974, respectively. This adjust-ment alone would reduce the net asymmetry in global overall balances to $7.1 billion, $7.0 billion, and $2.0 billion for the sameyears.

developing countries, at a time when both the indus-trial countries and the more developed primary pro-ducing countries were also in need of net capitalinflows to finance their respective current accountdeficits, was in large measure an outgrowth of theinvestment of surplus funds (including official reservedeposits) by the oil exporting countries. Direct loans

and grants from the latter to non-oil developing coun-tries, although making a substantial contribution to theneeded financing, did not comprise a very large pro-portion of the total. The remainder was supplied tothe developing countries, in a direct sense, by investors,financial institutions, or governments in the industrialcountries.

13


ANNUAL REPORT, 1975

The industrial countries, however, were direct recipi-ents of large placements of surplus funds by the oilexporting countries. Although the industrial countriesthemselves were substantial net international borrowers,because of their sizable collective deficit on externalcurrent account, the amounts placed in their capitaland credit markets by the oil exporting countries in1974 greatly exceeded the current account deficit ofthe industrial countries. Indirectly, therefore, the oilexporting countries must be viewed as the ultimatesource of a considerable part of the movement ofcapital and credit from the industrial countries to thenon-oil developing countries, as well as to the moredeveloped primary producing countries, in 1974.

The buildup of foreign currency claims in the handsof the oil exporting countries during 1974 took theform, in the main, of enlarged holdings of officialreserves by the national monetary authorities. On bal-ance, however, the rise in reserve holdings of the oilexporting countries did not occur through net transfersof existing reserves of oil importing countries. Asexplained in Chapter 2, new reserves were created ona large scale—chiefly through processes involving offi-cial placements of reserve deposits in the Euro-currencymarkets or the United States by some countries andborrowing from those markets by other countries. Inthe circumstances of 1974, it was thus possible forreserves paid out by deficit countries to be fully replen-ished through borrowing, so* that the entire growthof reserves of the oil surplus countries could come fromcreation of new reserves, rather than transfer of reserveassets held by other countries.

The absence of sizable shifts in reserve asset holdingsamong oil importing countries was due in large partto the prevalence of general floating of exchange ratesfor major currencies. With exchange rate fluctuationsbeing permitted to absorb high proportions of theexchange market pressures that arose during 1974,shifts of outstanding reserve assets were generally small.However, reserve asset holdings of some countries weremaintained only through heavy borrowing by or onbehalf of the monetary authorities. Among industrialcountries, the outstanding cases in point were theUnited Kingdom and Italy. (See Table 7, where theamounts thus obtained from foreign official agenciesare indicated in the sixth column.)8

A rise in obligations traditionally treated in thebalance of payments statistics as official liabilities alsowas the principal means by which an $8J/6 billion"overall deficit" of the United States was financed in

8 For some countries, additional amounts borrowed by gov-ernment agencies from private foreign lenders under specialinducements from the monetary authorities are included inthe fourth column of Table 7.

1974. The $10 billion rise in U. S. liabilities to foreignofficial agencies, however, was due to placements offunds in the United States by the major oil exportingcountries. In present circumstances, the greatly increasedholdings of those countries might be viewed as havingthe character, at least in considerable part, of invest-ments rather than of reserves in the usual sense, eventhough many of the financial claims held are liquid.These considerations, among others, create ambiguitiesof interpretation with respect to the conventional con-cept of the overall balance of payments deficit. If the1974 flows of oil surplus funds to the United Stateswere treated as inflows on capital account in the U. S.balance of payments, rather than as a means of financ-ing, the payments balance of the United States wouldshow a small surplus (as indicated in the last columnof Table 7), instead of an $8V4 billion deficit. Such aresult would be more consistent with the behavior ofthe effective exchange rate for the U. S. dollar (asdescribed in Chapter 2).

The main influences of cyclical developments uponchanges in the global pattern of current account bal-ances have been outlined earlier, in the discussion ofworld trade volume and price movements. In addition,cyclical developments exerted strong influences uponcapital flows, chiefly through their impact on monetaryand credit conditions and comparative yields on finan-cial claims held in different countries. For example,the relative stringency of monetary policy in the Fed-eral Republic of Germany during much of 1973 andearly 1974, of U. S. monetary conditions in the middlequarters of 1974, and of Italian policy in the secondhalf of that year all exerted important influences onshort-term capital movements and exchange rate devel-opments, as did the rapid easing of U. S. monetaryconditions in late 1974 and early 1975 and the earliereasing of monetary policy in the Federal Republic ofGermany. Without such a shift in the Federal Republicof Germany, the short-term capital outflows essential tobalance that country's large 1974 current account sur-plus at the prevailing average exchange rate for thedeutsche mark would not have been forthcoming.

Unlike the Federal Republic of Germany and theUnited States, but like the United Kingdom and Italy,the other three major industrial countries all had siz-able current account deficits in 1974. France financedits deficit chiefly through maintenance of monetaryconditions that induced exceptionally large inflows ofprivate short-term capital, and Canada's enlarged cur-rent account deficit in 1974 was also financed mainlythrough an inward shift of private short-term capital.For Japan, short-term inflows during 1974 were largeenough to cover both the current account deficit and a

14



Table 7. Industrial Countries: Balance of Payments Summaries, 1972-74

(In billions of U.S. dollars)

United States

United Kingdom

Canada

France

Germany, Federal Republic of

Italy

Japan

Other industrial countries 3

Total, industrial countries

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

197219731974

19721973 .1974

197219731974

Trade

-6.41.0

-5.5

-1.6-5.7

-12.3

1.92.71.6

1.30.8

-3.9

8.214.422.7

0.1-3.9-8.2

9.03.71.4

-1.2-1.9-5.7

11.211.0

-10.0

Balance on

Servicesand

privatetransfers

-0.62.08.1

2.43.64.1

-2.3-2.7-3.3

-0.3-0.8-0.9

-5.5-7.8

-10.5

2.92.81.0

-2.0-3.6-5.9

4.45.75.9

-0.9-0.8-1.6

Currentaccount

-7.03.02.5

0.8-2.1-8.2

-0.5—-1.7

1.0-0.1-4.8

2.86.6

12.2

3.0-1.1-7.2

7.00.1

-4.5

3.23.80.2

10.310.2

-11.5

CapitalAccountBalance l

-3.3-8.3

-10.9

-3.72.83.9

0.8-0.5

1.7

0.8-1.7

4.7

2.22.5

-12.7

-3.70.92.6

-3.8-6.2

5.8

-0.2-0.1

0.4

-11.04-10.64

-4.54

OverallBalance 2

-10.4-5.3-8.4

-2.90.7

-4.4

0.3-0.5

—

1.8-1.7-0.1

5.09.2

-0.5

-0.7-0.2-4.6

3.1-6.1

1.3

3.03.60.5

-0.7-0.3

-16.1

Change inLiabil-ities toForeignOfficial

Agencies

10.35.19.8

-0.1-0.1

4.7

——

0.1—

—-0.40.1

—0.35.0

———

0.5-0.7

10.25.5

19.0

BalanceFinancedby Trans-actions inReserveAssets

-0.21.4

-3.10.50.2

0.3-0.5

—

1.8-1.7-0.1

5.08.7

-0.4

-0.70.10.4

3.1-6.1

1.3

3.04.20.2

9.45.13.0

Sources: Data reported to the International Monetary Fund and Fund staff estimates.1 See Table 6, footnote 1.2 See Table 6, footnote 2.3 Austria, Belgium-Luxembourg, Denmark, the Netherlands, Norway, Sweden, and Switzerland.4 See Table 6, footnote 5.

sizable net outflow of long-term capital and aid. (SeeTable 7.)

The course of the international business cycle alsoplayed a part, along with the direct and indirect invest-ment of oil surplus funds, in the financing of the extra-ordinary current account deficits incurred by non-oilprimary producing countries in 1974. In most of theindustrial countries, relaxation of monetary and creditconditions accompanied or quickly followed the down-turns in aggregate demand and production. This relaxa-tion, resulting in appreciable declines of both short-term and long-term interest rates, facilitated the inter-national borrowing by primary producing countries thatwas necessary to finance their enlarged current accountdeficits during the latter part of 1974 and early 1975.

Broad Picture of Current Accounts in 1975The year 1974 was one of startling changes in cur-

rent account balances, involving large swings in the

balances of many individual countries. Further sub-stantial changes in current account balances are inprospect for 1975; these are indicated, for four groupsof countries, by the estimates provided in Table 8.Following are the main points to which attention shouldbe drawn.

—The projected drop in the overall current accountsurplus of the major oil exporting countries—from$70 billion in 1974 to about $50 billion in 1975—isattributable chiefly to two assumptions: that the volumeof imports by this group of countries will expand by some30 per cent in 1975 (over 1974), following a rise ofnearly 40 per cent in 1974; and that the volume oftheir exports will decline by about 10 per cent underthe impact not only of the adverse cyclical positionbut also of demand responses to the 1974 oil priceincrease and of other factors.

—The main counterpart of the decline in the pro-jected 1975 oil surplus is to be found in the accounts

15


ANNUAL REPORT, 1975

of the industrial countries. The estimated shift fromsubstantial deficit to approximate balance in the overallcurrent account position of those countries includes theprospect of considerably smaller—though still sizable—deficits for France, Italy, and the United Kingdom, andof a continued large surplus for the Federal Republicof Germany. Thus, the 1975 current account balanceof the industrial countries shown in Table 8 still encom-passes a very uneven distribution of deficits and sur-pluses among individual countries of the group.

Table 8. Summary of Payments Balances on CurrentAccount *>2

(In billions of U. S. dollars)

Major oil exportersIndustrial countriesNon-oil primary

producing countriesMore developedLess developed

Total 4

1973

610

1-9

8

1974

70-12

-12-28

19

1975(Pro-

jection)3

501

-12-35

4

Sources: Data reported to the International Monetary Fundand Fund staff estimates.

1 Goods, services, and private transfers.2 For classification of countries in groups shown here, see

Table 1 (and especially footnotes 2-4).3 The 1975 projections are subject to considerable uncertainty

and should be view9d as rough orders of magnitude.4 Reflects balances of countries covered here with non-

reporting countries, plus (quantitatively more important) statis-tical errors and asymmetries.

—For the more developed primary producing coun-tries, the estimated current account deficit of $12 bil-lion for 1975 is the same as the 1974 deficit and thusremains in striking contrast to the surplus of about $1billion realized by that group of countries in 1973. Inthe case of the (non-oil) less developed primary pro-ducing countries, the combined current account deficitis projected to rise from $28 billion in 1974 to $35billion in 1975—about four times as large as the $9billion deficit incurred in 1973. On the basis of studiesmade within the Fund on an individual country basis,a pattern of widespread increases in current accountdeficits among the non-oil developing countries is indi-cated for 1975.

—The projection of a $35 billion current accountdeficit for this group of countries is based on the impli-cit assumption that the necessary financing will beavailable. However, the sheer size of the aggregatedeficit inevitably raises questions as to the actual abilityand willingness of the countries concerned to finance it.A possible pattern of financing is suggested in the last

section of this chapter, but it is clear—even on assump-tions that could prove optimistic in several respects—that many of the non-oil developing countries are likelyto find themselves in financial difficulty in 1975 andbeyond, with severe problems obviously facing thegroup of developing countries classified by the UnitedNations as the "most seriously affected."

—The estimates of current account balances for1975 shown in Table 8 are strongly affected by cyclicalinfluences emanating from the recession in the indus-trial world.9 Among the projected consequences are (1)an elimination of the deficit for the industrial countries,in part because of the easing of demand for oil; (2)a lowering of the surplus of the oil exporting countriesfor the same reason; and (3) a raising of the deficitfor the non-oil developing countries, because of theimpact of the recession on those countries' export earn-ings. Thus, in an economic situation of fuller utilizationof resources than that embodied in the estimates for1975, strengthening of demand for oil and other pri-mary products by the industrial countries would beexpected to restore a deficit in the combined accountsof those countries, shore up the oil exporters' surplus,and reduce the deficit of the (non-oil) primary produc-ing countries.

Economic and Financial Issues

Domestic PolicyAny assessment of the current economic situation

and outlook, with a primary focus on the industrialcountries because of their heavy weight in the worldeconomy, must address itself to two broad issues. Thefirst relates to the general trend of economic activity—to the objective of ending the recession and launchinga solid and sustained recovery, while reducing upwardpressures on the levels of costs and prices. The secondissue has to do with the use and limitations of policyinstruments to meet such an objective over the courseof the next year or two.

Officials of numerous industrial countries with whichthe Fund has recently held consultations are of thebelief that, in all probability, the trough of the recessioneither has been passed or soon will be. Such judgmenthas had to rely on the analysis of current trends and ofvarious forward-looking indicators; an upturn is not yetclearly in evidence, and thus remains in the nature ofa forecast.

Although the actual timing of an upturn is uncertain,it is generally expected to occur during the second halfof 1975. In the recent consultations, it was the general

9 These influences are dominated by the severe recession inthe first half of the year, even though an upturn of economicactivity is assumed for the second half of 1975.

16



view that, after the upturn, demand could at some pointexpand rapidly and become difficult to moderate unlessflexible adjustments of policy were effected. Guardedoptimism was expressed on prices, but continuing con-cern over inflation clearly remains a dominant influ-ence on policy formulation and planning in the indus-trial countries.

Those who expect an early revival of economic activ-ity in the industrial world—including not only nationalofficials but also forecasters generally—base this view onconsideration both of the expansionary policy measuresthat have been taken in many countries and of thestimulus to an economic turnaround that may be ex-pected from the more or less automatic functioning ofcyclical forces. As a result of overt policy moves andof the slump in economic activity, monetary and creditconditions have shifted considerably away from thestringency prevailing through much of 1974; and therecent widespread adoption of expansionary fiscal meas-ures supports the near-term prospect. Price inflation isbeing reduced markedly, helping to strengthen realincomes, and inventory-sales relationships are beingbrought into better alignment. Also, the groundworkhas been laid for an evolution of somewhat longer-runrelationships—among wages, productivity, profits, andinterest rates—that should help to bring renewed ex-pansion of fixed investment as demand prospectsimprove.

Important fiscal changes were initiated by numerousindustrial countries in the latter part of 1974 and thefirst half of 1975. These budgetary moves include shiftsin both tax and spending plans of the Federal Republicof Germany and the United States, as well as ofCanada, Denmark, and the Netherlands. In addition, anumber of other countries—including Austria, Japan,Belgium, and France—have recently adopted selectivefiscal measures to counter economic slack. Among con-tinental European countries, steps have been taken tobring about shifts in budgetary balances from 1974 to1975 amounting to 2-5 per cent of GNP—4-5 per centfor the large economy of the Federal Republic ofGermany. In the United States, the tax measuresadopted in March 1975, together with the expenditureplans currently taking shape in the Congress, are esti-mated to bring about a budgetary shift equivalent tosome 4-5 per cent of GNP.10 In Japan, fiscal measuresto date consist mainly of an acceleration in governmentspending. In the United Kingdom, a sharp fiscal expan-sion in 1974 was followed in April 1975 by a budgetthat set out a fairly restrictive program of demandmanagement for the next two years, aimed at creating

10 Measured as the change in the high-employment fiscalbalance, in order to exclude cyclical effects, the shift towardstimulus would be equivalent to about 2l/2 per cent of GNP.

enough spare capacity to allow the U. K. economy totake advantage, from early 1976 onward, of theexpected upturn in world trade.

Easing of monetary conditions during recent monthsis one of the forces expected to encourage a recoveryof demand in the United States. In Canada, too, mone-tary conditions are now considerably easier than duringthe early and middle quarters of 1974. In Japan, wherethe countering of inflation is still a paramount objectiveof economic policy, together with the ensuring of asteady recovery, a relatively moderate relaxation ofmonetary policy has taken place since about the begin-ning of 1975. In Europe, the monetary situation ismixed but most countries are now pursuing expansion-ary, or less restrictive, monetary policies, generallyaccommodative of the stimulative fiscal programs thathave been introduced.

For most industrial countries, the generally expectedturnaround of aggregate output in the second half of1975 hinges mainly on an increase in real consumption(deriving from fiscal and monetary stimulus and fromlower rates of price inflation) and on the adjustment ofbusiness inventory positions, involving progressivelysmaller liquidation of inventories, pending the resump-tion of accumulation. Fixed investment is subject toshort-run weakness stemming from the current excesssupply of productive capacity, and is not expected torebound until aggregate demand becomes stronger.Moreover, since the pervasiveness of the current reces-sion has severely curtailed the capacity to import inmost parts of the world, foreign demand is unlikely tobe a leading source of stimulus for many countries inthe early stages of recovery.

Thus, it would seem that prospects for a sustainedeconomic recovery in the industrial world depend to agreat extent on consumer spending to lead the upturnand on business fixed investment to cease declining, orto pick up momentum, after some lag. This general pat-tern is not very different from that of earlier postwarrecoveries, but the underlying economic situation fromwhich the recovery must begin is one of considerablygreater economic slack as a result of the most pro-tracted and severe recession in the postwar period. Theextent of idle capacity and manpower has led someobservers to fear that private spending and investmentmay be more subdued than in earlier postwarrecoveries—that they may not respond as quickly oras fully to government measures of stimulus, or todeclines in rates of price increase from the currentexceptional levels, as past relationships would suggest.

At any rate, there would be general agreement thateconomic forecasting and policy formulation at thepresent time are unusually difficult. Because of the pre-

17


ANNUAL REPORT, 1975

vailing uncertainties, and of the large scope for error,projections could prove to be significantly wrong at thepresent critical juncture when world trade and activityare in a slump and price inflation remains a problem.

The situation calls for national authorities, as a mat-ter of prudence, to maintain a close watch over evolv-ing trends and to be prepared to alter their policies aspromptly as possible if these trends should point to asubstantive change in the outlook. Such flexibility couldbe of crucial importance. Policies that permitted anoverly rapid expansion of demand could obviouslymake for new and serious instabilities, given the factthat inflation in the industrial countries is still runningat very high rates. However, policies that were overlycautious could prolong the underutilization of resources,lead to widespread pressures for a rapid shift to expan-sionary measures, and forgo the beneficial price effectsof gains in productivity stemming from the resumptionof solid economic growth and the absorption of slack.

Flexibility in the stance of policy—a willingness toadopt new measures in conformity with changing cir-cumstances—will be hampered unless supported by theavailability of effective instruments. With respect tofiscal policy, the main problem concerns the relativeinflexibility of the budget instrument, as reflected in thefrequent inability to introduce timely increases in taxa-tion or cuts in expenditures. In some countries, notablythe United States, there is concern that stimulus pro-vided by the budget may not be rolled back fast enoughin relation to the expected recovery of private demandduring 1976 and 1977. The inadequacy of the budgetinstrument is a problem of long standing in industrialcountries; in the past, fiscal policy has sometimes beenso inadequate that it worked at cross-purposes frommonetary policy, greatly complicating the task ofeconomic stabilization.

On the subject of incomes policy, the prevalence ofadverse wage-price trends in a number of membercountries continues to pose questions about the needfor new initiatives in this field. Without these, it mayprove very difficult in some countries to limit theeffects of cost pressures on prices and to achieve pricemoderation except at the expense of greater slack andunemployment. Of course, incomes policies are difficultto devise and implement, and must be geared in eachcountry to its own institutions, traditions, and otheraspects of the social and political setting.

Other significant problems facing governments in theforthcoming recovery period include a need for inter-related measures to improve supply conditions, tostrengthen productive capacity and productivity, and toalleviate cost pressures. In large part, such measuresmust be directed specifically to the elimination ofstructural imbalances, such as mismatches between the

skills and aptitudes of the unemployed and thoserequired by employers. Because of the growth ofstructural rigidities and bottlenecks, business expan-sions in the postwar period have topped off at succes-sively higher levels of unemployment.

External PolicyAs discussed earlier, payments balances are now

being affected markedly by cyclical influences. Comingon top of changes in current and capital account posi-tions set into motion by the oil price rise, these influ-ences make it difficult to ascertain whether recentdevelopments and current prospects represent progresstoward the reduction of disequilibria among the majorindustrial countries.

To arrive at judgments whether payments positionsare sustainable, it is necessary not only to removecyclical and special influences from actual positions butalso to take a view of capital flows. At this juncture,the main questions on capital flows concern prospectsfor the oil exporters' surpluses and the distributionamong countries of the capital movements related tosuch surpluses; substantial uncertainty prevails as tohow such factors should be taken into account.Research is going forward in this area within theFund, in the endeavor to examine the principal ele-ments involved in an assessment of the underlying pay-ments positions of major countries.

For the present, judgments about the working of theadjustment process must be quite general and basedmainly on the actual experience of countries in copingwith their balance of payments situations. From theFund's recent consultations with members, it wouldappear that, with certain exceptions, industrial coun-tries are less worried about their short-run balance ofpayments prospects than they were during much of1974. Some of the largest current account deficits havebeen, or are in the process of being, reduced con-siderably. Even though in certain instances the reduc-tions stem from a change in cyclical conditions, theyhave the immediate effect of lowering payments pres-sures. Furthermore, most of the industrial countriesthat have had a strained payments position in the recentpast do not seem doubtful as regards their capacity toobtain capital sufficient to meet their prospective needs.A potential additional factor—still awaiting enablingactions by participating governments—is the OECDSupport Fund (the "safety net"), which has beendevised to provide assistance on external financing sup-plementary to that available from other sources, includ-ing the Fund. Also, the situation in the Euro-currencymarket has improved markedly since mid-1974, evolv-ing from what might be termed a climate of concern to

18



one of cautious optimism. Finally, the existence offloating rates has increased the flexibility of adjustment,notwithstanding the short-run drawbacks seen by somecountries to adjustment through exchange rate changes.

For many of the nonindustrial oil importing coun-tries, payments prospects have worsened over the pastyear, and the deteriorating external position may beexpected to exercise considerable restraint on economicgrowth in 1975. Particularly with respect to the devel-oping countries, as already indicated, it is questionablewhether flows of capital and aid will be sufficient topermit sharply higher current account deficits, andthus obviate a need for new measures to effect adjust-ment. In some cases, such a need may also be indicatedby the growth of external debt in the light of past bor-rowing and prospective foreign exchange earnings. Tothe extent that balance of payments problems of thenon-oil developing countries may be resolved throughlimitation of their imports, rather than through provi-sion of needed financing, a dampening influence on theexport markets of the industrial countries—and henceon their cyclical recovery prospects—will be felt.

Adjustment for the major oil exporters involvesbringing domestic expenditure more into line with theirsharply higher level of income. Despite wide differencesamong them with respect to domestic absorptivecapacity, the oil exporting countries—like other devel-oping countries—are generally constrained as regardsthe speed at which domestic expenditure can be raisedwithout causing undue pressures on domestic resources.Serious bottlenecks are already being encountered.Although the currencies of certain oil exporting coun-tries have appreciated, most such countries have notused currency appreciation as a method of adjustmentbecause, while it would help in dealing with inflation,it would tend to hamper the development of certaindomestic sectors, as well as the flow of non-oil exports.However, measures adopted by the oil exporting coun-tries to deal with inflation and its effects on the distribu-tion of income have included reductions in importduties and other actions to reduce the landed costs, andfacilitate the growth, of imports.

With respect to the means for promoting adjustment,certain differences in viewpoint continue among themajor countries notwithstanding the change in theeconomic situation—prevalence of greater slack—thathas taken place since the 1974 Annual Report. Coun-tries in relatively weak balance of payments positionsgenerally would like to see greater demand expansionby countries in relatively strong positions. However,the latter—still concerned about inflation—considerthat the steps they have already taken to deal withthe recession are adequate, and that further stimulativeactions at the present time, given the probable lags in

their impact, could endanger the stability of the recov-ery at a later stage. There is general agreement thatcountries with relatively weak external payments situa-tions should position themselves, through maintenanceof adequate restraint on domestic demand and ofappropriate exchange rates, to take advantage of thecyclical upswing in global demand when it comes.

Insulation from external influences, particularlyexternal cyclical weakness, is very difficult for countriesthat are highly dependent on foreign trade. In many ofthem, the capacity for compensatory domestic demandpolicies is quite limited, and they therefore have a vitalinterest in the kinds of countercyclical policies pursuedby their main trading partners.

Attention generally focuses in this connection on thedemand policies of the United States, the FederalRepublic of Germany, and Japan. Because these coun-tries have such a big weight in the world economy andtheir external payments positions are comparativelyfavorable, it is quite natural that other countries shouldexpect them to take the lead in promoting recover)'from the international recession. It seems reasonableto ask these countries to do everything possible, asdiscussed earlier, to assure the effectiveness of theirpolicies in restoring solid economic growth; but it wouldnot be reasonable to expect them to push expansionarymeasures to the point that would run the risk of evok-ing new inflationary pressures.

Differences also persist among industrial countriesin respect of exchange rate policy, with some countriesengaging in a substantial amount of intervention whileothers limit themselves to no more than the smoothingof very short-run fluctuations in market rates. Althoughit is difficult to generalize in this area, countries withthe strongest payments positions have tended to inter-vene rather moderately, and appear to have been will-ing to allow their currencies to appreciate. Reserveholdings of countries in weaker payments positions havealso been relatively steady. Some of the countries withlarge current account deficits have permitted their cur-rencies to depreciate, but private or official capitalinflows have averted or mitigated in varying degreesthe downward pressures on exchange rates that mightotherwise have emerged. As noted in Chapter 2, theexchange rate changes that have taken place duringthe period (since early 1973) of generalized floating ofmajor currencies appear to have largely offset sizabledifferences in relative rates of inflation among thelarger industrial countries.

A noteworthy feature of exchange rate experiencein the last two years has been the powerful effect ofchanges in relative monetary conditions on rates. Theinfluence of monetary policy on exchange rates has led

19


ANNUAL REPORT, 1975

some to argue for the coordination of such policiesamong the major countries to achieve some particularset of exchange rate aims. Any concerted effort of thistype would require both agreement on a suitable pat-tern of exchange rates and understandings on howmonetary policies would be aligned among countries toserve internationally agreed external aims, while notcontradicting high-priority domestic objectives. Theformidable difficulties encountered in meeting eitherrequirement suggest that, even though countries maybe expected to continue using monetary policy to influ-ence their exchange rates, effective multinational coor-dination of monetary policy for balance of paymentspurposes cannot be an immediate goal.

Differences of view among countries in the area ofexchange rates still constitute an important unsettledissue. These differences relate to the extent of influencethat countries should exercise over exchange rates,through intervention or other policies, and have impli-cations with respect to the appropriate nature of theexchange rate regime.

For many countries, particularly those that peg to asingle currency or to some basket of currencies, issuesin respect of adjustment are not significantly differentfrom those posed in the past. The main question forthem is whether the simultaneous achievement of asustainable balance of payments position and a satis-factory level of domestic economic activity is feasibleat the existing exchange rate. Countries in this groupgenerally see floating rates as troublesome insofar asthey affect price relationships and cause variations inthe purchasing power of their foreign reserves. At theother extreme are countries that see floating rates asthe principal external adjustment mechanism, and aregenerally reluctant to interfere directly in the operationof exchange markets, although exchange rates are influ-enced indirectly, of course, by policies in other fields. Anumber of countries allow their currencies to floatbut engage in substantial intervention to influenceexchange rates.

In general, the larger, the more diversified, and theless dependent on foreign trade the country concerned,the more it inclines to free floating; and the smaller,less diversified, and more dependent on trade it is, themore it inclines to pegging. Countries with floating cur-rencies and a record of substantial intervention tend tocomprise a middle group.

Despite the issues that are outstanding in respect ofdemand adjustment and exchange rates, sight shouldnot be lost of the accomplishments of the past year.Soon after the upsurge in oil prices, the concept ofaccepting and financing the aggregate oil deficit wasdeveloped as a basic principle of behavior for countries

in the new situation. As discussed in the 1974 AnnualReport, this principle was not intended to absolve indi-vidual countries from paying attention to adjustment,but was aimed at avoiding more adjustment than wascollectively possible for the oil importing countries andat establishing standards for adjustment. Such stand-ards, as enunciated by the Committee of Twenty at itsRome meeting in January 1974, included the avoid-ance of deflation, restrictions, and competitive deprecia-tion as inappropriate responses to the balance of pay-ments changes that stemmed from the rise in the priceof oil; observance of these standards has been generallygood to date, although it has become increasinglydifficult for many Fund members, particularly amongthe developing countries.

During the period since the Rome meeting, the indus-trial countries have followed policies that contributed toa downturn in economic activity, but these policies wereadopted primarily because of strong inflationary pres-sures, rather than balance of payments considerations(with which, however, the measures adopted were alsoconsistent in a number of cases). With regard toexchange rates, initiatives to depreciate currenciesproved to be much less evident than had been feared;even in countries that might appropriately have takensuch initiatives, the existence of inflationary pressureswas a deterrent. Restrictions have been introduced bysome countries, but resort to such measures to date hasbeen neither widespread nor, in most instances, ofquantitative importance.

With respect to restrictions, perhaps the outcome upto now has been reasonably satisfactory because of anawareness by countries of the inappropriateness ofpolicy actions not allowing sufficiently for the interestsof others. Yet, many countries—some with burdensomedebt positions—face the problem of financing greatlyenlarged current account deficits, and there are grow-ing pressures for restrictions. Because of the dangersthat any trend toward restrictions would involve, policy-makers have the difficult task of devising suitablealternative means for adjustment. Also, the situationpoints up the importance of providing concessionalfinance to those countries not in a position to borrowfunds on commercial terms.

The Situation of the Non-OilDeveloping Countries

In view of the difficult situation of the non-oil devel-oping countries, this section examines their positionon external current account and then discusses someof the main economic and financial problems confront-ing them.

20



Current Account Developmentsand Prospects

The overall picture of developments and prospectson current account for the non-oil developing coun-tries is one of sharp deterioration. After rising from$9 billion in 1973 to an estimated $28 billion in 1974,as noted earlier, the combined current account deficitof these countries is projected to reach about $35 bil-lion in 1975. Because of the recession in the industrialcountries, the volume of exports rose by only 2 per centin 1974 (over 1973), compared with an average of 12per cent per annum in the two preceding years, and isprojected to decline slightly in 1975. Expansion ofimport volume by the non-oil developing countries wassustained at the high rate of 12 per cent in 1974 throughheavy foreign borrowing and cessation of reserve accu-mulation, but a drop of 7 per cent is expected for 1975in view of their weak prospects for export earnings,the continuing rise in their import prices, and thereduced purchasing power of their reserves in realterms.

Estimates for individual countries and regionalgroups indicate widely diffused increases in currentaccount deficits for 1975. Proportionately the largestregional increase projected is that for Africa, where adoubling of the 1974 deficit seems to be in prospect andthe level of indebtedness could become critical in theabsence of concessionary capital flows. Relatively siz-able increases are also indicated for Middle Easterncountries (non-oil) and for the Asian group. Non-oildeveloping countries of the Western Hemisphere arenot as a group expected to move further into deficiton current account; but their 1975 deficit will probablyremain the highest for any of the regions indicated,notwithstanding an estimated substantial drop inBrazil's large deficit.

Some Major ProblemsImportant issues currently facing the non-oil develop-

ing countries include the impact of the internationalrecession, containment of inflation, efforts to deal withhigher costs of oil and other essential imports, and thefinancing of greatly increased current account deficits.These problems are to a large extent of external origin,although some of them have been compounded bydomestic action or inaction on the part of the develop-ing countries themselves, or have been affected by theconstraints under which these countries operate.

The impact of the recession in the industrial worldon the economies of non-oil developing countriesappears to be falling mainly on the volume of goodsand services available to them through importation andon their domestic growth rates and development targets.

Although external balances are also being adverselyaffected, an enlargement of current account deficitssufficient to maintain import expansion commensuratewith previous growth rates is clearly not possible. Themany countries whose export earnings have leveled offor declined at a time of rising costs of essential importshave little choice but to forgo some imports; duringthis period of difficulty, the impact on the pace ofdevelopment has tended to be especially severe whereurgent requirements for imported food, fuel, or fer-tilizers have forced disproportionate cutbacks in othercategories of imports. The principal means of limitingimports have been measures of fiscal or monetaryrestraint intended also to deal with domestic inflation-ary pressures; relatively few countries have consideredit necessary to invoke import restrictions in order toprovide immediate defense of the balance of payments.

The apparent effects of comparatively slack exportearnings in the face of major cost increases are quiteserious in many developing areas.

—The non-oil countries of Latin America and theCaribbean, for example, are expected to undergo in1975 a drop of several percentage points in their aver-age growth rate, which amounted to about 7 per centin 1974. Only the Caribbean sugar/bauxite exportingcountries seem likely to be able to maintain or increasethe pace of their economic expansion.

—In Africa, where adverse movements in the termsof trade are taking place, growth prospects for 1975seem to be impaired in a substantial majority of thenon-oil developing countries of the area. The principalexceptions are likely to be found among the exportersof iron ore, uranium, bauxite, and phosphorus.

—Among non-oil developing countries of Asia,policy emphasis has shifted from the countering ofinflation, which until at least mid-1974 was the fore-most problem almost throughout the area, towardavoidance or mitigation of the impact of the recession.For most of the Asian countries, the recession, risingimport prices, and effective depreciation of exchangerates will tend to hold down the growth of imports.

—Only with respect to non-oil countries of theMiddle East can it be said that the recession in theindustrial world does not seem to be playing a veryimportant role in current economic developments. Inmost of this area, proximity to the fast-rising demandsof the major oil exporting countries, together withfinancial assistance from them, appears to provide anadequate cushion for any local impact of the inter-national recession.

During the 1972-73 boom in the industrial world,containment of inflation was difficult for the non-oildeveloping countries. As a group, they experienced anextraordinary bulge in export earnings, with volume

21


ANNUAL REPORT, 1975

rising by 14 per cent and average export unit values(in U. S. dollars) by 27 per cent in 1973. The resultwas a rapid buildup in international monetary reservesdespite a substantial rise in the volume of imports. Formany countries, the unaccustomed external surplusescreated unusual problems of domestic financial manage-ment, but they also permitted acceleration of investmentoutlays and development projects long inhibited bybalance of payments constraints. In some countries,however, a considerable proportion of the unprece-dented rise in foreign exchange receipts was directedtoward increased outlays for consumption. In thecourse of 1974, and especially in the second half, anincreasing number of countries adopted stabilizationmeasures that contributed to the easing of price pres-sures; these stabilization measures included, in additionto monetary and fiscal restraint, upward floating orrevaluation of exchange rates by several Asian andAfrican countries, liberalization of import restrictionsand tariff reductions to temper the rise in costs, andapplication of export quotas to avert shortages ofessential goods. The outlook for many non-oil develop-ing countries in 1975, in line with world-wide trends,is for some decline in the rates of price inflation fromthe exceptionally high levels reached in 1974.

The widespread tightening of financial policies during1974 was facilitated in many developing countries bythe cessation of international reserve gains. This devel-opment, although unwelcome in certain other contexts,removed one of the previous sources of excess liquidityin the banking systems of the countries concerned.Avoidance of excessive monetary expansion thusbecame technically much less difficult than it had beenat the crest of the commodity export boom.

In those developing countries where imported oilprovides a large and vital proportion of total energyrequirements, efforts to deal with higher costs of oil andother essential imports have included compensatoryadjustments of non-oil transactions, emergency financ-ing (including use of the Fund's oil facility), and bor-rowing on international credit markets—an optionavailable to a limited group of countries in 1974, andto even fewer in 1975 because of less favorable exportpositions and strained external debt-carrying capacities.Countries with relatively low dependence on oil weregenerally confronted with less pressing problems ofadjustment during 1974, but even in that year some ofthem faced similar problems because of sharp increasesin costs of other essential imports, such as foods; andin 1975 an excess of increases in import costs overgains in export earnings seems likely to be pervasive.

An initial reaction of some developing countries tothe upsurge of import prices was to attempt to insulatedomestic consumers and wage trends from these devel-

opments through subsidies or reductions of tariffs onessential consumer goods. Insulating measures of thesetypes, however, tended to place heavy burdens on gov-ernment budgets and to generate new domestic infla-tionary pressures. In some cases, the efforts to cushionthe impact of import-cost increases were soon aban-doned in favor of greater reliance on price mechanismsto regulate demands for imported goods.

With respect to oil, the great majority of developingcountries sooner or later allowed a full or partial pass-through of import prices to domestic prices of petro-leum products, sometimes with exceptions for products(such as kerosene) of particular importance to low-income residents. Conservation measures were widelyintroduced (with indifferent success in some areas), andcountries in position to do so turned toward coal orhydroelectric power for greater portions of their energyrequirements. Programs of oil exploration were alsostepped up by a number of countries and met with somesuccess in a few, particularly in Latin America.

External financing looms as a critical problem formany non-oil developing countries. According to Fundstaff estimates, it seems improbable that—in the ordi-nary course of events—any substantial further increasein the aggregate flow of capital and aid to this groupwill be forthcoming in 1975. Countries whose needs forreal resources from abroad exceed the financial flowsavailable to them, and whose reserves are too low forsignificant use in external financing, will be compelledto cut back imports. For the entire group of non-oildeveloping countries, some considerable reduction of netreserve positions—probably involving both use of grossreserves and related borrowing on a sizable scale—appears necessary for the financing of a combined cur-rent account deficit of about $35 billion.

Within this group, problems of external financingare likely to be particularly acute among countriesclassified by the United Nations as the "most seri-ously affected." For these and numerous other non-oildeveloping countries, the incurrence of additional in-debtedness in 1975 could severely strain their debt-servicing capabilities, and there is urgent need forsizable flows of capital on concessionary terms or ofoutright grant assistance. Even to maintain the netinflow of private capital near its 1974 level—asassumed in the staff estimates—will require domesticfinancial policies that do not encourage residents tohold financial claims abroad or discourage nonresidentsfrom extending credit, and that contribute generallyto confidence of both residents and nonresidents in acountry's creditworthiness. By the same token, policiesand attitudes in capital exporting countries will needto be such as to encourage the required flows of finan-cial resources.

22


Chapter 2Exchange Ratesand International Liquidity

In addition to the usual analysis of internationalliquidity, Chapter 2 includes this year a section dealingwith the development and functioning of exchange ratearrangements. Section A reviews both the exchangerate policies adopted in member countries and develop-

ments in major currency relationships over the periodsince the adoption of widespread floating. Section Bcontains the customary review of developments in inter-national liquidity and of the adequacy of globalreserve holdings.

A. Developments in Exchange Rate Arrangements

Exchange Rate Practices

When the central rate arrangements that had beenestablished following the Smithsonian agreement ofDecember 1971 ceased to be effective in March 1973,member countries adopted a variety of exchange re-gimes, depending on their particular circumstances andneeds. Although the majority of countries have con-tinued to adhere to the exchange rate regime theyadopted early in 1973, there have been a number ofchanges. The exchange rate practices prevailing earlyin 1975 can be classified roughly under the followingcategories:

(i) independent floating(ii) pegging to a single currency

(iii) pegging to a composite (or basket) of curren-cies (including the special drawing right)

(iv) pegging to a single currency, with frequentchanges in the peg according to a predetermined form-ula, e.g., based on relative inflation rates

(v) joint floating under mutual interventionarrangements

A few countries that initially retained a peg for theircurrency have notified the Fund that they are nowfloating independently; and several others have aban-doned the practice of pegging to a single interventioncurrency in order to peg to a composite of currencies.Certain countries with rapid rates of inflation havecontinued the practice, adopted prior to 1973, ofchanging the peg for their currency at frequent intervalsin the light of movements in their domestic prices rela-tive to those abroad. One country, France, departed

from the mutual intervention arrangements of the Euro-pean narrow margins arrangement l and floated in-dependently for a time, although it resumed participa-tion in these arrangements on July 10, 1975.-

Table 9 shows the number of countries in each ofthe above categories (as at June 30, 1975) and thepercentage of trade of member countries accounted forby the countries in each category. These numbers andpercentages are approximate, since in a few cases theprecise regime being applied is uncertain or difficult toclassify. Category (ii) is subdivided according to theparticular currency used in intervention; and category(iii) is divided into those currencies that have electedto peg on the SDR and those that employ some othercomposite.

As a broad generalization, it may be observed that,over the past two years, the larger countries, whoseeconomies are more diverse and whose dependence onforeign trade is less, have mostly inclined to floating.On the other hand, smaller countries, with relativelylarger foreign trade sectors or with a less diversifiedproduction structure, have mostly inclined to a peggingsystem.

1 Ireland, the United Kingdom, and Italy had earlier par-ticipated in the narrow margins arrangement. Ireland and theUnited Kingdom withdrew in June 1972 and Italy withdrewin February 1973. The participants as at June 30, 1975 wereBelgium/Luxembourg, Denmark, the Federal Republic ofGermany, the Netherlands, Norway, and Sweden.

- The South African authorities, which had been followinga policy of independent managed floating, announced onJune 27, 1975 that the rate for the rand would in future beheld constant in terms of the U. S. dollar, subject to adjustmentin the event of a change in basic economic conditions.

23


ANNUAL REPORT, 1975

All the industrialized countries fall under either cate-gory (i) or category (v) in the table. The membercountries participating in the European narrow marginsarrangement are floating as a group, while the otherindustrial countries are floating independently. Non-industrial countries for the most part have elected topeg their exchange rates, and thus come under categor-ies (ii), (iii), and (iv). The majority of developingcountries have maintained a fixed link with the currencyin which they traditionally intervene in the exchangemarket. This arrangement has the advantage of ad-ministrative simplicity, since it involves no more thana continuation of existing practice in the foreignexchange market. It avoids the process of continuousdecision making that would be necessary under a sys-tem of managed floating. In addition, it ensures thattrade denominated in the intervention currency—fre-quently the currency of the major trading partner—is conducted at a stable exchange rate. Whenever anumber of countries use the same intervention currencyas a peg, there is the further consequence of stablecross rates between these countries.

There can, however, be other consequences forsmaller countries in pegging to a single currency. Themost important is that movements in their exchangerate will be dominated by factors affecting the exchangerate of their partner currency, which may not neces-sarily coincide with their own external adjustment needsor with considerations of domestic demand manage-ment.

As long as exchange rates among major currenciesare varying, other countries cannot avoid the variations

in the domestic currency price of particular tradedcommodities caused by exchange rate changes. It ispossible, however, for countries to reduce the overallimpact of these changes by expressing their exchangerate in terms of some average or composite of majorcurrencies, as a number of countries have done. Forthe most part, these composites have been chosen toreflect the particular pattern of bilateral trade of thecountry concerned. However, within this group ofcountries using composite pegs, five—Burma, Iran,Malawi, Qatar, and Saudi Arabia—have chosen to linkthe value of their currency to the transactions value ofthe special drawing right. Although the SDR does notprecisely reflect the pattern of trade of any singlecountry, for most members the SDR conforms moreclosely to an import-weighted composite than does thealternative of a peg to a single currency. Furthermore,in contrast to other composites the SDR has a readilyidentifiable value, which is published daily in terms ofall major currencies.

For countries that have rates of inflation substantiallyabove the average, a system of pegging can operateonly if there is provision for frequent changes in thepeg. In these countries (mostly in South America) thecentral decision for the authorities is the criterion ac-cording to which changes in the peg are made, ratherthan the currency or basket of currencies in termsof which the peg is fixed. In fact, all countries that haveadopted this type of exchange regime have chosen todefine their currency in terms of the U. S. dollar, and tochange the peg broadly in the light of relative move-ments in domestic and foreign prices.

Table 9. Exchange Rate Practices of Fund Members, June 30,

(i) Currencies that float independently(ii) Currencies pegged to a single currency,3

of which:(a) Pegged to U. S. dollar(b) Pegged to French franc(c) Pegged to pound sterling(d) Pegged to Spanish peseta(e) Pegged to South African rand

(iii) Currencies pegged to a composite of other currencies,of which:

(a) SDR(b) Other

(iv) Currencies pegged to others but that changethe peg frequently in light of some formula

(v) Currencies that are floating jointly

Total

1975 *

Number ofCurrencies

1181

54131013

19

514

47

122

Percentage Shareof Trade of

Fund Members 2

46.414.4

12.40.41.6

——12.4

5.07.4

2.023.2

98.4

Sources: Currency classification: Fund staff assessment; trade shares: International Financial Statistics.1 The numbers and percentages in the table should be regarded as approximate, since not all cases fit precisely into the cate-

gories noted. In the case of four members (representing 1.6 per cent of world trade) the regime being applied is particularlydifficult to classify, and these cases are omitted from the table.

2 Imports plus exports, 1974.3 Cases where one member uses the currency of another are classified as pegged to the currency in question.

24


EXCHANGE RATES AND INTERNATIONAL LIQUIDITY

Developments in Exchange RatesAlthough the majority of member countries of the

Fund continue to peg their currencies in some fashion,the most noteworthy feature of exchange rate arrange-ments over the past two years has been the floatingof the currencies of major industrial countries. Thesemembers account for the bulk of world trade, and theircurrencies play the dominant role in international finan-cial transactions. The following analysis therefore con-centrates on developments in the exchange rates of theprincipal floating currencies. Chart 6 shows movementsin market exchange rates for major currencies againstthe U. S. dollar from 1973 until June 1975.

The only announced margins that have beenobserved by industrial countries since early 1973 havebeen those established in the context of the Europeannarrow margins arrangement (the "snake"). The cur-rencies of all other industrial countries have, at leastformally, floated independently of each other and of the"snake" currencies. In the event, some have tended tomove fairly closely either with the snake (Austria,Switzerland) or with the U. S. dollar (Canada). Despitethe widespread absence of margins, the period sinceearly 1973 has not been one of free flexibility: all float-ing currencies have been subject to varying degrees ofofficial intervention.

The desirability of avoiding disorderly fluctuationsin exchange rates has been recognized throughout thefloating period, and found expression in the "Guidelinesfor the Management of Floating Exchange Rates"adopted by the Executive Directors in June 1974.3

The guidelines reflect a general agreement that thebehavior of governments with respect to exchange ratesis a matter for consultation and surveillance in theFund. They are based on the assumption that in anysituation of floating it may be desirable (a) to smoothout very short-run fluctuations in market rates; (b) tooffer a measure of resistance to market tendencies inthe slightly longer run, particularly when they areleading to unduly rapid movements in the rate, and(c), to the extent that it is possible to form a reason-able estimate of the medium-term norm for a country'sexchange rate, to resist movements in market rates thatappear to be deviating substantially from that norm.In implementing the guidelines, it is provided thataccount be taken of members' reserve positions. Further-more, the guidelines recognize the interest countrieshave in intervention conducted in their currency byother countries, and emphasize the responsibility of allmembers, whether or not they are floating, to avoidintroducing restrictions for balance of payments pur-poses on current account transactions.

