international monetary fund annual report 1984 · international monetary fund annual report of the...

ANNUAL REPORT

1984

©International Monetary Fund. Not for Redistribution

International Standard Serial Number: ISSN 0250-7498


INTERNATIONAL MONETARY FUND

ANNUAL REPORTOF THE

EXECUTIVE BOARD FOR THEFINANCIAL YEAR ENDED APRIL 30, 1984

WASHINGTON, D.C.


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Contents

PageLetter of Transmittal xiii

Chapter 1. DEVELOPMENTS IN THE WORLD ECONOMYIntroductionDomestic Activity and Policies

Industrial CountriesDeveloping Countries

International Trade and PaymentsIndustrial CountriesDeveloping Countries

Policy IssuesSustaining Recovery in the Industrial CountriesAdjustment and Growth in Developing CountriesProtectionism

11229

14162229293132

Chapter 2. DEVELOPMENTS IN THE INTERNATIONAL MONETARY SYSTEMExchange Rates and Surveillance

Exchange Rate Issues in Industrial CountriesEconomic and Financial ConvergenceCountries with Floating Exchange RatesCountries with Managed Exchange Rates

Exchange Rate Policies in Developing CountriesExchange Rate DevelopmentsExchange Rate Policies and External ImbalancesExchange Rates and Domestic PoliciesImpact of Exchange Arrangements

Surveillance Over Exchange Rate PoliciesIssues in the Implementation of SurveillanceProcedures for Implementing SurveillanceExchange Arrangements

International Liquidity, Reserves, and Capital MarketsRecent Evolution of Official Reserve Assets

Non-Gold ReservesForeign Exchange ReservesHoldings of Fund-Related Reserve AssetsGoldDevelopments in First Quarter of 1984

34343435374243434547495051545556565858596060

V


Currency Composition and Sources of Foreign Exchange ReservesCurrency CompositionPlacement of Foreign Exchange Reserves

The Role of International Financial Markets in the Provision ofLiquidity and the Adjustment Process

Developments in 1973-81Developments in 1982-83

Adequacy of Reserves and the Role of the FundAdequacy of International ReservesThe Role of the Fund in the Provision of Liquidity

Chapter 3. ACTIVITIES OF THE FUNDIntroductionMembership and Quotas

Membership and Participation in the SDR DepartmentEighth General Review of Quotas

Transactions and Operations in the General Resources AccountPurchases

Reserve Tranche PurchasesCredit Tranche PurchasesExtended Fund FacilitySupplementary Financing FacilityPolicy on Enlarged AccessCompensatory Financing Facility

Purchases Relating to Export FluctuationsPurchases Relating to Excesses in the Cost of Cereal Imports. .

Buffer Stock Financing FacilityRepurchases

Fund LiquidityBorrowing

General Arrangements to Borrow and Associated ArrangementsSupplementary Financing FacilityBorrowing to Finance Enlarged Access

Medium-Term BorrowingShort-Term Borrowing

Borrowed Resources Suspense AccountsFinancial Position

Charges and RemunerationIncome, Expense, and Reserves

SDR DepartmentPrescribed Holders of SDRsTransactions and Operations in SDRs

Transactions by AgreementTransactions with DesignationAdditional Uses of SDRs

Transactions Involving the General Resources AccountInflowsOutflows

Pattern of Holdings by ParticipantsSDR as a Unit of Account Outside the Fund and as a

Currency PegAdministered Accounts

Oil Facility Subsidy AccountSupplementary Financing Facility Subsidy Account

vi

606164

656567696971

7272747474757575767677787879797979808181828282828283838585868686868787878788

88888990

Page

CONTENTS


CONTENTS

Consultations with Member CountriesDebt RestructuringTechnical Assistance and TrainingRelations with Other International OrganizationsExecutive Directors and StaffExternal Relations

AppendicesI. Fund Activities in 1983/84

II. Principal Policy Decisions of the Executive BoardIII. Press Communiques of the Interim Committee and the

Development CommitteeIV. Executive Directors and Voting Power on April 30, 1984V. Changes in Membership of Executive Board

VI. Administrative BudgetVII. Comparative Statement of Income and Expense

VIII. Financial Statements

Index

909192939595

101124

142154157160161162

195

LIST OF TABLES

Chapter 1. DEVELOPMENTS IN THE WORLD ECONOMY1. Major Industrial Countries: Central Government Fiscal Balances

and Impulses, 1977-832. Industrial Countries: Changes in Output and Prices, 1967-833. Developing Countries: Changes in Output, 1967-834. Developing Countries: Changes in Consumer Prices, 1967-835. World Trade Summary, 1967-836. Summary of Terms of Trade and World Prices, 1967-837. Summary of Payments Balances on Current Account, 1977-838. Non-Oil Developing Countries: Current Account Financing,

1977-83

Chapter 2. DEVELOPMENTS IN THE INTERNATIONAL MONETARY SYSTEM9. Developing Countries: Exchange Rate Arrangements, End of June

1978-8410. Exchange Rate Arrangements as of June 30, 198411. Official Holdings of Reserve Assets, End of Selected Years

1978-83 and End of March 198412. Share of National Currencies in Total Identified Official Holdings

of Foreign Exchange, End of Selected Years 1976-8313. Currency Composition of Official Holdings of Foreign Exchange,

End of 1978-End of 198314. Placement of Official Holdings of Foreign Exchange Reserves, End

of Year 1976-8315. Net External Bank Lending and Deposit Taking, 1982-8316. Ratio of Non-Gold Reserves to Imports, End of Year 1970-83

Chapter 3. ACTIVITIES OF THE FUND17. Selected Financial Activities by Type and Country, 1977-8418. Purchases Under Tranche Policies and Special Facilities, 1977-8419. Flow of Transactions in the General Resources Account and

Resulting Stocks, 1978-84

57

1013151623

28

5057

59

61

62

646870

7374

77

vii

Page


20. Lenders and Amounts of Credit Arrangements Under the GeneralArrangements to Borrow and Associated Arrangements

21 . SDR Interest Rate and Rate of Remuneration22. Total Use of 1975 Oil Facility by Beneficiaries, and Total Subsidy

Payments, 1976-8323. Supplementary Financing Facility Subsidy Account: Contributions

Received to April 30, 198424. Drawings Under Supplementary Financing Facility by Eligible

Members, and Subsidy Payments

LIST OF CHARTSChapter 1. DEVELOPMENTS IN THE WORLD ECONOMY

1. Three Major Industrial Countries: Growth of Monetary Aggregates,1979-First Quarter 1984

2. Major Industrial Countries: Interest Rates and Inflation,1979-Second Quarter 1984

3. Major Industrial Countries: Real GNP and Industrial Production,1979-June 1984

4. Non-Oil Developing Countries: Real GDP by Region, 1973-835. Major Industrial Countries: Indices of Monthly Average U.S.