Chart 6. Spot Exchange Rates Against theU. S. Dollar, January 1973-June 1975

(May 1970 = 100) 1

3 See Annual Report, 1974, pages 112-16.

1 All data based on Wednesday noon quotations in NewYork.

Guidelines of this kind are necessary, inter alia, inorder to arrive at a conception of what a competitiveexchange alteration is and to provide protection againstit. Although experience with the guidelines is limited,owing to the short time for which they have been ineffect, they are nevertheless helpful in assessing themanner in which exchange rate arrangements areworking.

The following analysis reviews the functioning of thefloating system in three main areas:

(1) The stability of exchange markets in the veryshort term (i.e., day-to-day and week-to-week fluctu-ations).

(2) Fluctuations in exchange rates over periods ofseveral months or quarters.

(3) The adjustment of effective exchange rates tounderlying changes in balance of payments positions.

Although the guidelines were adopted in June 1974,it is convenient to review developments over the wholeperiod since the introduction of generalized floating inMarch 1973. The focus in the following analysis will

25


ANNUAL REPORT, 1975

be on the functioning of the exchange system in thelight of the particular criteria noted above.

Day-to-Day MovementsWith respect to day-to-day and week-to-week move-

ments in the exchange market, it is widely acceptedthat members should act to prevent the emergence ofdisorderly market conditions. The potential for suchconditions was revealed relatively early in the floatingperiod, in June and July 1973, when sharp speculativepressure developed in exchange markets, in the courseof which there was a formal change in the central rateof the deutsche mark. Some European currenciesappreciated against the U. S. dollar by as much as 4 percent in a single day, and by as much as 10 per cent inlittle more than a week. In response to this situation,central bank governors meeting in Basle announced thatthey were ready, in principle, to intervene to facilitatethe maintenance of orderly market conditions. Follow-ing the announcement, the rates for the major Euro-pean currencies declined sharply against the dollar.

Despite this declaration by central banks and despiteintervention that has been heavy at times, movementsin rates have been sharp and erratic on a number ofoccasions since mid-1973. Early in January 1974, forexample, the U. S. dollar appreciated by more than 6per cent against certain European currencies over thespan of a week, only to depreciate quite rapidly there-after. Late in 1974 and early in 1975, when the dollarwas weakening, two notable up-and-down movementstook place during which dollar/snake exchange ratesfluctuated by as much as 4 per cent in the space of aweek.

As may be seen from Table 10, daily changes ofsignificant size continued to take place throughout theperiod of floating. These changes reflect mainly move-ments that are reversed over a relatively short period,but also include the influence of tendencies that are oflonger duration.

An initial consequence of the greater short-termvolatility of exchange rates that has characterized thefloating period was an increase in the spread betweenbuying and selling rates for currencies. Subsequently,the situation seems to have improved in these respects,although for most currencies spreads remain wider thanbefore the adoption of generalized floating. For exam-ple, the spread between quoted buying and selling ratesin New York for spot sterling in terms of the dollarwas approximately twice as wide during March-April1975 as it was in June 1971. A similar tendency can beobserved, in greater or lesser degree, for most othermajor currencies that had been observing par valuesin June 1971. It should be noted, however, that thewider spread in spot quotations is a trivial element inthe cost of financing international trade, and probablyhas its main effect on financial flows of a reversiblecharacter.

Evidence on the efficiency with which the forwardmarket is functioning is much harder to come by,although the increase in the number of schemes underwhich official institutions guarantee private exportersagainst exchange risks (see recent Annual Reports onExchange Restrictions) would seem to indicate thatauthorities feel there are some deficiencies in the serv-ices offered by private markets. In the case of develop-ing countries, for whose currencies forward exchangemarkets are, at best, thin, it is generally felt by theauthorities concerned that the adoption of widespreadfloating tended to heighten the difficulty of obtainingadequate forward cover.

Short-Term SwingsOf more significance for the balance of payments

than day-to-day or week-to-week rate fluctuations havebeen movements in relative currency values over some-what longer periods. Since the adoption of widespreadfloating among the industrial countries, there havebeen several recognizable swings in the exchange rates

Table 10. Average Daily Changes in Selected Currency Rates Against the U. S. Dollar,1973-First Quarter 1975 x

(In per cent)

1973

Country

CanadaFranceGermany, Fed. Rep. ofItalyJapanUnited Kingdom

FirstQuarter

0.140.540.470.260.530.29

SecondQuarter

0.060.450.520.460.100.21

ThirdQuarter

0.070.860.820.400.090.29

FourthQuarter

0.150.560.470.240.090.21

FirstQuarter

0.110.760.640.470.490.64

1974

SecondQuarter

0.110.410.640.310.280.29

ThirdQuarter

0.120.270.320.170.290.17

FourthQuarter

0.080.290.470.200.070.21

1975FirstQuar-

ter

0.120.450.480.330.280.27

1 Average percentage change from previous day in spot exchange rate against U. S. dollar (New York noon quotation).

26



of major currencies, each of which has lasted forseveral months or quarters. It is not always easy toidentify with confidence the reasons for these oscilla-tions, since a number of factors combined to influencethe trend of the exchange rate, and it is difficult todistinguish their relative importance.

Changes in current account transactions exert apressure in the exchange market that tends to push therate in one direction or another. However, changes inthe current balance are normally small in relation topotential changes in capital flows, so that it is the latterthat exert the most significant influence on exchangerate movements in the short run. Moreover, currentaccount transactions do not respond quickly to priceinfluences because of the lags that are at work. Thus,the current balance does not provide much resistanceto exchange rate movements resulting from tendenciesin the capital account. It is the capital account itselfthat provides the equilibrating influence when rateshave moved far enough in one direction.

Capital flows are likely to be influenced by twomajor factors: the relative yields available on assetsheld in different countries, and expectations with regardto future exchange rate developments. These two fac-tors combine to produce the effective yield that is ofprimary interest to asset holders. Current nominal yieldsin national currencies tend to vary, in the short term,with changes in cyclical and monetary conditions. Theresultant changes in interest rate differentials were afrequent cause of capital movements under fixedexchange rates (when they led to reserve changes) andhave given rise to pressures on exchange rates in afloating system. However, if such changes in interestdifferentials were seen to be essentially the product ofvariations in cyclical position, their influence on effec-tive yields could be expected to be offset by a tempo-rary movement in exchange rates of relatively minorproportions. In practice, shifting expectations concern-ing the longer-run evolution of exchange rates seem tohave also played an important role in the movementsthat have occurred.

Exchange rate expectations are influenced by a num-ber of factors, including recent and anticipated balanceof payments trends and interest rate developments.Among the most important of these factors during therecent period have been expectations with respect tocapital flows following the oil price increase, and thediffering degrees of success with which individualcountries appeared to be tackling the problem ofinflation.

The currency relationship that has attracted themost attention over the past two years has been thatbetween the U. S. dollar, on the one hand, and thecurrencies of countries participating in the European

narrow margins arrangement, on the other. The follow-ing discussion therefore begins with an analysis ofdevelopments in the rate between the dollar and thesnake currencies. It should be noted that this maytend to exaggerate the significance for the balance ofpayments of some of the exchange rate movements thathave occurred, since the countries involved haveimportant payments relationships in currencies that havefluctuated less widely against their own. To assess theimplications for trade flows of the exchange rate move-ments that have occurred, indices of effective exchangerates need to be employed, and this is done later in thissection.

The exchange rate between the U. S. dollar and thecurrencies of countries participating in the Europeannarrow margins arrangement has experienced a seriesof up and down movements since the adoption ofgeneralized floating in early 1973, each of which lastedfor from three to six months.

Following a short period of rate stability after theintroduction of floating, the European currencies beganto move up, owing partly to the very tight monetarypolicy applied by the authorities of the FederalRepublic of Germany for anti-inflationary reasons. (SeeChart 7.) Because of the mutual intervention arrange-ments among the European central banks, tendenciesaffecting a major participating currency, particularlythe deutsche mark, often generate a similar movementon the part of the other currencies. On this occasion themovement was, however, encouraged by uncertaintyabout the intentions of central banks with regard tointervention.

The easing of the liquidity squeeze in the FederalRepublic of Germany and some further rise in U. S.interest rates, together with more favorable U. S. tradefigures, combined to produce a rising rate for the dollaragainst the European currencies after July 1973. Thisupward movement gathered momentum as a resultof the Middle East war and subsequent developmentsin the international oil market. These developmentswere seen as being relatively favorable to the balanceof payments position of the United States. To beginwith, this trend in exchange rates was seen as reversingwhat was considered an excessive movement in theother direction earlier in the year. As a result, therewas initially little intervention to check the rise of thedollar. However, when the appreciation of the U. S.currency carried it a substantial way back toward itsSmithsonian relationship with the snake currencies,more substantial intervention was undertaken, both byEuropean authorities and by the United States. Despitethis, the dollar continued to rise until January 1974,when the rate against the deutsche mark was 20 percent above its level six months earlier.

27


ANNUAL REPORT, 1975

Chart 7. Short-Term Money Market Rates, January 1973-May 1975

(In per cent per annum)

Early in 1974, the relative prospects of the dollarand the snake currencies were reassessed by the market.This reassessment lasted some four months, and carriedthe dollar down by some 15 per cent against thedeutsche mark. Once again, the early stages of thismovement were not impeded by any substantial inter-vention, but when the trend continued beyond a certainpoint, more determined intervention was undertaken.

In mid-1974, monetary conditions became exception-ally tight in the United States, opening up a substantialinterest differential with European centers. This led tosome rise of the dollar against European currencies,although not sufficient to do more than partially offsetthe previous decline. Later in the year, the earliertendency was resumed, as monetary conditions easedin the United States, and interest differentials narrowedsubstantially. On this occasion the upward movementof European currencies against the dollar continued forabout five months, and resulted in a change in snake/dollar rates of about 15 per cent. After touching a highpoint in early March 1975, the European currenciesdropped moderately against the dollar over the ensuingtwo months, and then started to rise again.

Fluctuations in exchange rates between the dollarand the snake currencies tend to exaggerate the

changes in overall exchange rates of the several coun-tries involved. This is so because both the United Statesand the European countries have important tradingrelations with countries whose currencies either arepegged to their own or at least fluctuate more moder-ately against their own currency. In order to provide amore useful indication of the implications of exchangerate fluctuations for competitiveness, it is helpful torefer to the concept of an effective exchange rate, whichcomputes such fluctuations in terms of a suitable aver-age of other currencies. Various criteria have been usedto determine the weights for such an average. Chart 8shows the development of effective exchange rates dur-ing the floating period using two possible weightingschemes. The first is derived from the multilateralexchange rate model developed by the Fund staff.4

This model embodies assumptions that attempt to takeinto account in the calculation of a country's effectiveexchange rate the commodity composition of its trade,and the relative importance of other countries as trad-ing partners and as competitors in third markets. Thesecond weighting scheme is derived by calculating therelative importance of 27 countries in the bilateral

4 See Jacques R. Artus and Rudolf R. Rhomberg, "A Multi-lateral Exchange Rate Model," Staff Papers, Vol. 20 (Novem-ber 1973), pages 591-611.

28



Chart 8. Indices of Effective Exchange Rates of Major Industrial Countries, 1973-June 1975(Weekly data, May 1970 - 100)

1 See text, page 28.

29


ANNUAL REPORT, 1975

trade of each of the countries for which an effectiveexchange rate is computed.

Movements in the effective rates for the U. S. dollarand deutsche mark were generally in the same directionas movements in their market rates against each other,although the amplitude of the swings, as can be seenfrom a comparison of Chart 8 with Chart 6, was onlyabout half as great. This reflects the fact, noted earlier,that each country carries out a significant part of itstrade with countries whose currencies are linked to itsown or that follow an independent course.

For the other countries participating in the Europeannarrow margins arrangement, movements in the effec-tive rates for their currencies have been much less thanfor the deutsche mark. This is so because the patternof their trade is dominated more by relations withtrading partners within Europe, and thus influenced lessby fluctuations in their rate against the dollar. TheSwiss franc and Austrian schilling, although movingindependently during the floating period, have gener-ally followed the trend of market rates for the curren-cies in the European narrow margins arrangement.

Turning to the other major currencies, the Frenchfranc remained within the European narrow marginsarrangement until January 1974. Then, under pressureof potential reserve losses, the French authoritiesallowed the franc to float independently. The exchangemarket measures that accompanied the move to afloating rate held the initial depreciation to relativelysmall proportions. However, political uncertainties inthe period preceding the presidential election producedrenewed weakness that prevented the franc from mov-ing up against the dollar in line with the other Euro-pean currencies. After touching a low point in May1974, the effective rate for the franc began a periodof appreciation that was sustained, with relatively minorinterruptions, into the beginning of 1975. This appreci-ation was related to the firm stand taken by theGovernment in its anti-inflationary measures, whichaimed at equilibrium in the current account of thebalance of payments within 18 months. In the latterpart of the year, monetary policy became very tight,and the resulting high interest rates gave rise to aninflow of private capital that, added to the directofficial borrowing that the Government was undertak-ing, was sufficient to cause a rise in the rate. From late1974 onward, movements in the rate for the francagainst the dollar were related closely to those of thesnake currencies. A gradual appreciation of the francagainst the other European currencies permitted theFrench authorities to resume participation in the nar-row margins arrangement on July 10.

The pound sterling was permitted to float in June1972. Its effective rate declined quite sharply in the

first half of 1973, after which it remained little changedfor nearly two years. This stability was achieved withrelatively minor changes in reserves. There has been avery large balance of payments deficit on currentaccount, but the United Kingdom has benefited from asubstantial inflow of oil surplus funds, which has beenaugmented by a policy of substantial foreign borrowingby public sector agencies. Until early 1975, the inflowfrom these two sources was such as to avoid substan-tial changes in the effective rate for sterling. Thereafter,the effective rate for the pound declined by about 8per cent between the end of March and the end ofJune 1975.

Apart from a slight interruption in late 1973, theeffective rate for the Italian lira has declined in a fairlysteady manner, while the Italian authorities supportedtheir currency almost continuously in the face of alarge balance of payments deficit. In 1973 the externalvalue of the lira seemed to move more in sympathywith the dollar than with the currencies of Italy'strading partners in Europe, but subsequently the effec-tive rate has been quite stable around its trend value.

The Canadian dollar has had the longest history offloating among the major currencies. The Canadianauthorities do not intervene directly to affect the generallevel of their rate, confining their intervention policyto the maintenance of orderly market conditions. Themost notable development in the exchange rate for theCanadian dollar against the U. S. dollar during thefloating period was a gradual appreciation of about5 per cent during the first half of 1974, followed by asomewhat more pronounced decline in the second halfof the year and into 1975. The initial appreciationprobably resulted from a relatively favorable assess-ment by market participants of the potential impact ofhigher oil prices on Canada's current account, and moreparticularly from expectations of capital inflows tofinance the exploration and recovery of natural re-sources. Later in the year, however, the sharp wideningin the Canadian current account deficit caused a re-assessment of the situation. Reflecting the dominanceof the United States in Canada's external trading rela-tions, movements in the effective rate for the Canadiandollar were most of the time broadly similar to develop-ments in its market rate against the U. S. dollar.

From the time when widespread floating was adoptedin March 1973 until October of that year, the ratefor the yen was effectively maintained at ¥ 265 perU. S. dollar. Although this resulted in a decliningeffective rate for the yen, rapid price increases in Japanand continuing weakness in the balance of paymentsmeant that considerable official support was needed tomaintain the rate at this level. With the added pressurein exchange markets resulting from the expected

30



adverse consequences of the oil situation for the Jap-anese balance of payments, the rate fell by about 12per cent against the dollar (to ¥ 300) over the periodOctober 1973-January 1974. This downward move-ment in the rate against the dollar was accompaniedby further substantial reserve losses, and in Januarythe Japanese authorities began to let the rate respondmore freely to market pressures. For a while develop-ments broadly paralleled those for the deutsche mark:in the opening months of 1974, there was a substantialappreciation against the dollar (and a more modestappreciation in the effective rate). This was followedby a decline in the middle part of the year, whenmonetary conditions in the United States became verytight and the demand for dollars to settle sharplyincreased usance bills for oil imports made itself fullyfelt in the market. When the European currencies beganto appreciate strongly against the dollar later in 1974,the yen rate initially remained relatively stable around¥ 300 against the dollar. Only in January 1975 did theyen begin to move up, and in the ensuing monthsmovements in its rate against the dollar were similarto those of the European countries.

Exchange Trends and Competitiveness

Over the longer run, trends in the pattern ofexchange rates depend on changes in underlying competi-tiveness and in conditions governing capital flows. Suchchanges are influenced by a number of factors, someof which are specific to particular countries or com-modities—for example, shifts in demand patterns, thechanging availability of substitute goods and factors ofproduction, natural resource discoveries, and so on.Perhaps the most important systematic factor affectingcompetitiveness, however, has been the rate of priceinflation in different national economies. Although thedirection of causation has not always been evident, itis clear that divergent trends between countries in theprice of goods that can be traded internationally havenot been able to persist for very long without beingaccompanied by movements in exchange rates.

To facilitate examination of interrelationshipsbetween prices and exchange rates over the period sincethe onset of widespread floating of major currencies,Chart 9 is presented. It permits ready comparisonsamong the seven major countries with respect to rela-tive movements in the wholesale prices of manufacturedgoods. For each country, the price line plotted is theprice level of the country in question relative to theweighted average of the seven countries taken as agroup. The weights used are derived from relative sharesin world trade in manufactures. The effective exchangerate index employed in the chart is the first of the two

alternatives described on page 28, and the base date isMarch 1973, reflecting exchange rates prevailing fol-lowing the realignment of the previous month.

The chart indicates wide differences in relative infla-tion rates, as measured by price increases for manufac-tured goods. Over the period shown, three countries(Italy, the United Kingdom, and Japan) experiencedprice increases considerably faster than the average forall major industrial countries, while one country(the Federal Republic of Germany) had a markedlylower rate of domestic inflation. Price movements in theother three major industrial countries (the UnitedStates, France, and Canada) were clustered more closelyabout the average over the two years as a whole.

Over the period considered, these differentials in com-parative price movements appear to be associated withchanges in exchange rates, although this conclusion isto some extent affected by the choice of base date, and,as noted earlier, a direct causal connection cannot neces-sarily be imputed. The two countries with the fastestrates of advance in domestic wholesale prices of manu-factures both experienced a significant depreciation inthe effective rate for their currency; the same was trueof Japan during the period when its relative price levelwas rising rapidly; indeed, in the case of Japan (andto some extent for Italy) the decline in the exchangerate seems to have been more than sufficient to offsetdifferences in price trends. After adjustment forexchange rate changes, only the United Kingdom amongthese countries had a relative price level that was signifi-cantly higher in the first quarter of 1975 than in March1973—and this differential has been considerablyreduced by subsequent exchange rate developments.

For the Federal Republic of Germany, exchange rateshave fluctuated considerably since the adoption of float-ing rates. However, the effective appreciation from thefirst quarter of 1973 to the first quarter of 1975 can beseen to have approximately compensated for the differ-ential price trend between the Federal Republic ofGermany and its major competitors over the sameperiod. With respect to the United States also, fluctu-ations in the effective exchange rate left the adjustedrelative wholesale price index for manufactures littlechanged in the first quarter of 1975 from March 1973.

It may thus be seen that the exchange rate changesthat have taken place have largely offset differences inrelative inflation rates, substantial though the latter havebeen. Japan is the only major country to show anappreciable degree of cumulative change in its pricelevel relative to that of its competitors, with an apparentimprovement of more than 10 per cent in its competi-tiveness, as measured in the chart. In this case, how-ever, it must be recalled that the index used is basedin March 1973, immediately following a substantial

31


ANNUAL REPORT, 1975

Chart 9. Effective Exchange Rates and Relative Wholesale Prices of Manufactures,First Quarter 1973-First Quarter 1975

(Indices, March 1973 = 100)

32

Effective exchange rate Relative wholesale prices of manufactures,based on indices in national currency

Relative wholesale prices of manufactures,adjusted for exchange rate changes



revaluation of the yen in terms of all other currencies.

Any general assessment of the effectiveness of thesystem of managed floating exchange rates inevitablyrequires taking a view on how authorities would havecoped with the turbulent developments of the past twoyears under alternative arrangements. In this connectionit can be noted that exchange markets have continuedto function, and that crises of the type that bedeviledthe later years of the par value system have beenavoided. Fluctuations in rates have at times been erratic,but there is little evidence thus far that this factor hasseriously impeded the growth of world trade. On thewhole, exchange rate flexibility appears to have enabledthe world economy to surmount a succession of dis-turbing events, and to accommodate divergent trendsin costs and prices in national economies with less dis-ruption of trade and payments than a system of parvalues would have been able to do.

But the question also needs to be asked whetherpresent arrangements could have been managed better,and whether they will continue to be appropriate in a

calmer period for the world economy. The rate fluctua-tions that have occurred in the past two years—bothday-to-day and of somewhat longer duration—are insome cases much greater than could be justified on thebasis of changes in underlying economic conditions. Itis admittedly difficult to distinguish a temporary move-ment from a trend, but the record of the floating periodis not wholly satisfactory in this respect. A reduction insuch swings would help to diminish uncertainty andthus tend to decrease the risks attached to internationaltrade and investment.

For the developing countries that have continued topeg their exchange rates, floating of the major currencieshas introduced a new type of uncertainty into theirexchange rates and balances of payments, against whichthey find it difficult to protect themselves. In circum-stances such as those of the recent past, however, uncer-tainty with respect to exchange rate movements isunavoidable, and the particular uncertainties associatedwith floating are not necessarily greater than those thatwould be involved under a par value system.

B. Developments in International Liquidity

Reserve Changes in 1974The value of international reserves of member coun-

tries and Switzerland, expressed in special drawing rights(SDRs), rose in 1974 by almost SDR 27 billion, toSDR 178 billion at the end of the year (Table I I ) . 5

With this increase of 18 per cent, official reserve holdingsresumed growth at a rate similar to that recorded in1972 (19 per cent) and substantially higher than thatin 1973 (4 per cent). During the first quarter of 1975,however, the rate of reserve growth appears to haveslowed again as, according to preliminary data, reservesrose by SDR 4 billion, at an annual rate of 9 per cent.

Additions to foreign exchange holdings accounted fornine tenths of the total increase in reserves in 1974 andalso dominated the reserve increase in the first quarterof 1975. The remainder consisted of an increase in reservepositions in the Fund. The rise by SDR 2.7 billion in1974 was by far the largest annual growth in thesereserve positions and the first annual advance since 1970.Moreover, reserves in this form continued to increase

r> The term "reserves" used in this chapter refers to countries'official holdings of gold, SDRs, and foreign exchange and theirreserve positions in the Fund. A country's reserve position inthe Fund is the excess, if positive, of its quota over the Fund's(adjusted) holding of its currency. Gold is valued at SDR 35per ounce; foreign exchange balances are valued in SDRsby converting them at parity or central rates for end-1973 andearlier dates (except for floating currencies, for which marketrates were used) and at SDR transactions values based onmarket rates thereafter (see introductory pages of International

rapidly in the first quarter of 1975, when they rose bySDR 1.1 billion. Holdings of gold and of SDRs changedonly insignificantly in 1974 and in the first quarter of1975 (Chart 10).

Almost the entire reserve increase recorded in 1974accrued to a group of countries that are major netexporters of petroleum products—hereinafter referred toas "major oil exporting countries" (Table 12). Reservesof industrial countries as a group showed an increaseof SDR 2 billion and those of the more developedprimary producing countries declined by SDR 2.7 billion.Less developed primary producing countries excludingmajor oil exporting countries accounted for the remain-ing reserve increase of SDR 1.3 billion, which accruedmainly to countries in Asia; other less developed coun-tries, grouped by continent, recorded smaller changes,which were mutually offsetting.

The distribution of reserves among industrial countrieswas not altered as much in 1974 as it had been in mostprevious years. The outstanding shifts in 1974 were a

Financial Statistics for further explanation). In recent AnnualReports foreign exchange holdings of the United States hadbeen excluded from the total of countries' foreign exchangeholdings on the grounds that they were mainly the counterpartof the use of swaps by other countries and could not be usedto finance U.S. deficits. In 1973 and 1974 U.S. foreign exchangeholdings were negligibly small. Since there are no grounds forexcluding these holdings in present circumstances, even if theyceased to be negligible, they have been left in the total for allyears. At their peak in 1969, U.S. official holdings of foreignexchange amounted to SDR 3.8 billion.

33


ANNUAL REPORT, 1975

Table 11. Official Reserves, End of Years 1955-74 and End of March 1975

(In billions of SDRs)

1955195619571958

19591960196119621963

19641965196619671968

196919701971197219731974

March 1975

Gold

35.436.137.338.0

37.938.038.939.340.2

40.841.840.939.538.9

39.137.236.135.835.835.7

35.7

SDRs

3.15.98.78.88.9

8.8

ReservePositionsin Fund

1.92.32.32.6

3.33.64.23.83.9

4.25.46.35.76.5

6.77.76.46.36.28.9

10.0

ForeignExchange *

18.519.518.818.8

17.920.220.921.524.0

25.425.226.029.032.0

32.244.573.994.9

100.7124.7

127.8

Total !

55.857.858.559.5

59.161.864.064.668.1

70.372.473.274.377.4

78.192.5

122.2145.6151.4178.2

182.3

Source: International Financial Statistics.1 Official reserves of Fund members and Switzerland. The figures for 1971 include the U.K. official assets "swapped forward"

with overseas monetary authorities, as reported in U. K. Central Statistical Office, Economic Trends. The figures for 1973 includeofficial French claims on the European Monetary Cooperation Fund. In contrast to previous Annual Reports, U. S. holdings offoreign exchange are included. See page 33, footnote 5.

decline of SDR 1 billion in the reserves of the FederalRepublic of Germany, which was, however, reversed inthe first quarter of 1975, and increases of SDR 1.2 billionin those of the United States and of SDR 0.9 billion inJapan. Reserves of most other industrial countrieschanged by no more than a few hundred million SDRsduring 1974. Except for the rise in reserves of the Fed-eral Republic of Germany already noted, the stability inthe pattern of reserve holdings among industrial coun-tries continued in the first quarter of 1975. For mostindustrial countries this stability is to be explained bythe absence of substantial intervention in the exchangemarkets. For some countries, chiefly France, Italy, andthe United Kingdom, public borrowing from abroadcontributed to a considerable extent to the financing ofbalance of payments deficits and to maintaining officialreserves. In Japan, large borrowing from abroad by thecommercial banks during the first half of the year aidedthe authorities in financing the deficit on current andlong-term capital account without loss of reserves.

The reserves of the major oil exporting countries asa group continued to rise in the first quarter of 1975,although at a slower rate than in 1974, by aboutSDR 3 billion. However, large reserve increases in someof these countries, notably Saudi Arabia and Venezuela,were partly offset by reserve declines in other countriesof the group, for instance, Algeria, Iraq, and the LibyanArab Republic. Reserves of the industrial countries also

advanced by about SDR 2 billion in the first quarterof 1975, those of the more developed primary produc-ing countries declined by SDR 1 billion, and those ofother less developed countries appear to have shownlittle change.

The change in the value of reserves during 1974resulted mainly from transactions that created (ordestroyed) reserves; to a minor extent, however, the neteffect of these transactions was offset by a small declinein the SDR value of existing reserves owing to changesin the SDR value of currencies in which foreignexchange balances were held. Estimated valuationchanges of countries' foreign exchange holdings in 1974amounted to a loss of SDR 0.8 billion; the change inreserves stemming from net reserve creation in the formof foreign exchange during 1974 was therefore largerby this amount than the change in the value of foreignexchange holdings of SDR 24.0 billion.6

6 The need to adjust movements in the stocks of officialreserve holdings during 1974, to reflect the value of trans-actions in these reserve assets over this period, arises fromchanges in the SDR value of currencies between the end of1973 and the end of 1974. As from end-July 1974, foreignexchange is converted to U.S. dollar equivalents at end-of-month market rates or, in the absence of market rate quota-tions, at other prevailing official rates. The U.S. dollarequivalents are then converted into SDR equivalents by theU.S. dollar/SDR transactions value. Prior to July 1974, thevaluation of official reserve holdings was based primarily onofficial parities or central rates. (See introductory pages of IPSfor further explanation.)

34



Chart 10. Level and Composition of Reserves,End of Period, 1964-March 1975


Asset Composition of Reserve GrowthNearly the entire increase in official reserves accrued

to the major oil exporting countries, and decisions bythe authorities of these countries on the placement oftheir official liquid holdings largely determined the formin which the total increment in official reserves washeld. This is illustrated in Table 13, which classifiesreserve changes during 1974 by type of asset and byownership. The United States is shown separately toidentify the passive character of the small increase ofSDR 1.2 billion in its reserves, which occurred as aresult of Fund drawings made in U.S. dollars and desig-nation of the United States to accept SDRs in exchangefor currency. Members of the country groups shown,i.e., industrial and more developed primary producingcountries (other than the United States), major oilexporting countries, and other less developed countries,

did not engage in SDR transactions on a sufficientlylarge scale in 1974 to record significant net changes inthe SDR holdings of any of these groups. Major oilexporting countries acquired reserve positions in theFund equivalent to SDR 1.5 billion, which constitutedclaims arising in connection with the Fund's oil facility.From the end of 1973 to the end of 1974, official goldholdings of most countries changed very little, if at all;small net reductions of official holdings occurred inMexico, South Africa, and Zaire, while the holdings ofKuwait rose somewhat. The most important componentof the reserve increase in 1974 was the acquisition bymajor oil exporting countries of foreign exchange claimsequivalent to SDR 24.8 billion, reduced by an estimatedvaluation loss of SDR 0.3 billion to a net accumulationof SDR 24.5 billion. By far the largest part of this addi-tion to foreign exchange holdings, at least SDR 18.7billion, was denominated in U.S. dollars, either in theform of identified Euro-dollar deposits (SDR 12.5 bil-lion) or of identified direct claims on the United States(SDR 6.2 billion). Other placements, amounting to theequivalent of SDR 6.1 billion, may also have containedclaims denominated in U. S. dollars but consisted chieflyof direct claims on the United Kingdom and on othercountries and of Euro-currency deposits other thanEuro-dollars.

The concentration of reserve growth in a relativelysmall group of nonindustrial countries during 1974 wasa new feature of the developments in internationalliquidity; but the fact that it took the form largely of anincrease in foreign exchange holdings, which weremainly denominated in U.S. dollars, was in conformitywith tendencies apparent over a number of past years(Table 14). The distribution of official placements inU.S. dollars between claims on the United States andholdings of Euro-dollars has been subject to variousinfluences over recent years, including interest rate tend-encies in the U.S. and Euro-dollar markets and vari-ations in currency preferences among countries gainingand losing foreign exchange reserves.

The increase equivalent to SDR 8.2 billion in foreignofficial claims on the United States in 1974 was largerthan in 1973 but smaller than in 1971 and 1972. Hold-ings of sterling claims on the United Kingdom rose by arecord SDR 2.6 billion in 1974. The interpretation of thecauses of these accumulations has shifted somewhat inaccordance with changing views of the motivation ofthe transactors, with less emphasis being placed on thesupply of foreign exchange through payments deficitsof reserve currency countries and more on the demandfor reserve currencies on the part of the authorities ofmany countries intending to prevent an appreciationof their currencies or to hold capital assets abroad inliquid form.

35


ANNUAL REPORT, 1975

Table 12. Distribution of Reserves, End of Years 1950, 1960, and 1970-74 and End of March 1975


Industrial countriesUnited StatesUnited Kingdom

Subtotal

BelgiumFranceGermany, Federal Republic ofItalyNetherlandsSwitzerlandOther industrial Europe 3

Subtotal, continental industrial Europe

CanadaJapan

Total, industrial countries

Primary producing countriesMore developed countries

Other European countries 4

Australia, New Zealand, and South AfricaSubtotal, more developed primary

producing countries

Less developed countriesMajor oil exporting countries 5

Other Western Hemisphere G

Other Middle East 7

Other Asia 8

Other Africa 9

Subtotal, less developed countries 10

Total

1950

24.34.8

29.1

0.80.80.20.70.51.60.55.2

1.80.6

36.8

1.62.1

3.7

1.32.41.13.70.69.8

50.3

1960

19.45.1

24.5

1.52.37.03.31.92.31.8

20.1

2.01.9

48.5

2.31.4

3.7

2.42.20.72.71.39.6

61.8

1970

14.52.8

17.3

2.85.0

13.65.43.25.13.8

39.0

4.74.8

65.8

5.73.0

8.7

5.14.41.64.92.0

18.0

92.5

1971

12.18.1

20.3

3.27.6

17.26.33.56.44.9

49.1

5.314.188.8

8.14.2

12.2

7.84.32.05.31.7

21.1

122.2

1972

12.15.2

17.3

3.69.2

21.95.64.46.96.0

57.6

5.616.997.4

11.87.6

19.5

10.17.42.66.71.9

28.8

145.6

1973

11.95.4

17.3

4.27.4

27.55.35.47.16.9

63.8

4.810.296.0

13.66.5

20.1

12.09.83.57.72.2

35.3

151.4

1974

13.15.7

18.8

4.57.2

26.55.75.77.46.6

63.5

4.811.098.1

12.45.0

17.4

38.19.33.99.12.4

62.7

178.2

March1975

13.35.9

19.2

4.97.5 2

27.65.45.87.26.6

65.0

4.711.3

100.2

11.45.0

16.4

41.28.94.59.02.1

65.6

182.3

Source: International Financial Statistics.1 Some minor differences between these data and those published in IPS are noted in Table 11, footnote 1. Totals may not add

because of rounding and because some totals include unpublished data for component areas.2 The value of the official French reserve stock, at end-March 1975, as shown in this table, differs from that published in offi-

cial French statistics because, since January 1975, France has adopted a system of valuing gold based on market prices.3 Austria, Denmark, Luxembourg, Norway, and Sweden.4 Finland, Greece, Iceland, Ireland, Malta, Portugal, Spain, Turkey, Yugoslavia, and, beginning in 1972, Romania's reserve posi-

tion in the Fund and holdings of SDRs.5 Algeria, Indonesia, Iran, Iraq, Kuwait, the Libyan Arab Republic, Nigeria, Saudi Arabia, Venezuela, and, beginning in 1968,

Bahrain and, in 1970, Oman.6 Argentina, Bolivia, Brazil, Central America, Chile, Colombia, the Dominican Republic, Ecuador, Guyana, Haiti, Jamaica,

Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and, beginning in 1970, SDRs and reserve position in theFund for Barbados.

7 Cyprus, Egypt, Israel, Jordan, Lebanon, the Syrian Arab Republic, and, beginning in 1965, the People's Democratic Republicof Yemen.

8 Afghanistan, Burma, the Republic of China, India, Korea, Malaysia, Nepal, Pakistan, the Philippines, Singapore, Sri Lanka,Thailand, and Viet-Nam, and, for the Khmer Republic and Laos, SDRs and reserve positions in the Fund.

9 African Fund members other than Algeria, Egypt, the Libyan Arab Republic, Nigeria, and South Africa.10 Includes residual.

The increase in reserves in the form of Euro-dollarholdings accelerated sharply in 1974 compared withearlier years and accounted for almost one half of thetotal reserve increase in 1974. It consisted entirely ofplacements of surplus earnings of major oil exportingcountries in the Euro-dollar market. A small amountof additional placements in that market by monetaryauthorities of other less developed countries was morethan offset by a reduction in official Euro-dollar holdingsof industrial and more developed primary producingcountries. Claims in national currency on issuing coun-tries other than the United States and the United King-

dom and Euro-currency holdings other than thosedenominated in U. S. dollars seem to have remainedvirtually stationary during 1974. The double depositarrangement between the Deutsche Bundesbank and theBank of Italy added $2 billion (equivalent to SDR 1.7billion at the time that the arrangement came intoeffect) to total reserves, since the claim on Italy iscounted here as part of the reserves of the FederalRepublic of Germany; in March 1975, this claim wasreduced by SDR 0.5 billion.

As has been the case for a number of years (except1971-72), roughly one half of total official foreign

36



Table 13. Composition of Reserve Change by Area, 1974


Industrial and More DevelopedPrimary Producing Countries

Net transactions in reservesGoldSDR holdingsReserve positions in FundOfficial foreign exchange holdings 3

Official claims on United States 4

Official sterling claims on United KingdomIdentified official holdings of Euro-dollarsResidual holdings of foreign exchange 5

Effect of valuation changes on stock of reserves (i

Total reserve change

UnitedStates

0.11.1

1.2

Othercountries

-0.10.2

-1.60.7

-1.1-1.2

-0.4-2.0

Less Developed PrimaryProducing Countries

Major oilexportingcountries

1.524.86.24.2

12.51.9

-0.326.1

Othercountries 2

-0.1

-0.11.51.3

-0.51.2

-0.5-0.1

1.3

Total

-0.10.12.7

24.88.22.6

12.51.5

-0.826.7

Sources: International Financial Statistics and Fund staff information and estimates.1 Table 14 provides more detailed information on the composition of changes in official reserves of all countries, including

comparable data for earlier years.2 The transactions values of the components of foreign exchange shown for this group were derived as residuals and therefore

include any omissions, errors, and asymmetries included in the transactions values estimated for the other groups.3 Area details are based on data provided by those holders of these claims that report this information to the Fund.4 Covers only claims of countries, including those denominated in the claimant's own currency.5 More details of this residual are provided in Table 14.6 For explanation, see page 34, footnote 6.

exchange assets outstanding at the end of 1974 were heldas claims on the United States (Table 15). Somewhatmore than one half of the remainder took the form ofidentified Euro-dollar holdings. Except for some increasein sterling claims on the United Kingdom, there hasbeen little diversification of foreign exchange holdingsby currency in 1974. This is even more striking whenit is remembered that certain components shown with-out reference to currency in Table 15 are also denomi-nated in U.S. dollars, such as most claims on the IBRDand IDA, the amount of SDR 1.6 billion (the year-endSDR equivalent of $2 billion) arising from the doubledeposit arrangement mentioned above, and doubtlesssome part of the residual.

Factors Affecting the Adequacy of Reserves

This subsection contains the review of the adequacyof global reserve holdings that the Executive Directorsare required to make under Section 10 of the By-Lawsof the International Monetary Fund. Besides surveyingthe development of the global volume of reserves andits distribution, this review must concern itself withchanges in the need for reserves.

Under the par value system reserves were neededmainly to finance prospective payments imbalances thatmight arise at given exchange rates. Global reserveneeds were assessed in the light of the desirability ofenabling countries to finance temporary payments dis-equilibria rather than control them through restrictionsor react to them through policies suitable for dealing

with underlying disequilibrium, such as par valuechanges. At the same time, financing of disequilibria wasnot to be made so easy, through a surfeit of reserves,as to discourage adjustment to underlying disequilibria.Adjustment of the volume of global reserves to reserveneeds assessed in accordance with these principles wouldcontribute to economic stability and help to "avoid eco-nomic stagnation and deflation as well as excess demandand inflation in the world." 7

In present circumstances of widespread managedfloating of exchange rates, the choice between allowingexchange rates to vary in accordance with market pres-sures and the financing of imbalances arises continu-ously rather than merely from time to time, as it didunder the par value system. This affords some economyin the holding of reserves, but the extent to which thetwo exchange rate regimes differ with respect to reserveneeds should not be overestimated. In principle, properexchange rate management would seem to require, fora country with a floating rate, not to let the exchangerate take all the strain of a temporary, self-reversingpayments disequilibrium and, for a country adheringto a par value regime, not to use reserves to finance anunderlying disequilibrium. In practice, however, the twosystems are likely to differ substantially with regard topatterns of reserve use. On the one hand, it has oftenbeen noted that under the Bretton Woods system coun-tries tended to delay necessary par value changes, some-times at the cost of having to impose payments restric-tions or maintaining inappropriate levels of demand, but

7 Article XXIV, Section I ( a ) , of the Articles of Agreement.

37


ANNUAL REPORT, 1975

Table 14. Composition of Reserve Change, 1968-74


1968 1969 1970 1971 1972 1973 1974

Net annual transactions in reservesGold

Monetary goldGold transactions (acquisitions - ) by IMF, BIS, and

European FundCountries' gold reserves

Special drawing rightsAllocation of SDRsIMF holdings of SDRs (increase -)

Countries' SDR holdingsReserve position in the Fund

Use of Fund creditIMF gold transactions (inflow +)2

IMF transactions in SDRs (inflow +)IMF surplus (increase — )

Reserve positions in the FundOfficial foreign exchange holdings


Other official claimsOfficial sterling claims on United KingdomOfficial deutsche mark claims on the Federal Republic

of GermanyOfficial French franc claims on FranceOther official claims on other countries denominated

in the claimant's own currencyForeign exchange claims arising from swap credits

and related assistanceIdentified official holdings of Euro-dollars 5

Identified official holdings of other Euro-currenciesIdentified official claims on IBRD and IDAResidual 6

Total official foreign exchange holdingsEffect of valuation changes on stock of reserves 7

Total reserve change

-0.7

0.1-0.6

——

1.2-0.4

—-0.10.7

-0.83.7

-0.5

0.10.1

. . .4

1.21.6

4

o.i1.23.0

—3.2

0.1

0.10.2

——

—

0.3——-0.10.2

-1.51.80.6

0.1-0.1

. . .4

-0.11.1

.4

o.i0.10.3

-0.10.6

0.3

-2.2-1.9

3.4-0.3

3.1

-0.81.60.3

-0.11.0

7.84.40.4

0.80.2

4

-2.25.5

4

0.1-0.512.2

—14.4

-0.1

-1.0-1.1

3.0-0.2

2.8

-1.90.40.2—

-1.3

27.46.41.6

-0.40.2

0.1

-0.70.80.7

4.133.8-4.429.7

0.2

-0.5-0.3

3.0-0.1

2.8

-0.30.10.1——

10.011.00.5

0.10.3

-0.1

—7.52.0—0.7

21.0—

23.5

——— -

—0.10.1

-0.1—-0.1—

-0.2

4.69.80.2

-0.70.2

0.6

0.44.91.60.12.6

14.4-8.6

5.8

——

-0.1

—0.10.1

2.7

—-0.1—2.7

8.216.62.6

—-0.2

-0.3

1.312.50.20.10.4

24.8-0.826.7

Sources: International Financial Statistics and Fund staff information and estimates.1 Some minor differences between these data and those published in IPS are noted in Table 11, footnote 1. Table 15 provides

comparable stock data concerning official holdings of foreign exchange. Note, however, that in some years changes in outstandingstocks do not coincide with the estimated transactions values recorded here because of changes in the relationship between thecurrency of denomination and the SDR. Footnote 1 to Table 15 notes these cases.

2 Variations in IMF gold investments and gold deposits are excluded because they do not give rise to net creditor positions inthe Fund.

3 Covers only claims of countries, including those denominated in the claimant's own currency.4 The underlying stock data were not available prior to 1970; therefore, the value of transactions in these assets is included with

the residuals until 1971.5 See Table 15 for more details concerning these Fund staff estimates.6 Table 15, footnote 5, provides details.7 For explanation, see page 34 above, footnote 6, and Annual Report, 1972, page 25, footnote 2.

not infrequently also at the expense of incurring anunwarranted fall, or rise, in their reserves. On the otherhand, the survey of exchange rate developments andpolicies in the first part of this chapter has shown thatunder managed floating countries have often permittedfairly large short-term exchange rate movements to takeplace in response to balance of payments pressures thatmust be judged to have been temporary, since thechanges in rates over the longer term were relativelysmall. These considerations lead to the conclusion that,other things being equal, the use of reserves, and thevolume of reserves needed to support it, is smaller incircumstances of widespread managed floating thanunder the par value system.

This general observation may require qualification forcountries pegging their exchange rates to a single cur-rency. Any such country may under certain circum-stances experience larger payments imbalances, particu-larly on current account, if the currency on which it ispegging floats against the currencies of other tradingpartners of the country in question than if all relevantexchange rates were fixed. On the other hand, thevariability of the short-term capital balance of a countrypegging on a floating currency may be reduced by thelessening of speculative capital flows brought about bythe floating of that currency. Considerations similar tothose described above may perhaps also apply to smallerparticipants in mutual intervention arrangements.

38

1



Table 15. Official Holdings of Foreign Exchange, by Type of Claim, End of Years, 1968-74 l



Official sterling claims on United KingdomOfficial deutsche mark claims on Federal Republic of GermanyOfficial French franc claims on FranceOther official claims on countries denominated in the claim-

ant's own currencyOfficial foreign exchange claims arising from swap credits

and related assistanceIdentified official holdings of Euro-currencies

Euro-dollarsIndustrial countriesPrimary producing countries

More developed countriesLess developed countries

Western HemisphereMiddle EastAsiaAfrica

Memorandum item: Major oil exporting countriesTotal identified Euro-dollars

Other Euro-currenciesTotal identified holdings of Euro-currencies

Identified claims on IBRD and IDAResidual 5

Total official holdings of foreign exchange

1968

17.34.30.40.6

. . .3

3.0

2.3

0.51.10.30.10.30.40.43.8

3

V.80.42.2

32.0

1969

16.05.20.50.4

. . .3

2.8

2.2

0.62.10.60.40.60.60.84.9

3

4^90.62.0

32.2

1970

23.85.71.30.6

0.8

0.7

5.1

1.53.71.00.61.11.11.6

10.40.3

10.70.70.3

44.5

1971

46.67.31.00.8

0.9

—

3.4

1.65.31.51.11.01.62.8

10.31.0

11.30.65.4

73.9

1972

56.78.11.11.0

0.7

—

5.6

3.19.13.51.92.01.73.9

17.83.0

20.80.65.8

94.9

1973

55.46.50.61.2

1.3

0.4

7.3

3.210.24.02.32.71.34.1

20.84.7

25.50.69.2

100.7

1974

62.59.10.91.0

1.2

1.6*

6.4

2.923.55.2

12.73.02.6

16.232.75.3

38.00.79.8

124.7

Sources: International Financial Statistics and Fund staff information and estimates.1 Includes the estimated change in the level of holdings owing to the French franc devaluation in 1969, the general realignment

of currencies in 1971, the U. S. dollar devaluation in 1973, and the widespread floating of currencies in 1974.2 Covers only claims of countries, including those denominated in the claimant's own currency.3 These data were not available prior to 1970; therefore, they are included with the residual in these years.4 Comprises the double deposit arrangement for US$2 billion between the Deutsche Bundesbank and the Bank of Italy.5 Part of this residual occurs because some member countries do not classify all the foreign exchange claims that they report

to the Fund. It also includes asymmetries arising because data on U. S. and U. K. currency liabilities are more comprehensive thandata on official foreign exchange as shown in International Financial Statistics.

Another difference between the par value system anda floating exchange rate regime concerns the adaptationof the supply of foreign exchange reserves to thedemand for them. Under the par value system as it oper-ated in former years, the supply of foreign exchangereserves depended in large part on the deficits and sur-pluses of reserve currency countries at existing exchangerates, which in the short run were given and in the longrun depended on the balance of currency devaluationsand revaluations against the reserve currencies. Underpresent conditions, countries whose currencies are float-ing independently are in a position to generate some-what more easily the volume of currency reserves theyfeel they require by intervention on the exchange market,although their intervention policies are, of course,affected by considerations other than the desired levelof reserves. This mechanism is, however, also open to anumber of objections, for instance, that nationallydesired reserve levels are not necessarily desirable froma world standpoint and that intervention to alter thereserve level inevitably affects the effective exchangerates not only of the currency in question but also ofthe reserve currency in ways that may not always beappropriate.

However, it remains true that the presence of wide-spread floating of exchange rates in 1974 is likely tohave affected the adequacy of reserves both by reducingsomewhat the need for reserves compared to what itwould have been in the absence of floating and by pro-viding for a more flexible adaptation of the supply offoreign exchange to the demand for it.

Another development in international financial rela-tions, which is not new but has assumed greater impor-tance recently, operates both to reduce the need for, andto increase the supply of, owned reserves: namely, theimprovement of countries' access to international bor-rowing facilities. Many countries faced with balance ofpayments deficits were able to finance them, to theextent that they were not adjusted through exchangedepreciation, without significant loss of reserves by bor-rowing in private markets, or from, other govern-ments, or from intergovernmental institutions such asthe Fund. The particularly notable development lies inthe enhancement of both the ability and the willingnessof governments to borrow in private markets, especiallythe Euro-currency markets.

The combination of avoidance of payments imbal-ances through exchange rate variation and the financing

39


ANNUAL REPORT, 1975

of any remaining imbalances through compensatoryborrowing resulted in the relative constancy of reservelevels among major industrial countries during 1974, asnoted earlier in connection with the data in Table 12.This would seem to suggest that reserve needs mighthave been substantially reduced by the development ofborrowing facilities. This observation requires, however,two qualifications. First, all countries did not have equalaccess to these borrowing facilities and some experiencedproportionately large reductions in reserves in 1974;second, adequate reserves are often a prerequisite tointernational borrowing.

Although the nominal value of global reservesincreased by 18 per cent during 1974, real reserves (i.e.,reserves deflated by an appropriate price index)declined, as unit values of traded goods in terms of SDKsrose by 35-40 per cent. The value of world trade interms of SDKs increased by 46 per cent from 1973 to1974. For a sample of 60 countries for which data havebeen continuously available since 1954, the ratio ofaggregate reserves to aggregate imports, which had inter-rupted its decline of many years by rising from 0.29 in1970 to 0.38 in 1972, fell to 0.34 in 1973 and to 0.24 in1974, thereby reaching the lowest level ever recorded(Chart 11).

Global reserve ease in 1974 was further affected bythe fact that the net addition to reserves during 1974accrued almost entirely to major oil exporting countries,with a large part of the total increment accruing tocountries that already had ample reserves. For the greatmajority of countries, real reserves declined substan-tially; but against this, allowance has to be made forthe fact that reserve needs have also been reduced,compared with earlier years, by greater access of manycountries to international capital markets for compensa-tory borrowing, and by floating.

As mentioned above, gold has been valued at itsofficial price of SDR 35 per fine ounce in the statisticsused in this report, even though it is not possible toput any precise numerical value on the contributionthat members' gold holdings make to their ability tomeet payments deficits. Active consideration is beinggiven to amendments to the Articles of Agreement ofthe International Monetary Fund, and to arrangementsoutside of the Articles, with the objective of bringingabout a decline of the role of gold in the internationalmonetary system.

Chart 11. Ratio of Aggregate Reserves to AggregateImports of 60 Countries, 1954-74 '

(In per cent)

1 Reserves are annual averages of monthly data. The sampleof 60 countries includes the United States.

In the present situation of considerable uncertainty asto the future development of many of the factors affect-ing reserve adequacy, the contribution that the Fundcould most suitably make to its continued maintenanceprobably lies in the provision of conditional liquidity.Drawings from the General Account can be adjusted tothe need for balance of payments financing as it arisesand, in the process, they generate a reserve asset thatsurplus countries can hold as part of their ownedreserves. The steps that are being taken to make theFund's holdings of currencies generally usable will not onlycontribute to a wider participation by surplus countriesin holding these assets but will also enhance the liquidityof the Fund. The potential volume of conditional liquid-ity has already been substantially increased in 1974 and1975 through the Fund's oil facility and through theprovision of the extended Fund facility. In addition,successful conclusion of the general review of Fundquotas now in progress will add further to the Fund'scapacity to make liquidity available when and whereit is needed.

40


Chapter 3Activities of the Fund

Since the beginning of 1974 the activities of the Fundhave been sharply intensified, both in efforts to formu-late new international monetary arrangements and inthe development of new policies and facilities to meetthe current needs of its members in the rapidly changingworld economic situation. The intensity of this activityin the Fund has been reflected in the number ofExecutive Board meetings and other meetings partici-pated in by the Executive Directors, which during theperiod under review far exceeded the frequency andduration of such meetings in any other comparableperiod of the Fund's history. The use of the Fund'sresources, including those borrowed in connection withthe oil facility, rose to a record level of about SDR 6.6billion by the end of the fiscal year, with more membercountries simultaneously receiving financial assistancefrom the Fund, and in larger amounts, than ever before.

The Committee on Reform of the InternationalMonetary System and Related Issues was succeeded bytwo new Committees—the Interim Committee of theBoard of Governors on the International Monetary Sys-tem (known as the Interim Committee) and the JointMinisterial Committee of the Boards of Governors ofthe Bank and the Fund on the Transfer of RealResources to Developing Countries (known as the Devel-opment Committee). Major tasks devolving on theExecutive Directors from these Committees have in-cluded a continuation of work on international monetaryreform through the preparation of draft amendments tothe Fund's Articles of Agreement, arrangements toenlarge the resources of the Fund through the drawing upof detailed proposals for increases in members' quotas,and innovations and improvements in the policies gov-erning the use of the Fund's resources. These mattersare described in greater detail in succeeding sectionsof this chapter.

Committees of the Board of Governors

The Committee of Twenty ceased to exist on Octo-ber 2, 1974, on which date the Interim Committee was

established by the Governors of the Fund and theDevelopment Committee jointly by the Governors of theFund and Bank.1 Each Committee held its inauguralmeeting during the 1974 Annual Meeting of the Boardof Governors, its second meeting in Washington in Jan-uary 1975, and its third meeting in Paris in June 1975.Subsequent meetings of the Committees were scheduledto be held in Washington at the time of the 1975Annual Meetings of the Boards of Governors of the Fundand Bank and in Jamaica in January 1976. The presscommuniques issued by the Interim Committee and theDevelopment Committee after each of the first threemeetings are reproduced in Appendix III.

The Committee of Twenty

The Committee of Twenty presented its final Report,together with an Outline of Reform, on June 14, 1974.2

The Report, and the Outline accompanying it, indicatedthe general direction in which the international mone-tary system could evolve in the future and proposedimmediate steps and other measures on which memberscould collaborate. At the same time that the Commit-tee concluded its work, the Executive Directors adopteda number of decisions that were in accord with theimmediate steps recommended by the Committee, includ-ing decisions on the establishment of the Interim Com-mittee, guidelines for the management of floating rates,the valuation and interest rate for the SDR, the rate ofremuneration, the level of Fund charges, and the oilfacility for 1974, as well as a decision taken later thatmonth on the voluntary declaration on trade measuresfor balance of payments purposes. A summary of theCommittee's final Report, as well as summaries and the

1 See "Composite Resolution on the Work of the Ad HocCommittee on Reform of the International Monetary Systemand Related Issues and on a Program of Immediate Action,"Resolutions Nos. 29-7, 29-8, 29-9, and 29-10, adopted onOctober 2, 1974, in Selected Decisions of the InternationalMonetary Fund and Selected Documents (Seventh Issue, Wash-ington, 1975), pages 178-93.

2 See International Monetary Reform: Documents of theCommittee of Twenty (Washington, 1974).

41


ANNUAL REPORT, 1975

full texts of the relevant Executive Board decisions,were included in last year's Annual Report.3

The Interim CommitteeThe Interim Committee, which has an advisory role

pending the establishment by amendment to the Articlesof Agreement of a permanent Council with decision-making powers, is structured along the lines of theCommittee of Twenty. The members of the InterimCommittee are Governors of the Fund, Ministers, orothers of comparable rank, and each member of theFund that appoints an Executive Director and eachgroup of members of the Fund that elects an ExecutiveDirector is entitled to appoint one member and notmore than seven associates. Executive Directors, or intheir absence their Alternates, are entitled to attend themeetings of the Committee and the Fund's ManagingDirector is entitled to participate in the meetings.

The Committee, which is expected to meet three orfour times a year, is to advise and report to the Boardof Governors with respect to the Board's functions insupervising the management and adaptation of the inter-national monetary system, considering proposals by theExecutive Directors to amend the Articles of Agree-ment, and dealing with sudden disturbances that mightthreaten the system.

At its inaugural meeting on October 3, 1974, theCommittee discussed the problem of recycling and askedthe Executive Directors to consider in this context, as amatter of urgency, the adequacy of existing private andofficial financing arrangements, to report on the possibleneed for additional arrangements, including enlargedfinancing arrangements through the Fund, and to makeproposals for dealing with the problem.

At its second meeting on January 15-16, 1975, theInterim Committee considered reports prepared by theExecutive Directors on an oil facility for 1975, theSixth General Review of Quotas, and draft amendmentsto the Articles of Agreement, including the role of goldin the international monetary system. As reflected in itscommunique issued at the end of the meeting, the Com-mittee agreed that the oil facility should be continuedfor 1975 on an enlarged basis and endorsed the recom-mendation of the Managing Director for the establish-ment of a special account to be administered by theFund so as to reduce for the most seriously affectedmembers the burden of interest payable by them underthe oil facility. The Committee also agreed on anincrease in total Fund quotas, as well as on the distribu-tion of the increase among broad groups of members,and invited the Executive Directors to make specificrecommendations on increases in the quotas of indi-

Annual Report, 1974, pages 49-53 and 110-28.

vidual member countries. Executive Directors were alsoinvited to continue their work on amending the Articlesof Agreement of the Fund and submit for the Commit-tee's consideration draft amendments on a number ofmajor subjects.

The third meeting of the Committee, held in Parison June 10-11, 1975, considered reports prepared bythe Executive Directors on key issues on amendmentof the Articles of Agreement, including gold, exchangerates, and other provisions; buffer stocks and compen-satory financing; the oil facility for 1975, including pro-posals to establish an interest subsidy account; and theSixth General Review of Quotas. The Committee alsohad before it, among other documents, a note by theManaging Director on key issues in the world economicoutlook. In a communique issued on June 12, 1975, theCommittee agreed that external financing would remainfor some time a critical problem for a number of coun-tries and that its solution would require both maximumefforts on the part of such countries to enhance theircreditworthiness and cooperative efforts in capitalexporting countries to encourage the needed flows offinancial resources. The Committee noted the decisionof the Executive Directors to continue the oil facilityin 1975 and to review all aspects of the facility in July1975. It welcomed the progress that had been madetoward the establishment of a subsidy account to assistthe members of the Fund most seriously affected bycurrent conditions to meet the cost of using resourcesmade available to them through the oil facility, wel-comed the support pledged so far, and urged othermembers to take similar action so that the account couldbe established as soon as possible. The outcome of theCommittee's consideration of outstanding issues relatingto the amendment of the Articles of Agreement and theSixth General Review of Quotas are dealt with in sub-sequent sections of this chapter.

The Development CommitteeThe establishment of the Development Committee

was recommended by the Committee of Twenty tocarry forward the study of, and to recommend measureson, the broad question of the transfer of real resourcesto developing countries, giving urgent attention to theproblems of the least developed countries and those ofthe developing countries most seriously affected by bal-ance of payments difficulties in the current situation.The members of the Development Committee are Gov-ernors of the Bank, Governors of the Fund, Ministers,or others of comparable rank and are appointed for aterm of two years by members of the Bank and mem-bers of the Fund, alternately. Each member governmentof the Bank or the Fund, as the case may be, thatappoints an Executive Director and each group of mem-

42


ACTIVITIES OF THE FUND

her governments of the Bank and Fund, as the casemay be, that elects an Executive Director is entitled toappoint a member of the Committee and up to sevenassociates. The Executive Directors of the Fund and theBank, or in their absence their Alternates, as well asthe President of the World Bank and the ManagingDirector of the Fund, are entitled to participate in meet-ings of the Committee.

At its inaugural meeting on October 2, 1974, it wasagreed that the immediate focus of the Committee'swork would be on the analysis of the situation of themost seriously affected developing and the least devel-oped countries, and on measures to adjust to the newoutlook for international commodity prices. The secondmeeting of the Development Committee, held in Wash-ington on January 17, 1975, discussed the flow of realresources to the developing countries in the context ofthe current economic situation and reaffirmed that thesituation of the most seriously affected countriesrequired urgent treatment. The Committee agreed thatthe industrialized countries should seek to adopt suchadjustment measures considered necessary in theircircumstances in such a way as to avoid any reductionin the net flow of real resources to the developing coun-tries, seeking to improve the conditions under whichdeveloping countries and international developmentfinance institutions may have access to their capitalmarkets and to improve the real volume and the qualityof official development assistance provided to thedeveloping countries, and should avoid trade restric-tions that could negatively affect developing countries'exports. At this meeting the Executive Boards of theBank and the Fund were invited to study the desirabil-ity of creating a special trust fund that would provide,for the period immediately ahead, additional highly con-cessional resources to meet the requirements of thesecountries. The Committee also welcomed the study to beundertaken by the Executive Directors of the Fund onthe Fund's facilities for compensatory financing and as-sistance to international buffer stocks of primaryproducts.

At its third meeting held in Paris on June 12-13,1975, the Development Committee considered, interalia, the report of the Executive Directors of the WorldBank and the Fund on proposals to create a specialtrust fund, to be administered by the Fund, and urgedthe Executive Directors of the Fund to consider allaspects of the establishment of such a trust fund aswell as to continue their study of all possible sourcesof financing. The Committee also welcomed the requestof the Interim Committee to the Executive Directorsto consider appropriate modifications in the terms ofthe Fund's compensatory financing facility and itsbuffer stock facility.

Amendment of the Articles of Agreement

The Outline of Reform presented by the Committeeof Twenty set forth a number of subjects on which theExecutive Directors were asked to prepare draft amend-ments of the Articles of Agreement, for considerationby the Interim Committee and possible recommenda-tion to the Board of Governors. This request wasendorsed by the Board of Governors in its CompositeResolution on the Work of the Committee of Twentyand on a Program of Immediate Action.4 The amend-ments listed for particular consideration in the Outlinewere (a) to establish a permanent and representativeCouncil with decision-making powers; (b) to enablethe Fund to legalize the position of countries with float-ing rates during the interim period; (c) to give perma-nent force to the voluntary pledge described in theOutline 5 concerning trade and other current accountmeasures for balance of payments purposes; (d) toauthorize the Fund to establish, as and when agreed, aSubstitution Account; (e) to amend the present pro-visions concerning gold; (f) to authorize the Fund toimplement a link between development assistance andSDR allocation; and (g) to introduce improvements inthe General Account and in the characteristics of andthe rules governing the use of the SDR, as well as anyother consequential amendments.

Action on these matters was intended to promote anumber of general objectives. These included a betterworking of the adjustment process; a strengthening ofthe Fund, so as to increase its ability to deal effectivelywith the current problems of the international monetarysystem and, thereby, contribute to a future comprehen-sive reform; an improvement in the characteristics of theSDR, in order to give effect to the agreed objective thatit should become the principal reserve asset; an improve-ment in the functioning of the General Account in orderto facilitate its operations and transactions with mem-bers; and the promotion of an increasing net flow in thetransfer of real resources to developing countries.

Drafts of certain possible amendments were con-sidered by the Executive Directors toward the end of1974 and a report on the progress made was submittedfor the consideration of the Interim Committee at itsmeeting in January 1975.

At this meeting the Interim Committee agreed that theExecutive Directors should be asked to continue theirwork on amending the Articles and, as soon as possible,submit for consideration by the Committee draft amend-ments on the following subjects: (a) the transformation

4 Resolution No. 29-10, adopted October 2, 1974.5 See International Monetary Reform: Documents of the

Committee of Twenty (Washington, 1974), Outline of Reform,paragraph 36, page 20.

43


ANNUAL REPORT, 1975

of the Interim Committee into a permanent Council,with decision-making authority, in which each memberwould be able to cast the votes of the countries in hisconstituency separately; (b) improvements in the Gen-eral Account, which would include (i) elimination ofthe obligation of member countries to use gold to makesuch payments to the Fund as quota subscriptions andrepurchases and the determination of the media of pay-ment, which the Executive Directors would study, and(ii) arrangements to ensure that the Fund's holdings ofall currencies would be usable in its operations undersatisfactory safeguards of all members; (c) improve-ments in the characteristics of the SDR designed topromote the objective of making it the principal reserveasset of the international monetary system; and (d)provision for stable but adjustable par values and thefloating of currencies in particular situations, subject toappropriate rules and surveillance of the Fund, inaccordance with the Outline of Reform.

The Committee also discussed a possible amendmentthat would establish a link between allocations of SDRsand development finance, but noted that there con-tinued to be a diversity of views on the matter. It agreedto keep the subject under active study, but at the sametime to consider other ways for increasing the transferof real resources to developing countries.

It was also agreed that the Executive Directors shouldbe asked to consider possible improvements in theFund's facilities on compensatory financing of exportfluctuations and the stabilization of prices of primaryproducts and to study the possibility of an amendmentof the Articles of Agreement that would permit theFund to provide assistance directly to internationalbuffer stocks of primary products.

On the question of future arrangements for gold, theCommittee noted much progress in moving toward acomplete set of agreed amendments on gold, includingthe abolition of the official price and freedom fornational monetary authorities to enter into gold trans-actions between themselves under certain specificarrangements, outside the Articles of the Fund, in orderto ensure that the role of gold in the international mone-tary system would be gradually reduced. It was expectedthat after further study by the Executive Directors, inwhich the interests of all member countries would betaken into account, full agreement could be reached inthe near future so that it would be possible to combinethese amendments with the package of amendmentsreferred to above.

Following this second meeting of the Interim Com-mittee, the Executive Directors embarked on an inten-sive consideration of a comprehensive draft amend-ment of the Articles of Agreement, with the aim ofreporting to, and seeking further guidance from, the

Interim Committee at its third meeting to be held inParis in June 1975. In their report to the Committee,the Executive Directors were able to indicate that con-siderable progress had been made on numerous issuesbut that a number of other issues had been left forfurther consideration after guidance had been receivedfrom the Committee. One major group of outstandingissues related to the role of gold, another to exchangearrangements, a third to proposed improvements in thecharacteristics of the special drawing right, a fourth topossible improvements in the General Account, a fifth tothe establishment of a permanent Council, and a sixthto the majorities of voting power that would be requiredfor the adoption of decisions of the Fund on importantmatters.

The Committee's consideration of these issuesreached the following conclusions:Gold. There was widespread agreement that the role ofgold would have to be based on the following broadprinciples: (i) the enhancement of the role of the SDRas the central asset in the international monetary sys-tem, with a consequent reduction of the role of gold;(ii) the official price of gold should be abolished; (iii)obligations to use gold in payments between the Fundand members should be abrogated; (iv) there shouldbe the sale of a portion of the Fund's gold at theapproximate market price for the benefit of developingmembers in general, and particularly those with lowincome, and the sale of another portion to membersat the present official price; (v) with respect to the restof the Fund's gold, there should be a range of broadenabling powers, exercisable with a high majority; (vi)a reasonable formula should be found for understand-ings on transactions by monetary authorities with eachother and in the market, which would include under-standings that would be designed to avoid there-establishment of an official price and would deal withthe volume of gold held by monetary authorities; and(vii) an appropriate formula should be found for col-laboration with the Fund in connection with the under-standings among monetary authorities. Some countriesfelt that this collaboration should relate also to thereduction of the role of reserve currencies in the inter-national monetary system.

The Executive Directors will be studying the questionof gold further in order that a final agreement can bereached on the basis of these principles. At the invita-tion of the Committee, the Executive Directors will alsobe studying the establishment of a gold substitutionaccount through which members would be able toexchange a part or all of their gold holdings for SDRsissued by the Fund for this purpose.Exchange arrangements. The Committee also discussedthe exchange arrangements that members of the Fund

44



should observe. There was widespread agreement thatmembers should have a basic obligation to collaboratewith the Fund and with other members in order to pro-mote exchange stability, to maintain orderly exchangearrangements, and to pursue exchange policies that con-tribute to adjustments, and that the Fund should adoptpolicies in order to enable members to act consistentlywith their basic obligations whatever their exchangearrangements might be. The Committee reiterated itsagreement that provision should be made for stable butadjustable par values and the floating of currencies inparticular situations, subject to appropriate rules andsurveillance of the Fund, in accordance with the Outlineof Reform.Special Drawing Account. The Committee endorsed theprinciple of the improvement of the Special DrawingAccount and the General Account and agreed that theExecutive Directors should be asked to find agreedsolutions on the few remaining issues.General Account. The Committee attached particularimportance to the inclusion of effective provisions in theamended Articles under which the Fund's holdings ofthe currencies of all members would be usable, inaccordance with appropriate economic criteria, in itsstandard operations and transactions. It was agreed thatthe Executive Directors should study a power to investa part of the Fund's assets equal to its reserves for thepurpose of raising income that would enable it to meetany administrative or operational deficits, and to reporton this subject as soon as possible.

The Committee considered various proposals to assistmembers in dealing with problems arising from sharpfluctuations in the prices of primary products. In thisconnection, the Committee requested the ExecutiveDirectors to consider appropriate modifications of theFund's facilities on the compensatory financing ofexport fluctuations and on assistance to members inconnection with their contributions to internationalbuffer stocks. It was agreed that, after amendment, amember using the Fund's buffer stock facility would beable to retain any portion of its reserves held in theform of a reserve position in the Fund; this provisionnow applies to drawings under the Fund's compensatoryfinancing facility.The Council. It was agreed that a Council should comeinto being when a decision is taken by the Fund for thatpurpose under an appropriate amendment. The purposeof the Council would be to strengthen the Fund by pro-viding it with an organ composed in the same manneras the Committee of Twenty and the Interim Committeebut with authority not only to exercise advisory func-tions but also to take decisions under specific powers.The Committee shares the view of the Executive Direc-tors that, except for a few powers of a political or struc-

tural character that should be reserved to the Board ofGovernors, all powers of the Board of Governors shouldbe delegable in principle to the Council, to the Execu-tive Directors, or to both concurrently, by decisions ofthe Board of Governors.Voting majorities. On the question of the majorities forthe adoption of decisions of the Fund on important mat-ters, it was agreed that an 85 per cent majority shouldbe required under the amended Articles for those deci-sions that can be taken now by an 80 per cent majority.

The Committee noted with approval the draft of anamendment by which amendments to the Articles wouldbecome effective when accepted by three fifths of themembers having 85 per cent, instead of 80 per cent asat present, of the total voting power.

Sixth General Review of Quotas

As noted in last year's Annual Report, the Execu-tive Directors meeting as a Committee of the Wholeheld their first meeting on April 15, 1974 relating tothe Sixth General Review of Quotas. Since then, theExecutive Directors have met as a Committee of theWhole six times to consider various aspects of theadjustment of quotas. Furthermore, progress reportswere submitted to the Interim Committee prior to thatCommittee's second and also its third meeting. OnJanuary 31, 1975, the Executive Directors submitteda report to the Board of Governors entitled "Increasesin Quotas of Members—Sixth General Review" and aResolution for adoption by the Board of Governors. Inthe Resolution the Executive Directors were requested"to continue as promptly as possible their work onthis matter on the basis of the understandings reachedby the Interim Committee at its second meeting and tosubmit to the Board, after consideration by the InterimCommittee, proposals on increases in quotas of mem-bers and on the mode of payment of the subscriptionspayable in respect of these increases."6

At its second meeting held in Washington onJanuary 15-16, 1975, the Interim Committee reachedunderstandings on a number of the main issues arisingin connection with the Sixth General Review. Para-graph 5 of the communique issued at the conclusionof the second meeting of the Interim Committee readsas follows:

"5. The Committee considered questions relating tothe sixth general review of quotas of members, whichis now under way, and agreed, subject to satisfactoryamendment of the Articles, that the total of presentquotas should be increased by 32.5 per cent androunded up to SDR 39 billion. It was understood that

6 Board of Governors Resolution No. 30-1.

45


ANNUAL REPORT, 1975

the period for the next general review of quotas wouldbe reduced from five years to three years. The Com-mittee also agreed that the quotas of the major oilexporters should be substantially increased by doublingtheir share as a group in the enlarged Fund, and thatthe collective share of all other developing countriesshould not be allowed to fall below its present level.There was a consensus that because an importantpurpose of increases in quotas was strengthening theFund's liquidity, arrangements should be made underwhich all the Fund's holdings of currency would beusable in accordance with its policies. The Committeeinvited the Executive Directors to examine quotas onthe basis of the foregoing understandings, and to makespecific recommendations as promptly as possible onincreases in the quotas of individual member countries."

On the basis of these understandings the ExecutiveDirectors made considerable progress in agreeingincreases in individual quotas, which was reflected inthe Executive Directors' Report submitted to theInterim Committee for its third meeting. Paragraph 9of the communique issued at the conclusion of thatmeeting reads as follows:

"9. The Committee considered the report of theExecutive Directors on the progress made towardimplementation of the understandings reached in theCommittee last January with regard to increases in thequotas of members as a result of the sixth generalreview of quotas. The Committee noted with satisfac-tion that progress had been made in reaching agree-ment on quota increases to be proposed for individualcountries. The Committee agreed that for the quotaincreases proposed as a result of this review, andsubject to the amendment of the Articles, membersshould be given an option to pay 25 per cent of theincrease in quota (which in the past members havehad to pay in gold) in special drawing rights (SDRs),the currencies of certain other members, subject totheir concurrence, or in the paying member's own cur-rency. The question of payment in gold by agreementwith the Fund would be settled as part of the provisionson gold. The balance of the increase in subscriptionwould be paid, as in the past, in the paying member'sown currency. The Committee also recommended thatthere should be no obligation for a member to repur-chase the amount of its own currency paid in excess of75 per cent of the increase in its quota. The ExecutiveDirectors have been asked to prepare and submit aspromptly as possible to the Board of Governors, forconsideration at its annual meeting in September 1975,a resolution that will include proposed increases in thequotas of individual members and provisions on thepayment of corresponding subscriptions on the basisof the understandings reached by the Committee."

The Executive Directors are continuing their workon the Sixth General Review of Quotas so as to submita resolution for consideration by the Board of Gov-ernors at the Annual Meeting in September 1975.

Exchange Rates

As discussed earlier, the fluctuations in marketexchange rates led some countries to make changes intheir exchange rate systems. In January 1974 the Frenchauthorities informed the Fund that, as a temporarymeasure, they would no longer assure through officialintervention the maintenance of maximum agreedspreads between quotations of the French franc andother European currencies in the framework of theEuropean narrow margins arrangement. The Spanishauthorities also decided that the rate for the pesetawould not be maintained for the time being within pre-determined margins. In March 1974 France and Italyabolished the separate markets for financial transactionsand thus unified their exchange rate systems; the sep-arate channel for financial flows with its attendantadministrative complexities had become redundant inview of the exchange rate flexibility. In May the Fundconcurred in a new par value proposed by Israel,equivalent to the existing central rate, and in July theFund agreed to the initial par value proposed by Oman.

In September Australia notified the Fund that theAustralian dollar would be permitted to depreciate interms of the U. S. dollar by 12 per cent; exchangerates would in the future be set daily in such a wayas to keep stable the exchange value of the Australiandollar in terms of the currencies of its major tradingpartners. Similarly, New Zealand, which had been fol-lowing a policy of keeping unchanged the value of theNew Zealand dollar in terms of a basket of currencies,lowered the exchange rate for the U. S. dollar by some9 per cent, implying a depreciation of the New Zealanddollar in terms of the basket of its major trading part-ners by 6.2 per cent. At the end of October Yugoslavia,which followed a policy of independent managed float-ing without pegging the dinar to another currency orbasket of currencies, depreciated its currency on atrade-weighted effective exchange rate basis by 7 percent to alleviate a sharp deterioration of the country'sbalance of payments position. In November 1974 theFund concurred in a change in the par value proposedby Israel that devalued the Israel pound by 30 per centin terms of gold.

In view of the changes between rates for the U.S.dollar and a number of other major currencies, particu-larly those that occurred during the later months of1974, a number of countries decided to maintain thevalue of their currency in terms of a basket of cur-

46



rencies, including the special drawing right, rather thancontinue to peg on a single currency, such as the U. S.dollar. In January 1975 Burma communicated to theFund a new central rate for the kyat in terms of thespecial drawing right, representing a devaluation of thekyat of 25 per cent in terms of special drawing rights.Iran notified the Fund in February, and Saudi Arabiaand Qatar in March, of their decision to discontinuethe fixed relationship between their currency and theU. S. dollar; they would in the future determineexchange rates so as to maintain wider margins of 2V4per cent around the par value of their currencies inspecial drawing rights. With this change in the exchangerate system, the authorities of the latter three countriesintended partially to reverse inflationary pressures thathad arisen from exchange rate movements, and toensure greater stability of the value of their currency interms of the currencies of their major trading partners.For similar reasons, Kuwait (also in March 1975) andFiji (in April 1975) informed the Fund that theexchange rate for their currencies would in the futurebe determined on the basis of a weighted basket of thecurrencies of their major trading partners. Malawi,which since November 1973 had set the exchange ratefor its currency on the basis of movements of the U. S.dollar and the pound sterling in exchange markets, inJune 1975 adopted a fixed relationship to the specialdrawing right.

Other countries that adopted significant adjustmentsin their exchange rate system early in 1975 includedIceland and Argentina. Iceland informed the Fund inSeptember 1974 and in February 1975 that, in viewof the sharp deterioration of the balance of paymentsposition, the krona had been depreciated in terms ofthe U. S. dollar by 17 per cent and 20 per cent, respec-tively. Argentina notified the Fund in March of amodification of its multiple exchange rate regimeinvolving a depreciation of the Argentine peso in termsof the U. S. dollar in both the commercial and financialmarkets, and further adapted the exchange system anddepreciated the peso in both markets in June.

In mid-1975 the pattern of exchange rate arrange-ments was essentially the same as that prevailing a yearearlier.7 Most major industrial countries, includingCanada, France, Italy, Japan, the United Kingdom, andthe United States, were not maintaining exchange rateswithin any specified margins, while other industrializedcountries observed a maximum spread between theexchange quotations of their own currencies, eitherformally in the European narrow margins arrangement,

7 The structure of exchange rates prevailing in mid-1975 isset out in Appendix I, Table I.I. Changes in exchange arrange-ments are summarized in Appendix I.

or informally in that they let the rates for their cur-rencies move parallel to those in that arrangement.

A relatively large number of Fund members con-tinued to maintain stable exchange rates for their cur-rencies in terms of a single intervention currency,usually the U. S. dollar, the French franc, or the poundsterling. However, about 20 Fund members, includingdeveloped as well as developing countries, were main-taining the exchange rates for their currencies in termsof a basket of currencies that reflects their trade patternor in terms of the special drawing right.

Special Drawing Account

The valuation of the SDR by means of a basket ofcurrencies8 came into effect on July 1, 1974 and wasaccompanied by an increase in the rate of interest onSDRs from W2 per cent to 5 per cent. Thus, thesechanges in the financial characteristics of SDRs appliedfor the major part of the fiscal year 1974/75. However,the uses and receipts of SDRs that took place duringthe fiscal year provided little indication of the extentto which these changes influenced the pattern of SDRuse.

The total use of SDRs by participants during thefiscal year was SDR 826 million. Of this total,SDR 440 million was used in transactions in which theFund designated participants to provide foreignexchange to the users of SDRs; SDR 248 million wasused in transactions by agreement between participants;and the balance (SDR 138 million) was transferred invarious ways to the Fund's General Account, mainly inpayment of charges on the use of the Fund's resources(SDR 91.6 million). However, the General Accountalso transferred a total of SDR 127 million to partici-pants, of which SDR 117 million was acquired byparticipants needing to reconstitute their SDR holdings.The net effect of these transactions with the GeneralAccount was to increase its holdings to SDR 510 millionon April 30, 1975, compared with SDR 499 million onApril 30, 1974. As between groups of participants, theindustrial countries increased their holdings by someSDR 212 million, mainly as a result of net receipts ofSDRs by France, the United Kingdom, and the UnitedStates in transactions with designation. The holdingsof the more developed primary producing areas declinedby SDR 155 million and those of the less developedcountries by SDR 69 million.

There was no allocation of SDRs during the fiscalyear, and thus the total of SDRs in existence remainedat SDR 9,314.8 million. No proposal was made onfuture allocations of SDRs. The Managing Director

8 See Annual Report, 1974, pages 51-52 and 116-17.

47


ANNUAL REPORT, 1975

continues to be obliged to make a proposal when heis satisfied that it could be made consistently with theArticles.

Transactions with DesignationDuring the fiscal year there were 20 transactions with

designation, totaling SDR 440 million. (See Table 16.)This was the largest annual total for this category oftransaction for the five fiscal years since the first allo-cation of SDKs, and brought the overall total of SDRsused in this way up to April 30, 1975 to SDR 1,387million. This is about one third of total transfers ofSDRs by participants during this period.

A major part of the total of transactions with desig-nation during the fiscal year was concentrated in thethird calendar quarter of 1974, when 6 participantsused a total of SDR 316 million in 8 transactions. Theprincipal users of SDRs in transactions with designation

Table 16. Use and Receipt of SDRs in Transactionswith Designation, Fiscal Year Ended April 30, 1975

(In thousands of SDRs)

AlgeriaArgentinaAustraliaAustriaBrazil

ChileColombiaCosta RicaEcuadorFrance

IndonesiaIranIraqIrelandIsrael

ItalyJapanKenyaKoreaMalaysia

MauritiusMexicoNew ZealandNicaraguaNigeria

PhilippinesSpainSri LankaSyrian Arab RepublicTanzania

ThailandTunisiaTurkeyUnited KingdomUnited States

Use

——135,000

——

7,5003,0004,060

——

————25,000

150,000

—15,00024,000

—

5,000

—57,000———

—5,000—5,000

————

Receipt

1,00018,000

—1,0005,500

———1,000

102,833

11,0009,0003,0001,000

—

6,000——1,000

1,000

—5602,000

6,0005,000

—1,000—

1,0001,0005,500

96,000157,000

Venezuela —Yemen, People's Dem. Rep. of 4,833Yugoslavia —

Total 440,393

2,000

2,000440,393

were Australia (SDR 135 million), Italy (SDR 150million), New Zealand (SDR 57 million), and Israel(SDR 25 million).

During the previous fiscal year there had been fewtransactions with designation (for a total of onlySDR 60 million) and only 9 participants were desig-nated. Since the beginning of 1$74, however, there wasan expectation that the use of SDRs might increasesharply as a result of the growing number of partici-pants experiencing balance of payments difficulties. Asa result, the quarterly designation plans agreed byExecutive Directors were expanded to make provisionfor a greater volume of transactions, and the possibleamounts of designation were distributed among a broadlist of participants whose balance of payments andreserve positions were considered sufficiently strong forthem to be subject to designation. As a result, 24participants were actually designated. Nevertheless,since the principles of designation tend to lead to someconcentration of designation on participants that areconsidered sufficiently strong to be designated andwhose holdings of SDRs are below their allocations,the major amounts of SDRs used in transactions withdesignation were received by France (SDR 103million), the United Kingdom (SDR 96 million), andthe United States (SDR 157 million), each of whichhad made substantial net use of SDRs in previousyears.

Transactions by AgreementIn November 1973 the Executive Directors decided

to permit participants that engaged in those trans-actions by agreement in which the user of SDRspurchases balances of its own currency held by anotherparticipant to employ the par value or central rate ofthe currency involved as an alternative to the valuationmethod of Rule O-3. At that time, under Rule O-3,the rate for the U. S. dollar against the SDR was thepar value of the dollar, while the rates for other cur-rencies were determined by market rates for these cur-rencies against the dollar. This suspension of the "equalvalue" provision of the Articles of Agreement wasinitially for a period of 120 days, but was laterextended for an additional period of 240 days, so thatits final termination was on October 31, 1974. Afterthat date the valuation of currencies in all SDR trans-actions was again made in accordance with Rule O-3,as amended, thus reverting to the equal value principleset out in Article XXV, Section 8 ( a ) .

The total of transactions by agreement during thefiscal year was SDR 248 million; all these transactionswere in settlement of obligations that had arisen as aresult of intervention under the European narrowmargins arrangement. Of this total, SDR 231 million

48



was transferred between May 1 and October 31, 1974and the exchange rates used were par values or centralrates rather than the rates derived from Rule O-3,either in its original form or as amended to put intooperation the basket method of valuation.

Users and recipients of SDRs in transactions byagreement are shown in Table 17.

Table 17. Use and Receipt of SDRs in Transactionsby Agreement, Fiscal Year Ended April 30, 1975

(In millions of SDRs)

BelgiumDenmarkGermany, Fed. Rep. ofNetherlands

Total

Use

56.563.3

123.35.2

248.3

Receipt

43.24.6

109.890.7

248.3

Transactions and Operations BetweenParticipants and the General Account

Transfers of SDRs by participants making repur-chases during the fiscal year were only SDR 24 million.The main reason for this low total appeared to be that,in most cases, participants making repurchases in theGeneral Account also needed to reconstitute theirholdings of SDRs and a use of SDRs would haveincreased the need to obtain SDRs for reconstitution.Payments of SDRs in settlement of charges in theGeneral Account totaled SDR 92 million. This was thelargest amount of charges in the General Account inany year; this reflected partly the fact that the principalalternative means of settling these charges is gold(which was not used) and partly that the use of theFund's resources was rapidly expanding, thus increas-ing the amounts of charges to be paid.

The General Account transferred to participants atotal of SDR 127 million; this included SDR 117million transferred to participants needing to reconsti-tute their holdings of SDRs, SDR 6.4 million to par-ticipants that exercised their option to accept SDRs

rather than their own currency in settlement of remu-neration on their net creditor positions in the GeneralAccount, and SDR 1.0 million to Bangladesh, whichacquired this amount of SDRs in purchases in theGeneral Account in order to be in a position to payfuture charges on its use of the Fund's resources.

ReconstitutionThe rules for reconstitution require participants,

over successive five-year periods, to maintain theiraverage holdings of SDRs at not less than 30 per centof the average of their net cumulative allocations. TheFund makes monthly calculations to determine whetherand to what extent each participant has a need toobtain SDRs to meet this obligation. The necessaryamounts of SDRs may be obtained either from anotherparticipant with a balance of payments need to useSDRs, or from the Fund's General Account againstgold or currencies acceptable to the Fund, or as partof a purchase from the General Account in accordancewith the Fund's policy on the use of its resources. Inpractice, all SDRs obtained to promote reconstitutionsince the beginning of 1972 (SDR 428 million) havebeen acquired from the General Account. (SeeTable 18.) Several participants, although not subjectto designation under the procedures for reconstitution,have had their need to reconstitute eliminated as aconsequence of their receipt of SDRs in transactionswith designation, having been included in designationplans as a result of the strength of their balance ofpayments and reserve positions.

Two five-year "reconstitution periods" ended duringthe fiscal year, on December 31, 1974 and March 31,1975. No participant's average holding of SDRs wasbelow 30 per cent of its average allocation for theseperiods. Participants' average holdings for these periodsare shown in Appendix I, Table 1.6.

During the fiscal year there were 75 acquisitions ofSDRs from the General Account, involving 30 par-ticipants and totaling SDR 117 million, of which

Table 18. Acquisition of SDRs for Reconstitution from the Fund's General Account,January 1, 1972-April 30, 1975


1972Numberof Trans-

Amount actions

Against currencyacceptable toFund

In purchasesTotal

39.3

64.2103.5

27

835

1973

Amount

140.0

38.0178.0

Numberof Trans-actions

60

969

1974

Amount

92.1

27.8119.9


57

865

1975Jan. 1-Apr. 30

Numberof Trans-

Amount actions

22.2 28

4.2 126.4 29

Total

Amount

293.6

134.2427.8


172

26198

49


ANNUAL REPORT, 1975

SDR 95 million was acquired against currency andSDR 22 million as part of purchases in the GeneralAccount. Since charges are paid quarterly and normallyare settled in SDRs, which members may opt to useinstead of payment with gold, many participants neededto obtain SDRs for reconstitution on several occasionsin order to offset the extent to which their holdings werereduced by the payment of charges. All acquisitions ofSDRs were at the initiative of the participants con-cerned, although the amounts to be acquired by severalparticipants had reached the level at which the Fundwould have been obliged to have designated them toreceive SDRs if voluntary action had not been taken.

On April 30, 1975 there were 26 participants with aneed to reconstitute their SDR holdings and the neededamounts totaled SDR 146 million. For many of theseparticipants the amounts were very small in relation tothe participants' allocations and related to five-yearperiods that still had several years to run before theircompletion.

BIS as a Holder of SDRsThe Bank for International Settlements (BIS) was

prescribed as a holder of SDRs in January 1974.During the fiscal year there were no transactions inSDRs between the BIS and participants.

Transactions and Operations in theGeneral Account

The unprecedented changes in international pay-ments following the increase in the prices of petroleumand petroleum-based products were reflected in asharply increased use of the Fund's resources, particu-larly by the developing countries. Purchases amountedto SDR 5.1 billion in the fiscal year ended April 30,1975, substantially exceeding the previous record ofSDR 3 billion purchased in 1969/70 and contrastingsharply with purchases totaling SDR 1,058 millionin 1973/74. Purchases in the tranches and understand-by arrangements accounted for SDR 2,585 mil-lion of the total, and purchases under the compensatoryfinancing decision accounted for a further SDR 18 mil-lion. However, almost one half—SDR 2,499 million—of total purchases was made under the facility that wasestablished by the Fund in June 1974 for a period ofabout two years to assist members in financing part oftheir balance of payments deficit arising from theincrease in petroleum prices. The Fund also establisheda second new facility in 1974, the extended Fundfacility, under which the Fund will, in certain circum-stances, make financial assistance available to membersover a period of three years, with repurchases to be

made within eight years. There were no purchases underthis facility or under the buffer stock facility during thefiscal year.

Repurchases during the year totaled SDR 518million, the smallest amount for any fiscal year since1966/67, reflecting in part the relatively low level ofmembers' purchases since 1971 and the fact that mem-bers have generally scheduled their repurchases overa period of three to five years rather than completingthem within three years. In addition, the Fund soldcurrencies of members with debtor positions in theFund and this had the effect of substituting for repur-chases that might otherwise have taken place.

As a means of improving its liquidity position duringthe year, the Fund made greater use of its currencyholdings through an increase in the number of cur-rencies used in transactions, in particular, the curren-cies of some of the major oil exporting countries.

In June 1974 the Executive Directors decided thattransactions under the 1974 oil facility would befinanced by Fund borrowings from countries in strongexternal financial positions, and borrowing agreementswere made with nine lenders for a total of aboutSDR 3.05 billion. The Fund also renewed the GeneralArrangements to Borrow for five years from Octo-ber 24, 1975. Under these arrangements the Fund maysupplement its resources by borrowing from ten indus-trial members; the borrowing arrangements total theequivalent of about SDR 5.5 billion.

In April 1975 the Executive Directors adopted adecision establishing the oil facility for 1975 and, as in1974, decided that the Fund should borrow for thispurpose. At the January meeting of the Interim Com-mittee it was agreed that borrowing by the Fund shouldamount to the equivalent of SDR 5 billion and that thefunctioning of the facility should be kept under con-tinuing review.

As noted in last year's Annual Report, the ExecutiveDirectors adopted in June 1974 a number of decisionsrelating to the rates at which remuneration shall be paidand adopted new schedules of charges on holdings ofcurrencies by the Fund resulting from the special andregular facilities. These decisions were taken togetherwith those regarding the method of valuing the specialdrawing right for an interim period and the rate ofinterest on the special drawing right. Details of thechanges made in the schedule of charges and the ratesof remuneration and interest are given in later sectionsof this chapter.

Purchases in the Tranches and UnderStand-By Arrangements

During the fiscal year, 47 members made purchasesfor a total equivalent to SDR 2,585 million, which was

50



by far the largest use made of the Fund's regular facil-ities since 1969/70. Of this amount, SDR 981 millionwas purchased in the gold tranche, an increase ofSDR 374 million over the previous year, caused in partby the requirement that members use their gold tranchepositions prior to making use of the oil facility. In thisconnection, a total equivalent to SDR 411.5 million waspurchased by 26 members prior to their making pur-chases under the oil facility. In addition, the FederalRepublic of Germany and Denmark purchased theequivalent of SDR 123 million and SDR 85 million,respectively, in their gold tranches in connection withthe settlement of liabilities under the European narrowmargins arrangement; Italy made a gold tranche pur-chase amounting to SDR 268 million before purchasingunder its stand-by arrangement.

Total purchases under stand-by arrangementswere SDR 1,298 million, an increase of SDR 1,119 mil-lion over the previous year, accounted for mainly bypurchases by Italy totaling the equivalent of SDR 1,000million. Other purchases in the credit tranches amountedto SDR 306 million by six members, including a pur-chase of SDR 235 million by India.

Stand-by arrangements approved in 1974/75 totaledthe equivalent of SDR 390 million, compared withSDR 1.4 billion in the previous fiscal year (whichincluded the SDR 1 billion arrangement for Italy). Ofthe 14 stand-by arrangements approved in 1974/75,the largest arrangements were for Chile (SDR 79 mil-lion) and Pakistan (SDR 75 million), representing50 per cent and 32 per cent, respectively, of each mem-ber's quota.