Dollar and Effective Exchange Rates, January 1980-May 19846. Major Industrial Countries: Payments Balances on Current

Account, Including Official Transfers, as Percentage of GNP,1979-First Quarter 1984

7. Major Industrial Countries: Relative Prices of ManufacturesAdjusted for Exchange Rate Changes, 1980-First Quarter 1984

8. Developing Countries: Volume of Imports, 1975-839. Developing Countries: Purchasing Power of Exports, 1975-83

10. Non-Oil Developing Countries: Ratios of Debt to Exports, 1977-8311. Non-Oil Developing Countries: Debt Service Ratios, 1977-83

Chapter 2. DEVELOPMENTS IN THE INTERNATIONAL MONETARY SYSTEM12. Selected Major Industrial Countries: Nominal and Real Bilateral

Exchange Rates, 1980-First Quarter 198413. Seven Major Industrial Countries: Indicators of Economic

Performance14. Seven Major Industrial Countries: Monthly Average Real Long-

Term Interest Rates, January 1980-May 198415. Developing Countries: Real Effective Exchange Rates, 1977-8316. Non-Oil Developing Countries: Real Effective Exchange Rates by

Analytical Subgroups of Countries, 1977-8317. Non-Oil Developing Countries: Real Effective Exchange Rates by

Region, 1977-8318. Major Borrowing Developing Countries: Average Real Effective

Exchange Rates, 1977-8319. Developing Countries: Average Real Effective Exchange Rates for

Low-, Medium-, and High-Inflation Countries, 1977-8320. Developing Countries: Real Effective Exchange Rates by Exchange

Arrangements, 1977-83

Chapter 3. ACTIVITIES OF THE FUND21. Use of Fund's Resources as at April 30, 1973-8422. SDR Interest Rate, Rate of Remuneration, and Short-Term Interest

Rates, July 1974-June 1984

viii

8183

89

90

91

3

3

611

18

20

2124242627

36

38

4143

44

44

45

47

49

76

84

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CONTENTS


The following symbols have been used throughout this paper:

to indicate that data are not available;

— to indicate that the figure is zero or less than half the final digit shown, orthat the item does not exist;

- between years or months (e.g., 1979-81 or January-June) to indicate theyears or months covered, including the beginning and ending years ormonths;

/ between years (e.g., 1980/81) to indicate a crop or fiscal (financial)year.

"Billion" means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.


International Monetary Fund

J. de LarosiereManaging Director and Chairman of the Executive Board

Richard D. ErbDeputy Managing Director

Executive Directors

Nigel WicksGerhard LaskeBruno de MauldeHirotake FujinoYusuf A. NimatallahMiguel A. SeniorJ. J. PolakJacques de GrooteRobert K. JoyceGiovanni Lovato

Alternate ExecutiveDirectors

Mary K. BushT. A. ClarkGuenter GroscheXavier BlandinTadaie YamashitaJobarah E. SuraisryJose L. FeitoTom de VriesHeinrich G. SchneiderLuke LeonardNikolaos Coumbis

Executive Directors

Mohamed FinaishA. R. G. ProwseJohn TvedtR. N. MalhotraAlexandre KafkaJ. E. IsmaelN'Faly SangareZHANG ZicunAlvaro DonosoGhassem SalehkhouAbderrahmane Alfidja

Alternate ExecutiveDirectors

Tariq AlhaimusKerry G. MorrellArne LindaA. S. JayawardenaCesar RobalinoJAAFAR AhmadE. I. M. MteiWANG EnshaoMario TeijeiroOmar Kabbajwa Bilenga Tshishimbi

Senior Officers

Counsellor Walter O. Habermeier*Economic Counsellor William C. Hood*Counsellor L. A. Whittome*Administration Department Roland Tenconi, DirectorAfrican Department J. B. Zulu, DirectorAsian Department Tun Thin, DirectorCentral Banking Department P. N. Kaul, DirectorEuropean Department L. A. Whittome, DirectorExchange and Trade Relations Department .. C. David Finch, DirectorExternal Relations Department Azizali F. Mohammed, DirectorFiscal Affairs Department Vito Tanzi, DirectorIMF Institute Gerard M. Teyssier, DirectorLegal Department George Nicoletopoulos, DirectorMiddle Eastern Department A. Shakour Shaalan, DirectorResearch Department William C. Hood, DirectorSecretary's Department Leo Van Houtven, SecretaryTreasurer's Department Walter O. Habermeier, TreasurerWestern Hemisphere Department Eduardo Wiesner, DirectorBureau of Computing Services Warren N. Minami, DirectorBureau of Language Services Andrew J. Beith, DirectorBureau of Statistics Werner Dannemann, DirectorOffice in Europe (Paris) Aldo Guetta, DirectorOffice in Geneva Carlos E. Sanson, Director

Chief Editor Norman K. Humphreys

* Alphabetical listing. August 13, 1984

xi


LETTER OF TRANSMITTALTO THE BOARD OF GOVERNORS

August 13, 1984

Dear Mr. Chairman:

I have the honor to present to the Board of Governors the Annual Report ofthe Executive Board for the financial year ended April 30, 1984, in accordancewith Article XII, Section l(d) of the Articles of Agreement of the InternationalMonetary Fund and Section 10 of the Fund's By-Laws. In accordance withSection 20 of the By-Laws, the administrative budget of the Fund approved bythe Executive Board for the financial year ending April 30, 1985 is presented inAppendix VI and the audited financial statements of the General Department,the SDR Department, the Subsidy Account, the Supplementary Financing FacilitySubsidy Account, the Trust Fund, and the Staff Retirement Plan for the yearended April 30, 1984, together with the reports of the External Audit Committeethereon, are presented in Appendix VIII.

Yours sincerely,

/s/

J. DE LAROSIEREChairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

xiii


Chapter 1Developments in the World Economy

Introduction

The performance of the world economy in 1983 andthe early part of 1984 was significantly better than inthe preceding several years. Economic expansion pro-ceeded vigorously in the United States and Canada,and showed signs of spreading to other countries inthe industrial world. Price inflation receded further inthe seven largest industrial countries, dropping to itslowest level in 15 years. And the current accountdeficit of developing countries was further reduced.Nevertheless, difficult problems remained much inevidence. Developing countries, apart from some inAsia, were generally unable to resume the momentumof their domestic economic development. Financingthe debt of those that had borrowed most heavilycontinued to require exceptional measures. And thepersistence of high interest rates, which began to riseagain in the early part of 1984, presented risks for theprocess of sustaining and broadening recovery.

Perhaps the most encouraging aspect of economicdevelopments in 1983 was the resumption of growthin the industrial economies. In the United States andCanada, recovery had been initiated at the end of 1982,and by mid-1983 had gathered considerable momen-tum. The upswing began in the sectors of housing,stockbuilding, and consumer durables, and in theUnited States had spread to investment demand bythe end of the year. Recovery in the other industrialcountries has been more subdued and, except in theUnited Kingdom, began somewhat later. Nevertheless,by early 1984, the improving trend appeared to befairly well established, albeit not with sufficient strengthoutside the United States and Canada to make muchinroad on the very high levels of unemployment beingexperienced in many countries.

Economic recovery was accompanied by a furtherslowing of inflation. The weighted average rate ofincrease in the gross national product (GNP) deflatorof the seven major industrial countries fell below 5percent in 1983, having been above 9 percent in 1980.

This continued improvement in price performance wasassociated with a further decline in interest rates inthe first half of 1983. By the second half of the year,however, the decline had come to an end, leavinginterest rates at a very high level in relation to currentinflation. In the opening months of 1984, interest ratesfirmed quite significantly, especially in the UnitedStates, despite the continuing moderate pace of un-derlying inflation.

The high level of interest rates has been a majorfactor complicating the task of developing countriesin bringing about external adjustment and restoringthe momentum of their development. These countrieshad been severely affected by the world recession.Their export markets had stagnated and their terms oftrade had deteriorated. Their situation was aggravatedin a number of cases by delays in taking appropriateadjustment measures and by the actions of tradingpartners in attempting to preserve domestic employ-ment through an intensification of protectionist meas-ures. Given the large share of their external debt thathad been contracted at variable interest rates, devel-oping countries faced severe difficulties in financingtheir external obligations when international interestrates shifted upward. Although the combined currentaccount deficit of the non-oil developing countries wasreduced sharply after 1981, the reduction came toolate to avert the financing crisis that developed amongheavily indebted countries in the latter half of 1982.This crisis quickly led to a very sharp reduction inspontaneous new bank lending to developing countries.

Faced with this situation, developing countries (oilimporting and oil exporting alike) had no alternativebut to intensify their efforts toward external adjust-ment. The combined current account deficit of thenon-oil developing countries fell in 1983 to its lowestlevel, in relation to exports of goods and services, inten years. For many countries, however, this was notsufficient to bring about a restoration of normal fi-nancing of their external debt. As a result, in 1983 andthe early part of 1984 there was again a large number

1


ANNUAL REPORT, 1984

of debt reschedulings and concerted new financingpackages.

The reduction in the current account deficit of thenon-oil developing countries was aided in 1983 by aslight improvement in their terms of trade and anincrease in the volume of exports to the industrialcountries. Nevertheless, these recent positive devel-opments in the external environment should not beallowed to obscure the difficulties developing countrieshave faced in achieving the needed adjustment. Amassive shift in the pattern of absorption has beenrequired and until recently has had to be brought aboutlargely by a compression of imports. The policiesrequired to achieve this shift took their toll on domesticeconomic growth. While experience has varied signif-icantly among countries, the average growth rate innon-oil developing countries as a group was only 11/2percent in 1983, making three years during whichoutput has grown by less than the rate of populationincrease. As there was also in these three years asubstantial movement of resources toward the externalsector, to compensate for adverse terms of trade shiftsand to improve the external accounts, it is clear thatthere has been a very serious erosion of living standardsin many of these countries.

Improving economic performance in the developingcountries is, therefore, one of the most pressing ob-jectives of international economic policy. It can beattained, however, only if the recovery that is underway in industrial countries is sustained and broadened,and if the heavy burden of debt service faced by manyboirowing countries can be handled satisfactorily.

Economic recovery in the industrial countries hasbeen facilitated by the greater measure of price stabilitythat has been established in recent years. It will beimportant to continue to formulate monetary policy insuch a way as to safeguard the progress that has beenmade. At the same time, if the expansion that is nowunder way is to be sustained in a balanced manner, anumber of policy adaptations will be needed. First, itwill be important to frame fiscal policies in such a waythat the conflict between government and privatedemands for credit is minimized. Otherwise, upwardpressure on interest rates will be maintained, jeopard-izing the stability of recovery and undermining theadjustment efforts of developing countries. Also ofmajor importance is a concerted attack on structuralrigidities that hamper the effective functioning of manyof the industrial economies. If these rigidities, partic-ularly in labor markets, are not tackled, the prospectsof an eventual return to more normal levels of unem-ployment will be diminished. In addition, determinedresistance to protectionist pressures is required, bothto promote structural change and growth and to enableindebted countries to service their external debts and

bring about needed external adjustment. Many of theseindebted countries have, with the encouragement ofthe international community, based their economicstrategies on the development of a vigorous foreigntrade sector. Any threat to their adequate access toexport markets would seriously inhibit the use of theseoutward-looking growth strategies.

Of course, developing countries themselves mustplay the major role in adjustment, by continuing thepursuit of policies that restore domestic economicstability and provide a sound financial basis for re-sumed growth of output and investment. It is note-worthy that countries that have adapted in a timelyway to changes in the international economic environ-ment have generally fared better in their economicperformance than those that have been slower toadjust. It remains true, however, that an increasedflow of official development assistance will have a vitalrole to play, particularly to enable those countries thatdo not have access to commercial credit to participateadequately in an economic upturn.

Domestic Activity and Policies

Industrial Countries

Stance of Policies.—Throughout 1983 and the firsthalf of 1984, the authorities of the industrial countrieshave continued to place primary emphasis on therestoration of the underlying economic conditionsnecessary for sustained noninflationary growth. Ingeneral, this focus on medium-term objectives hasmeant perseverance with policies of financial disciplinedesigned to achieve a more stable environment forprivate economic decision making. The practical im-plementation of such policies, however, has generallybeen more consistent and effective in the managementof money and credit than in the fiscal field.

In most major countries, monetary policy has beendesigned to restrain the growth of monetary aggregatesand thus to achieve lower inflation on a lasting basis.The implementation of this strategy has proceededflexibly, taking account of a number of factors thathave introduced additional uncertainty into the under-lying trend of the relationship between money andnominal GNP. Institutional changes have brought aboutshifts in the demand for money, while the high levelof real interest rates has complicated the task ofextrapolating historical relationships between velocityand interest rates into the more recent period. In anumber of cases there have also been reversible short-term shifts in money demand, associated, for example,with anticipated currency realignments in the EuropeanMonetary System (EMS).

2


CHAPTER 1: DEVELOPMENTS IN THE WORLD ECONOMY

Reflecting such factors, the growth of monetaryaggregates was allowed to exceed its target range earlyin 1983 in several important countries, notably theUnited States, the United Kingdom, and the FederalRepublic of Germany. Subsequently, however, mon-etary growth was more restrained, and by the earlypart of 1984 the monetary aggregates were within, orin some cases below, their target ranges in each of thethree countries. For the seven major industrial coun-tries as a group, the rate of expansion of both broadand narrow money in 1983 was similar to that recordedin the previous year. Ml grew by 8!/2 percent, thesame rate as in 1982, while M2 grew by 9 percent,against 91/2 percent in 1982. (See Chart 1 for a recordof the growth rate of target aggregates in the threelargest industrial countries.)

Monetary conditions in the industrial countries shiftedsomewhat during the course of the year. During thefirst half of 1983, monetary expansion was sufficientto accommodate the revival of economic growth whilepermitting a decline in interest rates to continue. Laterin the year, however, strengthening economic activityin the private sector, together with a deceleration inmonetary growth, contributed to a notable tighteningin monetary conditions. These factors, in combinationwith government borrowing requirements that remainvery large, have brought a distinct renewal of upwardpressures on interest rates in some countries, partic-ularly among those where the cyclical recovery hasbeen most vigorous. The average of short-term interestrates in the major industrial countries, which had fallento 91/4 percent in the first half of 1983 from a peak ofsome 15 percent during 1981, rose to 93/4 percent in

Chart 1. Three Major Industrial Countries: Growthof Monetary Aggregates, 1979-First Quarter 1984 l

(Percent change from corresponding period of preceding year)

1 The aggregates are central bank money for the Federal Republicof Germany, M2 plus certificates of deposit for Japan, and M2 forthe United States.

the first half of 1984. Long-term rates followed abroadly similar pattern, though the amplitude of themovements, until recently, was generally less. (SeeChart 2.)