RepurchasesDuring the past fiscal year repurchases totaled

SDR 518 million, the smallest amount repurchased since1966/67. The equivalent of SDR 90 million (17 percent of the total) was repurchased in accordance withschedules approved by the Fund providing for repur-chase within three to five years from the date of pur-chase. A further 13 per cent of the total, amounting toSDR 67 million, was voluntary repurchases, of whichSDR 60 million was repurchased by the Republic ofChina and SDR 7 million by Trinidad and Tobago, inrespect of gold tranche purchases.

Repurchases made under other provisions amountedto SDR 13 million, including SDR 6 million by 21members in respect of currency payments in excess of75 per cent of the increase in quotas in accordance withparagraph 5 of Board of Governors ResolutionNo. 25-3 on "Increases in Quotas of Members—FifthGeneral Review." 9 Slightly more than SDR 5 million ofrepurchases was in respect of purchases under the com-

pensatory financing facility and SDR 2 million relatedto a gold tranche purchase; these repurchases weremade within three years after the date of purchase.

As in the last few years, the bulk of repurchases madein the fiscal year were with respect to obligationsincurred under Article V, Section 7(ft) , of the FundAgreement.10 Repurchase obligations calculated for 15members as of April 30, 1974 amounted to the equiva-lent of SDR 607.7 million, payable in gold, SDRs, andconvertible currencies, as indicated in Appendix I,Table 1.12. The amount payable in the fiscal year, how-ever, was limited under the terms of the Articles ofAgreement to SDR 251 million. The balance of repur-chase obligations incurred in earlier fiscal years andpayable as of April 30, 1974 was the equivalent ofSDR 81 million. Total repurchases discharged inaccordance with Article V, Section 7(6), during theyear amounted to SDR 344 million n (66 per cent oftotal repurchases), of which SDR 9 million was paid inspecial drawing rights and SDR 335 million in con-vertible currencies. Of the amount payable in converti-ble currencies, the equivalent of SDR 165 million wascalculated in currencies that the Fund could not acceptor could accept only up to a limited amount. In accord-ance with Schedule B, paragraph l ( d ) of the Fund'sArticles of Agreement, and paragraph 1 of ExecutiveBoard Decision No. 3049-(70/44),12 other convertiblecurrencies were selected in substitution for these cur-rencies.

The Executive Directors agreed to the requests of 15members to schedule their repurchases for paymentsover periods of up to five years from the date of pur-chase. Members' requests for postponement were inmany instances prompted by the deterioration in theirbalance of payments and international reserves positionowing to increased costs of imports and to the fall intheir export proceeds brought about by a weakening oftheir major export prices.

During the year the Executive Directors permitted 5members—Chile, Ecuador, El Salvador, Jordan, and

9 See Annual Report, 1970, pages 177-84.

10 Article V, Section 7(6), provides that, subject to certainlimitations, a member shall repurchase an amount of theFund's holdings of its currency equivalent to one half of anyincrease in the Fund's holdings of its currency that has oc-curred during the Fund's financial year, plus one half of anyincrease, or minus one half of any decrease, in the member'smonetary reserves during the same period, or, if the Fund'sholdings of the member's currency have decreased, one halfof any increase in the member's monetary reserves minus onehalf of the decrease in the Fund's holdings of the member'scurrency.

11 Including amounts equivalent to SDR 1.5 million andSDR 12.2 million, discharged, in excess of 25 per cent of quota,by Nicaragua and the Philippines, respectively, and excludingamounts payable in gold equivalent to SDR 1.8 million.

^Decision adopted May 20, 1970 and reproduced inSelected Decisions of the International Monetary Fund andSelected Documents (Seventh Issue, Washington, 1975),pages 84-86.

51


ANNUAL REPORT, 1975

the Philippines—to postpone the discharge of portionsof repurchase obligations under Article V, Section 7(fc),of the Fund Agreement that were payable in gold, total-ing the equivalent of SDR 2.2 million.13 These deci-sions, together with decisions adopted by the ExecutiveBoard during 1973/74 permitting the postponement ofthe discharge of portions of repurchase obligations thatwere payable in gold, equivalent to SDR 13.2 million,14

were reviewed by the Executive Directors in October1974. The total amount involved in these postpone-ments was equivalent to SDR 15.4 million. The Execu-tive Directors decided that these decisions shall con-tinue to be in effect so as to allow for further discussionof the role of gold in Fund transactions, and more gen-erally on the role of gold in the international monetarysystem, in connection with work on the amendment ofthe Articles. These decisions are subject to furtherreview before October 31, 1975.

Purchases Under the CompensatoryFinancing Facility

In 1963 the Executive Directors adopted the decisionon Compensatory Financing of Export Fluctuationscreating a facility designed to extend the Fund's balanceof payments support to member countries suffering fromfluctuations in receipts from exports of primary productscaused by circumstances largely beyond their control.The facility permitted a member to make total use ofthe Fund's resources to an extent which increases theFund's holdings of its currency beyond 200 per cent ofquota.

In the years immediately following the introductionof the facility sharp increases in primary commodityprices occurred and only three members made use ofthe facility, with purchases totaling the equivalent ofSDR 87.25 million. (See Appendix I, Table 1.9.)

In 1966 the Executive Directors amended the originaldecision by increasing the limit on outstanding purchasefrom 25 to 50 per cent of quota and by giving greatersignificance to qualitative estimates in determining theamount that might be drawn. Furthermore, the Fund'stranche policies were to be applied on the basis of theFund's holdings of a member's currency, excluding theamount of outstanding compensatory financing pur-chases (i.e., holdings of currencies arising from such adrawing could "float" in the gold tranche). In addition,the Executive Directors recommended that membersrepurchase, after the end of each of the four years fol-lowing a purchase, an amount equal to about one halfof any excess of exports over the five-year trend valueof their exports.

Since the facility was amended in 1966, 31 countrieshave purchased a total of SDR 913 million under it,bringing total use of the facility to more than SDR 1billion. Purchases were made under the facility duringthe fiscal year ended April 30, 1975 by the Sudan,amounting to SDR 18 million, compared with totalpurchases of SDR 212 million, made by 8 countries,in the previous fiscal year. The comparatively low levelof purchases under the facility in 1974/75 can beattributed in the main to relatively firm export pricesfor many primary products during most of 1974 andalso to the reserve levels of many developing countries.Since its inception, only two members, Bangladesh andZambia, have made purchases under the facilityamounting to the equivalent of 50 per cent of quotain any 12-month period.

Buffer Stock Financing FacilityIn connection with the Fund's increased attention to

the subject of commodity stabilization and to the poli-cies of member countries in the commodity field, theExecutive Directors adopted a decision in June 1969establishing a facility to assist members in financingcontributions to international buffer stocks, providingthat members have a balance of payments need and thatthe relevant commodity agreement meets appropriatecriteria. Purchases for the purpose of financing bufferstocks in connection with international commodityagreements may be made up to amounts equivalent to50 per cent of quota, provided that purchases under thecompensatory financing facility and the buffer stockfacility taken together do not exceed 75 per cent of thequota. To the extent that purchases would raise Fundholdings of the member's currency above 200 per centof quota, the Fund is prepared to waive this limit onpurchases.

Similar to the compensatory financing facility, pur-chases under the buffer stock facility are separate from,and additional to, general access to the Fund's resourcesunder its ordinary tranche policies, except that a mem-ber purchasing under the facility while having goldtranche drawing rights at its disposal would pro tantolose such drawing rights. Repurchases are to be madewithin three to five ^ears after the date of the drawing,or earlier in the event of the buffer stock distributingcash to its members.

In November 1970 the Executive Directors decidedthat member countries could use the facility in connec-tion with the financing of contributions to the Interna-tional Tin Buffer Stock established under the FourthInternational Tin Agreement.15 The first purchases were

13 These members repurchased an equivalent amount of theFund's holdings of their currencies with SDRs.

14 See Annual Report, 1974, page 63.

15 Executive Board Decision No. 3179-(70/102), adoptedNovember 25, 1970. (See Annual Report, 1971, Appendix I.)A new Agreement regarding the International Tin Buffer Stockentered into force provisionally on July 1, 1971.

52



made under the facility in July 1971 and total pur-chases, which have all been made in connection withfinancing contributions under the Fourth InternationalTin Agreement, amount to SDR 25.4 million. No pur-chases were made under the facility in the fiscal yearended on April 30, 1975. In the following month, how-ever, Bolivia purchased the equivalent of SDR 4.7 mil-lion. Aggregate purchases for Bolivia have amounted to20 per cent of quota, but for the other four membersthat have drawn under the facility, the amounts havebeen less than 4 per cent of quota.

On April 23, 1973 the Directors decided that mem-bers could draw under the facility in connection withmembers' loans to the International Cocoa Council.However, the use of the Fund's resources by memberswas permitted if this was to be solely for the purpose ofthe buffer stock's acquisition of cocoa stocks, other thanstocks involved in diversion to nontraditional uses.16 Nouse has been made of the assistance available under thisdecision.

Oil Facility

As described in last year's Report, the Fund estab-lished in June 1974 a special facility to provide, for aperiod up through December 1975, financing to mem-bers facing balance of payments problems caused byincreases in the costs of petroleum and petroleum prod-ucts. Under the new facility, resources were to be madeavailable supplementary to any assistance that mem-bers might obtain under other policies on the use ofthe Fund's resources. The total amount of a member'spurchases, however, was not to be in excess of theincrease in the cost of the member's net imports ofpetroleum and petroleum products over similar costin 1972, minus an amount equivalent to 10 per cent ofthe member's reserves at the end of 1973, adjusted forvariability of exports, and subject to the limitation thatthe amount outstanding under the facility not exceed 75per cent of quota.

The Executive Directors reviewed the working of thefacility in September and again in December 1974. Asa result of the September review, certain modificationswere made to the formula used in calculating a mem-ber's oil payments deficit—the projected increase in oilexport prices was raised, and the base date for deter-mining the volume of oil imports was adjusted. At theDecember review, the Executive Directors decided thatmembers may draw up to the maximum amount of theircalculated access and, to give members sufficient timeto assess their balance of payments results for 1974, itwas also decided to extend to February 27, 1975 the

time limit by which members' statements of their inten-tions to purchase must be received in the Fund.

Charges on transactions effected under the oil facilityfor 1974 correspond to an annual rate of 67/s per centfor the first three years, 7 per cent for the fourth year,and lYs per cent from the beginning of the fifth throughthe seventh year. In addition, a member pays a servicecharge of l/2 of 1 per cent at the time of the drawing.As is noted in more detail below, the Fund financedtransactions under the oil facility by borrowing fromnine lenders a total amount equivalent to SDR 2.5billion.

Use of the oil facility for 1974 was made by 40members in 78 transactions for a total of SDR 2,583million. The largest amount purchased was SDR 675million in two transactions by Italy (representing 26per cent of the total). Purchases by 6 more developedprimary producing countries, including SDR 296.2million by Spain, accounted for 30.8 per cent andthe remainder represents drawings by 33 developingcountries (see Appendix I, Table 1.7). A total ofSDR 1,716 million was purchased in the last fourmonths of 1974 and the remainder in the first sixmonths of 1975.

Of their respective maximum access to the facility,one industrial country purchased 90 per cent, the 6other developed countries 100 per cent, and the 33developing countries using the facility 65.9 per cent.Total purchases amounted to 79.9 per cent of themaximum access of the purchasing countries. Of thedeveloping countries, 18 purchased their maximumaccess and 15 purchased up to their estimated balanceof payments need, with 5 countries purchasing 35 percent or less and 10 countries between 35 per cent and90 per cent of their maximum access.

Following the agreement of the Interim Committeein January 1975 to continue the oil facility for 1975and to keep the operation under constant review, theExecutive Directors adopted a decision 17 on April 4,1975 that the Fund will be prepared to make resourcesavailable to assist members to meet the impact on thebalance of payments in 1975 of the increases in costsof imports of petroleum and petroleum products thatoccurred in recent years. It was also decided to reviewthe decision in July 1975. Furthermore, in accordancewith the agreement of the Committee, the Fund de-cided to replenish its holdings of currency by borrowingamounts not in excess of SDR 5 billion for the oilfacility for 1975; this borrowing would be in additionto the amounts committed during 1974 and still unused.

The 1975 oil facility differs in a number of waysfrom the oil facility for 1974, particularly in that it was

1(> Executive Board Decision No. 3933-(73/42), adoptedApril 23, 1973. (See Annual Report, 1973, Appendix II.)

17 Executive Board Decision No. 4634-(75/47), adoptedApril 4, 1975 and reproduced in Appendix II.

53


ANNUAL REPORT, 1975

regarded as appropriate to give greater weight to amember's quota in calculating a member's access to thefacility and somewhat less weight to the increase in oilimport costs. As a consequence, maximum access tothe facility will not exceed 125 per cent of a member'squota in the Fund or 85 per cent of the calculated in-crease in its oil import cost, whichever of these twolimits is lower.18

Stricter conditionality applies to use of the oil facilityfor 1975 compared with that for 1974. Under the 1974facility a member was expected to consult with theFund on its balance of payments prospects and policies,including the effect on the balance of payments ofpolicies adopted in relation to the oil problem, whereasuse of the 1975 facility requires the purchasing mem-ber to describe its policies to achieve medium-termsolutions to its balance of payments problems and anassessment by the Fund of the adequacy of these poli-cies. Furthermore, the member must describe measuresit has taken or proposes to take to conserve oil or todevelop alternative sources of energy in the light ofits economic situation. These measures are, however,not subject to the Fund's assessment. Access to thefacility will, as in 1974, depend on the observance bya member of the understandings set forth in para-graph 2 of the Rome communique of the Committee ofTwenty, i.e., the member country will avoid the intro-duction or intensification of restrictions on internationaltransactions. A judgment is to be made when assessinga country's balance of payments need as to the extentto which some of the member's reserves could be usedto meet its balance of payments deficit.

The repurchase provisions and period for whichdrawings under the facility may be outstanding will bethe same as under the 1974 facility, namely, from threeto seven years. Charges on a member's outstandingdrawings under the 1975 oil facility will be 75/s percent per annum for the first three years, rising to 7%per cent from three to four years and to 77/s per centfrom four to seven years, i.e., about % of 1 per centhigher than under the facility for 1974.

Arrangements are being concluded with countries incomparatively strong external positions to makeresources available for the 1975 oil facility. The bor-rowings will carry an interest rate of 7.25 per cent perannum. In deciding on the continuation of the oilfacility in 1975, the Executive Directors also decidedthat the unused portion of the borrowing agreementsfor 1974, amounting to about SDR 450 million, shouldbe used prior to making calls under the borrowingagreements concluded for the oil facility for 1975.

Furthermore, as agreed by the Interim Committee, theExecutive Directors are discussing the establishment ofa subsidy account in order to reduce the burden ofinterest payable under the oil facility for 1975 by themost seriously affected member countries.

Extended Fund FacilityUnder the extended facility, which was established

in September 1974, the Fund will provide, in certaincircumstances, assistance to members to meet theirbalance of payments deficits for longer periods and inamounts larger in relation to quotas than has beenthe practice under normal credit tranche policies.19

For example, a member might apply for assistanceunder the facility if it has been suffering serious pay-ments imbalance relating to structural maladjustmentsin production, trade, and prices, and it is prepared toimplement a comprehensive set of corrective policiescovering a period of two or three years. Alternatively,an appropriate situation for use of the facility mightoccur when an economy suffers from slow growth andan inherently weak balance of payments position thatprevents pursuit of an active development policy. Thissituation is typical of many less developed countries,whose economies are characterized by dependence onone or two export commodities and that are inade-quately equipped to mobilize and efficiently allocatedomestic savings. Such countries need longer-termassistance to carry out an economic program including,inter alia, a strengthening of monetary and fiscal instru-ments and appropriate trade and exchange policies.

A request from a member for an extended arrange-ment under this decision will be met only if the Fundis satisfied that the solution of the member's balance ofpayments problem will require a longer period thanthat for which the resources of the Fund are availableunder existing tranche policies. In addition, the mem-ber must present a program setting forth the objectivesand policies for the whole period of the extendedarrangement, and a detailed statement of the policiesand measures for the first 12 months, with the under-standing that for each subsequent 12-month period themember will present to the Fund a detailed statementof the progress made, and of the policies and measuresthat will be followed, to further the realization of theobjectives of the program.

Extended arrangements under this decision will belimited to periods of not more than three years. Pur-chases outstanding under the decision will not exceed140 per cent of the member's quota, or be allowed toraise the Fund's holdings of the member's currency

18 Under the facility for 1974, access to the facility waslimited to 75 per cent of a member's quota and 100 per centof the calculated rise of a member's oil import cost.

19 Executive Board Decision No. 4377-(74/114), adoptedSeptember 13, 1974 and reproduced in Appendix II.

54



above 265 per cent of the member's quota (excludingholdings relating to compensatory financing, bufferstock financing, and the financing of the impact of theincreased cost of imports of petroleum and petroleumproducts). Purchases under the new facility would beseparate from, and in part additional to, general accessto the Fund's resources. The Fund will apply its tranchepolicies to requests by a member for purchases otherthan gold tranche purchases as if the Fund's holdingsof the member's currency did not include holdingsresulting from any purchases outstanding under theextended facility.

Amounts made available by the Fund under theextended facility will be repurchased by the memberas soon as its balance of payments problems have beenovercome and, in any event, within an outside rangeof four to eight years after each purchase, normallyin 16 equal quarterly installments. Members will paycharges on amounts purchased under the extendedfacility at an annual rate of 4 per cent for the first yearthat a purchase is outstanding, and this rate would riseby l/2 of 1 per cent per annum for each succeedingyear, up to a level of 6l/2 per cent per annum.

Use of Currencies in Fund TransactionsAs noted earlier, with a view to strengthening its

liquidity position the Fund increased the number ofcurrencies used in its transactions and also borrowedan amount equivalent to almost half the value of itstransactions during the year. In addition, in selling cur-rencies to members the Fund made extensive use ofits currency holdings in excess of 75 per cent of quota,thereby reducing the indebtedness of the members con-cerned as their external payments position improvedand also reducing the amount of repurchases thatmight otherwise have occurred.

A number of currencies held by the Fund were usedby it during the year either for the first time or aftera lapse of many years; these currencies were Argentinepesos, Bahrain dinars, Ecuadoran sucres, Indonesianrupiahs, Kuwaiti dinars, Malaysian dollars, Qatarriyals, rials Omani, Spanish pesetas, U. A. E. dirhams,and Venezuelan bolivares. In addition, the Fund alsodeemed a number of currencies having Article XIVstatus as convertible for the purpose of accepting themin repurchase. During the year two such currencieswere used in repurchase—namely, Spanish pesetas andVenezuelan bolivares.

Of the major currencies normally used in transac-tions, use of the Italian lira and the Spanish pesetawas discontinued following the weakening of thesemembers' balance of payments and subsequent draw-ings, while the Australian dollar was used only in re-purchases.

Sales of the U. S. dollar had the effect of dischargingin full outstanding gold tranche purchases by theUnited States and establishing a creditor position forthat member. Sales of pounds sterling and Argentinepesos had the effect of reducing the debtor positions ofthe United Kingdom and Argentina by SDR 113million and SDR 15 million, respectively. Sales ofthese three currencies financed 45 per cent of thosetransactions for which the Fund did not borrow. Othercurrencies extensively used during the year were deut-sche mark, French francs, Japanese yen, Netherlandsguilders, and Belgian francs, as can be seen fromAppendix I, Table 1.14.

Apart from the extension of the list of currenciesusable for both purchases and repurchases, there waslittle further modification of the Fund's policy on theuse of currencies. As reported last year, the amountsof currencies used in purchases was determined broadlyin proportion to members' gold and foreign exchangereserves, and the amounts used in repurchases werecalculated proportionately to members' creditor posi-tions in the Fund. Modifications to these practices wereintroduced to avoid running down the Fund's holdingsof currencies too quickly and also to avoid undue useof strong creditor currencies in repurchases. A numberof transactions, for example, those in connection withthe settlement of indebtedness arising under the Euro-pean narrow margins arrangement, were handled out-side the currency policy of the Fund.

Borrowing Agreements for the Oil FacilityAs already noted the Fund entered into a number

of borrowing agreements with individual lenders forthe purpose of financing transactions under the oilfacility. In August 1974 the Fund concluded borrow-ing agreements with seven oil exporting countries for atotal of about SDR 2.8 billion: Canada (SDR 258million),20 Iran (SDR 580 million), Kuwait (SDR 400million), Oman (SDR 20 million), Saudi Arabia(SDR 1,000 million), Abu Dhabi (SDR 100 million),and Venezuela (SDR 450 million). In November andDecember 1974 the Fund concluded borrowing agree-ments with the Netherlands and Nigeria, for amountsequivalent to SDR 150 million and SDR 100 million,respectively.

The standard terms and conditions of the borrowingagreements were published in the Annual Report,1974.21 Lenders agreed to make available up to Decem-ber 31, 1975 either their own currencies, which they

-° Canada agreed to lend to the Fund an amount up to theequivalent of Can$300 million, which in terms of SDRs onthe date of agreement was SDR 258 million.

21 Executive Board Decision No. 4242-(74/67), adoptedJune 13, 1974. (See Annual Report, 1974, Appendix II,pages 124-26.)

55


ANNUAL REPORT, 1975

would convert into U. S. dollars, or U. S. dollars; allloans to the Fund were to be expressed in terms ofSDKs. The borrowing agreements provide for interestto be paid quarterly by the Fund at an annual rate of7 per cent, and for repayment to be completed withinan outside period of three to seven years from thedate of borrowing with provision for early repaymentunder certain circumstances, including a representationof balance of payments need. Loans made by Canadaare to be repaid in one amount not later than fiveyears, or earlier in certain circumstances, from thedate of each transfer.

In connection with financing transactions under theoil facility for 1974, the Fund made calls under theagreements to an amount equivalent to SDR 2,583million. The balance remaining, namely, the equivalentof about SDR 450 million, was used first in financingtransactions under the oil facility for 1975.22

In connection with the oil facility for 1975, theFund concluded borrowing agreements with 12 lendersfor a total amount equivalent to SDR 2.9 billion.The lenders are Austrian National Bank (SDR 50million), National Bank of Belgium (SDR 100 mil-lion), Deutsche Bundesbank (SDR 300 million), Cen-tral Bank of Iran (SDR 410 million), Central Bank ofKuwait (SDR 200 million), Kingdom of the Nether-lands (SDR 200 million), Government of Nigeria(SDR 200 million), Bank of Norway (SDR 50 mil-lion), Saudi Arabian Monetary Agency (SDR 1,000million), Swiss National Bank (SDR 150 million),Central Bank of Trinidad and Tobago (SDR 10 mil-lion), and Central Bank of Venezuela (SDR 200million).

General Arrangements to BorrowOn October 23, 1974 the Executive Board decided

to renew the General Arrangements to Borrow 23 fora period of five years from October 24, 1975. Thenew arrangements became effective on January 8,1975, when the Fund had received notifications of theconcurrence of all participants in the General Arrange-ments to Borrow. These arrangements enable the Fundto supplement its resources by borrowing the currenciesof ten industrialized members; the amount of currenciesunder these arrangements totals the equivalent of aboutSDR 5.5 billion. The amount for each participant isshown in Appendix I, Table 1.16. Certain modifica-


23 The General Arrangements to Borrow entered into forceon October 24, 1962 for an initial period of four years, wererenewed for a four-year period from October 1966, and aperiod of five years from October 1970, which expires onOctober 23, 1975. The GAB were activated seven times withborrowings totaling the equivalent of SDR 2,115 million, allof which have been repaid since August 1971.

tions of the arrangements were also approved at thetime of the decision to renew them. The modificationsspecified that the Fund will pay interest at rates equalto those levied periodically on the currency holdingsresulting from purchases for which it borrowed, but inany event at a rate not less than 4 per cent per annum.They also provided for the inclusion of special drawingrights among the media that could be used by the Fundto repay its indebtedness or to pay charges and interestunder the General Arrangements to Borrow.

Charges and Remuneration and Paymentof Interest

In June 1974 the Executive Directors adopted deci-sions changing the rates of remuneration paid by theFund to creditor members and increasing the rate ofinterest on the SDR from \l/z per cent to 5 per centper annum. At the same time the Executive Directorsadopted a decision establishing a revised schedule ofcharges levied by the Fund on its currency holdings inexcess of members' quotas. This was the first revisionof the schedule of charges since May 1, 1963.

In accordance with Article V, Section 8(c), of theArticles of Agreement, the Fund levies charges uni-form for all members; the schedule of charges is appli-cable to any purchase that raises the Fund's holdingsof a member's currency above quota level, with theexception of purchases under the oil facility (whichare subject to different schedules of charges as notedon pages 53 and 54) and, to some extent, purchasesunder the extended Fund facility for which the rates ofcharges progress to 6l/2 per cent per annum.

The new schedule of charges, which became appli-cable from July 1, 1974, provided for two simplifica-tions of the previous schedule: first, the increments inthe charges take place on an annual rather than asemiannual basis, and, second, the charges are madeuniformly applicable to all holdings of a member's cur-rency in excess of quota rather than being related to thelevel of the Fund's holdings of that currency. Underthe previous schedule, no charge was levied for aperiod of three months, the minimum rate was 2 percent per annum, and it progressed by 0.5 per centsemiannually to 5 per cent per annum over a periodup to four and one-half years. The new schedule pro-vides for a minimum rate of 4 per cent per annum andfor yearly increases of 0.5 per cent progressing to 6per cent per annum on balances outstanding up to fiveyears. Moreover, under the previous schedule chargeson holdings in the range of 100-150 per cent of quotawere, beginning with the second year, lower than thosein the higher tranches. The new schedule disposes ofthis differentiation and applies uniformly to all holdingsof a member's currency in excess of quota. The appli-

56



cable schedules of charges under the various facilitiesof the Fund are shown in Appendix I, Tables 1.18-21.

In addition to the schedules of charges levied onbalances in excess of quota, the Fund also levies aservice charge of 0.5 per cent of the amount purchasedon all credit tranche purchases, and a stand-by chargeof 0.25 per cent, reimbursable to the member if itmakes a purchase under a stand-by arrangement.

As regards the rate of remuneration and the rate ofinterest on the SDR, the Executive Directors decidedto set, for the six-month period July 1-December 31,1974, the basic or higher rate of remuneration at 5 percent per annum and a rate of remuneration of 2.5 percent per annum that applies to net creditor positionsthat are between 75 and 50 per cent of a member'squota; the rate of interest on the SDR was to be thesame as the highest rate of remuneration. The rates ofremuneration are to be reviewed during each six-monthperiod beginning on July 1 and January 1 of eachyear. Unless decided otherwise, the higher rate of re-muneration is determined automatically by a formulabased on market interest rates. If, however, the Fund'stotal income exceeds total expenses during a six-monthreview period, the lower of the two rates of remunera-tion is to be adjusted upward in the subsequent six-month period.

The Executive Directors reviewed the rates of re-muneration in December 1974 and decided to make nochanges in them. On June 27, 1975, the ExecutiveDirectors decided that, in order to give themselvesmore time for an adequate review, the review of therate of remuneration that was to have been held notlater than July 1, 1975 should be held on or beforeJuly 14, 1975 and that, pending completion of thereview, the rate of interest under Rule I-10(b) shouldcontinue to be 5 per cent per annum. Subsequently,on July 7, 1975, the Executive Directors completedtheir review and decided that, effective July 8, 1975,the rate of remuneration should be 3.75 per cent ayear, in accordance with the formula adopted in June1974.24 In addition, the Executive Directors decidedthat the two rates of remuneration in effect since June1974 should be unified at 3.75 per cent. The rate ofinterest and charges on the special drawing right, whichunder the Fund's Articles of Agreement cannot bemore than the rate of remuneration when the latter ismore than 2 per cent, was also reduced to 3.75 percent, effective July 8, 1975.

Interest Payments on Oil Facility Borrowings

In accordance with the decision on borrowing in

connection with the oil facility for 1974,25 the Fundshall pay interest on the amount of currency borrowedon a quarterly basis at an annual rate of 7 per cent.Under the borrowing agreements the Fund shall con-sult the lender in order to agree on the means by whichthe payment of interest will be made.

In order to permit the Fund to offer members awider selection of assets for the payment of interest,the Executive Directors decided in November 197426

to offer members one or several currencies selectedfrom the currency budget, their own currency, and,wherever appropriate, SDRs. It was agreed that theFund, when consulting members regarding the meansof payment of interest, would indicate a preference forthe lender to choose to receive payment in its owncurrency first, then the currency selected from thecurrency budget, and then SDRs.

The interest payments for the quarters ended Octo-ber 31, 1974, January 31, 1975, and April 30, 1975amounted to the equivalents of SDR 4.7 million,SDR 25.8 million, and SDR 38.8 million, respectively,totaling the equivalent of SDR 69.2 million. Of thisamount, at the lenders' choice, SDR 36.1 million waspaid in U. S. dollars to six lenders, SDR 32.0 millionin their own currency to two lenders, and SDR 1.2million in special drawing rights to one lender.

The borrowing agreements for the oil facility for1975 27 provide for interest payments at the rate of 7.25per cent per annum, leaving the terms and means ofrepayment unchanged.

Income, Expenses, and Reserves

The increase in members' use of the Fund's re-sources, charges paid for purchases under the oil facil-ity, and the higher level of charges levied by the Fundsince July 1, 1974 brought about a significant increasein the Fund's total operational income in the fiscal yearended April 30, 1975. Total operational income ofSDR 166.5 million was the highest for any year, com-pared with SDR 38.5 million in 1974 and SDR 41.6million in 1973. After deducting interest paid to lendersto the Fund in connection with the oil facility and thepayment of remuneration at higher rates and on largernet creditor positions than in previous years, net oper-ational income was some SDR 34.9 million. Thisamount fell short of total administrative budget andfixed property expenses by about SDR 9.7 million,compared with a shortfall of SDR 37.2 million in theprevious fiscal year.

24 Executive Board Decision No. 4235-(72/67), adoptedJune 13, 1972. (See Annual Report, 1974, pages 118-19).

25 Executive Board Decision No. 4242-(74/67), adoptedJune 13, 1974. (See Annual Report, 1974, page 124.)

2« Executive Board Decision No. 4490-(747140), adoptedNovember 6, 1974 and reproduced in Appendix II.


57


ANNUAL REPORT, 1975

The equivalent of SDR 124.4 million was receivedfrom charges on balances in excess of quota, of whichsomewhat more than one half (SDR 68.0 million) wasin connection with purchases under the oil facility.However, about the same amount (SDR 69.2 million)was paid out to creditors in connection with loans madeto the Fund for financing transactions under the oilfacility. The difference in these amounts arises becausecharges on oil facility purchases in the first three yearsare levied at a rate of 6.875 per cent per annum whilethe interest cost on borrowed funds is fixed at 7 percent per annum. The balance of income received fromcharges (SDR 56.4 million) represented charges onregular credit tranche purchases and was double theamount of SDR 28.2 million received in the previousyear. The Fund's income from service charges (includ-ing those on purchases under the oil facility) andstand-by charges increased to SDR 21 million, thehighest amount received in any fiscal year; of this total,about SDR 12 million related to the payment of servicecharges on oil facility purchases and SDR 9 millionto purchases under stand-by arrangements. The amountof interest received by the Fund on its holdings ofSDRs was equivalent to SDR 21.1 million, which re-flected the higher interest rate on the special drawingright; the Fund's average holdings of about SDR 481million were slightly lower during the year comparedwith the previous year. Assessments to cover theexpenses of conducting the Special Drawing Accountamounted to SDR 1.2 million, about the same as inthe previous year.

Operational expenses totaled SDR 131.6 million,which was about five times as large as those in theprevious year. As mentioned above, SDR 69.2 millionrelated to paymen^ of interest on Fund borrowingin connection with the oil facility; the remainder,SDR 62.4 million, represents payment of remunerationon net creditor positions in accordance with Article V,Section 9, of the Fund Agreement. Payments for re-muneration were more than double those in the pre-vious year, again reflecting the larger volume of pur-chases under the Fund's regular tranche policies, aswell as the increases in the rates of remuneration, in-troduced on July 1, 1974.

Budgetary and fixed property expenses decreasedduring the year by about SDR 4 million, to SDR 44.6million, mainly because of a fall in fixed propertyexpenses.

The net expenditures of SDR 9.7 million werecharged against the Special Reserve, reducing theamount of that Reserve to SDR 342 million as atApril 30, 1975.

A summary of income and expenses over -the pastten fiscal years is shown in Appendix I, Table 1.17.

Transactions and Operations in Gold

During the fiscal year, the Fund received no goldfrom members but disbursed gold equivalent to SDR 0.3million. These operations were connected with pay-ment of remuneration to creditor members as specifiedin Article V, Section 9, of the Fund Agreement.28 OnApril 30, 1975 the Fund's gold with depositories wasequivalent to SDR 5,369.5 million, only fractionallychanged from last year.

Declaration on Trade Measures

On June 26, 1974 the Managing Director invitedFund members to consider subscribing to the Declara-tion on Trade Measures annexed to the communiqueissued by the Committee of Twenty at the close of itsfinal meeting on June 13, 1974, with which the Execu-tive Directors had associated themselves.29 As ofApril 30, 1975, 14 members, having 40.66 per cent ofthe total voting power of members, had replied affirma-tively; 6 members, having a voting power of 2.45 percent of the total, had replied that they did not wish tosubscribe to the Declaration. The Declaration shall be-come effective among subscribing members when mem-bers having 65 per cent of the total voting power ofmembers have accepted it, and shall expire two yearsfrom the date on which it becomes effective unless itis renewed.

Consultations with Member Countries

In 1974/75 the Fund completed 89 regular consul-tations with member countries, of which 53 were underArticle XIV and 36 with Article VIII countries. Mem-ber countries maintaining restrictions on current inter-national payments and transfers under Article XIVare required to consult annually with the Fund. Formembers that have accepted the obligations of Arti-cle VIII, Sections 2, 3, and 4, the consultations are heldregularly on a voluntary basis.

28 In accordance with Rule 1-9 of the Fund's Rules andRegulations, remuneration is payable "in gold to the extentthat receipts of gold, during the financial year, in payment ofcharges under Article V, Section 8(/), exceed payments duringthat year of gold as transfer charges and interest on borrow-ings." Rule 1-9 provides that "any remuneration due to eachmember and not payable in gold shall be paid in that mem-ber's currency." However, in accordance with Executive BoardDecision No. 3033-(70/38), the Fund shall offer to payparticipants, at their option, in special drawing rights for anyamount of gold or currency payable as remuneration, pro-vided that the General Account's holdings of SDRs at the endof the financial year exceed the amount of remuneration pay-able for that year.

29 Annual Report, 1974, pages 50, 53, and 126-28.

58



Consultations have continued to be an important partof the Fund's work, providing the opportunity for re-viewing the economic and financial situation and poli-cies of member countries in both a national and aninternational setting. Over the years, consultations haveplaced increasing emphasis on the implications of mem-bers' domestic economic and financial policies in thecontext of international monetary stability. They helpthe Fund to deal quickly with members' requests forthe use of Fund resources and proposals for changes inexchange rates and exchange practices. Also, for theindividual member country, the consultations providean independent appraisal of policy and enable themember to discuss with the Fund any special difficultiesarising from the actions or policies of other countries.Consultation procedures are reviewed annually by theExecutive Directors, and, as a result of the review in1974/75, will be increasingly geared toward discussionof members' policies in their multilateral setting.

In recent years the regular consultations have attimes been supplemented by special consultations, andtoward the end of 1973 the Fund initiated a new pro-cedure for special consultations with members whoseexternal policies were of major importance to the worldeconomy. Two rounds of special consultations wereheld in 1974/75: 12 member countries were involvedin November-December 1974, and 12 in April-May1975. In all, 16 member countries participated in thesespecial consultations.

During the fiscal year Oman accepted the obligationsof Article VIII, Sections 2, 3, and 4, bringing to 42 thenumber of member countries with Article VIII status.These members are listed in Appendix Table 1.22.

Training and Technical Assistance

Member countries have continued to receive train-ing and technical assistance from the Fund covering awide range of services, including fiscal, monetary, andbalance of payments policy, banking, governmentfinance, and statistics. During 1974/75, the Fund pro-vided this assistance to about two thirds of the member-ship. Altogether, 40 staff members were stationed forsix months or longer as Fund representatives or advi-sors in 26 countries; 289 government officials from 104countries attended the courses that were conducted bythe IMF Institute; 48 staff members furnished helpthrough technical assistance missions to 18 countriesand 3 regional organizations; and 112 outside expertswere assigned for six months or more to 58 countries.All these forms of assistance were in addition to thosethat were made available through the Fund's regularprocedures in the consultations under Article VIII andArticle XIV.

The IMF Institute continued to offer its trainingfacilities to officials of member governments and theirfinancial organizations, offering 11 courses to 289officials of member governments during the fiscal year.Since the inception of the Institute in May 1964, atotal of 1,453 officials from 122 countries haveattended the Institute's courses.

The main course offered by the Institute continues tobe that on Financial Analysis and Policy, conductedfor 20 weeks in English and 22 weeks each in Frenchand Spanish. This course has been progressively reori-ented through case studies to cover major economicand financial problems confronting most member coun-tries. An important objective of the course is toacquaint the participants with the policies and pro-cedures of the Fund, thereby furthering collaborationbetween the Fund and its member countries. The prin-cipal aims of the course are to examine the moderntools of economic analysis and their application topolicy problems; to survey the instruments of monetary,fiscal, and balance of payments policies; and to evalu-ate their effectiveness in achieving policy objectivesunder changing economic conditions. Special emphasisis placed on the problems of developing countries,drawing on the Fund's experience in helping to resolvesuch problems.

The Institute provides also two shorter courses,which are given in English, French, or Spanish, asrequired. One is an 8-week course on Balance of Pay-ments Methodology, held in close collaboration withthe Balance of Payments Division of the ResearchDepartment. This course concentrates on balance ofpayments concepts and definitions used in the Fundand is aimed at assisting member countries in improv-ing their balance of payments statistics. The other is a10-week course on Public Finance, organized in closecooperation with the Fiscal Affairs Department; itcovers the objectives, instruments, and procedures ofpublic finance, with special emphasis on the fiscalproblems of developing countries.

The Central Banking Service furnished technical as-sistance in the field to 46 member countries and onemultinational central bank during 1974/75. As hereto-fore, this assistance took two forms: advisory servicesto deal with special problems (usually provided bystaff members but sometimes also by outside consul-tants), and resident experts on long-term assignmentto serve in central banks or similar central monetaryinstitutions. Advisory services continued to includeassistance in the setting up or reform of financial sys-tems; reviews of the structure and application of mone-tary policy instruments; modernization of monetaryand financial legislation; advice on the organization ofappropriate supervisory arrangements for financial insti-

59


ANNUAL REPORT, 1975

tutions, improvements in foreign exchange operationsand controls, and other facets of institutional develop-ment. The marked changes that have recently occurredin the world economy and in the balance of paymentspositions of member countries have been reflected inan increase in the number and range of inquiries frommember countries (and some prospective members)regarding technical assistance in the central bankingfield, with special emphasis on the areas of foreignexchange, the functioning of financial markets, andimprovements in economic research and statistics.Apart from work in the field specifically related to orga-nizational and operational matters, the Central Bank-ing Service, working with the Legal Department andthe area departments concerned, continued to prepareor help revise banking legislation in a number of coun-tries; in four countries such legislation was enacted bythe legislative authorities during the year. During1974/75, the Central Banking Service sent technicalassistance missions to eight countries and to one multi-national central bank; in three cases consultants parti-cipated in these missions. Assignments of 85 outsideexperts and nine consultants were made to furnishtechnical assistance to 43 countries. At the end of thefiscal year, a total of 63 outside experts and consul-tants were on assignment from the Central BankingService in 37 countries.

The Fiscal Affairs Department has continued to pro-vide technical assistance in the main fields of tax policyand administration, budgetary systems and procedures,government accounting and auditing, and general finan-cial management. During the fiscal year, 25 countriesand 2 regional intergovernmental organizations receivedfiscal technical assistance through assignments in thefield of both staff members and members of the panelof fiscal experts and separate work at Fund headquar-ters; 4 of these countries requested advice on draftingfiscal legislation, which was furnished in cooperationwith the Legal Department. At the end of 1974/75,there were 17 members of the panel of fiscal expertson long-term assignments in 13 countries.

In the area of statistics the Bureau of Statisticscooperates with national technicians in establishing theconceptual framework for the assembly of data relevantto the analysis of monetary and payments problems andassists in classifying the bases of data for their publica-tion, usually in a central bank bulletin. The assistance,which has mainly taken the form of improving existingbulletins or establishing new ones, covers in particulardata on reserves, money and banking, interest rates,prices, production, external trade, government finance,balance of payments, and, where available, the nationalaccounts.

Other technical assistance provided by the Bureau

included two statistical seminars for officials and cen-tral bank technicians in Central Africa and one semi-nar in West Africa. In addition, the distribution tocountries of the Fund's Draft Manual on GovernmentFinance Statistics has been accompanied by seminarsand field work to discuss with national technicians theform in which government finance statistics should beassembled and, in collaboration with the Fiscal AffairsDepartment, to assist in the application of standardclassifications to the disaggregated national data.

During the past year, the Bureau's overall technicalassistance work covered 28 countries, including briefreview visits to assess the progress made in five coun-tries that had received assistance in previous years. TheBureau helped to inaugurate new central bank bulletinsin 4 countries in 1974/75, and preparations areunder way for establishing such bulletins in severalother countries.

A number of other departments in the Fund havealso provided member governments with technical serv-ices in their areas of special interest and competency.These have included the Exchange and Trade RelationsDepartment, chiefly with respect to the administrationof exchange systems; the Legal Department, in coop-eration with other departments and independently, inmatters of law and legislation; and the Treasurer'sDepartment in connection with use of the Fund's re-sources and foreign exchange markets.

Relations with Other InternationalOrganizations

During 1974/75 world-wide concern with economicand financial matters underlined the importance ofFund collaboration as a means of strengthening inter-national cooperation among other international andregional organizations with related responsibilities or in-terests and in bringing about greater harmonization ofpolicies with respect to common member countries.The Fund continued to maintain close relations withthe International Bank for Reconstruction and Develop-ment (IBRD), with which it has a special relationship,the United Nations (UN) and its relevant organs, theOrganization for Economic Cooperation and Develop-ment (OECD), the General Agreement on Tariffs andTrade (GATT), the Commission of the EuropeanCommunities (CEC), and the Bank for InternationalSettlements (BIS). Besides the focus on such contactsafforded by the Fund's Paris and Geneva Offices andits Special Representative to the United Nations, liai-son with those and other apposite agencies and theirrelevant committees and other subsidiary bodies wascarried out by exchange of pertinent data, by attend-ance of headquarters staff at meetings at both the

60



plenary and working levels, by participation in seminarsand expert groups, and by informal consultation ontechnical subjects. Representatives of many of thoseorganizations attended the Annual Meeting of theFund's Board of Governors, held jointly with those ofthe IBRD and its affiliates, in Washington in September-October 1974, and officers of the IBRD, the OECD,the GATT, the CEC, the BIS, and the United NationsConference on Trade and Development (UNCTAD)attended the final meetings of the Committee of Twentyand its Deputies and meetings of the newly establishedBoard of Governors Interim Committee. Most of thoseorganizations, as well as the United Nations and theAfrican, Asian, and Inter-American DevelopmentBanks, were also represented at meetings of the De-velopment Committee.

The Managing Director addressed the 57th Session,resumed, of the UN Economic and Social Council(ECOSOC) on the occasion of the presentation of theFund's Annual Report, as customary, and attendedmeetings of the OECD Ministerial Council and the BIS.He also attended meetings of Ministers of the Group ofTwenty-Four on International Monetary Affairs andministers and governors of central banks of the Groupof Ten, held coincidentally with those of the Committeeof Twenty and the Interim Committee, while staffmembers attended meetings at the Deputies' level. TheDeputy Managing Director took part in meetings ofthe UN Administrative Committee on Coordination(ACC), and other staff participated in preparatory andrelated interagency meetings.

At the request of the Secretary-General of theUnited Nations, Fund staff members were assigned toassist his Special Representative for the UN EmergencyOperation and to participate in the Inter-Agency Co-ordinating Committee for that Operation. In that con-nection, staff members also attended the intergovern-mental meeting on emergency assistance held under theauspices of the General Assembly as well as the firstsession of the Board of Governors of the newly orga-nized Special Fund.

Fund representatives also attended or participatedin relevant meetings of various UN organs and spe-cialized agencies, including those of the General As-sembly and its Preparatory Committee for the SpecialSession Devoted to Development and InternationalEconomic Cooperation; the ECOSOC, its regional com-missions for Africa (EGA), Asia and the Pacific(ESCAP), Europe (ECE), and Western Asia (ECWA),and pertinent committees; the UN Industrial Develop-ment Organization (UNIDO); the UNCTAD Trade andDevelopment Board and its relevant committees andexpert groups; the International Labour Organization

(ILO); and the Economic Consultative Committee ofthe International Chamber of Commerce, the UN, andthe GATT. The staff attended the Annual Meeting ofthe Organization of American States' (OAS) Inter-American Economic and Social Council and continuedto cooperate and provide economic reports to its Per-manent Executive Committee (formerly Committee onthe Alliance for Progress (CIAP)) in connection withits annual country reviews and other matters of mutualinterest. Liaison with regional development institu-tions—African, Arab, Asian, Caribbean, and Inter-American—involved attendance at meetings of theirBoards of Governors, exchange of information, andinformal staff contacts.

On the technical level, Fund staff took part in theEGA Seminar on External Transactions; the Seminarof the Association of African Central Banks; the ECEConference of European Statisticians; the ESCAPCommittee on Statistics meeting; a Seminar on Mobili-zation of Private Savings in the ESCAP Region, jointlyorganized by ESCAP and the Swedish InternationalDevelopment Authority (SIDA), as well as the Inter-national Savings Banks Institute, Geneva; the ECLASymposium on Energy and an extraordinary meeting ofits Committee of the Whole to consider measures ofinternational cooperation to aid Honduras' recoveryfrom hurricane and flood damage; meetings of theUNCTAD Group of Governmental Experts on Con-cepts of Present Aid and Flow Targets and of its Groupof Governmental Experts on Debt Problems of Devel-oping Countries, for which Fund studies on that subjectwere made available; the Bank of Central AfricanStates' (BEAC) Seminar on the monetary situation andcredit policies of countries in the area; a Seminar onthe Development of Capital Markets in Panama, orga-nized by Panama's National Securities Commissionand the OAS Capital Markets Program; and meetingsof the International Union of Credit and InvestmentInsurers (Berne Union) with reference to the Fund'sinterest in export credits, as well as those of theUNCTAD Group of Experts on Export Credits.