Chart 2. Major Industrial Countries: Interest Ratesand Inflation, 1979-Second Quarter 1984 '

1 Inflation is measured by the percentage change in GNP deflators.2 Includes Canada, France, the Federal Republic of Germany,

Italy, Japan, the United Kingdom, and the United States. Compositeinterest rates and inflation are averages of variables for individualcountries weighted by the average U.S. dollar value of theirrespective GNPs over the preceding three years.

A noteworthy feature of the recent increases ininterest rates is the fact that they have not occurredin response to overt signs of renewed inflation. As aresult, real interest rates have probably risen further.The calculation of medium-to-long-term real interestrates requires assumptions about inflationary expec-tations that are inevitably speculative. Nevertheless,it may be noted that, for the average of the majorindustrial countries, the gap between interest rates(both long-term and short-term) and the current infla-tion rate was greater in early 1984 than it had been in1981. The recent rise in interest rates has been strongestand most persistent in the United States, where bothshort-term and long-term yields in the spring of 1984reached levels roughly 2 percentage points higher thanin the early months of 1983 (see Chart 2), and inCanada, whose financial markets are closely linkedwith those of the United States.

3


ANNUAL REPORT, 1984

During recent years, the broad aims of fiscal policyin most industrial countries have been to contain andif possible reduce the share of national output absorbedby government, and to improve the structure of gov-ernment finances. In practice, however, the imple-mentation of these objectives has encountered a seriesof difficulties. The effect of the prolonged recessionon the fiscal position of governments was to reducereceipts relative to expenditures and thus to perpetuateand increase budget deficits. Furthermore, in a numberof countries, intended cuts in expenditure were notfully implemented, and certain categories of payments,notably transfers under "entitlement" programs, grewmore rapidly than envisaged. Planned tax cuts, on theother hand, have in general been more fully imple-mented.

An additional factor tending to weaken governmentfinances has been the combination of prevailing highinterest rates with increased government debt resultingfrom the succession of large deficits incurred duringthe recession years. This has produced an importantnew element of intractability in fiscal balances. Generalgovernment interest payments in the major industrialcountries now average nearly 2 percentage pointshigher, as a proportion of GNP, than they did in 1979.They represent 9 percent of GNP in Italy, 7 percentin Canada, and about 3-5 percent in each of the fiveother major industrial countries.

Reflecting these factors, the aggregate deficit of thecentral government in the seven major industrial coun-tries reached over 5!/2 percent of GNP in 1983, almost1 percentage point higher than in 1982 and almost 2percentage points above the highest figure reachedduring the 1970s. The overall increase in 1983 cannotbe attributed to cyclical factors, since the impact ofincreases in economic slack in some European coun-tries was broadly offset by the favorable fiscal effectsof rapid economic growth in North America. Afteradjustment for cyclical factors, the increase in theaggregate deficit was largely a consequence of U.S.income tax cuts not matched by corresponding ex-penditure reductions and of some temporary and un-intended slippage in the U.K. Government's programof fiscal consolidation in the first half of 1983. Thelarge countries of continental Europe and Japan re-corded modest improvements in their underlying fiscalposition; and some smaller countries undertook morefar-reaching fiscal measures.

Seen in a somewhat longer perspective, the pastfour years have been a period of substantial divergencein the thrust of fiscal policy between the United States,on the one hand, and other major industrial countries,on the other (Table 1). From 1979 to 1983, the expan-sionary impulse imparted by fiscal policy in the UnitedStates is estimated to have amounted to almost 2

percent of GNP.1 In all other major countries, therewas a contractionary thrust, ranging up to some 3percent of GNP in the United Kingdom and the FederalRepublic of Germany. Partly as a consequence, theactual deficit of the U.S. Federal Government rose bythe equivalent of 4!/2 percent of GNP between 1979and 1983, while the corresponding increase for theother major industrial countries was under 1 percentof GNP.

According to budgetary plans already announced oradopted, the contrasting paths of fiscal developmentsin the United States and in the other major industrialcountries seem destined to persist through 1984. Al-though the U.S. federal deficit is likely to declineslightly in the current calendar year, the expecteddecline would be less than could be attributed to theeffects of recovery alone. Outside the United States,policy actions are expected to be in the direction of amodest further reduction in deficits and, in conjunctionwith an improving level of economic activity, shouldresult in the other major industrial countries havingthe first decline in their recorded deficit for severalyears.

It is clear, however, that governments are continuingto absorb rather large shares of private saving invirtually all industrial countries. Even in Japan, wheresaving is high, one eighth of gross private saving isnow needed to finance the deficit of the generalgovernment sector. In the other major countries, theproportion is considerably higher, ranging up to almostone half. All of these ratios—and especially those inthe United States and Canada—are relatively high bythe respective national historical standards, and mustbe cut back significantly as the recovery proceeds ifadequate financing for the desired expansion of pro-ductive private investment is to be found.

Output and Demand.—At mid-1984, the industrialworld as a whole was well into its second year ofrecovery, following three years of severe recession.Industrial production was about 15 percent higher thana year earlier in the United States and more than 10percent higher in Japan. (See Chart 3.) For the fivelargest industrial countries as a group, the average risein industrial production from the first quarter of 1983to the first quarter of 1984 exceeded 11 percent.

During the course of 1983, and especially in the firsthalf of the year, the upward momentum of GNP wascentered mainly in the United States and Canada. (SeeTable 2.) Continued moderate expansion of Japan'soutput, which had been better sustained than that of

1 Fiscal policy is measured here in terms of the financial positionof the Federal Government. If the financial position of state andlocal governments is included, the expansionary impulse stemmingfrom the government sector would be about 11/2 percent during thisperiod.

4



Table 1. Major Industrial Countries: Central Government Fiscal Balances and Impulses, 1977-83 l

(In percent of GNP)

Fiscal balance(+ surplus, - deficit)

Canada 2

United StatesJapan 3

France 4

Germany, Fed. Rep. ofItaly 5

United Kingdom

All seven countries

All seven countries exceptthe United States

Fiscal impulse(+ expansionary,— contractionary)

Canada *United StatesJapan 3

France 4


United Kingdom

All seven countries

All seven countries exceptthe United States1 For the definition of the fiscal impulse measure, see World Economic Outlook: A Survey by the Staff of the International Monetary Fund

(Washington: International Monetary Fund, April 1984), pages 99-112. Data have been converted where necessary from a fiscal to a calendaryear basis for ease of comparison. Composites for the country groups are weighted averages of the individual country ratios, with weightsin each year proportionate to the U.S. dollar value of the respective GNPs in the preceding year.

2 Data for Canada are on a national income accounts basis.3 Data for Japan cover the consolidated operations of the general account, certain special accounts, social security transactions, and

disbursements of the Fiscal Investment and Loan Program (FILP), except those to financial institutions. Japanese data other than FILPtransactions are based on national income accounts.

4 Data for France do not include social security transactions and are on an administrative basis.5 Data for Italy refer to the "state sector" and cover the transactions of the state budget as well as those of several autonomous entities

operating at the state level. They also include the deficit of the social security institutions and part of that of local authorities.

most other industrial countries throughout the reces-sionary period, also bolstered the average growth ratefor the group as a whole. In addition, moderateadvances were recorded during 1983 by the UnitedKingdom and the Federal Republic of Germany, aswell as by Finland and Norway among the smallerindustrial countries. Elsewhere in the industrial world,however, increases in GNP were quite limited, and afew countries, including Italy and Australia, registereddeclines in output on a year-over-year basis.

The leading role of the United States in the cyclicalturnaround that began during 1983 stemmed initiallyfrom a revival of consumer demand and a shift towardreversal of the inventory cycle. Real incomes andpurchasing power, which were benefiting from theprogram of personal income tax reductions, werefurther enhanced by marked declines in both inflationand interest rates from their 1982 levels. These declinesraised consumer confidence and added to household

net wealth. Precautionary attitudes that had built upduring earlier years of high inflation apparently wererelaxed. All of the foregoing factors added stimulus toconsumer demand, especially for housing, automo-biles, and other durable goods. To meet this risingdemand, industrial production expanded rapidly, andthe previous tendency to reduce inventories was di-minished and gradually reversed as business confi-dence rose.

While expansion in the United States and Canadahas been strongest in the consumer-oriented compo-nents of demand, there have also been encouragingsigns that recovery is spreading to the investmentsector, particularly in the United States. In that coun-try, business capital formation has shown considerablestrength, which is all the more noteworthy in the lightof the high level of real interest rates that has prevailedthroughout the recovery period. The reasons for thisstrength are not fully apparent, but may reflect both

5

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-10.9-4.9

-2.1-2.5-5.9

-2.6-2.2

-12.9-4.1

-5.7-4.3-5.5

-2.8-1.9

-15.1-2.9

-6.3-5.8-5.1

-2.9-2.0

-16.8-4.9

1977 1978 1979 1980 1981 1982 1983


ANNUAL REPORT, 1984

Chart 3. Major Industrial Countries: Real GNP and Industrial Production, 1979-June 1984(Indices, 1980 = 100) '

1 Seasonally adjusted.

6



Table 2. Industrial Countries: Changes(In percent)

Real GNP

CanadaUnited StatesJapanFrance 3


United Kingdom 3

Other industrial countries 4

All industrial countriesOf which,

Seven major countries aboveEuropean countries

GNP deflator

CanadaUnited StatesJapanFrance 3


United Kingdom 3

Other industrial countries 4

All industrial countriesOf which,

Seven major countries aboveEuropean countries

in Output and

Average1967-76 2

4.82.87.44.73.44.32.34.3

3.7

3.63.8

6.95.67.97.35.19.39.98.0

6.7

6.57.5

Prices, 1967-83 l

Change from Preceding Year

1977

2.05.55.33.12.81.92.21.7

3.9

4.32.4

7.45.85.79.03.7

19.113.910.1

7.6

7.29.8

1978

3.65.05.13.83.52.73.82.0

4.1

4.53.0

6.77.44.69.54.2

13.910.98.7

7.5

7.38.6

1979

3.22.85.23.34.04.92.82.9

3.5

3.63.4

10.38.72.6

10.44.0

15.914.58.2

8.0

8.09.0

1980

1.1-0.3

4.81.11.93.9

-2.52.1

1.3

1.21.5

11.49.22.8

12.04.5

20.719.88.7

9.1

9.110.9

1981

3.32.64.00.2

-0.50.2

-1.60.6

1.6

1.8-0.2

10.69.42.7

12.34.2

18.411.79.5

8.7

8.510.0

1982

-4.4-1.9

3.32.0

-1.1-0.4

2.10.2

-0.2

-0.20.5

10.46.01.7

12.54.8

17.97.09.8

7.2

6.79.4

1983

3.33.43.00.71.3

-1.23.11.9

2.5

2.51.4

5.44.20.79.73.2

15.25.57.0

5.1

4.87.4

1 Composites for the country groups are averages of percentage changes for individual countries weighted by the average U.S. dollar valueof their respective GNPs over the preceding three years.

2 Compound annual rates of change.3 GDP at market prices.4 Comprise Australia, Austria, Belgium, Denmark, Finland, Iceland, Ireland, Luxembourg, the Netherlands, New Zealand, Norway, Spain,

Sweden, and Switzerland.

fiscal incentives for investment and the unsuitabilityof parts of the existing capital stock for the structureof demand growth that is now in prospect.

Outside the two North American industrial econ-omies, expansion has been slower in gathering mo-mentum, although by the second half of 1983 and theearly part of 1984, recovery appeared to be betterestablished. The growth in net imports into the UnitedStates and Canada has been an important factor un-derpinning output growth in other industrial countries.This was particularly significant for Japan, althoughdomestic demand now appears to be providing a greaterstimulus to GNP growth in that country. In the UnitedKingdom and the Federal Republic of Germany, aswell as in several of the smaller industrial countries,declining inflation and interest rates appear to haveled to a further drop in the saving ratio and to haveencouraged a revival in investment activity.

In France, where economic activity had been some-what better maintained in 1981-82 than in most other

European countries, recovery tended to be relativelyweak in 1983. The need to combat inflation and bringdown the external current account deficit limited thescope for increases in domestic demand. As a result,gross domestic product (GDP) was only about !/2 of 1percent higher in 1983 than in 1982, and did not displaysigns of upward momentum until late in 1983 and earlyin 1984. Italy, too, was influenced by the need toimprove its balance of payments and, especially, itsprice performance. Italian output, though recoveringslowly during 1983 from a sharp drop during 1982, wasjust over 1 percent lower for the past calendar year asa whole than in 1982.

Among the smaller industrial countries, experiencevaried considerably in 1983 and in early 1984. Onaverage, however, their economic performance hasremained somewhat weaker than that of the sevenmajor industrial countries as a group. With many ofthe smaller countries still suffering from serious infla-tion and weak balance of payments positions, their

7


ANNUAL REPORT, 1984

combined GNP growth averaged 1.9 percent in 1983.While this represented an improvement over the slug-gish rates of the preceding two years, the outputexpansion recorded in 1983 was well below the esti-mated increase in these countries' productive potential.

In early 1984, the average rate of growth among thesmaller industrial countries continued to lag behindthat of the larger ones, and in most there was a furtherworsening in unemployment. However, scattered signsof some acceleration in economic activity were ap-pearing, and some of the smaller countries have laidthe foundation for stronger gains as their major tradingpartners reach more satisfactory stages of recovery.Since most of the smaller countries are closely linkedto the European industrial area, the regional patternof cyclical recovery among major industrial countrieshas so far been rather unfavorable for the majority ofthe smaller countries, but this disadvantage may bemitigated as recovery spreads.

Employment and Unemployment.—Except in theUnited States and Canada, the acceleration of growthin 1983 was generally insufficient to take up much ofthe slack in the labor market. The average rate ofunemployment was higher in 1983 than in 1982 inevery major industrial country except the UnitedStates, as well as in most of the smaller ones. Alto-gether, 8 of the 21 countries in the industrial group,including for the first time Denmark and Australia,reported average unemployment exceeding 10 percentof the labor force in 1983,2 and the annual average forthe entire group reached 83/4 percent. By the end ofthe year, however, there were increasing signs ofimprovement. Unemployment continued to fall rapidlyin the United States and Canada, while in several othercountries the rise in joblessness seemed to have beenhalted.