The arrangements for exchange of contacts and in-formation on matters of common interest with theCommission of the European Communities were ex-panded to include, inter alia, information concerningthe European Economic Community's (EEC) asso-ciated developing countries.

In continuance of long-standing procedures, Fundstaff participated in GATT consultations with commonmembers in connection with trade restrictions imposedfor balance of payments reasons and provided perti-nent documentation. Staff representatives also attendedthe annual session of the CONTRACTING PARTIES, meet-ings of the Council of Representatives, and followed

61


ANNUAL REPORT, 1975

closely multilateral trade negotiations taking place inGeneva.

As an adjunct to the Fund's consultations with mem-bers on economic and monetary problems, staff mem-bers participated in meetings and provided appropriatedocumentation for consultative aid groups held underthe auspices of the IBRD for East Africa (Tanzania),Laos, Peru, the Philippines, the IBRD-sponsored AidGroups for Bangladesh and for Sri Lanka, and meet-ings on the debt situation of Bangladesh; the consortiafor India and Pakistan; the joint IBRD and AsianDevelopment Bank meetings on aid for reconstructionand economic development in Indo-China; the periodicmeetings of the Inter-Governmental Group on Indo-nesia convened by the Netherlands Government; anda multilateral conference convened by the Governmentof the Khmer Republic to consider economic aid for1975.

The experience of the staff in providing technicalassistance to individual members was called upon byseveral intergovernmental organizations of which thosemembers are parties: the West African Economic Com-munity, regarding implementation of monetary andtrading provisions of the Treaty of establishment; theWest African Monetary Union, in connection with thereform of the monetary institutions of its members andtheir common central bank; the African DevelopmentBank, in assessing balance of payments problems ofAfrican countries resulting from the rise in the cost ofoil imports; ESCAP, culminating previous Fund assist-ance in the formation of the Asian Clearing Unionby attendance at the inaugural meeting of its Board ofGovernors, at which a congratulatory message fromthe Managing Director was presented; the Mano RiverUnion, composed of Liberia and Sierra Leone, con-cerning harmonization of investment incentives; and theCouncil of Arab Economic Unity, in drafting an agree-ment for a proposed Arab Monetary Fund. As in pre-vious years, the Fund sent Visiting Specialists to partic-ipate in the Tenth South-East Asia, New Zealand andAustralia (SEANZA) Central Banking Course held inBangkok under the auspices of the Bank of Thailand.Staff also attended the llth meeting of Central BankTechnicians of the American Continent.

In the commodities area, Fund representatives at-tended meetings of the International Coffee Council;the International Cocoa Council; the International Tin

Council, with which the Fund has a special relationshipstemming from its assistance in financing buffer stocksunder the Fourth International Tin Agreement; theIntergovernmental Council of Copper Exporting Coun-tries (CIPEC), including its meeting on buffer stockplans; the UNCTAD Committee on Commodities; andthe World Food Conference in Rome.

Membership, Quotas, and Participation in theSpecial Drawing Account

There were no changes in the membership, quotas,or in participation in the Special Drawing Account ofthe Fund during fiscal year 1975. The Board of Gov-ernors approved the application of Papua New Guineafor membership in the Fund after it has gained inde-pendence. Because of unexpected constitutional delaysin the attainment of independence until possibly sometime in September 1975, the Executive Directors, atthe request of Papua New Guinea, extended the periodduring which that country may accept membership un-der the Board of Governors resolution until January 2,1976. On June 16, 1975 the Board of Governors ap-proved terms and conditions for the admission ofGrenada to membership in the Fund.

The Sixth General Review of Quotas, which wasundertaken during the year under review, is discussedin an earlier section of this chapter. On April 30, 1975,there were 126 members of the Fund having aggregatequotas of SDR 29,189 million and 117 participants inthe Special Drawing Account having aggregate quotasof SDR 28,741 million, or 98.5 per cent of the Fundtotal.

Executive Directors and Staff

A list of Executive Directors and their voting poweron April 30, 1975 is given in Appendix IV. The

-changes in membership of the Executive Board during1974/75 are shown in Appendix V.

In the year ended April 30, 1975, there were 154appointments to the Fund's regular staff and 132 sepa-rations. At the end of the fiscal year, the staff num-bered 1,318 and was drawn from 88 countries. Thesefigures do not include Advisors and Assistants to Exec-utive Directors.

62


APPENDICES


Appendix IThe Fund in 1974/75

The tables in this appendix supplement the information given in Chapter 3 onthe activities of the Fund during the past year. For some aspects of the Fund'soperations, data covering longer periods are included. Apart from Table I.I onexchange rates and Tables 1.18-21 setting out the charges on the use of theFund's resources, the data in the tables do not go beyond April 30, 1975, the endof the Fund's fiscal year. The unit of value employed in most of the tables is thespecial drawing right (SDR), which is equivalent to 0.888671 gram of fine gold.

Exchange Rate Developments

The main exchange rate developments during the fiscal year ended April 30, 1975are summarized as follows:

May 1-June 30, 1974The Fund concurred in the new par value proposed by Israel and noted the

circumstances that led South Africa to cease pegging the rand to the U.S. dollarand to adopt an exchange rate policy of independent managed floating.

July 1-September 30, 1974The Fund agreed to the initial par value proposed by Oman and noted the

circumstances that led Australia to depreciate the Australian dollar in terms ofthe U.S. dollar, to discontinue the fixed exchange rate relationship between theAustralian dollar and the U.S. dollar, and to determine exchange rates daily tomaintain the effective value of the Australian dollar. On September 2, 1974the Icelandic authorities reopened the exchange market after trading had beensuspended for the period August 21-30, 1974 and depreciated the krona/U.S.dollar rate by 17 per cent.

October 1-December 31, 1974In early October the Romanian authorities announced an appreciation of about

20 per cent for the leu for noncommercial transactions with Fund member coun-tries. The Fund noted (i) the decision of New Zealand to effectively depreciate theNew Zealand dollar against a weighted basket of currencies of its main tradingpartners and (ii) the decision of Yugoslavia to depreciate the dinar in terms ofthe currencies of its major trading partners; concurred in the new par value pro-posed by Israel; and agreed to the proposed change in the Korean won/U.S.dollar rate.

January 1-March 31, 1975The Fund noted (i) the new central rate for the kyat in terms of SDRs as

communicated by the Burmese authorities; (ii) the decision of Iran to cease

65


APPENDIX I (continued}. THE FUND IN 1974/75

pegging the Iranian rial to the U.S. dollar and to maintain the par value of therial in terms of SDRs; (iii) the circumstances that led the Greek authorities todecide not to maintain, for the time being, the rates for the drachma within mar-gins in exchange transactions between the drachma and other currencies; (iv) thedecision of the authorities of Saudi Arabia and Qatar to maintain the par valuesof their currencies in terms of the special drawing right; and (v) the decision ofKuwait to maintain the value of its currency in terms of a weighted basket ofthe currencies of major trading partners rather than in terms of the U.S. dollar.

The Icelandic authorities depreciated the krona/U.S. dollar rate by a further20 per cent. The Argentine authorities informed the Fund of certain changes tothe exchange system, including the operation of dual markets for official andfinancial transactions.

April I-April 30, 1975The Fund noted the decision of Fiji to maintain the value of its currency in

terms of a weighted basket of the currencies of major trading partners rather thanin terms of the U.S. dollar.

The structure of exchange rates of member countries as it existed onJune 30, 1975 is shown in Table I.I.

Special Drawing Account

Summary data on SDR transactions between participants and SDR transactionsand operations conducted through the Fund's General Account for the period fromthe first allocation on January 1, 1970 to April 30, 1975 are shown in Table 1.2.Movements in the SDR holdings for individual participants during the fiscal yearended April 30, 1975 are summarized in Table 1.3. In addition, Table 1.4 showsthe currencies transferred against SDRs in transactions between participants, andTable 1.5 sets out the amounts of SDRs transferred to individual participants fromthe General Account. The operations and transactions in SDRs during the fiscalyear ended April 30, 1975 are discussed in Chapter 3.

Net transfers between participants and the General Account during the fiscalyear resulted in a slight increase in the General Account's holdings, fromSDR 499 million on April 30, 1974 to SDR 510 million on April 30, 1975.

General Account

Tables 1.6 to 1.14 show data on members' use of the Fund's resources, on theirrepurchases of balances of their currency held by the General Account, and onstand-by arrangements approved for members by the Fund.

Table 1.6 shows the average holdings of SDRs by participants as a percentageof their average net cumulative allocations over the five-year period endedDecember 31, 1974 and on March 31, 1975.

Details on members' purchases and repurchases under the Fund's compensatoryfinancing facility are set out in Table 1.9. Summary data on stand-by arrangementsand on members' purchases and repurchases, since the inception of the Fund,are shown in Table 1.10 and Table 1.11, respectively. The transactions and opera-tions of the General Account during the fiscal year ended April 30, 1975 arediscussed in Chapter 3.

On April 30, 1974, repurchase obligations pursuant to Article V, Section 7(fo),for 15 members totaled the equivalent of SDR 607.7 million. This amount is pay-able in gold, SDRs, and convertible currencies, as indicated in Table 1.12.

66


APPENDIX I (continued). THE FUND IN 1974/75

Gold

The Fund's transactions and operations in gold over the last three fiscal yearsare covered in Table 1.15.

General Arrangements to Borrow

The amount of credit made available under the General Arrangements toBorrow is shown in Table 1.16.

Income and Expenses

Table 1.17 shows a summary of income and expenses of the General Accountover the past ten fiscal years. Details are provided in Chapter 3.

The Fund's schedules of charges on balances in excess of quota and on trans-actions effected under the oil facility are shown in Tables 1.18-21.

Administrative Budget and Audit

The administrative budget approved by the Executive Directors for the periodMay 1, 1975 to April 30, 1976 is presented in Appendix VI. Comparative incomeand expense figures for the fiscal years ended April 30, 1973, 1974, and 1975appear in Appendix VII. Appendix VIII gives the Opinions of the Audit Com-mittee, together with the audited Balance Sheets of the General Account andSpecial Drawing Account as at April 30, 1975, the Statement of Income andExpenses, the Statement of Source and Use of Special Drawing Rights, and theaudited Balance Sheet of the Staff Retirement Fund as at April 30, 1975.

Article VIII

A list of the member countries that had accepted the obligations of Article VIII,Sections 2, 3, and 4, by April 30, 1975 is presented in Table 1.22.

Publications

Table 1.23 lists publications issued by the Fund during the past fiscal year.

67


Table I.I. Exchange Rates, June 30, 1975(Currency units per unit listed)

Member

Afghanistan 4

Algeria 4

Argentina 4

AustraliaAustria

^Bahamas 4

^BahrainBangladeshBarbados

*Belgium 4

*BoliviaBotswanaBrazil 4

*Burma*Burundi

CameroonCanadaCentral African RepublicChadChile 4

*China, Republic ofColombia 4

Congo, People's Republic of theCosta RicaCyprus

Dahomey* DenmarkDominican Republic 4

Ecuador 'Egypt 4

El SalvadorEquatorial Guinea4

* Ethiopia4

FijiFinland

FranceGabonGambia, The

^Germany, Federal Republic ofGhana 4

GreeceGuatemalaGuinea 4

Currency

afghanidinarpesodollarschilling

dollardinartakadollarfranc

pesorandcruzeirokyatfranc

francdollarfrancfrancescudo

new Taiwan dollarpesofranccolonpound

franckronepesosucrepound

colonpesetadollardollarmarkka

francfrancdalasideutsche markcedi

drachmaquetzalsyli

Member

Specialdrawing

right U. S. dollar

57.50

26.00

1.000.394737

20.000.7142868.045

7.7428978.75

5,000.00

38.0030.98

8.57

1.0025.000.391305

2.50

2.07237

1.15385

1.0020.4628

Maintains Exchange Rate Against 1

Pound Frenchsterling franc Other

5

5

5

30.004.80

50.005

50.0050.00

50.00

5

50.00

1.008

5

5

5

50.004.00

5

Othercurrencies Market Rates 2in group 3 U. S. dollar

3.865

0.75426216.635

48.6572 35.25

6.2433

1.0306

0.360036

7.57831 5.4750

0.7893913.551

4.04000

3.21979 2.3548

30.262


ONVO

GuyanaHaiti

HondurasIceland

*IndiaIndonesia

*Iran 4

*IraqIreland 4

"IsraelItalyIvory Coast

*JamaicaJapan

* Jordan*KenyaKhmer Republic 4

KoreaKuwaitLaos 4

LebanonLesotho

Liberia* Libyan Arab Republic* Luxembourg4

Malagasy RepublicMalawi

MalaysiaMaliMaltaMauritaniaMauritius 4

MexicoMorocco 4

*Nepal 4* NetherlandsNew Zealand

NicaraguaNigerNigeria

* Norway*Oman

^PakistanPanamaParaguay 4

Peru4

Philippines

Portugal* Qatar

Romania 4

*Rwanda*Saudi Arabia

dollargourde

lempirakronarupeerupiahrial

dinarpoundpoundlirafranc

dollaryendinarshillingriel

wondinarkippoundrand

dollardinarfrancfranckwacha

dollarfrancpoundouguiyarupee

pesodirhamrupeeguilderdollar

cordobafrancnairakronerial Omani

rupeebalboaguaranisolpeso

escudoriyalleufrancriyal

5.2114

82.2425

1.05407

4.76190

5.00

2.005

18.9677415.00

0.2960531.00

6.125

50.00

0.9090915

0.3214287.14286

5

485.005

750.005

0.714286

1.000.296053

50.00

5

100.0055

13.3333

12.505

10.56

5

7.0050.005

0.345395

9.901.00

126.0038.70

5

5

12.00792.84

48.6572

3.35507

6.87145

4.28255

154.30

66.641

630.425

296.35

1,675.00

0.28584

2.2265

35.25

0.847314

2.3063

0.37319041.37

3.86485

2.44000.771784

0.6077554.9450

7.0155

24.5443.8523

3.49


Table 1.1 (concluded). Exchange Rates, June 30,1975

(Currency units per unit listed)

Member

SenegalSierra LeoneSingapore

*Somalia 4

South Africa

SpainSri Lanka4

Sudan 4

Swaziland* Sweden

Syrian Arab RepublicTanzaniaThailandTogoTrinidad and Tobago

TunisiaTurkey 4

* Uganda* United Arab EmiratesUnited Kingdom 4

United StatesUpper VoltaUruguay 4

Venezuela 4

Viet-Nam 4

* Western SamoaYemen Arab Republic

* Yemen, People's DemocraticRepublic of 4

Yugoslavia 4

*Zaire*Zambia

Currency

francleonedollarshillingrand

pesetarupeepoundlilangenikrona

poundshillingbantfrancdollar

dinarlirashillingdirhampound

dollarfrancpesobolivarpiastre

talarial

dinardinarzairekwacha

Member Maintains Exchange Rate Against 1

Special Otherdrawing Pound French currencies Market Rates2

right U. S. dollar sterling franc Other in group 3 U. S. dollar

50.002.00

s 2.29926.232700.714286

s _ 56.09015.60

0.3482421.008

5.50094 3.9395

3.6757.14286

20.0050.00

4.80

s 0.38188114.007.142863.94737

5

50.002,330.00

4.285755.00

0.5961744.5625

0.345395s 17.00

0.500.642856

* The member is availing itself of wider margins of up to ± 2.25 per cent.1 Rates other than market rates as notified to the Fund.2 Latest market rates available.3 Belgium, Denmark, the Federal Republic of Germany, Luxembourg, the Nether-

lands, Norway, and Sweden maintain maximum margins of 2.25 per cent for exchangerates in transactions in the official markets between their currencies and those of theother countries in this group. Rates shown are central rates expressed in terms ofSDRs, as valued in accordance with Article XXI, Section 2, of the Fund Agreement.

4 Member maintains multiple currency practice and/or dual exchange market.5 The member has notified the Fund that its currency is not being maintained

within specified margins.6 Per Spanish peseta.7 Rate for noncommercial transactions.8 Per South African rand.

0.454959


APPENDIX 1 (continued). THE FUND IN 1974/75

Table 1.2. Transfers of Special Drawing Rights, January 1

(In millions of SDKs)

Jan.Apr.

Transfers between participantsTransactions with designationTransactions without designation

General AccountTransfers from participants

Repurchases (net)Charges (net)AssessmentsInterest received on General Account

holdings

Transfers to participantsPurchasesReplenishment of participants' currenciesReconstitutionRemunerationRestoration of participants' holdings lDistribution of net incomeOther 2

Total transfers

General Account holdings at end of period

1, 1970-30, 1970

15520

175

183291

213

—388

213

, 1970-April 30, 1975

Fiscal Years Ended

1971

348286633

357661

4429

123

18

91

1511,213

490

1972

267380647

501301

7540

21461529

8

1201,307

910

1973

117303420

68301

10108

292

1072

401929

617

April 30

1974

60996

1,056

2929

1

867

7

15720

1851,308

499

1975

440248688

2492

1

21138

4

1176

127953

510

Total

- Jan. 1, 1970Apr. 30, 1975

1,3862,2333,619

1,162276

6

511,495

303144428

6229171

9846,098

5101 Under Article XXV, Sections 2(6) (ii) and 7(e).2 Under Article XXVI, Section 5.

71


Table 1.3. Summary of Transactions and Operations in Special Drawing Rights, Fiscal Year Ended April 30,1975

(In thousands of SDKs)

Transactions and Operations

HoldersParticipants

AfghanistanAlgeriaArgentinaAustraliaAustria

BangladeshBarbadosBelgiumBoliviaBotswana

BrazilBurmaBurundiCameroonCanada

Central African RepublicChadChileColombiaCongo, People's Republic of the

Costa RicaCyprusDahomeyDenmarkDominican Republic

EcuadorEgyptEl SalvadorEquatorial GuineaFiji

FinlandFranceGabonGambia, TheGermany, Federal Republic of

GhanaGreeceGuatemalaGuineaGuyana

Between participants

ReceivedTVital

Holdings on ThroughMay 1, 1974 designation Other Used

4,06941,866 1,00071,463 18,000

234,836 135,00086,020 1,000

2,768604,187 43,390 56,507

2,9191,568

157,235 5,5009,5123,556

10,508468,859

9691,5913,841 7,500

24,528 3,0002,426

3,775 4,06010,4704,447

139,614 4,614 63,2686,654

5,482 1,00030,150

3,7281,8471,378

67,870100,478 102,833

4,6932,098

1,453,517 109,768 123,463

9,40427,13611,4773,4363,969

andtvjenerai JT

Received

1,224

51

982

951,032

242

3,18615,050

5,771

563558

2,5071,349

244931

240

358

:hevccount

Used

246

6,171

975

393

890123122

1862,4087,614

93

38281

110,516

451

18

3176

1,654

17074

Interest,Charges,

dllVJ

— Assess-ment (Net)

-362+ 85

-3,174-4,429

+ 420

+ 16,061-446

+ 361-502-135

-3+ 4,831

-155-97

-1,969-1,342

-91

-340+ 67-1

+ 410-334

-215-1,607

-354-39-1

+ 285-13,507

-5-12

+ 41,489

-908-870-19

-215-127

Positions at April 30.

Totalholdings

4,68542,95180,11895,45987,440

82,768

607,1312,0811,568

163,1909,1533,298

10,382473,932

6282,2721,809

20,1862,242

4,76410,4574,446

81,9336,878

6,26620,5344,2711,8081,359

68,400190,734

4,6572,011

1,481,310

8,73624,61311,4583,4093,768

cumulativeallocations

12,75340,290

152,520225,64576,745

2,769209,346

12,7531,569

152,52020,844

6,56710,513

358,620

4,3654,449

54,65454,4414,449

11,0168,8984,449

82,76414,535

11,22965,24411,6552,7121,378

61,470484,980

4,7912,331

542,400

30,12346,19411,8688,3046,780

, 1975

Holdingsas per cent

01 netcumulativeallocations

36.7106.652.542.3

113.9

99.9290.0

16.399.9

107.043.950.298.8

132.2

14.451.1

3.337.150.4

43.2117.599.999.047.3

55.831.536.666.798.6

111.339.397.286.3

273.1

29.053.396.541.055.6

Net

Between partipancs


HaitiHondurasIcelandIndiaIndonesia

IranIraqIrelandIsraelItaly

Ivory CoastJamaicaJapanJordanKenya

Khmer RepublicKoreaLaosLesothoLiberia

LuxembourgMalagasy RepublicMalawiMalaysiaMali

MaltaMauritaniaMauritiusMexicoMorocco

NepalNetherlandsNew ZealandNicaraguaNiger

NigeriaNorwayOmanPakistanPanama

ParaguayPeruPhilippinesRomaniaRwanda

SenegalSierra LeoneSomaliaSouth AfricaSpain

1,4795,3556,327

243,69744,683

36,53020,04139,42327,663

343,216

15,3106,141

425,8137,528

17,117

32026,161

1,247646

3,179

7,341217

4,59060,6312,159

5,0872,0927,309

127,88415,840

2,214400,32357,950

5,5534,414

45,50588,153

74224,916

2,411

6,56537,21724,4836,0002,362

5,2364,4594,453

465128,824

11,000

9,0003,0001,000

6,000

1,000

1,000

90,702

560

2,000

6,000

5,000

1,255

15725,000 81150,000 766

15,000 4,252

1,00024,000 2,097

34

1,000

988

1

5,000 47480

5,235 3,10157,000 6,001

9174

854,427

97

213

39,09875

152365287

8,751563

90130,969

3171,067

132796

3312,162

100

193

104

125

1,77660211

8,220241

3,573884

72811446

1,481

-187-145-52

-3,835-1,649

-875-53+ 31

-1,399-3,859

+ 40-539

+ 2,269-9

-396

-351-327-142-44

-282

-1-379-23+ 13-214

-1-107-210+ 172

-1,036

+ 9,465-2,751-146-2

+ 52+ 516

-2,683-422

-1-149

-1,119+ 243-182

-288-152-95

-3,167+ 246

2,3944,8455,988

231,11153,471

44,65522,98840,611444

159,153

15,0334,535

434,0827,3875,177

6371,7681,105536

2,897

7,340645

4,56761,6442,830

5,0871,8602,574

129,13514,804

2,214498,3552,4245,3664,400

47,64888,743

74214,0986,175

6,56537,06825,8885,3592,393

4,2204,1934,31236,396132,664

6,5678,5177,419

326,22090,156

61,89623,21739,21342,810318,000

14,26817,673377,4007,58715,600

8,51722,2304,4491,5699,537

7,3458,7305,08560,6187,542

5,0884,4497,374

124,17039,189

2,215236,46069,4028,9434,449

45,55576,320

74281,63912,372

6,56740,47951,495

6,567

11,4427,8456,56788,920126,135

36.556.980.770.859.3

72.199.0103.61.0

50.0

105.425.7115.097.433.2

7.58.024.834.230.4

99.97.489.8101.737.5

100.041.834.9104.037.8

99.9210.83.560.098.9

104.6116.3100.017.349.9

100.091.650.3

36.4

36.953.465.740.9105.2


Table 1.3 (concluded). Summary of Transactions and Operations in Special Drawing Rights, Fiscal Year Ended


Transactions and Operations


JT -1 J

Participants

Sri LankaSudanSwazilandSwedenSyrian Arab Republic

TanzaniaThailandTogoTrinidad and TobagoTunisia

TurkeyUgandaUnited KingdomUnited StatesUpper Volta

UruguayVenezuelaViet-NamWestern SamoaYemen Arab Republic

Yemen, People's DemocnYugoslaviaZaireZambia

Total Participants

General Account

Total

Total

May 1, 1974

13,18217,178

959107,028

7,912

6,48528,532

5,0826,9257,509

29,1854,322

594,1801,787,824

4,428

6,819118,25319,748

2122,129

itic Republic of 7,76339,3856,387

12,764

8,815,804

499,031

9,314,835

Received

designation Other

1,000

1,000

1,000

5,500

96,000157,000

2,000

2,000

440,393 248,473

440,393 248,473

andGeneral ,

Used Received

5,000 8,5495,479

192

186

5,000 433

1,086

1,011

9,787

4,833 1,114

688,866 127,671

116,037

688,866 243,707

theAccount

Used

3,2742,113

86

945

740

566564

3,839

1832,706

3,353

116,037

127,671

243,707

Interest,Charges,

andA oof»of

ment (Net)

-907-175-77-14

-387

-553+ 16-1

-583-289

-774-405

-15,385- 17,440

-1

-570+ 309

— 3

-275-1,286-1,453

-593

-22,324

+ 22,324

—

April 30, 1975

Positions at April 30.

Tntnlholdings

12,55020,368

988107,014

7,766

62429,548

5,0827,4288,220

33,3464,364

674,7951,927,384

4,427

12,197120,56119,745

2122,129

3,58537,3934,9348,818

8,805,114

509,721

9,314,835

pnmnlntivf*allocations

33,97824,912

2,712107,025

17,034

14,32228,542

5,08520,81114,713

50,30713,896

1,006,3202,293,980

4,449

23,937112,290

19,758212

2,130

9,87362,29139,18924,588

,1975

Holdingsas per cent

r«mniilo ti \rt*

allocations

36.981.836.4

100.045.6

4.4103.599.935.755.9

66.331.467.184.099.5

51.0107.499.9

100.099.9

36.354.012.635.9


JT -1 J ThroughtNet Of net



Table 1.4. Currencies Transferred


Transactions with designationBelgian francs

Provided directly to participants

Deutsche markConverted to U. S. dollars

French francsProvided directly to participantsConverted to pounds sterlingConverted to U. S. dollars

Italian lireProvided directly to participants

Mexican pesosConverted to U. S. dollars

Pounds sterlingProvided directly to participantsConverted to French francsConverted to U. S. dollars

U. S. dollarsProvided directly to participantsConverted to French francsConverted to pounds sterling

Total

Transactions without designationBelgian francsDanish kronerDeutsche markFrench francsNetherlands guildersPounds sterlingU. S. dollars

Total

for Special Drawing Rights, January 1, 1970-April 30, 1975

Jan. 1, 1970- -Apr. 30, 1970

1.0

—

—

—

—

—

—

—

148.95.1

154.0

155.0

20.0

20.0

Fiscal Years Ended April 30

1971

—

3.58.0

14.0

25.5

4.0

—

27.46.7

45.8

79.9

227.13.67.5

238.2

347.6

285.5

285.5

1972

—

22.3

21.0

43.3

—

—

56.31.3

53.4

111.0

112.5

112.5

266.8

25.0355.0

380.0

1973

—

—

—

—

—

59.9

5.4

65.3

51.2

51.2

116.6

11.7291.8

303.5

1974

3.0

—

—

—

—

3.0

3.0

54.1

54.1

60.1

37.05.0

100.5588.5264.9

995.9

1975

2.0

104.0

104.0

—

1.0

1.0

1.0

321.1

11.5

332.6

439.6

56.563.3

123.5

5.2

248.5

Total

Jan. 1, 1970-Apr. 30, 1975

1.0

5.0

25.88.0

139.0

172.8

4.0

1.0

143.68.0

108.6

260.2

914.98.7

19.0

942.6

1,385.6

93.568.3

224.0588.5281.8336.8640.5

2,233.4

75



Table 1.5. Transfer of Special Drawing Rights by the General Account, FiscalYear Ended April 30, 1975


AfghanistanAustraliaBangladeshBrazilBurma

CanadaChadChileCosta RicaDenmark

Dominican RepublicEgyptEl SalvadorFinlandFrance

GhanaGuineaHaitiIrelandItaly

KenyaKhmer RepublicKoreaLesothoMalagasy Republic

MaliMaltaMauritiusMexicoNetherlands

New ZealandNorwayPanamaRwandaSouth Africa

SpainSri LankaSudanSwazilandSyrian Arab Republic

TanzaniaTrinidad and TobagoUgandaUruguayYemen, People's Democratic

Republic of

Total

Reconstitution

1,224———1,032

38615,0005,771

—

5582,5071,349

——

240358

1,255

—

4,2481,0002,065

341,000

988

474

—

6,000—4,427

21339,090

8,5465,479

192186

4331,0861,0119,787

1,114

117,053

Payment ofRemuneration

51—95—

242

—563

—

—244931

_

—157766

4————

1

803,101

174

——8

75————

——

—

—

6,393 i

Purchase

—974

——

2,800

——

—————

__

————

——

——

—

——

———

—

————

———

—

3,7741 Includes amounts of less than SDR 500 each paid to an additional 15 participants.

76



Table 1.6. Reconstitution: Average Daily Holdings of Special Drawing Rights as a Per Cent of Average NetCumulative Allocations

Participants Dec.

AfghanistanAlgeriaArgentinaAustraliaAustria

BarbadosBelgiumBoliviaBotswanaBrazil

BurmaBurundiCameroonCanadaCentral African Republic

ChadChileColombiaCongo, People's Rep. of theCosta Rica

CyprusDahomeyDenmarkDominican RepublicEcuador

EgyptEl SalvadorEquatorial GuineaFijiFinland

FranceGabonGambia, TheGermany, Fed. Rep. ofGhana

GreeceGuatemalaGuineaGuyanaHaiti

HondurasIcelandIndiaIndonesiaIran

IraqIrelandIsraelItalyIvory Coast

JamaicaJapanJordanKenyaKhmer Republic

KoreaLaos

Five-Year

, 31, 1974

35.2104.747.298.4

114.0

100.0248.6

36.6100.0103.5

30.658.5

100.0131.835.7

30.341.836.758.630.9

117.0100.0100.730.053.1

30.036.882.199.9

109.8

90.799.095.1

168.436.8

44.689.830.956.837.2

64.278.173.533.944.8

96.1101.352.3

102.2107.2

67.3112.499.4

101.037.6

116.832.7

Period Ended

Mar. 31, 1975

33.8104.846.595.1

114.0

100.0253.2

34.3100.0103.7

30.057.399.9

132.333.3

30.139.436.157.330.3

117.4100.0101.331.652.4

31.135.180.999.9

110.0

87.698.994.5

175.535.1

45.690.030.056.136.4

63.378.072.935.245.3

96.3101.450.199.3

107.2

64.4112.699.397.034.9

110.431.3

Participants

LesothoLiberiaLuxembourg

Malagasy RepublicMalawiMalaysiaMaliMalta

MauritaniaMauritiusMexicoMoroccoNepal

NetherlandsNew ZealandNicaraguaNigerNigeria

NorwayOmanPakistanPanamaParaguay

PeruPhilippinesRwandaSenegalSierra Leone

SomaliaSouth AfricaSpainSri LankaSudan

SwazilandSwedenSyrian Arab RepublicTanzaniaThailand

TogoTrinidad and TobagoTunisiaTurkeyUganda

United KingdomUnited StatesUpper VoltaUruguayVenezuela

Viet-NamWestern SamoaYemen Arab RepublicYemen, People's

Dem. Rep. ofYugoslavia

ZaireZambia

Five-Year

Dec. 31, 1974

49.234.2

100.0

82.294.2

103.730.7

100.0

52.388.3

103.137.8

100.0

234.966.288.199.699.3

111.8100.034.231.6

100.0

99.131.632.547.963.1

67.638.3

102.130.030.0

31.2100.030.448.9

100.1

100.047.542.956.983.6

66.882.199.630.4

106.0

100.0100.0100.0

72.132.7

38.639.3

Period Ended

Mar. 31, 1975

47.532.9

100.0

77.193.8

103.630.0

100.0

50.885.1

103.236.6

100.0

236.061.767.299.599.6

112.2100.032.430.1

100.0

98.633.331.546.363.1

66.937.1

102.330.432.9

30.1100.031.245.5

100.3

100.045.842.456.780.4

66.381.799.630.0

106.1

100.0100.0100.0

69.533.1

35.938.1

77



Table 1.7. Purchases of Currencies and Special Drawing Rights from the Fund, Fiscal Year Ended April 30,1975


Within Credit Tranches

WithinMember Gold

Purchasing Tranche

AfghanistanArgentinaBangladeshBurmaBurundiCameroonCentral African Rep.ChadChileChina, Rep. ofCosta RicaCyprusDenmarkDominican Rep.EgyptEl SalvadorFijiGermany, Fed. Rep. ofGreeceGuineaHaitiHondurasIcelandIndiaIsraelItalyIvory CoastKenyaKoreaMalagasy Rep.MaliMauritaniaMauritiusNew ZealandNicaraguaPakistanPanamaPhilippinesSenegalSierra LeoneSpainSri LankaSudanTanzaniaTurkeyUgandaUruguayYemen,

People's Dem. Rep. ofYugoslaviaZaire

Total

—15.250.65 4

—2.136.9040.57 4

—0.0130.002.666.51

85.3310.75

—4.552.304

123.4634.51

2.65 4

0.676.255.76

—6

267.7810.754

12.3419.994

5.034

—l .Ol4

5.4950.56

—

8.991.254.7546.23

117.39

—10.4937.75

18.71

3.75430.0028.27

981.45

Understand-by

arrangements Other a

2.50 —

— —29.95 —24.00 —

— —

— —-— 2.8059.50 —

— —

—— —— —— —— 40.00

— —— —— —— —— —

3.00 —

— —— 5.75— 235.00

45.00 —1,000.00 —

— —— 12.0020.00 —

— —— —— —— —— —— —

49.00 —— , —

38.75 —

— —— —

7.00 —19.00 —

— 10.50

— —— —— —

— —— —— —

1,297.70 306.05

UnderDecision Underon Com- Decisionpensatory on OilFinancing Facility 2

— —— —— 51.50

— —— 1.20— 4.62— 3.30— 2.21— 118.50— —— 18.84— 8.10— —— —— —— 17.89— 0.34

— —— 103.50— 3.51— 4.80— 16.79— 17.20— 200.00— 62.00— 675.00— 11.17— 36.00— 100.00— 14.30— 5.00

— —— —— 109.30— 15.50— 125.00— 7.37

— —— 15.53— 4.91— 296.20— 43.50

18.00 28.71— 31.50— 113.20— 19.20— 46.58

— 11.80— 155.20— —

18.00 2,499.25

Under the Regular Facilities

TotalPurchases

2.5015.2582.1124.003.33

11.523.875.01

178.0130.0021.5014.6185.3310.7540.0022.44

2.64123.46138.01

6.168.47

23.0428.71

435.00107.00

1,942.7821.9260.34

139.9919.335.001.015.49

159.8615.50

174.0016.3640.0020.2811.14

413.5950.5065.7152.49

150.9519.2065.29

15.55185.2028.27

5,102.45

Currencies

1.9315.2529.6324.002.136.900.57

—44.5130.002.666.51

85.3310.7540.004.552.30

123.4634.512.653.676.25

11.51235.0045.00

1,267.7810.7520.0939.995.03

—1.015.49

50.56

—49.00

8.9940.00

4.756.23

117.397.00

36.7720.9937.75

17.23

3.7530.0028.27

2,577.90

Specialdrawingrights 3

0.57

—0.97——

—2.80515.00

—

————

————

————

4.25

—

—

————

0.23

—

1.475

——

25.30

Total

2.5015.2530.6124.002.136.900.572.80

59.5130.002.666.51

85.3310.7540.004.552.30

123.4634.51

2.653.676.25

11.51235.0045.00

1,267.7810.7524.3439.995.03

1.015.49

50.56

—49.00

8.9940.00

4.756.23

117.397.00

37.0020.9937.75

18.71

3.7530.0028.27

2,603.201 In accordance with Executive Board Decision No. 102-

(52/11), adopted February 13, 1952. (See Selected Decisionsof the International Monetary Fund and Selected Documents(Seventh Issue, Washington, 1975), pages 37-40.)

2 In accordance with Executive Board Decisions No. 4241-(74/67), adopted June 13, 1974 and No. 4529-(74/153),adopted December 6, 1974. (See Selected Decisions,pages 71-76.)

3 In accordance with Article XXV, Section 7(/), of theArticles of Agreement.

4 Transaction prior to the establishment of an initial parvalue in accordance with Executive Board Decision No. 1687-(64/22), adopted April 22, 1964. (See Selected Decisions,page 81.)

5 In accordance with Executive Board Decision No. 3457-(71/121) G/S, as amended by Executive Board DecisionsNo. 3829-(72/144) S, adopted December 15, 1972 andNo. 4330-(74/101) S, adopted August 9, 1974. (See SelectedDecisions, pages 153-54.)

« Less than SDR 5,000.

78



Table 1.8.(In millions of

Member

AfghanistanBangladeshBurmaChile

ColombiaFijiGuyana

Haiti

IndonesiaIsrael

ItalyJamaicaKoreaLiberia

Pakistan

Panama

Philippines

Sri LankaSudan

Zambia

Total

Fund Stand-BySDRs)

TotalNumber ofStand-BysApproved

forMember

513

13

1518

14

82

12

1011

6

8

12

66

1

Arrangements

Date ofInception

June 18, 1973June 14, 1974Nov. 22, 1974Jan. 30, 1974Mar. 19, 1975June 6, 1973Nov. 8, 1974May 15, 1973May 15, 1974July 6, 1973Aug. 1, 1974May 4, 1973Nov. 8, 1974Feb. 14, 1975Apr. 10, 1974June 1, 1973May 17, 1974May 17, 1973Aug. 14, 1974Aug. 11, 1973Nov. 11, 1974Aug. 3, 1973Oct. 16, 1974May 16, 1973July 16, 1974Apr. 30, 1974Aug. 9, 1973Aug. 14, 1974May 4, 1973

for Members, Fiscal

Date ofExpiration

June 17, 1974June 13, 1975Nov. 21, 1975Jan. 29, 1975Mar. 18, 1976June 5, 1974Nov. 7, 1975May 14, 1974May 14, 1975July 5, 1974July 31, 1975May 3, 1974Nov. 7, 19751Feb. 13, 1976Apr. 9, 1975May 31, 1974Dec. 31, 1974May 16, 1974Aug. 13, 1975Aug. 10, 1974Nov. 10, 1975Aug. 2, 1974Oct. 15, 1975May 15, 1974July 15, 1975Apr. 29, 1975Aug. 8, 1974Aug. 13, 1975May 3, 1974

Year Ended

AmountApproved1973/74

10.00

79.00

20.00

4.00

4.00

50.00

1,000.0026.50

4.00

75.00

9.00

45.00

24.5024.00

19.00

1,394.00

April 30, 1975

Amount NotPurchased atExpiration

20.00

—

4.00

50.00

—13.25

4.00

—

9.00

45.00

17.505.00

—

167.75

AmountApproved1974/75

31.2531.50

79.00

3.25

5.00

4.00

32.5032.50

20.00

4.00

75.00

9.00

38.75

24.00

389.75

AmountNot PurchasedApril 30, 1975

1.297.50

59.00

3.25

5.00

1.00

—20.00

4.00

41.00

9.00

5.00

156.041 Canceled as of February 14, 1975.

79



Table 1.9. Purchases and Repurchases Under the Decision on Compensatory Financing of Export Fluctuations,February 27,1963-April 30,1975 l


Purchases

Member

AfghanistanArgentinaBangladeshBrazilBurma

BurundiChile

Colombia

Dominican RepublicEcuador

Egypt

El SalvadorGhanaGuatemala

GuineaGuyanaHaiti

Iceland

India

IraqJamaicaJordan

Khmer Republic

New ZealandPeruPhilippinesSri Lanka

Sudan

Syrian Arab Republic

Uruguay

ZaireZambia

Total

Date

June 5, 1968Mar. 3, 1972Dec. 15, 1972June 7, 1963Nov. 21, 1967Sep. 21, 1971Feb. 1, 1974June 9, 1970Dec. 14, 1971Dec. 22, 1972Mar. 22, 1967Apr. 19, 1968 3

Apr. 19, 19683Dec. 6, 1966Oct. 15, 19693Oct. 15, 19693

Oct. 15, 1963Mar. 18, 1968Aug. 14, 1973Dec. 16, 1969Dec. 20, 1966Feb. 5, 19683Feb. 5, 1968 3

Mar. 26, 1974Mar. 26, 1974Aug. 11, 1967Dec. 6, 1967Nov. 10, 1967Nov. 26, 1968Dec. 28, 1967Feb. 19, 1974Nov. 8, 19673Mar. 20, 1974Nov. 15, 1971Jan. 3, 1973Mar. 14, 1972Apr. 18, 1973May 10, 1967June 20, 1972May 18, 1973Mar. 21, 1967Apr. 17, 1968Jan. 24, 19723Jan. 26, 1972June 22, 1973Feb. 15, 1974June 1, 1965Mar. 7, 1975Mar. 10, 1975Sep. 18, 1967Jan. 25, 1972Feb. 7, 1968May 17, 1972July 5, 1972Dec. 14, 1971Aug. 7, 1972Aug. 8, 1972

Amount

4.8064.0062.5060.00 2

7.506.50

15.002.50

39.5039.5018.900.9530.9536.603.5032.753

16.00 2

23.0047.00

6.2517.253.0033.2536.005.001.301.003.753.75

90.0062.0017.50 313.254.502.856.256.25

29.2030.7538.7519.5019.304.703

14.7518.605.90

11.25216.002.009.50

12.509.50

17.2528.2519.0016.00

3.00

1,000.30

Related Repurchases

Total

4.80——60.00

7.501.00

—2.50

——18.90

0.950.956.603.502.75

16.0023.00

—6.2517.253.003.25

—5.001.301.003.753.75

90.00

17.50—4.50

2.85——29.20

30.759.69

19.5019.30

—

11.25

9.507.129.500.02

19.00——

472.68

Underparagraph (7)

of amendeddecision

———

——0.80——7.70

0.950.953.30

—

——

—4.300.751.60

—

0.120.203.753.75

80.00———

——

—

9.69———

——

5.00—

——

122.86

OutstandingBalance

April 30, 1975

64.0062.50

5.5015.00

39.5039.50

————

——47.00—

—6.00—

62.00—13.25

6.256.25

—

29.06——4.70

14.7518.605.90

16.002.00

—5.38

—17.2328.25

16.003.00

527.621 All items are under the decision as amended by Executive

Board Decision No. 2192-(66/81), adopted September 20,1966, except where noted.

2 Under Executive Board Decision No. 1477-(63/8), adoptedFebruary 27, 1963.

3 Date and amount of reclassification of previous purchases.

80


Table 1.10. Summary of Stand-By ArrangementsThat Became Effective During the Fiscal Years EndedApril 30, 1953-75 *



Table 1.11. Summary of Members' Purchases andRepurchases, Years Ended April 30, 1948-75


Number AmountTotal Purchases

by MembersTotal Repurchases

by Members

19531954195519561957

19581959196019611962

19631964196519661967

19681969197019711972

197319741975

22229

1115141524

1919242425

3226231813

131514

55.0062.5040.0047.50

1,162.28

1,043.781,056.63363.88459.88

1,633.13

1,531.102,159.852,159.05575.35591.15

2,352.36541.15

2,381.28501.70313.75

321.851,394.00389.75

Total 361 21,136.921 Includes renewals and extensions for one year or less,

except the renewals each six months of the stand-by arrange-ment for Belgium granted in June 1952 until that memberpurchased the full amount of the equivalent of SDR 50 millionin April 1957.

19481949195019511952

19531954195519561957

19581959196019611962

19631964196519661967

19681969197019711972

197319741975

Total

606.04119.4451.8028.0046.25

66.12231.2948.7538.75

1,114.05

665.73263.52165.53577.00

2,243.20

579.97625.90

1,897.442,817.291,061.28

1,348.252,838.852,995.651,167.412,028.49

1,175.431,057.725,102.45!

30,961.61 2

24.2119.0936.58

184.96145.11276.28271.6675.04

86.81537.32522.41658.60

1,260.00

807.25380.41516.97406.00340.12

1,115.511,542.331,670.691,656.863,122.33

540.30672.49518.08

17,387.40 •'<

1 Of which, SDR 2,499.25 million was purchased under theoil facility.

2 Includes purchases that raised the level of the Fund's hold-ings of the drawing members' currencies to no more than75 per cent of quota. These purchases are not subject torepurchase.

3 Includes repurchases that reduced the Fund's holdings ofmembers' currencies below the amounts originally paid onsubscription account and repurchases of members' currenciespaid in settlement of charges. Excludes sales of currencies ofmembers held by the Fund in excess of 75 per cent of quota,as a result of previous purchases, and adjustments due primarilyto settlement of accounts with countries that have withdrawnfrom the Fund; these sales and adjustments have the effect ofrepurchase.

81



Table 1.12. Total Repurchase Obligations Incurred in Accordance with Article V, Section 7(6), and AmountsPayable Forthwith by Members, as of April 30,1974


Total Repurchase Obligations Incurred Amounts Payable Forthwith

Member

ArgentinaChileEcuadorIndonesiaJamaica

KoreaMalawiNicaraguaPhilippinesSierra Leone

SomaliaSyrian Arab RepublicUruguayYugoslaviaZambia

Total

Gold

3,43220——

—82,001

—

———334

5,795

Specialdrawing

rights

6,706962

1692738

—113391—

9412,959

16,741

20,245

Convertiblecurrencies

277,29472,6512,630

45,68413,218

61

11,87936,357

172

62929,42823,302

1268,406

581,669

Total

284,00077,0452,651

46,37613,956

61

12,00038,749

172

62930,36926,261

1375,481

607,709

Gold

1,76020——

————_

————

1,780

Specialdrawing

rights

2,597493

1543701

————_

3871,944

—1,837

8,503

Convertiblecurrencies

107,40337,2472,630

35,82712,549

61

——172

62912,11315,306

—17,163

241,046

Total

110,000!39,500 2

2,651 s36,370^13,250 s

61

67

172

629812,500 9

17,250 1011

19,000 12

251,3291 Member discharged the equivalent of SDR 110,000,000 of

its repurchase obligation, which was payable forthwith in ac-cordance with paragraph 2(a) of Executive Board DecisionNo. 3049-(70/44). (See Selected Decisions of the InternationalMonetary Fund and Selected Documents (Seventh Issue, Wash-ington, 1975), pages 84-86.) Owing to the limitation ofArticle V, Section 7(c)(iv), the balance of the repurchase obli-gation incurred as of April 30, 1974 will be payable at the endof the subsequent financial year or years.

2 Member discharged the equivalent of SDR 37,740,000 pay-able forthwith in special drawing rights and convertible curren-cies in accordance with paragraph 2(a) of Executive BoardDecision No. 3049-(70/44); the amount payable forthwith ingold equivalent to SDR 1,760,000 was postponed. Owing to thelimitation of Article V, Section 7(c)(iv), the balance of therepurchase obligation incurred as of April 30, 1974 will bepayable at the end of the subsequent financial year or years.