In the early part of 1984, the unemployment ratewas reduced substantially further in the United Statesand was reduced or at least stabilized in several othercountries. The United States, however, was the onlymember of the group whose employment gains duringthe first half of 1984 were strong enough to outpacelabor force growth by a sizable margin. Hiring ofadditional workers in the United States respondedmore quickly than usual to the cyclical upturn indemand and production, reflecting the degree to whichthe sheer duration of the recession had resulted inelimination of the hoarding of labor typically observedduring past recessions. At less than 8 percent in thefirst quarter of 1984, the U.S. unemployment rate wasdown by more than !/2 of 1 percentage point from theprevious quarter and by 2!/2 percentage points fromthe corresponding quarter a year earlier.

2 On the basis of the respective national statistics, which are notfully comparable in terms of labor force definitions and concepts ofunemployment.

8

In a number of European industrial countries, bycontrast, further increases in unemployment wererecorded. Even in the countries whose employmentsituations seemed to be stabilizing, levels of unem-ployment remained quite high during early 1984. About12!/2 percent of the labor force was out of work in theUnited Kingdom, and still higher unemployment rates(15 percent or more) prevailed in Belgium, Ireland,the Netherlands, and Spain. The persistence of suchhigh rates of unemployment appears to be attributablenot only to cyclical weakness in these economies butalso to structural rigidities in their labor markets. Wagecosts continue to absorb a higher share of value addedin European countries than was common in the 1960sand early 1970s. At the same time, employers aremade reluctant to hire additional workers by thedifficulty of releasing them should demand conditionschange.

Prices and Costs.—The concerted focus of policyon restraint of inflationary pressures met with furthersuccess in 1983. Rates of increase in prices subsidedsignificantly in every major industrial country and inmost of the smaller ones as well. In a number ofcountries, including the United States, the UnitedKingdom, the Netherlands, and New Zealand, the rateof increase in the GNP deflator was more than halvedfrom 1981 to 1983. For the industrial countries as agroup, the rise in the GNP deflator dropped to 5percent in 1983, compared with 7 percent in 1982 and81/2-9 percent in each of the preceding two years. (SeeTable 2.) With some of the factors underlying thismoderating trend having largely run their course bymid-1983, recent quarterly movements in the serieshave shown less tendency to improve, although therewas a further decline in this measure of inflation inthe United States in the first half of 1984. Consumerprices in these countries have followed a broadlysimilar course in recent years, although with moreamplitude of movement, reflecting mainly the greatervolatility of import costs.

While the dispersion of inflation rates has remainedquite substantial, it tended to diminish somewhatduring 1983 and the first half of 1984. Canada andFrance, which had had persistently high rates of priceincrease during 1979-82, finally achieved some successin reducing inflation. The same can be said of a numberof the smaller industrial countries, including Ireland,New Zealand, and Norway. By the first half of 1984,the rate of consumer price increase in most industrialcountries had been brought below the double-digitlevel.

Foremost among the factors leading to the currentgreatly reduced average rate of inflation has been theperseverance of most national authorities with theiranti-inflationary strategy despite its high short-run costin terms of unemployment and forgone output. In



particular, monetary restraint has limited the capacityof business enterprises to accede to higher wagedemands or to pass additional wage costs through totheir customers in the form of higher prices. Increasedflexibility in labor contract negotiations has resultedfrom the combination of a marked reduction in infla-tionary expectations with high unemployment andslack productive capacity. During 1982 and 1983, theseconditions induced a notable moderation in wagesettlements. In several countries, significant modifi-cations of previously rigid indexation arrangementsmade major contributions to the slowing of wage andprice increases.

In 1983, the scaling back of wage and salary increaseswas reinforced, in its effect on unit labor costs, by anacceleration in productivity gains. After a long periodof weakness, the growth of output per man-hour inmanufacturing increased sharply, and overall GNP peremployee in the industrial countries rose about twiceas fast as it had during the 1980-82 period. Thisfavorable result occurred despite the fact that anexceptional degree of labor shedding by cost-consciousemployers had occurred during the recession, leavingless scope than in previous cyclical recoveries forproductivity increases from fuller utilization of alreadyemployed labor.

Factors underlying the welcome acceleration ofproductivity gains in 1983 cannot be identified withcertainty, but some of the probable causes can besuggested. Fuller utilization of existing plant capacitymust have been among the more important. It alsoseems likely that rapid scrapping of obsolete plant andequipment during the years of weak demand andintensified cost pressures may have resulted in anupgrading and a reduction in the average age of facilitiesin use. The maturing of the labor force could havebenefited productivity in countries where high pro-portions of new entrants from the generation born justafter World War II had lowered the average experienceof workers employed during the previous decade orso. Whatever the respective roles of these and otherunderlying factors, it is clear that the recent acceler-ation of productivity growth has made an importantcontribution to reducing the rate of increase of unitcosts and final product prices.

Developing Countries

A major factor underlying the serious economic andfinancial difficulties confronted by most developingcountries in recent years, and the associated slowdownin their rates of growth, has been the recession in theindustrial countries.

This recession was unusually prolonged, in partbecause of the difficulties of combatting inflationary

expectations that had become entrenched during theearlier period of accommodative policies. The impactof the weakness in economic activity was reflected ina reduced demand for developing countries' exportsand a further deterioration in their terms of trade. Therecession also tended to intensify protectionist trademeasures in industrial countries, restricting the growthof markets for exports of manufactures from devel-oping countries. Oil exporting countries, too, wereseriously affected, as a combination of weak aggregatedemand, conservation efforts, inventory reductions,and substitution among fuels and among sources ofsupply led to a sharp reduction in the volume of theiroil exports and, eventually, to a decline in price also.

The strains resulting from these adverse externaldevelopments were exacerbated in a number of de-veloping countries by inappropriate domestic financialpolicies in the years immediately following the 1979-80 oil price increases. Inflationary demand manage-ment policies and resort to excessive external bor-rowing or trade and payments restrictions, rather thanto needed measures of adjustment, led to a loss ininternational competitiveness and worsened the pay-ments disequilibrium in several of these countries.

The weakness of foreign exchange earnings, againsta background of indebtedness that had been rapidlyrising since the mid-1970s and that was largely con-tracted at variable interest rates, made developingcountries particularly vulnerable to the large increasein international interest rates that took place after 1980.The prolongation of this situation contributed to capitalflight and to a widespread drying up of new privatelending after the middle of 1982. In the circumstances,developing countries were obliged to curtail imports,adopt policy measures to restrict domestic demand,and settle for lower growth rates.

Economic Growth.—In most developing countries,economic growth remained weak in 1983, as it hadbeen in 1981 and 1982. This was true, not only incomparison with these countries' performance in the1960s and 1970s but also, more importantly, in relationto their population growth and development needs.The weighted average growth rate for all developingcountries, which had been declining steadily from its1977 level of nearly 6 percent, was less than 1 percentin both 1982 and 1983. (See Table 3.)