3 Member discharged the equivalent of SDR 2,631,000 inspecial drawing rights and convertible currencies; the amountpayable in gold equivalent to SDR 20,000 was postponed.

4 Owing to the limitation of Article V, Section 7(c)(iv), theamount payable forthwith was equivalent to SDR 26,262,000;however, the member elected to discharge the equivalent ofSDR 36,370,000 in special drawing rights and convertible cur-rencies in accordance with paragraph 2(a) of Executive BoardDecision No. 3049-(70/44). The balance of the repurchaseobligation incurred as of April 30, 1974 will be payable at theend of the subsequent financial year or years.

5 Member discharged the equivalent of SDR 13,250,000payable forthwith in accordance with paragraph 2(a) of Execu-tive Board Decision No. 3049-(70/44). Owing to the limitationof Article V, Section 7(c)(iv), the balance of the repurchaseobligation incurred as of April 30, 1974 will be payable at theend of the subsequent financial year or years.

€ Member discharged the equivalent of SDR 2,496,844, whichtogether with the equivalent of SDR 4,253,156 repurchasedduring 1973/74, totaling the equivalent of SDR 6,750,000,discharged the balance of the repurchase obligation incurredas of April 30, 1971 and a portion of the April 30, 1972 obli-gation, which was payable as of April 30, 1974. The memberalso repurchased the equivalent of SDR 1,503,156 during1974/75, which discharged the balance of the April 30, 1972obligation, the April 30, 1973 obligation, and a small portion

of the repurchase obligation incurred as of April 30, 1974.Owing to the limitation of Article V, Section 7(c)(iv), thebalance of the repurchase obligation incurred as of April 30,1974 will be payable at the end of the subsequent financial yearor years.

7 Member discharged the portion of its repurchase obligationincurred as of April 30, 1973 equivalent to SDR 38,492,000in special drawing rights and convertible currencies, which waspayable as of April 30, 1974; the amount payable in goldequivalent to SDR 258,000 was postponed. The member alsodischarged a portion of the balance of the April 30, 1973obligation equivalent to SDR 12,187,500 in convertible cur-rencies. Owing to the limitation of Article V, Section 7(c)(iv),the repurchase obligation incurred as of April 30, 1974 andthe balance of the April 30, 1973 obligation will be payableat the end of the subsequent financial year or years.

8 Discharged in convertible currencies in May 1975 inaccordance with Rule 1-6 of the Fund's Rules and Regulations.

9 Member discharged the equivalent of SDR 12,500,000payable forthwith in accordance with paragraph 2(c) ofExecutive Board Decision No. 3049-(70/44). Owing to thelimitation of Article V, Section 7(c)(iv), the balance of therepurchase obligation incurred as of April 30, 1974 will bepayable at the end of the subsequent financial year or years.

1(> Member discharged the equivalent of SDR 17,250,000payable forthwith in accordance with paragraph 2(a) ofExecutive Board Decision No. 3049-(70/44). Owing to thelimitation of Article V, Section 7(c)(iv), the balance of therepurchase obligation incurred as of April 30, 1974 will bepayable at the end of the subsequent financial year or years.

11 Member discharged the portion of its repurchaseobligation incurred as of April 30, 1973 equivalent toSDR 51,750,000, which was payable as of April 30, 1974.Owing to the limitation of Article V, Section 7(c)(iv), therepurchase obligation incurred as of April 30, 1974 and thebalance of the April 30, 1973 obligation will be payable at theend of the subsequent financial year or years.

12 Member discharged the equivalent of SDR 19,000,000payable forthwith in accordance with paragraph 2(c) ofExecutive Board Decision No. 3049-(70/44). Owing to thelimitation of Article V, Section 7(c)(iv), the balance of therepurchase obligation incurred as of April 30, 1974 will bepayable at the end of the subsequent financial year or years.

82



Table 1.13. Repurchases of Currencies from the Fund, Fiscal Year Ended April 30, 1975


Repurchases in Respect of

MemberRepurchasing

AfghanistanArgentinaBoliviaBurmaBurundi

Central African RepublicChadChileChina, Republic ofColombia

Congo, People'sRepublic of the

Costa RicaEcuadorEgyptEl Salvador

GabonGambia, TheGhanaGuineaGuyana

HaitiIndonesiaJamaicaJordanKorea

LaosLesothoLiberiaMalawiMali

MauritaniaNicaraguaNigerPakistanPhilippines

SenegalSierra LeoneSomaliaSri LankaSudan

SwazilandSyrian Arab RepublicTrinidad and TobagoUgandaUruguay

YugoslaviaZambia

Total

Purchases Schedulesunder stand-by approvedarrangements by Fund

— 6.0— —— 2.3— 9.0— —

— 2.2

— —— —i

— —— 2.4

— —— 17.00.1 —

_ —

— —— 2.0— 5.53.5 —

— 0.3—

— —

— 0.4— 0.11.0 —

— 1.0

— 0.5— —— —— 10.0— 0.3

——— 21.7— 3.0

— 0.6

— 4.8— 1.3— —

__ _— —

4.6 90.1

Article V,Section 7(6)

110.0—

—

—37.7——

——2.6

—4.5

_

————

36.413.31.5

i

__

i—

4.0

—

33.4

_0.2

—

_12.5

—

17.3

51.819.0

344. 12

Voluntary OtherRepurchases Repurchases

— —0.1 —— —— 0.2

— 0.1— 0.1— 1.8

59.9 — -— —

— 0.1— —— —— 0.2— —

i— 0.1— 0.7— —— 5.1

— 0.2

— 0.1— —

__ _— 0.1— 0.4

— 0.2

— 0.1

i— 0.9— —— 0.6

i— 1.0— 0.6

— 0.1

6.6 —

— —__ _— —

66.5 12.8

Total

6.0110.0

2.49.00.2

0.12.3

39.559.9

i

0.12.42.6

17.24.5

i0.12.75.58.6

0.436.413.31.6

i

0.40.21.4

i1.2

0.64.0

i10.933.7

0.60.2

i22.63.6

0.712.511.31.3

17.3

51.819.0

518.11 Less than SDR 50,000.2 Total includes SDR 4 million and SDR 91.1 million

relating to Article V, Section 7(6), repurchase obligationsincurred as of April 30, 1972 and April 30, 1973, respectively,as follows: 1972-SDR 4 million by Nicaragua; 1973-SDR 4.5 million by El Salvador, SDR 1.5 million by Jordan,SDR 33.4 million by the Philippines, and SDR 51.8 million byYugoslavia.

NOTE:Included in the table are repurchases equivalent to SDR 1

million by Burma, SDR 5 million by Guyana, SDR 1.6 millionby Jordan, SDR 9.7 million by the Philippines, SDR 7.1 mil-lion by the Syrian Arab Republic, and SDR 19 million byZambia relating to purchases under the decision on compensa-tory financing of export fluctuations.

83


APPENDIX I (continued}. THE FUND IN 1974/75

Table 1.14. Currencies and Special Drawing Rights Obtained from the Fund by Members in Purchases1 forTheir Own Currencies; Currencies and Special Drawing Rights Used by Members in Repurchases, Fiscal YearEnded April 30, 1975


Currencies and SDKs Used by Members

in Purchases *

For EEC settlementsby Denmark and theFederal Republic of

Medium GermanyOther

countries

unaei Article v,Section l(b)

OtherTotal Argentina countries

• Not underArticle V,

Section 7 (6) Total

SDRs —

Argentine pesos —Australian dollars —Austrian schillings —Bahrain dinars —Belgian francs 43.3

Canadian dollars —Danish kroner 4.6Deutsche mark 73.3Ecuadoran sucres —French francs —

Guatemalan quetzales —Indonesian rupiahs —Irish pounds —Italian lire —Japanese yen —

Kuwaiti dinars —Malaysian dollars —Mexican pesos —Netherlands guilders 87.6Norwegian kroner —

Pounds sterling —Qatar riyals —Rials Omani —Saudi Arabian riyals —Singapore dollars —

South African rand —Spanish pesetas —Swedish kroner —U.A.E. dirhams —U.S. dollars —

Venezuelan 'bolivares —

Total 208.8

1 Exclusive of oil facility purchases.2 Total includes SDR 4 million and SDR 91.1 million relat-

ing to Article V, Section 7(6), repurchase obligations incurredas of April 30, 1972 and April 30, 1973, respectively, as fol-lows: 1972-SDR 0.1 million in SDRs, SDR 2.5 million inNetherlands guilders, and SDR 1.4 million in U.S. dollars;1973-SDR 0.6 million in SDRs, SDR 1.8 million in Austrian

schillings, SDR 13.9 million in Belgian francs, SDR 5.1 millionin Canadian dollars, SDR 0.1 million in Danish kroner,SDR 51 million in deutsche mark, SDR 7.3 million in Frenchfrancs, SDR 9.8 million in Japanese yen, SDR 0.3 million inNetherlands guilders, SDR 1.1 million in Norwegian kroner,and SDR 0.1 million in Swedish kronor.

3 Less than SDR 50,000.

84

25.3

15.321.829.04.0

104.7

63.0—

428.84.0

122.7

__15.04.0

—167.7

17.07.3

75.821.6

113.08.03.0

—

5.022.716.34.0

1,032.4

63.0

2,394.4

25.3

15.321.829.04.0

148.0

63.04.6

502.14.0

122.7

_15.04.0—

167.7

17.07.3

163.421.6

113.08.03.0

—

5.022.716.34.0

1,032.4

63.0

2,603.2

2.6

10.05.1

13.4

3

3

44.3—2.4

0.17.0

_

—19.4

3

_

—_

5.6

——

110.0

6.6 2

_3.55.8 2

39.72

13.02

0.1 2

93.22

15.7 2

3

2.024.9 2

3

3

3

14.9 2

3.52

_

— 3

3

_

2.50.22

1.4

6.9

234.1 2

14.8

_9.01.8—22.8

9.4

20.8

14.1

1.68.7

24.6

__

5.81.7

_

—

—

0.22.03.7

32.1

0.9

174.0

24.0

22.512.7

—75.9

22.40.1

158.3—

32.2

3

1.610.756.6

3

3

3

40.15.3

_

— 3

3

0.24.59.6

33.6

7.7

518.1

Currencies and SDKs Used by Membersin Purchases *



Table 1.15. Gold Transactions and Operations by theFund, Fiscal Years Ended April 30, 1973-75


1973 1974 1975

Increase in gold holdings due toSubscriptions 60.9 — —Repurchases of currency by members 2.8 3.0 —Charges paid by members 3.9 0.4 —

Total increase 67.6 3.4 —

Decrease in gold holdings due toRemuneration paid to members 28.5 3.6 0.3

Total decrease 28.5 3.6 0.3

Net increase or decrease (-) 39.1 -0.2 -0.3

Table 1.16. General Arrangements to Borrow: Amounts of Credit Arrangements

Units ofParticipant's

Participant Currency Currency

United States US$ 2,000,000,000Deutsche Bundesbank (Germany, Fed. Rep. of) DM 4,000,000,000United Kingdom £, 357,142,857France F 2,715,381,428Italy Lit 343,750,000,000

Japan ¥ 90,000,000,000Netherlands f. 724,000,000Canada Can$ 216,216,000Belgium BF 7,500,000,000Sveriges Riksbank (Sweden) SKr 517,320,000

Total

SDR Equivalentat

October 23, 1974

1,674,626,0001,300,932,000

697,421,428481,700,519431,235,900

251,235,900230,631,648184,059,059164,232,75098,996,424

5,515,214,478

Table 1.17. Income and Expenses, Fiscal Years Ended April 30, 1966-75


1966 1967 1968 1969 1970 1971

Operational incomeService and stand-by charges, etc. 15.6 7.1 7.4 14.6 13.0 3.2Charges on balances in excess of quotas 65.7 82.5 82.0 107.4 124.7 128.1Interest on holdings of special drawing rights — — — — 0.4 4.3

Total operational income * 81.3 89.6 89.4 122.0 138.1 135.6

Deduct: operational expensesRemuneration — — — — 27.2 37.4Other 16.1 17.8 11.9 22.3 19.1 11.8

Net operational income 65.2 71.8 77.5 99.7 91.8 86.3

Administrative budget expenses 15.0 18.1 21.3 24.4 28.6 33.2Deduct: assessments levied on participants for estimated

expenses of operating the Special Drawing Account — — — — 0.9 0.9Fixed property expenses 5.7 3.3 0.5 4.5 6.5 7.5Net valuation adjustment loss — — — — — —

Total administrative budget and fixed propertyexpenses and net valuation adjustment loss 20.7 21.4 21.8 28.9 34.2 39.9

Net income or expenses (-) 3 44.5 50.4 55.7 70.8 57.6 46.4

1972 1973 1974 1975

3.0 3.2 2.5 21.062.0 28.2 28.2 124.47.2 10.2 7.8 21.1

72.2 41.6 38.5 166.5

30.5 29.3 27.2 62.41.2 — — 69.2

40.5 12.2 11.2 34.9

37.1 39.4 43.5 46.0

1.0 0.7 1.0 1.217.7 -4.8-' 5.9 -0.3— 0.1 0.1 0.1

53.7 34.0 48.4 44.6

-13.3 -21.7 -37.2 -9.71 Excludes income from investments transferred to the net income in 1968, 1969, 1970, and 1971, respectively,

Special Reserve until February 15, 1972.2 Represents sale of Fund's former headquarters building

for the equivalent of SDR 21.2 million from which fixedproperty expenses of SDR 16.4 million have been deducted.

3 Net income was transferred to the General Reserve untilthe fiscal year ended April 30, 1968. Of the SDR 55.7 million,SDR 70.8 million, SDR 57.6 million, and SDR 46.4 million

SDR 18.3 million, SDR 38.9 million, SDR 40.0 million, andSDR 33.9 million were transferred to the General Reserve andSDR 37.5 million, SDR 31.9 million, SDR 17.5 million, andSDR 12.5 million were distributed under the provisions ofArticle XII, Sections 6(a) and ( b ) , of the Fund Agreement.The net expenses for the fiscal years ended April 30, 1972,1973, 1974, and 1975 have been charged against the SpecialReserve.

85



Table 1.18. Charges on Transactions Effected AfterMay 1,1963 and up to June 30,1974

Charges in per cent per annum x for period stated andfor portion of holdings in

More thanBut not more than

Service charge 2

0 to 3 months3 to 6 monthsl/2 to 1 year1 to 1V2 years\l/2 to 2 years2 to 2l/2 years2l/2 to 3 years3 to 3V2 years3V2 to 4 years4 to 4l/2 years

excess of quota

050

0.5

0.02.02.02.02.53.03.54.0 3

4.55.0

by (per

50100

0.5

0.02.02.02.53.03.54.034.55.0

cent)

100

0.5

0.02.02.53.03.54.0 3

4.55.0

1 Except for service charge, which is payable once pertransaction and stated as per cent of amount of transaction.

2 No service charge is payable in respect of any goldtranche purchase effected after July 27, 1969.

3 Point at which the Fund and the member consult.

Table 1.19. Charges on Transactions Effected AfterJuly 1, 1974

Charges in per cent per annum,1 payable on holdingsin excess of quota, for period stated:

Service chargeUp to 1 year1 to 2 years2 to 3 years3 to 4 years4 to 5 years

0.54.04.55.05.5 2

6.0



Table 1.20. Charges on Transactions Effected Underthe Extended Fund Facility ]

Charges in per cent per annum,2 payable on holdings inexcess of quota arising from drawings under the extendedFund facility for the period stated:

Service chargeUp to 1 year1 to 2 years2 to 3 years3 to 4 years4 to 5 years6 to 8 years

0.54.04.55.05.56.03

6.5

1 Extended Fund facility was established by Executive BoardDecision No. 4377-(14/114), adopted September 13, 1974 andreproduced in Appendix II.

2 Except for service charge, which is payable once per trans-action and stated as per cent of amount of transaction.


Table 1.21. Charges on Transactions Effected Underthe Oil Facilities After July 1, 1974 *

Charges in per cent per annum,2 payable on holdings inexcess of quota arising from drawings under the oil facilityfor the period stated:

1974 1975Facility x Facility J

Service chargeUp to 3 years3 to 4 years5 to 7 years

0.56.8757.000 s7.125

0.57.6257.750 s7.875

1974 oil facility was established by Executive BoardDecision No. 4241-(74/67), adopted June 13, 1974. (SeeSelected Decisions of the International Monetary Fund andSelected Documents (Seventh Issue, Washington, 1975),pages 71-76.) The 1975 oil facility was established by Execu-tive Board Decision No. 4634-(75/47), adopted April 4, 1975and reproduced in Appendix II.



Table 1.22. Members ThatArticle VIII, April 30, 1975

Member

ArgentinaAustraliaAustriaBahamasBahrainBelgiumBoliviaCanadaCosta RicaDenmarkDominican RepublicEcuadorEl SalvadorFijiFranceGermany, Fed. Rep. ofGuatemalaGuyanaHaitiHondurasIrelandItalyJamaicaJapanKuwaitLuxembourgMalaysiaMexicoNetherlandsNicaraguaNorwayOmanPanamaPeruQatarSaudi ArabiaSingaporeSouth AfricaSwedenUnited Arab EmiratesUnited KingdomUnited States

Have Accepted

Effective Dateof Acceptance

May 14, 1968July 1, 1965August 1, 1962December 5, 1973March 20, 1973February 15, 1961June 5, 1967March 25, 1952February 1, 1965May 1, 1967August 1, 1953August 31, 1970November 6, 1946August 4, 1972February 15, 1961February 15, 1961January 27, 1947December 27, 1966December 22, 1953July 1, 1950February 15, 1961February 15, 1961February 22, 1963April 1, 1964April 5, 1963February 15, 1961November 11, 1968November 12, 1946February 15, 1961July 20, 1964May 11, 1967June 19, 1974November 26, 1946February 15, 1961June 4, 1973March 22, 1961November 9, 1968September 15, 1973February 15, 1961February 13, 1974February 15, 1961December 10, 1946

86

1 The


APPENDIX I (concluded). THE FUND IN 1974/75

Table 1.23. Publications Issued, Fiscal Year Ended April 30,1975

Reports and Other Documents

Annual Report of the Executive Directors for the Fiscal YearEnded April 30, 1974(English, French, German, and Spanish). Free

By-Laws, Rules and RegulationsThirty-Second Issue (English, French, and Spanish). Free

International Monetary Reform: Documents of the Committeeof Twenty(English, French, and Spanish). Free

Selected Decisions of the International Monetary Fund andSelected DocumentsSeventh Issue (English, French, and Spanish). Free

Summary Proceedings of the Twenty-Ninth Annual Meetingof the Board of GovernorsFree

Twenty-Fifth Annual Report on Exchange RestrictionsFree

Subscription Publications

Balance of Payments YearbookVolume 25, 1968-72 (clothbound). US$6.00Volume 26, 1969-73 (monthly, loose-leaf),

(binder available for US$3.50)

Direction of TradeIssued jointly with IBRD; monthly with annual supplement.US$10.00 a year

International Financial StatisticsMonthly (English; also, through August 1974, a combinedEnglish, French, and Spanish edition) and annual supplement.US$20.00 a year

Staff PapersThree times a year. US$6.00 a year

University libraries, faculty members, and students mayobtain the four subscription publications listed above at the

reduced rates of US$12.00 for all four publications, orUS$5.00 for International Financial Statistics and US$3.00each for the other publications.

For users of Fund publications that have access to acomputer, tape subscriptions to International Financial Sta-tistics, Direction of Trade, and the Balance of PaymentsYearbook are available at US$1,000 a year each. This priceincludes the book version of the publication. The price touniversities is US$300 a year for each subscription.

Books

Membership and Nonmembership in the International Mone-tary Fund: A Study in International Law and OrganizationBy Joseph Gold. US$10.00

Surveys of African EconomiesUS$5.00 a volume

Volume 5, covering Botswana, Lesotho, Swaziland, Burundi,Equatorial Guinea, and Rwanda, was issued in French.Volume 6, covering The Gambia, Ghana, Liberia, Nigeria,and Sierra Leone, was published in English; the Frenchedition is in preparation.The volumes in this series are available to universitylibraries, faculty members, and students at a reduced priceof US$2.50 a volume.

US$7.50 Pamphlet Series

No. 18 Valuation and Rate of Interest of the SDRBy J. J. Polak (English, French, and Spanish).

Other

Free

Finance and DevelopmentIssued jointly with IBRD; quarterly (English, French, German,and Spanish, and an annual edition in Portuguese). Free

IMF SurveyTwice monthly but only once in December (English, French,and Spanish). Private firms and individuals are charged fordelivery.

87


Appendix IIPrincipal Policy Decisions ofthe Executive Board

A. SDR Reconstitution: Amendment of Decision No. 3829-(72/144) S

Paragraph 2 of Executive Board Decision No. 3457-(71/121) G/Sa as amendedby Paragraph 4 of Executive Board Decision No. 3829-(72/144) S,2 adoptedDecember 15, 1972 is hereby further amended to read as follows:

"Pursuant to Article XXV, Section 2(ft) (ii), the Fund prescribes that a partici-pant may obtain special drawing rights from another participant in a transactionwith that other participant that would promote reconstitution under Article XXV,Section 6(a) and Schedule G, paragraph I ( a ) . The maximum amount that maybe obtained in that way shall be the single amount most recently notified to theparticipant under Rule P-3 unless that single amount has been calculated for acqui-sition in the final month of a reconstitution period, in which case the participantmay acquire the amount calculated by the Fund as necessary to promote reconstitu-tion, taking into account the proposed date of acquisition. These maximum amountswill be reduced by any acquisition of SDKs other than by way of allocationsubsequent to the date the calculation is made."

Decision No. 4330^(74/101) SAugust 9, 1974

B. Extended Fund Facility

(i) The Executive Directors have been considering the establishment of anextended facility for members that would enable the Fund to give medium-termassistance in the special circumstances of balance of payments difficulty that areindicated in this decision. The facility, in its formulation and administration, islikely to be beneficial for developing countries in particular.

(ii) The Executive Directors have noted the studies prepared by the staff,including SM/74/58 ("Extended Fund Facility," March 8, 1974), and especiallyparagraphs 12 to 16 of that memorandum, in which certain situations to whichan extended facility could apply are described as follows:

"(a) an economy suffering serious payments imbalance relating to structuralmaladjustments in production and trade and where prices and costdistortions have been widespread;

(b) an economy characterized by slow growth and an inherently weak bal-ance of payments position which prevents pursuit of an active develop-ment policy."

iSee Annual Report, 1972,pages 84-85.

2 See Annual Report, 1973,page 98.

88

I


APPENDIX II (continued). PRINCIPAL POLICY DECISIONS

(iii) The Executive Directors have noted the support for an extended facility bythe Committee of the Board of Governors on the Reform of the InternationalMonetary System and Related Issues.

(iv) Taking into account the considerations set forth above, and in particular theexceptional problems faced by some members, the Executive Directors have decidedto establish a facility in accordance with the terms set forth in Section II of thisdecision for the purpose of giving such members medium-term assistance, consist-ently with Article I (v) and the other purposes of the Fund, under extendedarrangements.

II

1. The Fund will be prepared to give special assistance to members to meetbalance of payments deficits for longer periods and in amounts larger in relation toquotas than has been the practice under existing tranche policies. Such assistancewill be given in the form of extended arrangements in support of comprehensiveprograms that include policies of the scope and character required to correctstructural imbalances in production, trade, and prices when it is expected that theneeded improvement in the member's balance of payments can be achieved withoutpolicies inconsistent with the purposes of the Fund only over an extended period.The Fund will pay particular attention to the policy measures that the memberintends to implement in order to mobilize resources and improve the utilizationof them and to reduce reliance on external restrictions, the time required for thesemeasures to have the intended effect on the balance of payments, and such otherfactors as the Fund considers relevant to the member's circumstances.

2. A member that contemplates making a request for an extended arrangementshould consult the Managing Director before making a request under this decision.A request by a member for an extended arrangement in order to deal with a prob-lem of the kind referred to in this decision will be met, subject to paragraphs 3and 4 below, if the Fund is satisfied that:

(a) the solution of the member's balance of payments problem will requirea longer period than the period for which the resources of the Fund areavailable under existing tranche policies, and

(b) the member has presented:(i) a program, setting forth the objectives and policies for the whole

period of the extended arrangement, and adequate for the solutionof the member's problem; and

(ii) a detailed statement of the policies and measures for the first twelvemonths constituting an initiation of the program referred to in (i) con-sidered substantial in the member's circumstances,

with the understanding that, for each subsequent twelve-month period, the memberwill present to the Fund a detailed statement of the progress made, and the policiesand measures as in (ii) that will be followed, to further the realization of theobjectives of the program referred to in (i) with such modifications in the member'spolicies as might reasonably be considered necessary to assist it to achieve itsobjectives in changing circumstances.

3. Extended arrangements under this decision will be limited to periods of notmore than three years. Each arrangement will prescribe the total amount, and theannual installments within the total, available in accordance with the originalor any modified terms of the arrangement. Purchases in respect of each installmentwill be phased over the period in which it is available and will be subject to suitableperformance clauses related to the implementation of those policies that arenecessary for achieving the objectives of the program that the member has adoptedas the basis for an extended arrangement.

4. (a) Purchases outstanding under this decision will not exceed 140 per cent

89



of the member's quota, or be allowed to raise the Fund's holdings of the member'scurrency above 265 per cent of the member's quota (excluding holdings obtainedby the Fund as a result of purchases under its decisions on the facilities relatingto compensatory financing, buffer stock financing, and the impact of the increasedcost of imports of petroleum and petroleum products).

(b) In order to carry out the purposes of this decision, the Fund will beprepared to grant any waiver of the conditions of Article V, Section 3 (a) (iii) whennecessary to permit purchases under this decision or to permit purchases underother policies that would raise the Fund's holdings of a member's currency abovethe limits referred to in that provision because of purchases outstanding under thisdecision. In addition, subject to (a), the Fund will apply its tranche policies torequests by a member for purchases other than gold tranche purchases as if theFund's holdings of the member's currency did not include holdings resulting fromany purchases outstanding under this decision.

5. A member that has obtained an extended arrangement under this decisionwill make repurchases corresponding to purchases under the extended arrange-ment, to the extent that such purchases are still outstanding, as soon as its balanceof payments problems have been overcome and, in any event, within an outsiderange of four to eight years after each purchase. Not later than four years after thefirst purchase under the extended arrangement the member will propose to theFund a schedule of repurchases for all purchases outstanding under the extendedarrangement. Normally, schedules under this paragraph will provide for repur-chases in respect of each purchase in sixteen equal quarterly installments.

6. When purchases are made under extended arrangements granted pursuant tothis decision, the Fund will so indicate in an appropriate manner.

7. The Fund will levy charges on holdings of a member's currency resultingfrom purchases outstanding under this decision in accordance with ExecutiveBoard Decision No. 4378-(74/114), adopted September 13, 1974.

8. Except as otherwise provided in this or in any subsequent related decisions,extended arrangements shall be subject to the Fund's decisions and policies onstand-by arrangements.

9. The Fund will review this decision in the light of experience and developingcircumstances when the total amount of purchases that could be made underextended arrangements is equivalent to two billion special drawing rights and inany event not later than July 31, 1976.

Decision No. 4377^(74/114)September 13, 1974

C. 1974 Oil FacUIty: Review of Decision No. 4241-(74/ 67)

1. The Executive Directors have reviewed Executive Board DecisionNo. 4241-(74/67),3 adopted June 13, 1974, in accordance with Paragraph 8 ofthat Decision.

2. The total of a member's purchases under Paragraph 2 of Executive BoardDecision No. 4241-(74/67) shall not exceed, prior to any decision that the Fundmay take under Paragraph 8 of that Decision pursuant to the review to be con-ducted not later than December 31, 1974, 90 per cent of the amount shown underOption D in Table 5 of SM/74/220, of September 11, 1974.

3. The Executive Directors shall review this Decision by December 2, 1974and, taking account of the amounts then available under loan agreements, decideon the extent to which total purchases by a member under Paragraph 2 of Execu-

3 See Annuai Re on 1974tive Board Decision No. 4241-(74/67) may be increased beyond the amount pages 122-23.

90



referred to in Paragraph 2 of this Decision, up to the amount shown underOption D in Table 4 of SM/74/220, of September 11, 1974.

Decision No. 4393^(74/121)September 20, 1974

D. General Arrangements to Borrow: Renewal and Modification

A. Executive Board Decision No. 1289-(62/1), as amended,4 on the GeneralArrangements to Borrow, is hereby renewed for a period of five years from Octo-ber 24, 1975 subject to the following modifications:

1. Paragraph 9(b) shall be made to read as follows:

The Fund shall pay interest on its indebtedness at the rates at which it leviescharges on segments of its holdings of currency resulting from purchases forwhich it borrowed and incurred the indebtedness, provided that the rate ofinterest shall be not less than 4 per cent per annum on any part of the Fund'sindebtedness. Interest shall be paid as soon as possible after July 31, October 31,January 31, and April 30.

2. Paragraph 9(c) shall be made to read as follows:

Interest and charges shall be paid, as determined by the Fund, in gold,or in special drawing rights, or in the participant's currency, or in other cur-rencies that are actually convertible.

3. The third sentence of Paragraph 11 (a) shall be made to read as follows:

Repayment under this Paragraph 11 (a) or under Paragraph ll(c) shall be,as determined by the Fund, in the participant's currency whenever feasible, orin gold, or special drawing rights, or, after consultation with the participant,in other currencies that are actually convertible.

4. The third sentence of Paragraph l l ( f ) shall be made to read as follows:

Repayment shall be made after consultation with the participant in the cur-rencies of other members that are actually convertible, or made in gold, orspecial drawing rights, as determined by the Fund.

5. The following shall be inserted in the Decision as Paragraph l l ( j ) :

The Fund shall be deemed to have discharged its obligations to a participatinginstitution to make repayment in accordance with the provisions of this Para-graph or to pay interest and charges in accordance with the provisions ofParagraph 9 if the Fund transfers an equivalent amount in special drawing rightsto the member in which the institution is established.

B. Reference in Executive Board Decision No. 1289-(62/l), as amended, to"the period prescribed in Paragraph 19(a)" shall be understood to include theperiod of the renewal under this Decision.

C. The modifications of Executive Board Decision No. 1289-(62/l), asamended, that are set forth in Section A above shall become effective prior toOctober 24, 1975 as amendments pursuant to Paragraph 15 of the Decision uponreceipt of the concurrence of all participants in these modifications in accordancewith that Paragraph.

Decision No. 4421^(74/132)October 23, 1974

4 Selected Decisions of theInternational Monetary Fundand Selected Documents (Sev-enth Issue, Washington, 1975),pages 91-102.

91



E. Borrowing Agreements in Connection With Oil Facility: Payment ofInterest5

The Managing Director shall make arrangements for consultations to agree themeans in which payment of interest will be made under the agreements to borrowentered into pursuant to Executive Board Decision No. 4242-(74/67), adoptedJune 13, 1974. Payment of interest shall be made in accordance with the policyand procedure set forth [below]. The Executive Directors shall be informedpromptly of the interest paid and the assets used.

Decision No. 4490^(74/140)November 6, 1974

Policy and Procedure

1. This memorandum deals with (i) the timing of interest payments on theamounts of currency borrowed by the Fund in connection with financing transac-tions under the oil facility; (ii) the establishment of a policy on what assets wouldbe offered by the Fund when it consults with the lenders to agree the means of pay-ment of interest; and (iii) the determination of the necessary authority to consultwith the lenders and to make the offer and to agree on the means by which interestshall be paid. Paragraph 6 of the borrowing agreements also deals with repaymentof the loans, but it is not necessary to deal with this topic in the present memo-randum.

2. Interest payments on the amounts of currency borrowed by the Fund inconnection with financing transactions under the oil facility are to be paidquarterly at an annual rate of seven per cent. It is suggested that such quarterlyinterest payments be made as of the dates at the end of the Fund's fiscal quarters—namely, July 31, October 31, January 31, and April 30—and that interest be paidas soon as possible after these dates.

The amount of interest to be paid to the lenders with respect to the quarterending October 31 amounts to the equivalent of about SDR 4.7 million. Full use ofthe existing commitments to lend (about SDR 2.8 billion) would involve annualinterest payments of about SDR 200 million over the first three years of the loans,with declining payments thereafter as repayments of the loans are effected. Totalinterest payments over the full seven years can be estimated to be about SDR 1 bil-lion. It may be assumed that users of the oil facility will pay charges largely withSDRs while the Fund may not be able to use SDRs for payments under the borrow-ing arrangements and might thus have to pay currency, in particular U. S. dollars,in substantial amounts.

3. Each of the borrowing agreements provides that the Fund shall consult thelender in order to agree the means in which payment of interest will be made. Ifagreement is not reached between the Fund and the lender, the Fund has an optionto pay in the assets specified in the borrowing agreements. In the discussions of theExecutive Directors on the terms and conditions of the borrowing agreements, itwas understood that the Fund would try to reach agreement with the lenders onthe means of payment of interest. The options given the Fund in each of theborrowing agreements include the means of payment of interest that the lenderwould be willing to accept if agreement were not reached on something else.

It is proposed that the policy to guide the selection of the means of paymentto be offered should be as follows:

(a) The lender would be offered its own currency, one or more currenciesselected from the currency budget, and SDRs. The lender could choose to receive 5 See algo Decision No 4636.payment in any one or more of these assets, but SDRs, of course, could not be (75/47), page 95.

92



offered to a nonparticipant in the Special Drawing Account. The Fund normallywould express a preference that the lender choose its own currency first, then thecurrency selected from the currency budget, and lastly SDKs. If the Fund's hold-ings of the currency of a lender should fall to a relatively low level, the extentto which it would be offered would be examined in connection with the quarterlyconsultations with Executive Directors on the currency budgets.

(b) If the lender has been offered under (a) above the means of paymentspecified in Paragraph 6 of its borrowing agreement, it is assumed that it willchoose one of these means of payments. If the lender would not be willing to acceptany of the assets mentioned in (a) above, then the matter will be submitted to theExecutive Directors for decision except in those cases in which there is only onemeans of payment mentioned in Paragraph 6 of that lender's borrowing agreement.Such a decision is necessary because the Fund might wish to use at its discretionan asset which had been offered under (a) above and refused or a currency that itwould not otherwise be using in accordance with the currency policy of the Fund.

The procedure and policy outlined above is designed to permit the Fund tooffer a selection of assets for the payment of interest that may be broader thanthose listed in the respective Paragraph 6 of the borrowing agreements. The lender,however, retains its right to receive the assets of its choice in payment of interest.The policy on the means of payment to be offered is broadly consistent with theconsiderations underlying the currency budgets of the Fund, in particular the con-siderations of Fund liquidity and the relative strength of currencies to be usedin making payments. On these grounds it would be preferable for lenders to choosethe means of payment suggested by the Fund in order to avoid the need to payU. S. dollars at times when this would not otherwise be consistent with the Fund'spolicy on currencies to be used.

4. Under the currency budget proposed for the quarter ending January 31, 1975,U. S. dollars would be suggested as the currency selected from the budget to beoffered as one of the means for the payment of interest. Future currency budgetswould indicate which of the currencies in the budget would be offered in payment,and also the order of preference, if any, in which the various assets would beoffered.

5. In executing the policy described above, it is proposed that the ManagingDirector be instructed to make arrangements for the necessary consultations withthe lenders in order to agree the means to pay interest and to make these paymentsin accordance with the policy and procedure outlined above. The Executive Direc-tors would be informed promptly of the interest payments made and the assets usedin making the payments.

F. 1974 Oil Facility: Review of Decision No. 4393-(74/121)

1. The Executive Directors have reviewed Executive Board DecisionNo. 4393-(74/121),6 adopted September 20, 1974, in accordance with para-graph 3 of that Decision.

2. The Fund will be prepared to make resources available to members inaccordance with Decision No. 4241-(74/67), with respect to their balance of pay-ments deficits in 1974, in amounts that do not exceed the amount shown underOption D in Table 4 of SM/74/220 of September 11, 1974, provided the Fundhas received from a member before February 28, 1975 a statement of its intentionto request a purchase. . . .

Decision No. 4529-(74/153)December 6, 1974 6 See page 90.

93



G. Oil Facility for 1975

1. (a) The Executive Directors have reviewed Executive Board Deci-sion No. 4241-(74/67),7 adopted June 13, 1974, in accordance with Paragraph 8of that Decision, considered SM/75/72 Revision 1, and decided that the Fund willbe prepared to make resources available to assist members to meet the impact onthe balance of payments in 1975 of the increases in costs of imports of petroleumand petroleum products that occurred in recent years. Requests for purchasesunder this decision will be met, if they are in accordance with the terms of thisdecision and with Paragraphs 2(a), 4, 5 and 6 of Decision No. 4241-(74/67).

(b) A member wishing to make a request under this decision shall submit,not later than the close of business on February 27, 1976, or such earlier date asthe Fund may decide, a statement of its intention to make the request.

2. (a) The total of a member's outstanding purchases with respect to theincreased cost of petroleum and petroleum products in 1975 shall not exceed theamount shown in the table in Attachment II,8 or the amount as recomputed withrevised data on the basis of the formula set out in Attachment II.

(b) The total of a member's purchases outstanding under this decision shallnot exceed 30 per cent of the amount referred to in paragraph 2(a) above asshown in the table in Attachment II prior to any increase that the Fund may adoptunder paragraph 7.

3. On the request of a member, the Fund may make an appropriate adjustmentin the amount referred to in paragraph 2(a) above if the Fund is satisfied thatthis amount should be higher because the member's imports of petroleum andpetroleum products in 1972 or 1973 were abnormally low as the result of excep-tional circumstances.

4. A member, when indicating its intention to request a purchase under thefacility, shall describe its policies to achieve medium-term solutions to its balanceof payments problems. Access to the facility will be subject to an assessment bythe Fund of the adequacy of these policies. In addition, the member shall describeany measures to conserve oil or to develop alternative sources of energy that it hastaken or proposes to take in the light of its economic situation.

5. Not earlier than April 1, 1976 the Fund, after consultation with a member,may recommend that the member make a repurchase with respect to purchasesunder this decision because its gross reserves at the end of 1975 exceed the levelat the end of 1973 or 1974, whichever is the lower.

6. The Fund will levy charges on holdings of a member's currency resultingfrom purchases outstanding under this decision in accordance with Executive BoardDecision No. 4637-(75/47), adopted April 4, 1975.

7. The Executive Directors intend to review this decision during July 1975 andat such other times as they may determine in order to decide whether changesshould be made in this decision, including what further proportion of the amountreferred to in paragraph 2(a) of this decision may be made available to membersfrom time to time in light of the Fund's existing and prospective liquidity.

Decision No. 4634^(75/47)April 4, 1975

H. Borrowing in Connection With the Oil Facility for 1975

1. The International Monetary Fund deems it appropriate in accordance withArticle VII, Section 2(i) to replenish its holdings of currency by borrowing, inaddition to the amounts committed during 1974 and still unused, amounts not

7 See Annual Report, 1974,pages 122-23.

8 Calculations of access bymembers to the oil facility for1975.

94


APPENDIX II (concluded). PRINCIPAL POLICY DECISIONS

in excess of the equivalent of SDR 5 billion to the extent that purchases are madeunder the facility established by Executive Board Decision No. 4241-(74/67),9

adopted June 13,1974, as extended by Executive Board Decision No. 4634-(75/47),adopted April 4, 1975.

2. The provisions of Paragraphs 2, 3, 4, and 5 of Executive Board Deci-sion No. 4242-(74/67)10 shall continue to apply except as modified by Para-graphs 3 and 4 below.

3. The following changes shall be made in the draft standard letter set out inthe Annex to Decision No. 4242-(74/67):

(a) In the preambular paragraph,(i) reference shall be made to the 1975 decisions on the oil facility and

borrowing for 1975;(ii) the words "during the period ending December 31, 1975" shall be

replaced by "during the period ending March 31, 1976."(b) In the first sentence of Paragraph 2(b) the words "two business days"

shall be replaced by "three business days."(c) In Paragraph 4,

(i) the annual rate of interest of "seven per cent" shall be replaced by"seven and one-quarter per cent;"

(ii) the following sentence shall be added:"No other fee, charge, or commission shall be paid to, or imposedby, [the lender] with respect to any aspect of a call under thisagreement including a transfer or a conversion pursuant to a callunder Paragraph 2(b)."

4. All unutilized balances under commitments agreed during 1974 shall becalled before any calls are made under agreements made during 1975.

Decision No. 4635-(75/47)April 4, 1975

I. Borrowing Agreements in Connection With Oil Facility: Payment of Interest

Executive Board Decision No. 4490-(74/140),11 adopted November 6,1974 shall be amended by including after the words "Executive Board Deci-sion No. 4242-(74/67), adopted June 13, 1974" the words "and Executive BoardDecision No. 4635-(75/47), adopted April 4, 1975."

Decision No. 4636-(75/47)April 4, 1975

95

9 See Annual Report, 1974,pages 122-23.

wibid., pages 124-26.11 See page 92.


Appendix IIIPress Communiquesof the Interim Committeeand the Development Committee

Interim Committee of the Board of Governorson the International Monetary System

PRESS COMMUNIQUES

First Meeting, Washington, October 3, 1974

The Interim Committee of the Board of Governors on the International Mone-tary System held its inaugural meeting in Washington on October 3, 1974. Themeeting was convened by Mr. Henri Konan Bedie, Chairman of the Board ofGovernors. Mr. John N. Turner, Minister of Finance of Canada, was selected asChairman of the Committee for a period of two years. Mr. H. Johannes Witteveen,the Managing Director of the International Monetary Fund, participated in themeeting.

The members of the Committee had an exchange of views on the current situa-tion and the prospects for the year ahead as it related to the business of theCommittee.

The Committee reviewed the problem of recycling, and agreed to ask the Execu-tive Directors to consider in this context, as a matter of urgency, the adequacy ofexisting private and official financing arrangements, and to report on the possibleneed for additional arrangements, including enlarged financing arrangementsthrough the Fund, and to make proposals for dealing with the problem. The Com-mittee also intends to discuss as a matter of priority the adjustment process, quotasin the Fund, and amendments of its Articles, including amendments on gold andthe link, among other subjects.

The members of the Committee decided that their next meeting should takeplace on January 15-16, 1975, in Washington.,-

The terms of reference of the Committee are as follows:"The Committee shall advise and report to the Board of Governors with respect

to the functions of the Board of Governors in:(i) supervising the management and adaptation of the international monetary

system, including the continuing operation of the adjustment process, andin this connection reviewing developments in global liquidity and the trans-fer of real resources to developing countries;

(ii) considering proposals by the Executive Directors to amend the Articles ofAgreement; and

(iii) dealing with sudden disturbances that might threaten the system.In addition, the Committee shall advise and report to the Board of Governors

on any other matters on which the Board of Governors may seek the advice ofthe Committee.

96


APPENDIX III (continued). PRESS COMMUNIQUES OF THE COMMITTEES

In performing its duties, the Committee shall take account of the work of otherbodies having specialized responsibilities in related fields."

Second Meeting, Washington, January 15—16,1975

1. The Interim Committee of the International Monetary Fund held its secondmeeting in Washington, D. C. on January 15 and 16, 1975. Mr. John N. Turner,Minister of Finance of Canada, was in the chair. Mr. H. Johannes Witteveen,Managing Director of the International Monetary Fund, participated in the meet-ing. The following observers attended during the Committee's discussions of thematters referred to in paragraphs 2, 3, and 4 below: Mr. Henri Konan Bedie,Chairman, Bank-Fund Development Committee; Mr. Gamani Corea, SecretaryGeneral, UNCTAD; Mr. Wilhelm Haferkamp, Vice President, EC Commission;Mr. Mahjoob A. Hassanain, Chief, Economics Department, OPEC; Mr. ReneLarre, General Manager, BIS; Mr. Emile van Lennep, Secretary General, OECD;Mr. Olivier Long, Director-General, GATT; Mr. Robert S. McNamara, President,IBRD.

2. The Committee discussed the world economic outlook and against this back-ground the international adjustment process. Great concern was expressed aboutthe depth and duration of the present recessionary conditions. It was urged thatantirecessionary policies should be pursued while continuing to combat inflation,particularly by countries in a relatively strong balance of payments position. It wasobserved that very large disequilibria persist not only between major oil exportingcountries as a group and all other countries but also among countries in thelatter group, particularly between industrial and primary producing countries.Anxiety was also voiced that adequate financing might not become available tocover the very large aggregate current account deficits, of the order of US$30 bil-lion, in prospect for the developing countries other than major oil exporters in1975.

3. The Committee agreed that the oil facility should be continued for 1975on an enlarged basis. They urged the Managing Director to undertake as soon aspossible discussions with major oil exporting members of the Fund, and with othermembers in strong reserve and payments positions, on loans by them for the pur-pose of financing the facility. The Committee agreed on a figure of SDR 5 billionas the total of loans to be sought for this purpose. It was also agreed that anyunused portion of the loans negotiated in 1974 should be available in 1975. TheCommittee agreed that in view of the uncertainties inherent in present worldeconomic conditions, it was necessary to keep the operation of the oil facilityunder constant review so as to be able to take whatever further action might benecessary in the best interests of the international community. It was also under-stood that during the coming months it would be useful to review the policies,practices, and resources of the Fund, since it would be appropriate to makeincreased use of the Fund's ordinary holdings of currency to meet the needs ofmembers that were encountering difficulties.

4. The Committee emphasized the need for decisive action to help the mostseriously affected developing countries. In connection with the oil facility, theCommittee fully endorsed the recommendation of the Managing Director that aspecial account should be established with appropriate contributions by oil export-ing and industrial countries, and possibly by other members capable of con-tributing, and that the Fund should administer this account in order to reducefor the most seriously affected members the burden of interest payable by themunder the oil facility.

5. The Committee considered questions relating to the sixth general reviewof the quotas of members, which is now under way, and agreed, subject to satis-

97



factory amendment of the Articles, that the total of present quotas should beincreased by 32.5 per cent and rounded up to SDR 39 billion. It was understoodthat the period for the next general review of quotas would be reduced from fiveyears to three years. The Committee also agreed that the quotas of the major oilexporters should be substantially increased by doubling their share as a group inthe enlarged Fund, and that the collective share of all other developing countriesshould not be allowed to fall below its present level. There was a consensus thatbecause an important purpose of increases in quotas was strengthening the Fund'sliquidity, arrangements should be made under which all the Fund's holdings ofcurrency would be usable in accordance with its policies. The Committee invitedthe Executive Directors to examine quotas on the basis of the foregoing under-standings, and to make specific recommendations as promptly as possible onincreases in the quotas of individual member countries.