Among the non-oil developing countries, the weightedaverage rate of growth remained at 1 !/2 percent in 1983,approximately the same pace as in 1982. In per capitaterms, economic growth has declined from some 3percent per annum during most of the 1960s and 1970sto virtually zero in 1981 and to a negative figure in1982 and 1983. Moreover, the requirements of externaladjustment have meant that a sizable additional portionof real output has had to be devoted to net exportsover the past three years, both to offset the deterio-

9


ANNUAL REPORT, 1984

ration in the terms of trade and to bring about areduction in the current account deficit. Thus, theadditional resources available for domestic consump-tion and investment were substantially less than theincrease in measured output. The aggregate output of

oil exporting countries, heavily influenced as it is bydevelopments in the oil sector, has been decreasingsince 1980. It fell again in 1983, albeit by a relativelysmall amount. Abstracting from developments in oilproduction, however, economic growth in the non-oil

Table 3. Developing Countries: Changes in Output, 1967-83 '(In percent)

Average1967-76 2

Developing countriesWeighted average 3

Median

Oil exporting countries 3

Oil sector 3

Other sectors 3

Median

Non-oil developing countriesWeighted average 3

Median

5,

7,

5,5,

.7

.0

.6

.0


1977

5.85.0

6.32,9.8.

5,5,

.0

.4,9

.7

.0

1978

5.55.6

2.3-3.5

6.05.5

6.45.6

1979

4.84.9

3.73.04.17.8

5.14.8

1980

3.53.7

-2.0-11.7

4.911.1

5.03.7

1981

1.23.2

-4.0-15.4

5.59.4

2.83.3

1982

0.1,

-4,-16,

3.5.

1,2.

.2

.8

.3

.0

.9,5

.5,0

1983

0.81.7

-1.1-6.9

1.93.7

1.61.7

By analytical groupWeighted averages 3

Net oil exportersNet oil importers

Major exporters of manufacturesLow-income countries

Excl. China and IndiaOther net oil importers

MediansNet oil exportersNet oil importers

Major exporters of manufacturesLow-income countriesOther net oil importers

By areaWeighted averages 3

6.85.46.93.83.65.1

6.04.87.63.95.1

3.65.75.76.63.66.0

4.95.06.43.95.5

6.16.44.79.05.45.6

6.65.36.74.75.9

7.64.76.43.32.33.6

4.54.86.83.84.9

7.34.74.56.03.43.2

6.33.74.93.53.7

6.62.20.14.33.43.1

4.83.04.22.83.0

1.11.60.34.33.80.4

1.22.11.02.81.8

-1.52.2

-0.16.12.61.1

2.31.71.82.41.1

Africa (excl. South Africa)AsiaEuropeMiddle EastWestern Hemisphere

MediansAfricaAsiaEuropeMiddle EastWestern Hemisphere

4,5,5,5,6,

4.4,6,6,4.

.8

.0

.5

.6

.6

.7

.8,4.4.9

2,7,5,4,5!

3.5.6.5.5.

.3

.3

.4

.3,0

,5,86,6,3

2.59.85.47.44.2

3.56.76.88.26.4

2.24.73.94.36.7

4.06.35.63.84.8

3.05.41.56.86.1

2.55.52.76.84.3

1.85.12.35.40.2

2.05.02.57.32.1

1423

-1

2,32,5,

-0

.2

.5

.4

.4

.6

.6

.8

.9

.4

.7

0.16.50.64.2

-2.3

1.64.40.84.2—

1 Data in this table cover all Fund members except those listed in Table 2, together with a few territories for which output statistics arereadily available. The main groups of oil exporting countnes and non-oil developing countries, as well as each of the regional subgroups ofnon-oil developing countries, conform to the classification used in the Fund's International Financial Statistics. The subgroup of oil exportingcountries is defined as those countries meeting both of the following criteria (applied at present to 1978-80 averages): that oil exports (net ofany imports of crude oil) account for at least two thirds of the country's total exports; and that such net exports are at least 100 millionbarrels a year (roughly equivalent to 1 percent of annual world exports of oil). Among the non-oil developing countries, the net oil exportersare those countries that export more oil than they import, but do not satisfy the criteria noted above. The major exporters of manufacturesare those 12 countries that, in 1977, had manufactured exports amounting to both at least $1 billion and 25 percent of each country's totalexports. The subgroup of low-income countries comprises 43 countries whose per capita GDP, as estimated by the World Bank, did notexceed the equivalent of $350 in 1978. The subgroup of other net oil importers comprises middle-income countries (according to the WorldBank's estimates) the majority of which export mainly primary commodities. For the specific country coverage of each analytical subgroup,see World Economic Outlook: A Survey by the Staff of the International Monetary Fund (Washington: International Monetary Fund, April1984), pages 167-68.

2 Compound annual rates of change. Excludes China.3 Arithmetic averages of country growth rates weighted by the average U.S. dollar value of GDPs over the preceding three years.

10



sectors of these economies has remained positive,though declining from an average rate of 5 percent in1978-81 to 2 percent in 1983.

The slowdown in growth has been pervasive, withthe median rate of output increase having declined ineach of the past five years. (See Table 3.) The onlyregions that seem to have emerged relatively unscathedare the non-oil developing countries of the Middle Eastand Asia. (See Chart 4.) In the latter region, theperformance of the two largest countries, China andIndia, as well as that of a number of smaller ones, hasrun counter to the trend in much of the rest of theworld.

As noted above, an important factor in the severedeceleration of growth in the non-oil developing coun-tries was the pronounced reduction in the volume andprices of their exports as a result of the recession inthe industrial countries. The decline in real GNPgrowth of industrial countries from 4 percent in 1978to virtual stagnation in 1982 was accompanied by aneven more pronounced slowdown in the expansion ofworld trade. In particular, the rate of growth of non-oil developing countries' export volumes declined from10 percent in 1978 to !3/4 percent in 1982, beforerecovering to 51A percent in 1983. The major exportersof manufactures have suffered the most substantialslowdown in output growth since the onset of therecession, reflecting a significant deceleration (and in1982 an actual decline) in the volume of their exports.

Chart 4. Non-Oil Developing Countries: Real GDPby Region, 1973-83(Indices, 1973 = 100)

1 Excluding China.2 Excluding South Africa.

Their reliance on manufactured exports rendered themvulnerable to protectionist trends in industrial coun-tries, while their high level of international indebted-ness required a particularly determined adjustmenteffort at a time when foreign lending declined.

The smaller low-income countries (i.e., excludingChina and India) are relatively less exposed to inter-national economic developments, and their growthrate, though low, was initially less affected by theinternational recession, remaining at about 3!/2 percentper annum during 1980-82. In 1983, however, outputgrowth in these countries fell to only 2!/2 percent,reflecting in part adverse climatic conditions in anumber of countries, particularly in sub-SaharanAfrica.

Not surprisingly, the weakness of economic activityin the industrial world had a substantial adverse effecton the terms of trade of the non-oil developing coun-tries. These countries' import payments had alreadyrisen as a result of the second round of oil priceincreases in 1979-80. Subsequently, their export earn-ings were undercut by the severe decline in non-oilprimary commodity prices that occurred in 1981 and1982. This decline reflected the impact of the worldrecession, the rise in interest rates (which made itcostly to hold commodity stocks), and the impact ofthe strength of the U.S. dollar on prices quoted in thatcurrency. In addition, record harvests of foodgrainsand cotton exerted downward pressure on internationalmarket prices of these commodities.

The weakness of export markets of many non-oildeveloping countries, together with the very highnominal rates of interest prevailing in internationalfinancial markets, resulted in a steep increase in realinterest rates, as measured by the Eurodollar depositrates adjusted for changes in these countries' exportprices. In 1980 and 1981, the real rate became increas-ingly positive, and it fell only moderately in 1982 and1983, as softening of export prices offset the impactof declines in nominal interest rates. The relativeburden of debt service was further increased by thecontinued appreciation of the U.S. dollar. As the dollarrises in terms of other currencies, the value of paymentsthat are fixed in dollar terms (such as interest paymentson dollar-denominated liabilities) tends to rise relativeto those (such as payments for developing countries'exports) that move more closely in line with the averageof currency values.