6. I. The Committee considered the question of amendment of the Articles ofAgreement of the Fund. It was agreed that the Executive Directors should be askedto continue their work on this subject and, as soon as possible, submit for con-sideration by the Committee draft amendments on the following subjects:

(a) The transformation of the Interim Committee into a permanent Coun-cil at an appropriate time, in which each member would be able to cast the votes ofthe countries in his constituency separately. The Council would have decision-making authority under powers delegated to it by the Board of Governors.

(b) Improvements in the General Account, which would include (i) elimi-nation of the obligation of member countries to use gold to make such paymentsto the Fund as quota subscriptions and repurchases and the determination of themedia of payment, which the Executive Directors would study, and (ii) arrange-ments to ensure that the Fund's holdings of all currencies would be usable in itsoperations under satisfactory safeguards for all members.

(c) Improvements in the characteristics of the SDR designed to promotethe objective of making it the principal reserve asset of the international monetarysystem.

(d) Provision for stable but adjustable par values and the floating of cur-rencies in particular situations, subject to appropriate rules and surveillance of theFund, in accordance with the Outline of Reform.

II. The Committee also discussed a possible amendment that would establisha link between allocations of SDRs and development finance, but there continuesto be a diversity of views on this matter. It was agreed to keep the matter underactive study, but at the same time to consider other ways for increasing the transferof real resources to developing countries.

7. The Committee also agreed that the Executive Directors should be asked toconsider possible improvements in the Fund's facilities on the compensatoryfinancing of export fluctuations and the stabilization of prices of primary productsand to study the possibility of an amendment of the Articles of Agreement thatwould permit the Fund to provide assistance directly to international buffer stocksof primary products.

8. There was an intensive discussion of future arrangements for gold. The Com-mittee reaffirmed that steps should be taken as soon as possible to give the specialdrawing right the central place in the international monetary system. It wasgenerally agreed that the official price for gold should be abolished and obligatorypayments of gold by member countries to the Fund should be eliminated. Muchprogress was made in moving toward a complete set of agreed amendments on gold,including the abolition of the official price and freedom for national monetaryauthorities to enter into gold transactions under certain specific arrangements,outside the Articles of the Fund, entered into between national monetary authori-ties in order to ensure that the role of gold in the international monetary system

98


APPENDIX III (continued}. PRESS COMMUNIQUES OF THE COMMITTEES

would be gradually reduced. It is expected that after further study by the ExecutiveDirectors, in which the interests of all member countries would be taken intoaccount, full agreement can be reached in the near future so that it would be pos-sible to combine these amendments with the package of amendments as describedin paragraphs 6 and 7 above.

9. The Committee agreed to meet again in the early part of June 1975 inParis, France.

Third Meeting, Paris, June 10-11, 1975

1. The Interim Committee of the Board of Governors of the InternationalMonetary Fund held its third meeting in Paris on June 10 and 11, 1975 underthe chairmanship of Mr. John N. Turner, Minister of Finance of Canada.Mr. H. Johannes Witteveen, Managing Director of the International Monetary Fund,participated in the meeting. The following observers attended during the Com-mittee's discussions: Mr. Henri Konan Bedie, Chairman, Bank-Fund DevelopmentCommittee; Mr. Gamani Corea, Secretary General, UNCTAD; Mr. WilhelmHaferkamp, Vice President, EC Commission; Mr. Bahman Karbassioun, Advisorto the Secretary-General of OPEC; Mr. Rene Larre, General Manager, BIS;Mr. Emile van Lennep, Secretary General, OECD; Mr. F. Leutwiler, President,National Bank of Switzerland; Mr. Olivier Long, Director-General, GATT;Mr. Robert S. McNamara, President, IBRD.

2. The Committee received opinions, including that of the Managing Director,on the world economic outlook and its implications for the management ofdomestic policies and international financial relationships. The Committee agreedthat external financing would remain for some time a critical problem for anumber of countries and that its solution would require both maximum effortson the part of such countries to enhance their creditworthiness and cooperativeefforts in capital exporting countries to encourage the needed flows of financialresources.

3. The Committee noted that, in accordance with the consensus reached inthe Committee at its January meeting, the Executive Directors of the Fund havedecided to continue in 1975 the Fund's oil facility and that in order to financepurchases under that facility, loans for substantial amounts have already beenarranged with several oil exporting members and a number of other membersin strong external positions. The Committee noted that negotiations would becontinued in order to complete arrangements for the financing of the oil facility.The Committee welcomed the progress that has been made toward the estab-lishment of a subsidy account to assist the members of the Fund most seriouslyaffected by current conditions to meet the cost of using resources made availableto them through the oil facility. The Committee welcomes the support pledged sofar and urges other members to take similar action so that the account can beestablished as soon as possible. The Committee endorsed the decision of theExecutive Directors to review all aspects of the facility in July 1975.

4. The Committee held a detailed discussion of the role of gold and therewas widespread agreement that a solution would have to be based on the followingbroad principles:

(i) The objective should be an enhancement in the role of the SDR as thecentral asset in the international monetary system and, consequently, a reductionof the role of gold.

(ii) The official price of gold should be abolished.(iii) Obligations to use gold in payments between the Fund and members

should be abrogated.(iv) There should be the sale of a portion of the Fund's gold at the approxi-

99



mate market price for the benefit of developing members in general, and particu-larly those with low income, and the sale of another portion to members at thepresent official price.

(v) With respect to the rest of the Fund's gold, there should be a range ofbroad enabling powers, exercisable with a high majority.

(vi) A reasonable formula should be found for understandings on transactionsby monetary authorities with each other and in the market, which would includeunderstandings that would be designed to avoid the re-establishment of an officialprice and would deal with the volume of gold held by monetary authorities.

(vii) An appropriate formula should be found for collaboration with the Fundin connection with the understandings among monetary authorities. Some countriesfelt that this collaboration should relate also to the reduction of the role of reservecurrencies in the international monetary system.

The Committee was of the view that the Executive Directors should be askedto study the question of gold further in order that a final agreement can be reachedon the basis of these principles.

The Executive Directors should study the establishment of a gold substitutionaccount through which members would be able to exchange a part or all of theirgold holdings for SDRs issued by the Fund for this purpose.

5. The Committee also discussed the exchange arrangements that members ofthe Fund should observe. There was widespread agreement that members shouldhave a basic obligation to collaborate with the Fund and with other members inorder to promote exchange stability, to maintain orderly exchange arrangements,and to pursue exchange policies that contribute to adjustment, and that the Fundshould adopt policies in order to enable members to act consistently with theirbasic obligations whatever their exchange arrangements might be. The Committeereiterated its agreement that provision should be made for stable but adjustablepar values and the floating of currencies in particular situations, subject to appro-priate rules and surveillance of the Fund, in accordance with the Outline of Reform.

6. The Committee endorsed the principle of the improvement of the SpecialDrawing Account and the General Account and agreed that the Executive Directorsshould be asked to find agreed solutions on the few remaining issues. The Com-mittee attached particular importance to the inclusion of effective provisions inthe amended Articles under which the Fund's holdings of the currencies of allmembers would be usable, in accordance with appropriate economic criteria, inits standard operations and transactions. It was agreed that the Executive Direc-tors should study a power to invest a part of the Fund's assets equal to itsreserves for the purpose of raising income that would enable it to meet anyadministrative or operational deficits, and to report on this subject as soon aspossible.

7. (a) It was agreed that a Council should come into being when a decisionis taken by the Fund for that purpose under an appropriate amendment. TheCouncil would strengthen the Fund by providing it with an organ composed in thesame manner as the Committee of Twenty and the Interim Committee but withauthority not only to exercise advisory functions but also to take decisions underspecific powers. The Committee shares the view of the Executive Directors that,except for a few powers of a political or structural character that should be reservedto the Board of Governors, all powers of the Board of (governors should be dele-gable in principle to the Council, to the Executive Directors, or to both concurrently,by decisions of the Board of Governors.

(b) On the question of the majorities for the adoption of decisions of theFund on important matters, it was agreed that an 85 per cent majority should berequired under the amended Articles for those decisions that can be taken now byan 80 per cent majority.

100



(c) The Committee noted with approval the draft of an amendment bywhich amendments to the Articles would become effective when accepted by threefifths of the members having 85 per cent, instead of 80 per cent as at present, ofthe total voting power.

8. The Committee considered various proposals to assist members in dealingwith problems arising from sharp fluctuations in the prices of primary products.In this connection, the Committee requested the Executive Directors to considerappropriate modifications of the Fund's facilities on the compensatory financingof export fluctuations and on assistance to members in connection with their con-tributions to international buffer stocks. It was agreed that, after amendment, amember using the Fund's buffer stock facility would be able to retain any portionof its reserves held in the form of a reserve position in the Fund; this provisionnow applies to drawings under the Fund's compensatory financing facility.

9. The Committee considered the report of the Executive Directors on theprogress made toward implementation of the understandings reached in the Com-mittee last January with regard to increases in the quotas of members as a resultof the Sixth General Review of Quotas. The Committee noted with satisfactionthat progress had been made in reaching agreement on quota increases to beproposed for individual countries. The Committee agreed that for the quotaincreases proposed as a result of this review, and subject to the amendment ofthe Articles, members should be given an option to pay 25 per cent of theincrease in quota (which in the past members have had to pay in gold) in specialdrawing rights (SDKs), the currencies of certain other members, subject to theirconcurrence, or in the paying member's own currency. The question of paymentin gold by agreement with the Fund would be settled as part of the provisions ongold. The balance of the increase in subscription would be paid, as in the past,in the paying member's own currency. The Committee also recommended thatthere should be no obligation for a member to repurchase the amount of its owncurrency paid in excess of 75 per cent of the increase in its quota. The ExecutiveDirectors have been asked to prepare and submit as promptly as possible to theBoard of Governors, for consideration at its annual meeting in September 1975,a resolution that will include proposed increases in the quotas of individualmembers and provisions on the payment of corresponding subscriptions on thebasis of the understandings reached by the Committee.

10. The Committee agreed to meet again in Washington, D.C., immediatelybefore the annual meeting of the Board of Governors. The Committee agreed tomeet in Jamaica in January and expressed its gratitude to the Jamaican authoritiesfor the invitation.

101



Joint Ministerial Committee of the Boards of Governorsof the Bank and the Fund on the Transfer of Real Resourcesto Developing Countries (Development Committee)

PRESS COMMUNIQUES

First Meeting, Washington, October 2,1974

The Ministers of the Committee of Twenty on the Reform of the InternationalMonetary System and Related Issues recommended at their meeting in June 1974the establishment of a joint ministerial committee of the Fund and World Bank tocarry forward the study of the broad question of the transfer of real resources todeveloping countries, and to recommend measures to be adopted in order to imple-ment its conclusions. The Ministers further recommended that the joint ministerialcommittee should also give urgent attention to the problems of the developingcountries most seriously affected by exceptional balance of payments difficultiesin the current situation, bearing in mind the need for coordination with otherinternational bodies. The Development Committe held its first meeting today.

Mr. Henri Konan Bedie, Governor from Ivory Coast, was elected Chairman.The Managing Director of the Fund and the President of the Bank participatedin the meeting.

It was agreed that the immediate focus of the Committee's work would be onthe analysis of the situation of the most seriously affected developing and the leastdeveloped countries, and of measures to adjust to the new outlook for internationalcommodity prices. Additional topics for the Committee's consideration over thelonger term were discussed, and the Executive Secretary who will be appointedshortly x will be asked to prepare a recommendation for a detailed work program.

Second Meeting, Washington, January 17,1975

1. The Joint Ministerial Committee of the Boards of Governors of the Bankand the Fund on the Transfer of Real Resources to Developing Countries (theDevelopment Committee) held its second meeting in Washington on January 17,1975, under the Chairmanship of Mr. Henri Konan Bedie, Minister of Economyand Finance for Ivory Coast. The meeting was held in the headquarters buildingof the Pan American Health Organization. Mr. Robert S. McNamara, President ofthe International Bank for Reconstruction and Development, and Mr. JohannesWitteveen, Managing Director of the International Monetary Fund, took part inthe meeting, which was also attended by Mr. Abdelwahab Labidi, President of theAfrican Development Bank, Mr. Shiro Inoue, President of the Asian DevelopmentBank, Mr. M. G. Mathur, Deputy Director-General of the GATT, Mr. AntonioOrtiz Mena, President of the Inter-American Development Bank, Mr. E. vanLennep, Secretary General of the OECD, Mr. Maurice Williams, Chairman of theDAC, Mr. Mahjoob Hassanain, Director of the Economics Department of OPEC,Mr. Gabriel van Laethem, Under Secretary General of the United Nations, andDr. Raul Prebisch, Under Secretary General of the United Nations EmergencyOperation, Mr. Gamani Corea, Secretary General of UNCTAD, and AmbassadorPaul Jolles of Switzerland.

2. The Committee received several reports presented by the Executive Secretary,Mr. Henry J. Costanzo, on the initial work program adopted at the inaugural meet-ing, related to the situation of the most seriously affected developing countries,measures to adjust to the new outlook in commodity prices, and the future workprogram of the Committee.

1 At its second session onOctober 3, 1974, the Commit-tee selected Mr. Henry J. Cos-tanzo as Executive Secretary.

102



3. The members of the Committee engaged in a general exchange of viewsregarding the present situation and prospects of the developing countries. Membersnoted that many developing countries found themselves in serious difficulties as aresult of substantial adverse changes in their terms of trade and an inadequate flowof external capital and were being forced to take adjustment measures in manycases harmful to their long-term economic and social development. The membersrecognized that this situation was likely to continue in the immediate future, andexpressed their particular concern over the pressing difficulties in prospect for thepoorest, and the most seriously affected of the developing countries.

The Committee agreed that the industrialized countries should seek to adoptsuch adjustment measures considered necessary in their circumstances in such away as to avoid any reduction in the net flow of real resources to the developingcountries, seeking to improve the conditions under which developing countries andinternational development finance institutions may have access to their capitalmarkets, and to improve the real volume and the quality of official developmentassistance provided to the developing countries and should avoid trade restrictionsthat could negatively affect developing countries' exports. The Committee alsonoted the importance of continued and expanded cooperation, particularly in thetransfer of technology and management skills, between the industrialized and sur-plus oil-producing countries, in order to promote the development of the lattercountries and thereby to assist the overall long-range adjustment process and alsoin order to promote the development of other developing countries.

The Committee recognized the important and increasing flow of resourcesbeing made available by the surplus oil-producing countries to the developingcountries and to the international financial institutions. In welcoming such interestand participation on the part of these countries, the Committee agreed that thesecountries should seek to continue and expand this flow of resources, in accordancewith their financial capacity to do so.

4. The Committee agreed that the situation of the most seriously affectedcountries requires urgent treatment, and that measures should be taken to coverthe short-term requirements created by the present international situation. In thiscontext, the Committee welcomed the action taken by the Interim Committee withrespect to a continuation and expansion of an oil facility in the Fund and theestablishment of a special account in order to reduce for the most seriously affectedmembers the burden of interest payable by them. The Committee also reviewedseveral additional possible courses of action. It was agreed that the ExecutiveBoards of the Bank and the Fund should be invited to study the desirability ofcreating a special trust fund that would provide, for the period immediately ahead,additional highly concessional resources to meet the requirements of the most seri-ously affected countries, and the possible modalities of such a fund.

5. The Committee invited the Executive Board of the Bank to undertake animmediate study of the concept of "third window" lending by the Bank on termsintermediate between those of the Bank's regular loans and those of IDA's con-cessional credits. The Committee welcomed the willingness expressed by somemembers to support and to provide financial resources for such a facility.

6. For its immediate work program, the Committee instructed the Secretariatto propose such measures as might be considered for early implementation to pro-mote increased use of capital markets by developing countries, and to facilitatetheir access to such markets; to report to the Committee on an appropriate workprogram in response to the conclusions of the recent World Food Conference onthe financing of food, fertilizer, and food production; and to review the adequacyof existing information systems on the flow of resources to the developing countries.

7. The Committee also agreed that the future work of the Committee shouldfocus on the basic long-term needs of the developing countries and, in this connec-

103



tion, welcomed the intention of the President of the Bank to initiate urgently astudy of the capital requirements of developing countries to maintain a reasonablerate of growth in per capita income for the remainder of the decade. The Commit-tee instructed the Executive Secretary to initiate a broad and continuing review ofthe question of the transfer of real resources, using as a basis the work of the Com-mittee of Twenty and taking into account the conclusions of the Bank's study, inorder to formulate recommendations as to how the required transfers of realresources might be met through existing or new financial mechanisms and arrange-ments, including arrangements for commodity price stabilization. The Committeewelcomed the study to be undertaken by the Executive Directors of the Fund, asagreed by the Interim Committee, on the Fund's facilities for compensatory financ-ing and assistance to international buffer stocks of primary products.

8. The Committee was glad to note the announcements made at the meeting ofactions which permit the full effectiveness of the IDA 4th replenishment, and urgedsympathetic consideration of the proposals recently put forward by the IBRD foran increased program of normal Bank lending.

9. The Committee agreed to hold its next meeting in Paris during the first partof June 1975.

Third Meeting, Paris, June 12-13, 1975The Joint Ministerial Committee of the Boards of Governors of the Bank and

the Fund on the Transfer of Real Resources to Developing Countries (the Devel-opment Committee) held its third meeting in Paris on June 12-13, 1975, underthe chairmanship of Mr. Henri Konan Bedie, Minister of Economy and Financefor Ivory Coast. The meeting was held in the Centre de Conferences Internationales.Mr. Robert S. McNamara, President of the International Bank for Reconstructionand Development, Mr. H. Johannes Witteveen, Managing Director of the Inter-national Monetary Fund, and Mr. Henry J. Costanzo, Executive Secretary of theDevelopment Committee, took part in the meeting, which was also attended bythe following observers: Mr. Abdelwahab Labidi, President of the African Devel-opment Bank; Mr. Chedly Ayari, President of the Arab Bank for EconomicDevelopment in Africa; Mr. Saeb Jaroudi, President of the Arab Fund forEconomic and Social Development; Mr. Shiro Inoue, President of the AsianDevelopment Bank; Mr. Claude Cheysson, Member of the Commission of theEuropean Communities; Mr. Maurice Williams, Chairman of the DevelopmentAssistance Committee; Mr. Yves Le Portz, President of the European InvestmentBank; Mr. M. G. Mathur, Deputy Director-General of the GATT; Mr. AntonioOrtiz Mena, President of the Inter-American Development Bank; Mr. E. vanLennep, Secretary General of the OECD; Mr. Gabriel van Laethem, UnderSecretary General of the United Nations; Mr. Gamani Corea, Secretary Generalof UNCTAD; and Ambassador Paul Jolles of Switzerland.

The Committee reviewed the present situation and the medium and long-termprospects of the developing countries, in the context of analyses prepared by theIMF on the short-term balance of payments outlook of developing countries, anda World Bank study on the capital requirements of developing countries to theend of this decade. The Committee noted with concern the continued deteriorationof the position of most of the developing countries. The Committee broadlyendorsed the conclusion of the World Bank study that, if the developing coun-tries are to achieve adequate growth rates in the remaining years of the decade,they will require substantial increases in capital flows, both official and private,and that among other things they will have to undertake at the same time effortsto increase domestic resource mobilization and to expand exports. In particular,the Committee felt that the low-income countries faced a very difficult prospectand recommended that their requirements for concessional assistance should be

104



met on a priority basis. The Committee agreed with the conclusions of the Bankstudy about the substantial additional requirements for external capital of the middleand high-income developing countries. Noting the conclusions of the IMF studythat the balance of payments needs of the most seriously affected countries wouldcontinue to be large in 1975 and 1976, the Committee recommended urgentsteps to meet these needs through existing and new mechanisms.

In the light of this situation, the Committee re-emphasized the urgency ofimproving the real volume and quality of official development assistance, bothbilateral and multilateral, and reviewing its distribution with a view to improvingthe share for the poorer countries, and reaffirmed their commitment to supportsteps toward these ends in both the industrial and the surplus oil-producingcountries. The Committee welcomed the decisions of some of its members toexpand the volume and improve the quality of their assistance, but noted that theexisting quantum of aid was still far below the 0.7 per cent of GNP target forthe middle of the Second Development Decade. In this connection, the Committeenoted that negotiations for the IDA 5th replenishment were scheduled to startlater this year. In view of the requirement for additional capital by IDA recipients,it was agreed that a replenishment providing for an expansion in real terms wouldbe most helpful.

The Committee agreed that in order to help achieve acceptable rates of growthfor developing countries, there should be an expansion of the lending programsof the World Bank and the regional development banks, consistent with theircapital structure and the availability of funds. The Committee urged that thecapital base of the development finance institutions be reviewed.

In response to the serious difficulties faced by the developing countries, theCommittee, as a first concrete step, decided to lend its unanimous support to theestablishment for one year of a new intermediate lending facility in the WorldBank (known as the "third window") to lend on terms intermediate betweenthose of IDA and of the World Bank. It further decided to urge the World Bankto proceed with its establishment in the fiscal year beginning July 1, 1975, inorder to lend to the developing countries in that year up to $1 billion in assistanceseparate from other Bank operations. Since these funds will be limited, there willbe need for eligibility criteria which will favor the developing countries with anannual per capita income of less than $375, but it was recognized that there wasneed to have some flexibility in the matter of the upper limit of the criteria. Itwas pointed out that the third window operations could also have some redistribu-tive effect on other Bank Group financing, to both the poorest and the middleand higher-income developing countries. The Committee noted with satisfactionthat 11 countries had offered contributions towards an interest subsidy fund fromamongst industrial and oil-exporting countries. Some other countries indicatedtheir likely support to this cooperative effort by some industrial and oil-exportingcountries, in a multilateral framework, for the assistance of the developing coun-tries in the present difficult situation but suggested some alternative ways offinancing.

The Committee considered the report of the Executive Boards of the IBRDand IMF on proposals to create a special trust fund to be administered by theIMF to provide additional highly concessional resources to meet the balance ofpayments needs of low-income developing countries for the next few years.Some members of the Committee felt there was an urgent need for establishingsuch a fund as soon as possible. In order to facilitate early concrete action on atrust fund, the Committee agreed to urge the Executive Directors of the IMF toconsider all aspects of the establishment of such a trust fund as well as to continuetheir study of all possible sources of financing.

105


APPENDIX III (concluded}. PRESS COMMUNIQUES OF THE COMMITTEES

It was appreciated that the magnitude of the flow of resources required by thedeveloping countries was such that private capital flows must continue to playa substantial role in helping to meet the overall capital needs for development.The Committee noted the importance of measures to facilitate and expand theaccess of developing countries to capital markets and recommended expandedtechnical assistance to developing countries seeking such access. The Committeeagreed to establish a working group to make a review of regulatory and otherconstraints affecting access to capital markets, and also to study further proposalsto support developing countries' access to private markets, including the use ofmultilateral guarantees. The Working Group should present a status report onprogress at the next Committee meeting.

The Committee recognized that fluctuations in the prices and earnings of com-modities which account for a major portion of the exports of developing coun-tries can present severe problems to these countries both in their balance of pay-ments and in the maintenance of development expenditures and investment levels.The Committee recognized the need for effective measures to reduce such fluctua-tions, which could make a significant contribution to development efforts. TheCommittee noted measures recently taken and others under consideration to helpmoderate fluctuations in commodity prices or export earnings including proposalsto negotiate appropriate agreements. Many members urged the Bank, and theregional organizations, to study ways and means of assisting in the financing ofcommodity stabilization schemes, including buffer stock arrangements. Manymembers also expressed strong support for the Bank's proposal to consider provid-ing financing to the tin buffer stock. The Committee welcomed the request of theInterim Committee to the Executive Directors of the IMF to consider appropri-ate modifications in the terms of its compensatory financing facility and its bufferstock facility.

The Committee also noted that appropriate trade liberalization policies couldprovide very substantial benefits to the developing countries and expressed itsearnest hope for maximum progress in trade liberalization during the ongoingmultilateral trade negotiations.

The Committee took note of new institutional arrangements established as aresult of the World Food Conference as well as of initial steps toward creationof the proposed International Fund for Agricultural Development.

It was agreed that the next meeting of the Committee would be held inWashington, D.C., in the first week of September, during the Annual Meetingsof the Boards of Governors of the Bank and the Fund. It was also agreed tomeet in January 1976, in Jamaica, in conjunction with the meeting of the InterimCommittee.

106


Appendix IVExecutive Directors and Voting Poweron April 30, 1975

DirectorAlternate

APPOINTED

Sam Y. CrossCharles R. Harley

Anthony K. RawlinsonPeter J. Bull

Eckard PieskeGerhard Laske

Jacques Henri WahlGerard de Marge rie

Kaichi KawaguchiMikio Wakatsuki

ELECTED

Francesco Palamenghi-Crispi(Italy)

Jose Luis Mora (Spain)

Bernard J. Drabble (Canada)George Reynolds (Ireland)

Pieter Lieftinck (Netherlands)Tom de Vries (Netherlands)

Nazih Ahmed Deif (Egypt)Mohamed Finaish (Libyan Arab

Republic)

CastingVotes of

United States

United Kingdom

Germany, Fed. Rep. of

France

Japan

ItalyMalta

* PortugalSpain

BahamasBarbadosCanadaIrelandJamaica

CyprusIsraelNetherlandsRomaniaYugoslavia

BahrainEgyptIraqJordan

* Kuwait* Lebanon* Libyan Arab Rep.Pakistan

*Qatar* Saudi ArabiaSomaliaSyrian Arab Rep.

* United Arab EmiratesYemen Arab Rep.

GeneralAccount

PerVotes cent

by Total ofCountry votes1 total

67,250 67,250 21.40

28,250 28,250 8.99

16,250 16,250 5.17

15,250 15,250 4.85

12,250 12,250 3.90

10,250410

1,4204,200 16,280 5.18

450380

11,2501,460

780 14,320 4.56

5101,5507,2502,1502,320 13,780 4.39

3502,1301,340

480900340490

2,600450

1,590440750400350 12,610 4.01

Special DrawingAccount

Percent

Total ofvotes1 total

67,250 21.87

28,250 9.19

16,250 5.29

15,250 4.96

12,250 3.98

14,860 4.83

14,320 4.66

13,780 4.48

8,440 2.75

107


APPENDIX IV (continued). EXECUTIVE DIRECTORS AND VOTING POWER

DirectorAlternate

ELECTED (continued)

P. S. N. Prasad (India)W. M. Tilakaratna (Sri Lanka)

Jacques de Groote (Belgium)Heinrich G. Schneider (Austria)

Per Asbrink (Sweden)]<f>rn H. Kjaer (Denmark)

Byanti Kharmawan (Indonesia)Maung Shein (Burma)

R. J. Whitelaw (Australia)R. S. Deane (New Zealand)

Horace R. Monday, Jr. (The Gambia)/. B. Zulu (Zambia)

Francisco Suarez (Mexico)Roberto Guarnieri (Venezuela)

Alexandre Kafka (Brazil)Clovis L. A. Albuquerque (Brazil)

CastingVotes of

BangladeshIndiaSri Lanka

AustriaBelgiumLuxembourgTurkey

DenmarkFinlandIcelandNorwaySweden

BurmaFijiIndonesiaKhmer Rep.KoreaLaosMalaysiaNepal

* SingaporeThailandViet-Nam

AustraliaNew ZealandPhilippinesWestern Samoa

BotswanaBurundi

*EthiopiaGambia, TheGuineaKenyaLesothoLiberiaMalawiNigeriaSierra LeoneSudanSwazilandTanzaniaTrinidad and TobagoUgandaZambia

Costa RicaEl SalvadorGuatemalaHondurasMexicoNicaraguaVenezuela

BrazilColombiaDominican RepublicGuyanaHaitiPanamaPeru

GeneralAccount

PerVotes cent

by Total ofCountry votes1 total

1,5009,6501,230 12,380 3.94

2,9506,750

4501,760 ii?910 3.79

2,8502,150

4802,6503,500 11,630 3.70

850380

2,850500

1,050380

2,110374620

1,590870 11,574 3.68

6,9002,2701,800

270 11,240 3.58

300440520320490730300540400

1,600500970330670880650

1,010 10,650 3.39

570600610500

3,950520

3,550 10,300 3.28

4,6501,820

680450440610

1,480 10,130 3.22


Percent

Total ofvotes1 total

12,380 4.03

11,910 3.87

11,630 3.78

10,954 3.56

11,240 3.66

10,130 3.29

10,300 3.35

10,130 3.29

108


APPENDIX IV (concluded). EXECUTIVE DIRECTORS AND VOTING POWER

GeneralAccount

DirectorAlternate

CastingVotes of

Votesby Total

Country votes1

Percentof

total


Totalvotes1

Percentof

total

ELECTED (concluded)

Jahangir Amuzegar(Iran)Costa P. Caranicas (Greece)

Roberto Gavalda (Argentina)Jose Luis Zabala (Chile)

Antoine W. Yameogo(Upper Volta)

Samuel Nana-Sinkam (Cameroon)

AfghanistanAlgeriaGhanaGreeceIranMoroccoOmanTunisiaYemen, People's

Dem. Rep. of

ArgentinaBoliviaChileEcuadorParaguayUruguay

CameroonCentral African Rep.ChadCongo, People's

Rep. of theDahomeyEquatorial GuineaGabonIvory CoastMalagasy Rep.MaliMauritaniaMauritiusNigerRwandaSenegalTogoUpper VoltaZaire

6201,5501,1201,6302,1701,380

320730

540 10,060 3.20

4,650620

1,830580440940 9,060 2.88

600380380

380380330400770510470380470380440590400380

1,380 9,020 2.87

3 14, 194 2 100.00

10,060 3.27

9,060 2.95

9,020 2.93

307,4642 100.00

* Not a participant in the Special Drawing Account.1 Voting power varies on certain matters pertaining to the

General Account with use of the Fund's resources in that Ac-count. In voting on matters relating exclusively to the SpecialDrawing Account, only the number of votes allotted to mem-bers which are participants may be cast.

2 This total does not include the votes of China and SouthAfrica, which did not participate in the 1974 Regular Electionof Executive Directors.

109


Appendix VChanges in Membershipof Executive Board

Changes in the membership of the Executive Board between May 1, 1974 andApril 30, 1975 were as follows:

Sam Y. Cross (United States) was appointed Executive Director by the UnitedStates, effective May 3, 1974.

Charles R. Harley (United States), formerly Alternate Executive Director toWilliam B. Dale (United States), was appointed Alternate Executive Director toSam Y. Cross (United States), effective May 3, 1974.

Claude Beaurain (France) resigned as Alternate Executive Director to JacquesHenri Wahl (France), effective July 31, 1974.

Gerard de Margerie (France) was appointed Alternate Executive Director toJacques Henri Wahl (France), effective August 1, 1974.

Robert Bryce (Canada) completed his term of service as Executive Directorfor Barbados, Canada, Ireland, and Jamaica, effective October 31, 1974.

Guillermo Bueso (Honduras) completed his term of service as Executive Direc-tor for Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, andVenezuela, effective October 31, 1974.

Nguyen Huu Hanh (Viet-Nam) completed his term of service as AlternateExecutive Director to Byanti Kharmawan (Indonesia), effective October 31, 1974.

Carlos Massad A. (Chile) completed his term of service as Executive Directorfor Argentina, Bolivia, Chile, Ecuador, Paraguay, and Uruguay, effective Octo-ber 31, 1974.

Ricardo H. Arriazu (Argentina) completed his term of service as AlternateExecutive Director to Carlos Massad A. (Chile), effective October 31, 1974.

S. B. Nicol-Cole (Sierra Leone) completed his term of service as ExecutiveDirector for Botswana, Burundi, Ethiopia, The Gambia, Guinea, Kenya, Lesotho,Liberia, Malawi, Nigeria, Sierra Leone, the Sudan, Tanzania, Trinidad and Tobago,Uganda, and Zambia, effective October 31, 1974.

Robert van S. Smit (South Africa) completed his term of service as AlternateExecutive Director to Lindsay B. Brand (Australia), effective October 31, 1974.

Jahangir Amuzegar (Iran), formerly Executive Director for Algeria, Ghana,Greece, Iran, Morocco, Tunisia, and the People's Democratic Republic of Yemen,was elected Executive Director by Afghanistan, Algeria, Ghana, Greece, Iran,Morocco, Oman, Tunisia, and the People's Democratic Republic of Yemen, effec-tive November 1, 1974.

Costa P. Caranicas (Greece) was reappointed Alternate Executive Director toJahangir Amuzegar (Iran), effective November 1, 1974.

110


APPENDIX V (continued). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

Per Asbrink (Sweden) was re-elected Executive Director by Denmark, Finland,Iceland, Norway, and Sweden, effective November 1, 1974.

Knut J. M. Andreassen (Norway) was reappointed Alternate Executive Directorto Per Asbrink (Sweden), effective November 1, 1974. He resigned, effectiveFebruary 28, 1975.

Lindsay B. Brand (Australia), formerly Executive Director for Australia, NewZealand, South Africa, Swaziland, and Western Samoa, was elected ExecutiveDirector by Australia, New Zealand, the Philippines, and Western Samoa, effectiveNovember 1, 1974. He resigned, effective April 13, 1975.

R. S. Deane (New Zealand) was appointed Alternate Executive Director toLindsay B. Brand (Australia), effective November 1, 1974. He was appointedAlternate Executive Director to R. J. Whitelaw (Australia), effective April 14,1975.

Nazih Ahmed Deif (Egypt), formerly Executive Director for Afghanistan,Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, the Libyan Arab Republic, Oman,Pakistan, Qatar, Saudi Arabia, Somalia, the Syrian Arab Republic, the UnitedArab Emirates, and the Yemen Arab Republic, was elected Executive Director byBahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, the Libyan Arab Republic, Pakis-tan, Qatar, Saudi Arabia, Somalia, the Syrian Arab Republic, the United ArabEmirates, and the Yemen Arab Republic, effective November 1, 1974.

Mohamed Finaish (Libyan Arab Republic) was reappointed Alternate Execu-tive Director to Nazih Ahmed Deif (Egypt), effective November 1, 1974.

Bernard J. Drabble (Canada) was elected Executive Director by the Bahamas,Barbados, Canada, Ireland, and Jamaica, effective November 1, 1974.

George Reynolds (Ireland), formerly Alternate Executive Director to RobertBryce (Canada), was appointed Alternate Executive Director to Bernard J.Drabble (Canada), effective November 1, 1974.

Jacques de Groote (Belgium) was re-elected Executive Director by Austria,Belgium, Luxembourg, and Turkey, effective November 1, 1974.

Heinrich G. Schneider (Austria) was reappointed Alternate Executive Directorto Jacques de Groote (Belgium), effective November 1, 1974.

Roberto Gavalda (Argentina) was elected Executive Director by Argentina,Bolivia, Chile, Ecuador, Paraguay, and Uruguay, effective November 1, 1974.

Jose Luis Zabala (Chile) was appointed Alternate Executive Director to RobertoGavalda (Argentina), effective November 1, 1974.

Alexandre Kafka (Brazil) was re-elected Executive Director by Brazil, Colom-bia, the Dominican Republic, Guyana, Haiti, Panama, and Peru, effective Novem-ber 1, 1974.

Byanti Kharmawan (Indonesia), formerly Executive Director for Burma, Fiji,Indonesia, the Khmer Republic, Korea, Laos, Malaysia, Nepal, the Philippines,Singapore, Thailand, and Viet-Nam, was elected Executive Director by Burma,Fiji, Indonesia, the Khmer Republic, Korea, Laos, Malaysia, Nepal, Singapore,Thailand, and Viet-Nam, effective November 1, 1974.

Maung Shein (Burma) was appointed Alternate Executive Director to ByantiKharmawan (Indonesia), effective November 1, 1974.

Pieter Lieftinck (Netherlands), formerly Executive Director for Cyprus, Israel,the Netherlands, and Yugoslavia, was elected Executive Director by Cyprus, Israel,the Netherlands, Romania, and Yugoslavia, effective November 1, 1974.

I l l


APPENDIX V (continued). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

Tom de Vries (Netherlands) was reappointed Alternate Executive Director toPieter Lieftinck (Netherlands), effective November 1, 1974.

Horace R. Monday, Jr. (The Gambia), formerly Alternate Executive Directorto S. B. Nicol-Cole (Sierra Leone), was elected Executive Director by Botswana,Burundi, Ethiopia, The Gambia, Guinea, Kenya, Lesotho, Liberia, Malawi, Nigeria,Sierra Leone, the Sudan, Swaziland, Tanzania, Trinidad and Tobago, Uganda, andZambia, effective November 1, 1974.

J. B. Zulu (Zambia) was appointed Alternate Executive Director to Horace R.Monday, Jr. (The Gambia), effective November 1, 1974.

Francesco Palamenghi-Crispi (Italy) was re-elected Executive Director by Italy,Malta, Portugal, and Spain, effective November 1, 1974.

Jose Luis Mora (Spain) was reappointed Alternate Executive Director toFrancesco Palamenghi-Crispi (Italy), effective November 1, 1974.

P. S. N. Prasad (India) was re-elected Executive Director by Bangladesh,India, and Sri Lanka, effective November 1, 1974.

W. M. Tilakaratna (Sri Lanka) was reappointed Alternate Executive Directorto P. S. N. Prasad (India), effective November 1, 1974.

Francisco Suarez (Mexico), formerly Alternate Executive Director to GuillermoBueso (Honduras), was elected Executive Director by Costa Rica, El Salvador,Guatemala, Honduras, Mexico, Nicaragua, and Venezuela, effective Novem-ber 1, 1974.

Roberto Guarnieri (Venezuela) was appointed Alternate Executive Director toFrancisco Suarez (Mexico), effective November 1, 1974.

Antoine W. Yameogo (Upper Volta) was re-elected Executive Director byCameroon, the Central African Republic, Chad, the People's Republic of theCongo, Dahomey, Equatorial Guinea, Gabon, Ivory Coast, the Malagasy Republic,Mali, Mauritania, Mauritius, Niger, Rwanda, Senegal, Togo, Upper Volta, andZaire, effective November 1, 1974.

Samuel Nana-Sinkam (Cameroon) was reappointed Alternate Executive Direc-tor to Antoine W. Yameogo (Upper Volta), effective November 1, 1974.

Basilio Martins (Brazil) resigned as Alternate Executive Director to AlexandreKafka (Brazil), effective November 6, 1974.

Clovis L. A. Albuquerque (Brazil) was appointed Alternate Executive Directorto Alexandre Kafka (Brazil), effective November 11, 1974.

Guenther Schleiminger (Germany, Fed. Rep. of) resigned as Executive Directorfor the Federal Republic of Germany, effective December 31, 1974.

Lore Fuenfgelt (Germany, Fed. Rep. of) resigned as Alternate Executive Directorto Guenther Schleiminger (Germany, Fed. Rep. of), effective December 31, 1974.

Eckard Pieske (Germany, Fed. Rep. of) was appointed Executive Director by theFederal Republic of Germany, effective January 1, 1975.

Gerhard Laske (Germany, Fed. Rep. of) was appointed Alternate ExecutiveDirector to Eckard Pieske (Germany, Fed. Rep. of), effective January 1, 1975.

J0rn H. Kjaer (Denmark) was appointed Alternate Executive Director to PerAsbrink (Sweden), effective March 1, 1975.

R. J. Whitelaw (Australia) was elected Executive Director by Australia, NewZealand, the Philippines, and Western Samoa, effective April 14, 1975.

112


APPENDIX V (concluded). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

The following served at certain times during 1974/75 as Temporary AlternateExecutive Directors to the Executive Directors indicated:

Temporary AlternateExecutive Director

Miss Lucia Avetikian (Chile)Eimar Avillez (Brazil)Miss C. J. Batliwalla (India)Angel R. Caram (Argentina)Geoffrey F. Carmody (Australia)

David C. Chessell (Australia)

Roberto A. Cleaves (Honduras)James K. E. Cole (Sierra Leone)Michele Cosentino (Italy)J. A. Crosby (Peru)Miss Anne Doize (Belgium)Bun Phor Eap (Khmer Republic)Jean-Claude Faure (France)M. G. Fiator (Dahomey)F. T. Flores (Brazil)Mehdi Garadaghipour (Iran)Francisco Garcia-Palacios (Venezuela)Heng Kim-Y (Khmer Republic)

Guillermo Heyden Q. (Costa Rica)

Fouad K. Hussein (Egypt)Reza Khonsary (Iran)Stanislas Y. Kpognon (Dahomey)Thomas Leddy (United States)Abdul Malek (Malaysia)Vishwa N. Mudaliar (Fiji)Marc S. Nan Nguema (Gabon)

Alan B. Nymark (Canada)

Chike C. Ozumba (Nigeria)

Olafur Petursson (Iceland)

Adelio Pipino (Chile)

Carlo Polpettini (Italy)Fabrizio Saccomanni (Italy)Winfried Sanner (Germany, Fed. Rep. of)Maung Shein (Burma)Timothy P. Sweeney (United Kingdom)Atsuo Takahashi (Japan)S. P. Upasani (India)Jean R. Vallet (France)Jan M. G. Vanormelingen (Belgium)Mohamed A. Wasfy (Egypt)Guillermo Zoccali (Argentina)J. B. Zulu (Zambia)

Executive Director for whomTemporary Alternate Served

Carlos Massad A. (Chile)Alexandre Kafka (Brazil)P. S. N. Prasad (India)Roberto Gavalda (Argentina)Lindsay B. Brand (Australia)Lindsay B. Brand (Australia)R. J. Whitelaw (Australia)Guillermo Bueso (Honduras)Horace R. Monday, Jr. (The Gambia)Francesco Palamenghi-Crispi (Italy)Alexandre Kafka (Brazil)Jacques de Groote (Belgium)Byanti Kharmawan (Indonesia)Jacques Henri Wahl (France)Antoine W. Yameogo (Upper Volta)Alexandre Kafka (Brazil)Jahangir Amuzegar (Iran)Guillermo Bueso (Honduras)Byanti Kharmawan (Indonesia)Guillermo Bueso (Honduras)Francisco Suarez (Mexico)Nazih Ahmed Deif (Egypt)Jahangir Amuzegar (Iran)Antoine W. Yameogo (Upper Volta)Sam Y. Cross (United States)Byanti Kharmawan (Indonesia)Byanti Kharmawan (Indonesia)Antoine W. Yameogo (Upper Volta)Robert Bryce (Canada)Bernard J. Drabble (Canada)S. B. Nicol-Cole (Sierra Leone)Horace R. Monday, Jr. (The Gambia)Per Asbrink (Sweden)Carlos Massad A. (Chile)Roberto Gavalda (Argentina)Francesco Palamenghi-Crispi (Italy)Francesco Palamenghi-Crispi (Italy)Guenther Schleiminger (Germany, Fed. Rep. of)Byanti Kharmawan (Indonesia)Anthony K. Rawlinson (United Kingdom)Kaichi Kawaguchi (Japan)P. S. N. Prasad (India)Jacques Henri Wahl (France)Jacques de Groote (Belgium)Nazih Ahmed Deif (Egypt)Roberto Gavalda (Argentina)S. B. Nicol-Cole (Sierra Leone)

113


Appendix VIAdministrative Budget


July 25, 1975

Dear Mr. Chairman:

The administrative budget of the Fund approved by the Executive Board forthe Fiscal Year ending April 30, 1976 is presented herewith, in accordance withSection 20 of the By-Laws. The presentation also shows actual expenses for thepast two fiscal years.

I should like to point out that it is of course impossible to predict whether theamounts budgeted will, in fact, meet the requirements of the Fund's program. Theamounts shown are estimates of requirements on the basis of the expected levelof activities. Should contingencies arise or present plans change materially, themanagement would recommend appropriate amendments to the Executive Board.

Yours sincerely,/s/

H. JOHANNES WITTEVEENChairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

114


APPENDIX VI (concluded)

Administrative Budget as Approved by the Executive Board for the Fiscal Year Ending April 30, 1976 Comparedwith Actual Expenses for the Fiscal Years Ended April 30,1974 and 1975

(Values expressed in special drawing rights)1

T

II.

III.

TV

V.

Category of Expense

BOARD OF GOVERNORS

EXECUTIVE DIRECTORSSalariesOther compensations and benefitsTravel

Total

STAFFSalariesOther compensations and benefitsTravel

Total

SPECIAL SERVICES TO MEMBER COUNTRIES

OTHER ADMINISTRATIVE EXPENSESCommunicationsOffice occupancy expensesBooks and printingSupplies and equipmentData processing servicesMiscellaneous

Total

TOTAL 2

Fiscal YearEnding

Apr. 30, 1976

Budget

1,155,915

2421 381653,274648,440

3,723,095

22,259,6299,089,4434,792,820

36,141,892

3,991,332

1,405,625. . 1,691,5841,029,449

978,702923,927

1,075,364

7,104,651

52,116,885

Fiscal YApr. 3

RevisedBudget

1,546,601

2231 032662,643719,922

3,613,597

19,355,4977,754,9704,358,846

31,469,313

3,656,462

1,330,2331,463,674

926,782818,267872,349864,873

6,276,178

46,562,151

ear Ended>0, 1975

ActualExpenses

1,478,518

2,223 841627,871699,283

3,550,995

19,337,6557,750,8394,329,123

31,417,617

3,501,050

1,283,3981,422,229

855,912793,420864,754802,619

6,022,332

45,970,512

Fiscal YearEnded

Apr. 30, 1974

ActualExpenses

2,659,848

2 008 003514,894469,338

2,992,235

18,150,8506,669,0063,914,663

28,734,519

3,280,388

1,246,8501,247,104

762,664802,788741,401

1,020,975

5,821,782

43,488,772

1 The administrative budget is expressed in terms of U. S.dollars and converted to SDR equivalents.

- Net administrative expenses for the fiscal year endedApril 30, 1975 totaled SDR 44,770,761 after deduction ofSDR 1,199,751 reimbursed to the General Account by assess-

ments levied on the net cumulative allocations of participantsin the Special Drawing Account. The comparable figures forthe fiscal year ended April 30, 1974 were SDR 42,488,355 andSDR 1,000,417, respectively.

115


Appendix VII

Comparative Statement of Income and Expenses

(Values expressed in special drawing rights)

Fiscal Year Ended

Apr. 30, 1973 Apr. 30, 1974 Apr. 30, 1975

OPERATIONAL INCOMEOperational charges

Received in gold 731,368 10,000 —Received in special drawing rights 2,299,694 2,341,284 20,666,186Received in members' currencies 174,684 102,622 358,577

Total 3,205,746 2,453,906 21,024,763

Charges on balances in excess of quotasReceived in gold 2,221,503 366,042 —Received in special drawing rights 23,141,725 26,055,223 122,491,201Received in members' currencies 2,811,624 1,813,534 1,904,224

Total 28,174,852 28,234,799 124,395,425

Interest on holdings of special drawing rights .. 10,203,011 7,773,651 21,123,821

Total Operational Income 41,583,609 38,462,356 166,544,009

Deduct: Operational expensesRemuneration

Paid in gold 3,621,247 315,071 —Paid in special drawing rights 20,393,635 6,394,055 10,317,068Paid in members' currencies 5,318,696 20,520,305 52,055,045

Total 29,333,578 27,229,431 62,372,113

Interest on indebtednessPaid in special drawing rights — — 1,200,167Paid in members' currencies — — 68,028,115

Total _ _ 69,228,282

Total Operational Expenses 29,333,578 27,229,431 131,600,395

NET OPERATIONAL INCOME 12,250,031 11,232,925 34,943,614

EXPENSES J

Administrative budget expenses 38,671,0462 42,488,355 2 44,770,7612

Fixed property expenses 16,354,269 5,862,331 (290,599)Net valuation adjustment loss 138,438 92,493 119,893

TOTAL EXPENSES * 55,163,753 48,443,179 44,600,055

EXCESS OF EXPENSES OVER INCOME BEFOREDEDUCTION OF EXTRAORDINARY ITEM 42,913,722 37,210,254 9,656,441

Deduct: Proceeds from the sale of headquartersbuilding 21,171,914 — —

EXCESS OF EXPENSES OVER INCOME 21,741,808 37,210,254 9,656,441

1 Excludes operational expenses which have been deducted from operational income.2 After deduction of SDR 698,615 for fiscal year 1973, SDR 1,000,417 for fiscal year 1974,

and SDR 1,199,751 for fiscal year 1975 reimbursed to the General Account by assessmentslevied on the net cumulative allocations of participants in the Special Drawing Account.

116


Appendix VIIIFinancial Statements of the General Account,Special Drawing Account, and Staff Retirement Fund


July 25, 1975

Dear Mr. Chairman:

In accordance with Section 20(b) of the By-Laws of the Fund, I have the honorto submit for the consideration of the Board of Governors the audited financialstatements of the General Account, the Special Drawing Account, and the StaffRetirement Fund for the year ended April 30, 1975, together with two memorandafrom the External Audit Committee, which include the audit opinions.

In conformity with the By-Laws, the audit of the Fund has been performed byan External Audit Committee consisting of auditors nominated by three membercountries. At the Fund's request, Ecuador, Luxembourg, and the United Statesnominated auditors to serve on this Committee. They respectively nominatedMr. Fausto Munoz, Assistant Manager, Public Sector, Operations Department,Central Bank of Ecuador; Mr. Emile Lemmer, Commissioner of the Government,Ministry of Finance, Luxembourg; and Mr. Steve L. Comings, Assistant Com-missioner, Comptroller, Bureau of Government Financial Operations, U. S. Treas-ury. The auditors thus nominated were confirmed by the Executive Directors.

It will be noted that, in the year under review for the General Account, opera-tional income amounted to SDR 166,544,009, and operational expenses amountedto SDR 131,600,395 resulting in net operational income of SDR 34,943,614.Administrative budget and fixed property expenses and a net valuation adjustmentloss amounted to SDR 44,600,055 which resulted in an excess of expenses overincome of SDR 9,656,441 for the fiscal year. Pursuant to Executive Board DecisionNo. 708-(57/57), adopted November 27, 1957, this excess of expenses overincome has been charged against the Special Reserve.

The detailed report of the External Audit Committee is being submitted sepa-rately to the Board of Governors.

Yours sincerely,/s/

H. JOHANNES WITTEVEENChairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

117


APPENDIX VIII (continued)

GENERAL ACCOUNT AND SPECIAL DRAWING ACCOUNTMEMORANDUM BY THE EXTERNAL AUDIT COMMITTEE

Washington, D.C.July 8, 1975

To the Managing Directorand the Executive Directors


Our report, dated July 8, 1975, submitted through you to the Board of Governors,on the audit of the General Account and the Special Drawing Account of the Inter-national Monetary Fund, for the fiscal year ended April 30, 1975, includes thefollowing paragraphs relating to the authority for the audit, the scope of the audit,and the audit opinion:

AUTHORITY FOR THE AUDIT

The audit for the fiscal year ended April 30, 1975, was carried out pursuant toand in accordance with the requirements of Section 20 (b) of the By-Laws of theInternational Monetary Fund. In accordance with the provisions of the By-Laws,Ecuador, Luxembourg, and the United States were each invited to nominatea person to serve on an external audit committee. The three persons nominatedwere confirmed by the Executive Board.

SCOPE OF THE AUDIT

We have examined the Balance Sheet of the General Account of the Inter-national Monetary Fund as at April 30, 1975, the Statement of Income andExpenses, the Statement of Reserves, and the Statement of Changes in FinancialPosition for the fiscal year then ended, and the schedules related thereto; and theBalance Sheet of the Special Drawing Account of the International MonetaryFund as at April 30, 1975, the Statement of Source and Use of Special DrawingRights for the fiscal year then ended, and the schedules related thereto. Ourexamination was made in accordance with generally accepted auditing standards,and accordingly included such tests of the accounting records, giving considerationto the extent of internal control and the internal audit work performed by theInternal Auditor, and such other auditing procedures as we considered necessaryin the circumstances. In the course of our audit, reference was made to theArticles of Agreement, the By-Laws, the Rules and Regulations, the Resolutionsof the Board of Governors, the minutes of the Executive Board, and the GeneralAdministrative Orders of the International Monetary Fund. The audit was per-formed during the period May 27-July 8, 1975.

AUDIT OPINION

In our opinion, these statements, together with the notes appearing thereon,present fairly, in terms of special drawing rights, the financial position of theInternational Monetary Fund as at April 30, 1975, the results of its operationsand the changes in financial position for the fiscal year then ended, in conformitywith generally accepted accounting principles, applied on a basis consistent withthat of the preceding year.

EXTERNAL AUDIT COMMITTEE:/s/ Steve L. Comings, Chairman (United States)/s/ Fausto Munoz (Ecuador)/s/ Emile Lemmer (Luxembourg)

118



Exhibit A


GENERAL ACCOUNT

BALANCE SHEET

as at April 30, 1975

Amounts expressed in special drawing rights(one SDR is equivalent to 0.888671 gram of fine gold)

ASSETS

GOLD WITH DEPOSITORIES (See Note 1)

SPECIAL DRAWING RIGHTS

CURRENCIES AND SECURITIES (See Note 2)With depositories

Currencies SDR 9,399,314,737Securities 15,256,064,848

(nonnegotiable, noninterest-bearing demand obligations, payableat face value by members in their currencies)

SDR 5,369,539,548

509,720,987

Add: Valuation adjustments receivable

Less: Valuation adjustments payable

SUBSCRIPTIONS TO CAPITAL—RECEIVABLEBalances of initial quotas—not due . . .

CHARGES RECEIVABLE FROM MEMBERS ..

OTHER ASSETS (See Note 3)

SDR 24,655,379,5852,165,843,396

SDR 26,821,222,981309,627,617 26,511,595,364

48,334,339

58,544,925

3,234,292

TOTAL ASSETS SDR 32,500,969,455

CAPITAL, RESERVES, AND LIABILITIESCAPITAL

Subscriptions of members

RESERVES (Exhibit C)Special reserveGeneral reserve

SDR 342,030,132365,579,703

LIABILITIESIndebtedness

Borrowings to finance purchases under the oil facility SDR 2,499,251,000Remuneration payable to members 62,372,113Interest payable on indebtedness 38,785,770Other liabilities (See Note 3) 3,550,737

SDR 29,189,400,000

707,609,835

2,603,959,620

TOTAL CAPITAL, RESERVES, AND LIABILITIES SDR 32,500,969,455

NOTES:1. A total of 153,415,456.109 troy ounces of fine gold is

held, and based on its gram content is valued at a figurewhich rounds to SDR 35 per fine ounce. Gold with de-positories excludes gold held under earmark for membersequivalent to SDR 333,104.

2. Total outstanding purchases of members amount toSDR 6,633 million. Currency holdings in excess ofmembers' quotas subject to Fund charges amount toSDR 4,869 million, of which SDR 2,499 million repre-

sents purchases under the oil facility. Total creditor posi-tions of members amount to SDR 2,365 million.The established policy of the Fund is to write off againstincome the total expenditures incurred during the yearfor fixed property, furniture, and equipment (includingautomotive equipment). At April 30, 1975, the value ofthis property, at cost, is SDR 63,716,295. The assets andliabilities of the Staff Retirement Fund are not includedin this Balance Sheet.

/s/ R. J. FAMILTONActing Treasurer

/s/ H. JOHANNES WITTEVEENManaging Director

119

3.



SDR 166,544,009

131,600,395

SDR 34,943,614

Exhibit B


GENERAL ACCOUNT

STATEMENT OF INCOME AND EXPENSES

for the year ended April 30, 1975


OPERATIONAL INCOMEOperational charges SDR 21,024,763Charges on balances in excess of quotas 124,395,425Interest on holdings of special drawing rights 21,123,821

Total operational income

Deduct operational expenses:Remuneration SDR 62,372,113Interest on indebtedness 69,228,282

Total operational expenses

NET OPERATIONAL INCOME

EXPENSES (See Note 1)

Administrative budget expenses:Board of Governors SDR 1,478,518

Executive DirectorsSalaries SDR 2,223,841Other compensations and benefits 627,871Travel 699,283 3,550,995

StaffSalaries SDR 19,337,655Other compensations and benefits 7,750,839Travel 4,329,123 31,417,617

Special services to member countries 3,501,050

Other expensesCommunications SDR 1,283,398Office occupancy expenses 1,422,229Books and printing (See Note 2) 855,912Supplies and equipment (See Note 3) 793,420Data processing services 864,754Miscellaneous (See Note 4) 802,619 6,022,332

Subtotal SDR 45,970,512

Deduct: Assessments levied on participantsfor estimated expenses of operating theSpecial Drawing Account 1,199,751

Net administrative budget expenses SDR 44,770,761

Fixed property expenses (See Note 3) (290,599)

Net valuation adjustment loss 119,893

TOTAL EXPENSES (See Note 1)

EXCESS OF EXPENSES OVER INCOME (Exhibit C)

44,600,055

SDR 9,656,441

NOTES:1. Excludes operational expenses which have been deducted

from operational income.2. After deduction of SDR 124,434 for sales of Fund publi-

cations.3. The established policy of the Fund is to write off against

income the total expenditures incurred during the year

for fixed property, furniture, and equipment (includingautomotive equipment).

After deduction of SDR 474,010 for food service salesand SDR 80,909 for miscellaneous administrative in-come.

120

4.



Exhibit C


GENERAL ACCOUNT

STATEMENT OF RESERVES



SPECIAL RESERVE (See Note)Balance, April 30, 1974 SDR 351,686,573

DeductExcess of expenses over income (Exhibit B) 9,656,441

Balance, April 30, 1975 SDR 342,030,132

GENERAL RESERVEBalance, April 30, 1975 365,579,703

TOTAL RESERVES (per Balance Sheet) SDR 707,609,835

NOTE:Income from investments in U. S. Government securities of the Fund must be written off against this reserve. Under

was placed to this reserve from November 1, 1957 until Article XII, Section 6 (c), of the Articles of Agreement, theFebruary 15, 1972, when the Fund's gold investment pro- Fund may make transfers from this reserve to the Generalgram was terminated. Pursuant to Executive Board Decision Reserve.No. 708-(57/57) any administrative deficit for any fiscal year

121



Exhibit A


SPECIAL DRAWING ACCOUNT

BALANCE SHEET

(See Note 1)



ALLOCATIONS

Net cumulative allocations of specialdrawing rights to participants (See Note 2) SDR 9,314,835,400

HOLDINGS

Holdings of special drawing rights (See Note 3) (Exhibit B)

ParticipantsHoldings above allocations

Allocations SDR 2,691,260,000Received (net) 1,846,944,238

Holdings below allocationsAllocations SDR 6,623,575,400Used (net) 2,356,665,225

General Account

SDR 4,538,204,238

4,266,910,175

NOTES:1. This statement of the Special Drawing Account is a

summary of net cumulative allocations of special draw-ing rights by the Fund to participants and the corre-sponding holdings of such special drawing rights byparticipants and the General Account.

2. Under Articles XXX and XXXI of the Fund Agreement,which cover termination of participation in and theliquidation of the Special Drawing Account, respectively,a participant has an obligation to pay to the Fund anamount equal to its net cumulative allocation of specialdrawing rights and any other amounts that may be dueand payable because of participation in the Special Draw-ing Account. The Fund also has an obligation to redeemspecial drawing rights in accordance with these Articles.

3. Special drawing rights allocated by the Fund do notconstitute claims by holders against the Fund to provide

SDR 8,805,114,413

509,720,987

SDR 9,314,835,400

currency, except as prescribed by the provisions of Arti-cles XXX and XXXI relating to the termination ofparticipation and liquidation. Participants may use theirspecial drawing rights to obtain currency in accordancewith the provisions of Article XXV, and under Section 5of this Article they are entitled to request the Fund's as-sistance in the form of designation of participants toprovide currency in exchange for special drawing rights.The obligation of a participant to provide currency forspecial drawing rights does not extend beyond the pointat which its holdings of special drawing rights in excessof its net cumulative allocation are equal to twice its netcumulative allocation or such higher limit as may beagreed between a participant and the Fund. A participantmay, however, provide currency in excess of the oblig-atory limit or any agreed higher limit.

/s/ W. O. HABERMEIERTreasurer

/s/ H. JOHANNES WITTEVEENManaging Director

122




SPECIAL DRAWING ACCOUNT

STATEMENT OF SOURCE AND USE OF SPECIAL DRAWING RIGHTS



ParticipantsGeneralAccount

Total Holdings as of April 30, 1974 8,815,804,129 499,031,271

Exhibit B

Total

9,314,835,400

Source of Special Drawing Rights ReceivedTransactions with Designation

(Article XXV Sections 2(a) and 3 (a))Transactions without Designation

(Article XXV Section 2( /?) ( i ) )Net InterestTransfers Between Participants and the General Account

PurchasesRepurchasesChargesReimbursement of Special Drawing Account ExpensesRemunerationReconstitutionInterest on Fund Borrowings

Use of Special Drawing RightsTransactions with Designation

(Article XXV, Sections 2(a) and 3 (a) )Transactions without Designation

(Article XXV, Section 2(b) (i) )Net ChargesTransfers Between Participants and the General Account

PurchasesRepurchasesChargesReimbursement of Special Drawing Account ExpensesRemunerationReconstitutionInterest on Fund Borrowings

Total Holdings as of April 30. 1975 Coer Balance Sheet)

440392 851

248 472 95777,737,194

3,774,763

354,863

6 394,055 117,055,868

91,101

894,273,652

440,392,851

248,472,95798,861,015

24,036,79092,000,004

1,199,751

904,963,368

8.805,114,413

21,123,821

24 036,79092,000,004

1,199,751

138,360,366

3,774,763

354,863

6,394,055117,055,868

91,101

127,670,650

509,720.987

440 392 851

248 472 95798,861,015

3,774,76324,036,79092,354,867

1,199,7516,394,055

117,055,86891,101

1,032,634,018

440,392,851

248,472,95798,861,015

3,774,76324,036,79092,354,867

1,199,7516,394,055

117,055,86891,101

1,032,634,018

9.314.835.400

123



STAFF RETIREMENT FUNDMEMORANDUM BY THE EXTERNAL AUDIT COMMITTEE

Washington, D.C.July 8, 1975

To the Managing Directorand the Executive Directors


Our report, dated July 8, 1975, submitted through you to the Board of Gov-ernors, on the audit of the Staff Retirement Fund of the International MonetaryFund for the fiscal year ended April 30, 1975, includes the following paragraphsrelating to the authority for the audit, the scope of the audit, and the audit opinion:

AUTHORITY FOR THE AUDIT

The audit of the Staff Retirement Fund of the International Monetary Fundfor the fiscal year ended April 30, 1975, was carried out pursuant to and in accord-ance with the requirements of Section 20(b) of the By-Laws of the InternationalMonetary Fund. All assets and income of the Staff Retirement Fund, in accord-ance with Article 9, Section 1, of the Staff Retirement Plan, are the property of theInternational Monetary Fund and are held and administered by it separately fromits other property and assets.

SCOPE OF THE AUDIT

We have examined the Balance Sheet of the Staff Retirement Fund of theInternational Monetary Fund as at April 30, 1975, the Statement of Changes inFinancial Position for the fiscal year then ended, and the schedules related thereto.Our examination was made in accordance with generally accepted auditingstandards, and accordingly included such tests of the accounting records, givingconsideration to the extent of internal control and the internal audit work per-formed by the Internal Auditor, and such other auditing procedures as we con-sidered necessary in the circumstances. In the course of our audit, reference wasmade to the Articles of the Staff Retirement Plan and to the decisions of thePension, Administration, and Investment Committees created under the Plan. Theaudit was performed during the period May 27-July 8, 1975.

AUDIT OPINION

In our opinion, these Statements, together with the note appearing thereon,present fairly, in terms of U. S. dollars, the financial position of the Staff Retire-ment Fund of the International Monetary Fund as at April 30, 1975, and theresults of its operations and the changes in its financial position for the fiscal yearthen ended, in conformity with generally accepted accounting principles appliedon a basis consistent with that of the preceding year.

EXTERNAL AUDIT COMMITTEE:/s/ Steve L. Comings, Chairman (United States)/s/ Fausto Muiioz (Ecuador)/s/ Emile Lemmer (Luxembourg)

124


APPENDIX VIII (concluded)

Exhibit A


STAFF RETIREMENT FUND

BALANCE SHEET


Amounts expressed in U. S. dollars

(See Note)

ASSETSCASH AT BANKS $ 18,150

INVESTMENTS

BondsAmortized cost (market value, $16,230,775)

Notes insured by U.S. Government $ 3,205,680International development banks 8,334,152Corporate 6,573,332Commercial paper 1,114,000

Total amortized cost $19,227,164Add: Net realized losses 2,224,627

Funds originally invested $21,451,791Deduct: Amortized net realized losses 667,219

Adjusted book value of bonds $20,784,572Stocks (Common)

Cost (market value, $38,491,525) $42,432,329Deduct: Net realized gains 2,775,894

Funds originally invested $39,656,435Add: Recognized appreciation 1,613,000

Adjusted book value of stocks 41,269,435

Total Investments 62,054,007

ACCRUED INTEREST ON BONDS AND ACCRUED CONTRIBUTIONS RECEIVABLEFROM PARTICIPANTS AND INTERNATIONAL MONETARY FUND 594,926

TOTAL ASSETS $62,667,083

LIABILITIES AND RESERVES

PARTICIPANTS' ACCOUNT $13,330,681ACCUMULATION ACCOUNT 31,454,003RETIREMENT RESERVE ACCOUNT 17,851,928ACCOUNTS PAYABLE 30,471

TOTAL LIABILITIES AND RESERVES $62,667,083

NOTE:Effective May 1, 1974, the Board of Executive Directors changed from participants' net salaries to gross salaries.approved a number of changes in the Staff Retirement Plan. b. The combined rate of contribution to the Plan wasThe more significant changes, as they affect the financing of changed from 23 per cent of participants' net salariesthe Plan are set forth below: to 19.5 per cent of participants' gross salaries, com-

a. The basis for determination of contributions to the prising 13 per cent from the International MonetaryPlan and of benefits accruing to participants was Fund and 6.5 per cent from participants.

/s/ W. O. HABERMEIER /s/ H. JOHANNES WITTEVEENTreasurer Managing Director

125


INDEX


INDEX

An asterisk (*) denotes a table; a dagger (t) denotes a chart.

ABU DHABIOil facility in Fund, 55

AFGHANISTANExchange rate, 68*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 72*, 76*, 77*, 78*Stand-by arrangement with Fund, 79*

ALGERIAExchange rate, 68*SDRs, 48*, 72*, 77*

ARGENTINAExchange rate, 47, 66, 68*Purchases and repurchases from Fund,

78*, 80*, 82*, 83*SDRs, 48*, 72*, 77*

ARTICLES OF AGREEMENTAmendment of, 40, 42, 43-45, 98, 99,

101Article VIII, members accepting obli-

gations of, 86*Article XXV, Section I ( a ) , "equal

value" principle, 48AUSTRALIA

Exchange rate, 46, 65, 68*Prices, 4*SDRs, 48, 72*, 76*, 77*

AUSTRIAExchange rate, 25, 29t, 68*Industrial production, 5tOil facility in Fund, 56SDRs, 48*, 72*, 77*

BAHAMASExchange rate, 68*

BAHRAINExchange rate, 68*

BALANCE OF PAYMENTSAdjustment process, 18-20Developments, 12-16Financing of deficits, 1, 37, 38-40Industrial countries, 12, 13, 14, 15-16,

18Primary producing countries, 1, 2, 12,

13, 15, 16, 19,21,22Summary, 13*, 16*

BANGLADESHExchange rate, 68*Purchases from Fund, 49, 52, 78*, 80*SDRs, 72*, 76*, 78*Stand-by arrangement with Fund, 79*

BANK FOR INTERNATIONAL SETTLEMENTS(BIS)

Holder of SDRs, 50BARBADOS

Exchange rate, 68*SDRs, 72*, 77*

BELGIUMExchange rate, 23 (fn) , 68*; see also

EXCHANGE RATES, Dollar/ "snake"currencies relationship and Euro-pean narrow margins arrangement

General Arrangements to Borrow, 85*Industrial production, 5t

International reserves, 36*Oil facility in Fund, 56SDRs, 49*, 72*, 77*

BOARD OF GOVERNORSCommittee on Reform of the Inter-

national Monetary System andRelated Issues (Committee ofTwenty), 41, 42, 43

Council of Governors, 42, 43-44, 45,98, 100

Interim Committee of the Board ofGovernors on the InternationalMonetary System (Interim Com-mittee), 41, 42, 43, 44, 45, 46,50, 53, 96-101

Joint Ministerial Committee of theBoards of Governors of the Bankand the Fund on the Transfer ofReal Resources to DevelopingCountries (Development Commit-tee), 41, 42-43, 102-106

Resolutions, 45, 46BOLIVIA

Exchange rate, 68*Purchases and repurchases from Fund,

53, 83*SDRs, 72*, 77*

BORROWING BY FUNDGeneral Arrangements to Borrow, 50,

56, 85*, 91Oil facility, 50, 53-54, 55-56, 57, 92-

93, 94-95, 97, 99BOTSWANA

Exchange rate, 68*SDRs, 72*, 77*

BRAZILExchange rate, 68*Purchases and repurchases from Fund,

80*SDRs, 48*, 72*, 76*, 77*

BUDGET OF FUND, 114-15BUFFER STOCK FINANCING BY FUND, 42,

44, 45, 50, 52-53, 98, 101BURMA

Exchange rate, 24, 46, 65, 68*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 72*, 76*, 77*Stand-by arrangement with Fund, 79*

BURUNDIExchange rate, 68*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 72*, 77*

CAMEROONExchange rate, 68*Purchases from Fund, 78*SDRs, 72*, 77*

CANADABalance of payments, 14, 15*Exchange rate, 25, 26*, 29t, 30, 32t,

47, 68*General Arrangements to Borrow, 85*Interest rates, 8^

International reserves, 36*Oil facility in Fund, 55Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31, 32tSDRs, 72*, 76*, 77*

CAPITAL MOVEMENTS, 14, 27CENTRAL AFRICAN REPUBLIC


78*, 83*SDRs, 72*, 77*

CHADExchange rate, 68*Purchases and repurchases from Fund,

78*, 83*SDRs, 72*, 76*, 77*, 78*

CHILEExchange rate, 68*Purchases and repurchases from Fund,

51,78*, 80*, 82*, 83*SDRs, 48*, 72*, 76*, 77*, 78*Stand-by arrangement with Fund, 51,

79*CHINA, REPUBLIC OF


51, 78*, 83*COLOMBIA


80*, 83*SDRs, 48*, 72*, 77*Stand-by arrangement with Fund, 79*

COMMITTEE OF TWENTYSee BOARD OF GOVERNORS

COMMODITIES, PRIMARY, 7, 8-9, 11, 12,45, 62

COMPENSATORY FINANCING BY FUND, 42,44, 45, 50, 51, 52, 78*, 80*, 98, 101

CONGO, PEOPLE'S REPUBLIC OF THEExchange rate, 68*Repurchases from Fund, 83*SDRs, 72*, 77*

CONSULTATIONS WITH FUND MEMBERS,58-59

COSTA RICAExchange rate, 68*Purchases and repurchases from Fund,

78*, 83*SDRs, 48*, 72*, 76*, 77*

CYPRUSExchange rate, 68*Purchases from Fund, 78*SDRs, 72*, 77*

DAHOMEYExchange rate, 68*SDRs, 72*, 77*

DENMARKExchange rate, 23 ( fn) , 68*; see also

EXCHANGE RATES, Dollar/4'snake"currencies relationship and Euro-pean narrow margins arrangement

129


INDEX

DENMARK (continued)Purchases from Fund, 51, 78*, 84*SDRs, 49*, 68*, 76*, 77*

DEVELOPMENT COMMITTEESee BOARD OF GOVERNORS

DOMINICAN REPUBLICExchange rate, 68*Purchases and repurchases from Fund,

78*, 80*SDRs, 72*, 76*, 77*

ECUADORExchange rate, 68*Purchases and repurchases from Fund,

51, 80*, 82*, 83*SDRs, 48*, 72*, 77*

EGYPTExchange rate, 68*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 72*, 76*, 77*

EL SALVADORExchange rate, 68*Purchases and repurchases from Fund,

51, 78*, 80*, 83*SDRs, 72*, 76*, 77*

EQUATORIAL GUINEAExchange rate, 68*SDRs, 72*, 77*

ETHIOPIAExchange rate, 68*

EURO-CURRENCY MARKETS, 14, 18, 35,36, 37, 38*, 39

EXCHANGE RATESand capital movements, 27; interna-

tional reserves, 14, 37-39Dollar /"snake" currencies relationship,

26, 27-28Effective rates, 19, 28-31, 32tEuropean narrow margins arrangement,

23, 24, 25, 27-28, 30, 46, 47, 50Floating: analysis and assessment, 25-

31, 33; guidelines, 25Forward market, 26Influence of monetary policy, 14, 19-20Intervention, 19, 25, 26, 27, 39List as of June 30, 1975, 68-70*Practices, 23-24, 44, 46-47, 98, 101Price relationship, 31-33Short-term movements, 26-31Spot quotations, 25 1, 26See also individual countries

EXECUTIVE BOARD DECISIONSExtended Fund facility, 54, 88-90General Arrangements to Borrow, 56,

91Oil facility for 1974, 90-91, 93Oil facility for 1975, 53, 56, 94-95Payment of interest on oil facility

transactions, 57, 92-93, 95SDR reconstitution, 88

EXECUTIVE DIRECTORSBoard membership changes, 110-13List and voting power, 107-109

EXTENDED FUND FACILITY, 40, 50, 54-55,86*, 88-90

FIJIExchange rate, 47, 66, 68*Purchases from Fund, 78*SDRs, 72*, 77*Stand-by arrangement with Fund, 79*

FINANCIAL STATEMENTS OF FUND, 117-25FINLAND

Exchange rate, 68*

SDRs, 72*, 76*, 77*FOREIGN EXCHANGE RESERVES

See INTERNATIONAL RESERVESFRANCE

Balance of payments, 14, 15*, 16, 34Exchange rate, 23, 25 1, 26*, 29t, 30,

32t, 46, 47, 68*General Arrangements to Borrow, 85*Interest rates, 8tInternational reserves, 34, 36*Official claims in francs, 38*Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31, 32tSDRs, 47, 48, 72*, 76*, 77*

GABONExchange rate, 68*Repurchases from Fund, 83*SDRs, 72*, 77*

GAMBIA, THEExchange rate, 68*Repurchases from Fund, 83*SDRs, 72*, 77*

GENERAL ACCOUNT TRANSACTIONSCharges: payments in gold and cur-

rencies, 46, 47, 49, 50, 53, 54, 55,58, 85*, 86*, 90, 94, 98, 99, 101;schedule of, 50, 56-57

Interest payments, 57, 92, 95Purchases by members, 49, 50-51, 52,

53, 54, 55, 71*, 76*, 78*, 80*,84*, 89, 90, 94; summary, 81*

Remuneration paid to Fund members,49, 71*, 76*, 85*; rates, 56, 57

Repurchases by members, 44-45, 46,49, 50, 51-52, 54, 55, 71*, 80*,83*, 84*, 85*, 90, 94; obligationsincurred, 51-52, 66, 83*; sum-mary, 81*

Use of currencies, 40, 44, 45, 46, 50,55, 98, 100

See also GOLD and SPECIAL DRAWINGRIGHTS

GENERAL ARRANGEMENTS TO BORROWSee BORROWING BY FUND

GERMANY, FEDERAL REPUBLIC OFBalance of payments, 14, 15*, 16Exchange rate, 23(fn), 25t, 26*, 27,

28, 29t, 30, 31, 32t, 68*; seealso EXCHANGE RATES, Dollar/"snake" currencies relationshipand European narrow margins ar-rangement

General Arrangements to Borrow, 85*Interest rates, 8t, 28 1International reserves, 34, 36*Official claims in deutsche mark, 38*,

39*Oil facility in Fund, 56Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31,32tPurchases from Fund, 51, 78*, 84*SDRs, 49*, 72*, 77*

GHANAExchange rate, 68*Purchases and repurchases from Fund,

80*, 83*SDRs, 72*, 76*, 77*

GOLDFund holdings, 44, 58, 85*, 99International reserves, 33, 34*, 35, 36*,

37*Official price, 44, 99, 100Payments to Fund, 44, 46, 49, 50, 51,

52, 58, 82*, 85*, 98, 99, 101Role in system, 40, 42, 44, 52, 98, 99,

100

Substitution account in Fund, 43, 100Valuation in Report, 40

GREECEExchange rate, 66, 68*Purchases from Fund, 78*SDRs, 72*, 77*

GRENADAMembership in Fund, 62

GUATEMALAExchange rate, 68*Purchases and repurchases from Fund,

80*SDRs, 72*, 77*

GUINEAExchange rate, 68*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 72*, 76*, 77*

GUYANAExchange rate, 69*Purchases and repurchases from Fund,

80*, 83*SDRs, 72*, 77*Stand-by arrangement with Fund, 79*

HAITIExchange rate, 69*Purchases and repurchases from Fund,

78*, 80*, 83*SDRs, 73*, 76*, 77*Stand-by arrangement with Fund, 79*

HONDURASExchange rate, 69*Purchases from Fund, 78*SDRs, 73*, 77*

ICELANDExchange rate, 47, 65, 66, 69*Purchases and repurchases from Fund,

78*, 80*SDRs, 73*, 76*, 77*

INCOME AND EXPENSES OF FUND, 45, 57-58, 85*, 116

INDIAExchange rate, 69*Purchases and repurchases from Fund,

51, 78*, 80*SDRs, 73*, 77*

INDONESIAExchange rate, 69*Repurchases from Fund, 82*, 83*SDRs, 48*, 73*, 77*Stand-by arrangement with Fund, 79*

INDUSTRIAL COUNTRIESBalance of payments, 12, 13, 14, 15-

16, 18Economic policies, 1, 7, 8, 9-10, 17-

18, 20Economic situation and prospects, 1, 2,

8, 10, 16-18, 19Exchange rate policy and practices, 19,

24, 25, 47Industrial production, 3, 5tInflation rate, 4-5Interest rates, 8tInternational reserves, 33, 34, 35, 36*Output, 2-3, 4, 8, 17Prices, 2, 3, 4, 8, 9Purchases from Fund, 53SDRs, 35, 47Trade, 8, 9, 10, 11, 12*See also individual countries

INFLATION, ANALYSIS OF, 6-10INTERIM COMMITTEE

See BOARD OF GOVERNORS

130


INDEX

INTERNATIONAL ORGANIZATIONSFund relations with, 60-62

INTERNATIONAL RESERVESAdequacy, 37-40; financing of pay-

ments imbalances, 38-40; flexibleexchange rates, 14, 37-39

Composition, 35-37, 38*Conditional liquidity, 40Creation, 1, 14, 34Distribution, 33-34, 36*Euro-currency holdings, 35, 36, 37*,

38*, 39*Foreign exchange, 33, 34, 35, 36-37,

38*, 39Gold, 33, 34*, 35, 36*, 37*, 38*Industrial countries, 33, 34, 35, 36*Measurement concept, 33 (fn)Official holdings, 33, 34*Primary producing countries, 12, 13,

14, 21, 22, 33, 34, 35, 36*, 37*Ratio of reserves to imports, 40Reserve positions in the Fund, 33, 34*,

35, 37*, 38*Special drawing rights, 33, 34*, 35,

37*, 38*IRAN

Exchange rate, 24, 47, 65-66, 69*Oil facility in Fund, 55, 56SDRs, 48*, 73*, 77*

IRAQExchange rate, 69*Purchases and repurchases from Fund,

80*SDRs, 48*, 73*, 77*

IRELANDExchange rate, 23 (fn) , 69*SDRs, 48*, 73*, 77*

ISRAELExchange rate, 46, 65, 69*Purchases from Fund, 78*SDRs, 48, 73*, 77*Stand-by arrangement with Fund, 79*

ITALYBalance of payments, 14, 15*, 34Exchange rate, 23(fn), 25t, 26*, 29t,

30, 32t, 46, 47, 69*General Arrangements to Borrow, 85*Interest rates, 8tInternational reserves, 34, 36*Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31, 32tPurchases from Fund, 51, 53, 78*SDRs, 48, 73*, 76*, 77*Stand-by arrangement with Fund, 51,

79*IVORY COAST

Exchange rate, 69*Purchases from Fund, 78*SDRs, 73*, 77*

JAMAICAExchange rate, 69*Purchases and repurchases from Fund,

80*, 82*, 83*SDRs, 73*, 77*Stand-by arrangement with Fund, 79*

JAPANBalance of payments, 14, 15*, 34Exchange rate, 25t, 26*, 29t, 30, 31,

32t, 47, 69*General Arrangements to Borrow, 85*Interest rates, 8tInternational reserves, 34, 36*Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31, 32tSDRs, 48*, 73*, 77*

JORDANExchange rate, 69*Purchases and repurchases from Fund,

54, 80*, 83*SDRs, 73*, 77*

KENYAExchange rate, 69*Purchases from Fund, 78*SDRs, 48*, 73*, 76*, 77*, 78*

KHMER REPUBLICExchange rate, 69*Purchases from Fund, 80*SDRs, 73*, 76*, 77*

KOREAExchange rate, 65, 69*Purchases and repurchases from Fund,


KUWAITExchange rate, 47, 66, 69*Oil facility in Fund, 55, 56

LAOSExchange rate, 69*Repurchases from Fund, 83*SDRs, 73*, 77*

LEBANONExchange rate, 69*

LESOTHOExchange rate, 69*Repurchases from Fund, 83*SDRs, 73*, 76*, 77*

LIBERIAExchange rate, 69*Repurchases from Fund, 83*SDRs, 73*, 77*

LIBYAN ARAB REPUBLICExchange rate, 69*Stand-by arrangement with Fund, 79*

LUXEMBOURGExchange rate, 23 ( fn) , 69*; see also

EXCHANGE RATES, Dollar/"snake"currencies relationship and Euro-pean narrow margins arrangement

SDRs, 73*, 77*

MALAGASY REPUBLICExchange rate, 69*Purchases from Fund, 78*SDRs, 73*, 76*, 77*

MALAWIExchange rate, 47, 69*Repurchases from Fund, 82*, 83*SDRs, 73*, 77*

MALAYSIAExchange rate, 69*SDRs, 48*, 73*, 77*

MALIExchange rate, 69*Purchases and repurchases from Fund,

78*, 83*SDRs, 73*, 76*, 77*

MALTAExchange rate, 69*SDRs, 73*, 76*, 77*

MAURITANIAExchange rate, 69*Purchases and repurchases from Fund,

78*, 83*SDRs, 73*, 77*

MAURITIUSExchange rate, 69*Purchases from Fund, 78*SDRs, 48*, 73*, 76*, 77*

MEMBERSHIP IN FUND, 62MEXICO

Exchange rate, 69*SDRs, 48*, 73*, 76*, 77*

MOROCCOExchange rate, 69*SDRs, 73*, 77*

NEPALExchange rate, 69*SDRs, 73*, 77*

NETHERLANDSExchange rate, 23 ( fn) , 69*, see also


General Arrangements to Borrow, 85*Industrial production, 5tInternational reserves, 36*Oil facility in Fund, 55, 56SDRs, 49*, 73*, 76*, 77*

NEW ZEALANDExchange rate, 46, 65, 69*Purchases and repurchases from Fund,

78*, 80*SDRs, 48, 73*, 76*, 77*

NICARAGUAExchange rate, 69*Purchases and repurchases from Fund,

51, 78*, 82*, 83*SDRs, 48*, 73*, 77*

NIGERExchange rate, 69*Repurchases from Fund, 83*SDRs, 73*, 77*

NIGERIAExchange rate, 69*Oil facility in Fund, 55, 56SDRs, 48*, 73*, 77*

NORWAYExchange rate, 23 ( fn ) , 69*; see also


Industrial production, 5tOil facility in Fund, 56SDRs, 73*, 76*, 77*

OIL FACILITY IN FUNDBorrowing by Fund, 50, 53, 54, 55-56,

57, 92-93, 94-95, 97, 99Establishment and use of, 53-54, 78*,

86*, 93, 94, 97, 99Subsidy account, 42, 54, 99

OMANExchange rate, 46, 65, 69*Oil facility in Fund, 55SDRs, 73*, 77*

PAKISTANExchange rate, 69*Purchases and repurchases from Fund,

78*, 83*SDRs, 73*, 77*Stand-by arrangement with Fund, 51,

79*PANAMA

Exchange rate, 69*Purchases from Fund, 78*SDRs, 73*, 76*, 77*Stand-by arrangement with Fund, 79*

131


INDEX

PAPUA NEW GUINEAMembership in Fund, 62

PARAGUAYExchange rate, 69*SDRs, 73*, 77*

PERUExchange rate, 69*Purchases and repurchases from Fund,

80*SDRs, 73*, 77*

PHILIPPINESExchange rate, 69*Purchases and repurchases from Fund,

52, 78*, 80*, 82*, 83*SDRs, 48*, 73*, 77*Stand-by arrangement with Fund, 79*

PORTUGALExchange rate, 69*

PRICES, 1, 17, 31-33PRIMARY PRODUCING COUNTRIES

Major oil exportersBalance of payments, 12, 13, 15,

16, 19Economic activity, 6Exchange rates, 24Inflation rate, 5International reserves, 12, 13, 14, 33,

34, 35, 36*, 37*, 40Output, 3*, 5, 6Prices, 5Quotas in Fund, 46SDRs, 35, 47Trade, 6, 10, 11*, 12, 15, 19

More developed areasBalance of payments, 1, 12, 13, 16Exchange rates, 24Inflation rate, 4International reserves, 33, 34, 35,

36*, 37*Output, 3*, 4, 6Prices, 4-5Purchases from Fund, 53SDRs, 35, 47Trade, 6, 8, 10, 11*, 12*

Non-oil developing countriesBalance of payments, 1, 2, 12, 13,

15, 16, 19,21,22Capital and aid flows, 2, 13, 19, 22Economic prospects, 21Exchange rates, 24Exports, 6, 11*, 21Impact of recession in industrial

countries, 6, 21-22Imports, 6, 9, 10, 11*, 21, 22,Inflation rate, 5International reserves, 12, 22, 33,

34, 35, 36*, 37*Output, 3*, 5, 6, 21Prices, 4, 5, 6, 21-22Purchases from Fund, 53Quotas in Fund, 46SDRs, 35, 47Terms of trade, 2, 6, 12

See also individual countriesPUBLICATIONS OF FUND, 87*

QATARExchange rate, 24, 47, 66, 69*

QUOTAS OF FUND MEMBERS, 40, 42, 44,45-46, 62, 85*, 97-98, 101

RECESSION, 6, 8-9, 10, 16, 21-22ROMANIA

Exchange rate, 65, 69*SDRs, 73*, 77*

RWANDAExchange rate, 69*SDRs, 73*, 76*, 77*

SAUDI ARABIAExchange rate, 24, 47, 66, 69*Oil facility in Fund, 55, 56

SENEGALExchange rate, 70*Purchases and repurchases from Fund,

78*, 83*SDRs, 73*, 77*

SIERRA LEONEExchange rate, 70*Purchases and repurchases from Fund,

78*, 82*, 83*SDRs, 73*, 77*

SINGAPOREExchange rate, 70*

SOMALIAExchange rate, 70*Repurchases from Fund, 82*, 83*SDRs, 73*, 77*

SOUTH AFRICAExchange rate, 23 (fn) , 65, 70*SDRs, 73*, 76*, 77*

SPAINExchange rate, 46, 70*Prices, 4*Purchases from Fund, 78*SDRs, 48*, 73*, 76*, 77*

SPECIAL DRAWING ACCOUNTParticipants, 62, 72-74*, 77*See also SPECIAL DRAWING RIGHTS

SPECIAL DRAWING RIGHTSBIS as holder, 50Currencies pegged to, 24Currencies transferred for, 75*Development finance link, 43, 44, 98Holdings by General Account, 47, 66,

71*, 74*Holdings by participants, 72-74*Interest, charges, and assessments, 71*,

72-74*, 85*Interest rate, 47, 56, 57International reserves, 33, 34*, 35, 37*Purchases by members, 71*, 76*, 78*,

84*Reconstitution of participants' holdings,

47,49,71*, 76*, 77*, 88Remuneration paid to Fund members,

use in, 56, 71*, 76*Replenishment of participants' cur-

rencies, use in, 71*Repurchases by members, use in, 71*,

82*, 84*Restoration of participants' holdings,

71*Role in system, 44, 98, 99Transactions and operations, summary

of, 72-74*Transactions by agreement, 47, 49*Transactions with designation, 35, 47,

48, 49, 71*, 72-74*, 75*Transfers by General Account, 47,

48*, 49, 71*, 72-74*, 76*Transfers by participants, 71*, 72-74*Transfers, total, 71*Use, total, 47

SPECIAL TRUST FUND, 43, 103, 105SRI LANKA



STAFF OF FUND, 62STAND-BY ARRANGEMENTS FOR FUND

MEMBERS, 50, 51, 78*, 79*;summary, 81*

SUDANExchange rate, 70*Purchases and repurchases from Fund,

51, 52, 78*, 80*, 83*SDRs, 74*, 76*, 77*, 78*Stand-by arrangement with Fund, 79*

SWAZILANDExchange rate, 70*Repurchases from Fund, 83*SDRs, 74*, 76*, 77*

SWEDENExchange rate, 23 (fn), 70*; see also

EXCHANGE RATES, Dollar /"snake"currencies relationship and Euro-pean narrow margins arrangement

General Arrangements to Borrow, 85*Industrial production, 5tSDRs, 74*, 77*

SWITZERLANDExchange rate, 24, 30International reserves, 36*Oil facility in Fund, 56

SYRIAN ARAB REPUBLICExchange rate, 70*Purchases and repurchases from Fund,

80*, 82*, 83*SDRs, 48*, 74*, 76*, 77*

TANZANIAExchange rate, 70*Purchases from Fund, 78*SDRs, 48*, 74*, 76*, 77*

TECHNICAL ASSISTANCE AND TRAINING BYFUND, 59-60, 62

THAILANDExchange rate, 70*SDRs, 48*, 74*, 77*

TOGOExchange rate, 70*SDRs, 74*, 77*

TRINIDAD AND TOBAGOExchange rate, 70*Oil facility in Fund, 56Repurchases from Fund, 50, 83*SDRs, 74*, 76*, 77*

TUNISIAExchange rate, 70*SDRs, 48*, 74*, 77*

TURKEYExchange rate, 70*Purchases from Fund, 78*SDRs, 48*, 74*, 77*

UGANDAExchange rate, 70*Purchases and repurchases from Fund,

78*, 83*SDRs, 74*, 76*, 77*

UNITED ARAB EMIRATESExchange rate, 70*

UNIT OF VALUE, 65UNITED KINGDOM

Balance of payments, 14, 15*Exchange rate, 23 ( fn) , 25 1, 26*, 29t,

30, 32t, 47, 70*General Arrangements to Borrow, 85*Interest rates, 8tInternational reserves, 36*Official claims in pounds sterling, 35,

37, 38*, 39*

132


INDEX

Output, 2t, 3, 4, 5tPrices, 2t, 4,31, 32tSDKs, 47, 48, 74*, 77*

UNITED STATESBalance of payments, 14, 15*Exchange rate, 13, 25t, 26, 27-28,

29t, 30, 31, 32t, 47, 70*General Arrangements to Borrow, 85*Interest rates, 8t, 28 1International reserves, 34, 35, 36*, 37*Official claims in dollars, 35, 36-37,

38*, 39*Output, 2t, 3, 4, 5tPrices, 2t, 4*, 31, 32tSDKs, 35, 47, 48, 74*, 77*

UPPER VOLTAExchange rate, 70*SDKs, 74*, 77*

URUGUAYExchange rate, 70*Purchases and repurchases from Fund,

78*, 80*, 82*, 83*SDKs, 74*, 76*, 77*, 78*

VENEZUELAExchange rate, 70*Oil facility in Fund, 55, 56SDRs, 48*, 74*, 77*

VIET-NAMExchange rate, 70*SDRs, 74*, 77*

VOTING MAJORITIES IN FUND, 45, 101

WESTERN SAMOAExchange rate, 70*SDRs, 74*, 77*

WORLD OUTPUT, 3*WORLD TRADE

Declaration on trade measures byFund members, 2, 58

Value and volume, 9, 10-12, 40

YEMEN ARAB REPUBLICExchange rate, 70*SDRs, 74*, 77*

YEMEN, PEOPLE'S DEMOCRATICPUBLIC OF

Exchange rate, 70*Purchases from Fund, 78*SDRs, 48*, 74*, 76*, 77*

YUGOSLAVIAExchange rate, 46, 65, 70*Purchases and repurchases from

78*, 82*, 83*SDRs, 48*, 74*, 77*

RE-

Fund,

ZAIREExchange rate, 70*Purchases from Fund, 78*, 80*SDRs, 74, 77*

ZAMBIAExchange rate, 70*Purchases and repurchases from Fund,

51, 52, 80*, 82*, 83*SDRs, 74*, 77*Stand-by arrangement with Fund, 79*

133