In the face of increased debt service burdens andlimited export earnings, many countries had to seekadjustment mainly through a reduction of imports.Such import cuts cause dislocations in the domesticeconomy and affect the ability to produce goods fordomestic consumption and investment. They may alsolimit the country's exporting capability insofar as the

11


ANNUAL REPORT, 1984

forgone imports are required for production of ex-portable goods. In either case, the path of real grossdomestic product is deflected downward.

Although 1983 was a disappointing year from thepoint of view of output growth in developing countries,a number of trends appeared that should have afavorable impact in 1984 and beyond. In particular,the recession in the industrial countries began to ease.The decline in oil prices, while contributing to thebalance of payments problems of countries whoseexternal positions depend, directly or indirectly, onoil receipts, tended to ease the adjustment burden formany other developing countries. With some recoveryin commodity prices, the terms of trade of non-oildeveloping countries began to improve, and real exportearnings started to grow more rapidly. For the oilexporting countries, the prolonged decline in the de-mand for their principal export showed signs of comingto an end. Interest rates generally remained below thelevels reached in 1981, although they were still highin real terms and showed signs of rising in the secondhalf of 1983 and in early 1984.

Whether the developing countries can build on thesedevelopments to achieve higher growth rates willdepend in part on the extent to which the trend towarda more favorable external environment is maintained.Primarily, however, it will depend on the determinationwith which developing countries themselves adoptappropriate policy packages in such areas as fiscalreform, credit restraint, interest and exchange rates,incentives for private sector activity, and pricing inpublic sector undertakings. Recovery in developingcountries will also depend on the extent to which thesecountries are permitted access to expanding marketsin the industrial countries, and on the extent to whichinternational capital flows, private and official, arerestored and expanded.

Inflation.—In the developing countries, unlike in theindustrial countries, inflation has not shown uniformsigns of decelerating in recent years. In sharp contrastto the sustained anti-inflationary policies that havebeen instrumental in controlling cost and price pres-sures in the industrial countries, accommodative fi-nancial policies have been characteristic of manydeveloping countries, and have been a major factoraccounting for the high rates of inflation they haveexperienced over the past several years. This has beenparticularly true for the non-oil developing countries,whose weighted average rate of increase in consumerprices increased to 32 percent per annum in 1980-82and to 44 percent in 1983. (See Table 4.) It may benoted here that this weighted average, being dominatedby the poor performance of a few large countries,tends to overstate the rise in inflation for the majorityof the non-oil developing countries. The median rate

of inflation, which is more representative of priceincreases in a "typical" developing country, declinedfrom 15 percent in 1980 to 11 percent in 1982 andremained at that level in 1983.

A notable feature of the pattern of inflation ratesamong developing countries is that Asia has been, formany years, more successful than other regions incontaining price increases. This superior performancemay be attributed in part to the adjustment programsadopted by many Asian countries in the 1970s andearly 1980s, which included policies designed to achievefiscal and monetary discipline, correction of pricedistortions, and reduction of external restrictions. Theadoption of such policies in the other regions has notalways taken place on such a timely basis. Further-more, the other regional groups all include one or moresizable countries with exceptionally high rates ofinflation that tend to push up the average withoutnecessarily affecting the median rate for the area. Suchhigh-inflation countries often have extensive indexa-tion arrangements which, once inflation accelerates,greatly complicate the task of inflation control, partic-ularly in circumstances requiring external adjustment.This is especially true for the Western Hemisphereregion, which continued to experience the highestinflation, with the weighted average rate acceleratingsharply from 78 percent in 1982 to 123 percent in 1983.However, the median inflation rate for this regionshowed only a modest rise, from 9'/2 percent in 1982to ll!/2 percent in 1983, with serious inflationaryproblems being confined to Argentina, Bolivia, Brazil,and Mexico. Similarly, in the non-oil Middle Eastregion, continued high inflation in Israel largely ac-counted for the increase in the weighted average ratefor the group as a whole.

Among the major oil exporting countries, a lowerrate of consumer price inflation in the past two yearsis partly attributable to the weakness in economicactivity after 1981, which in turn reflected increasingrestraint on government spending. Other factors con-tributing to the abatement of inflation have been thedecline in import prices (in U.S. dollar terms) and themaintenance of comfortable supply conditions in mostcountries. Nevertheless, a few countries in this groupcontinued to experience significant inflationary pres-sures.

Adjustment Measures.—In order to improve pros-pects of domestic and external financial stability, manydeveloping countries have now embarked on programsincorporating measures in areas such as governmentfinance, monetary and banking policy, the exchangerate, and trade liberalization. In addition, structuraladjustment efforts included policies relating to subsi-dies and prices, public enterprise management, andthe level and distribution of development expenditures.

12



Table 4. Developing Countries: Changes in Consumer Prices, 1967-83(In percent)

Developing countriesWeighted average 3

Median

Oil exporting countriesWeighted average 3

Median

Non-oil developing countriesWeighted average 3

Median

By analytical groupWeighted averages 3


Major exporters of manufacturesLow-income countries

Excl. China and IndiaOther net oil importers

MediansNet oil exportersNet oil importers


By areaWeighted averages 3

AfricaAsiaEuropeMiddle EastWestern Hemisphere

MediansAfricaAsiaEuropeMiddle EastWestern Hemisphere

Average

1967-76 2

15.97.8

8.217.322.610.714.915.8

7.97.8

11.58.17.5

8.610.39.09.6

27.5

7.58.07.39.58.7


1977

21.911.2

15.211.2

23.611.2

22.823.843.27.0

14.219.6

12.310.612.29.6

11.2

24.35.5

15.120.053.8

12.05.0

11.114.311.5

1978

18.99.9

11.910.6

20.99.4

17.721.440.2

3.711.518.7

10.69.1

14.49.18.3

19.13.7

19.820.945.3

10.16.09.9

12.010.2

1979

21.611.6

10.910.6

24.812.0

17.725.945.46.7

17.923.9

9.012.219.011.012.1

22.56.7

25.925.950.1

11.66.3

14.314.115.6

1980

27.714.6

13.211.2

32.014.9

24.233.254.511.721.831.5

15.114.924.914.414.3

23.312.537.942.258.6

13.814.516.215.218.1

1981

27.113.5

13.211.1

31.313.7

24.432.361.910.426.419.3

14.613.522.613.612.3

28.210.524.034.065.3

13.513.415.710.314.6

1982

26.710.3

8.17.6

32.911.0

43.631.163.37.4

20.415.7

16.210.621.011.97.7

18.35.9

23.536.178.4

13.57.4

18.511.29.4

1983

35.410.0

11.49.0

44.111.0

74.239.186.58.1

18.016.0

16.310.020.713.07.6

19.55.9

23.340.3

122.7

13.08.0

14.210.011.6

1 For classification of countries in groups shown here, see Table 3, footnote 1.2 Compound annual rates of change. Excludes China.3 Geometric averages of country indices, weighted by the average U.S. dollar value of GDPs over the preceding three years.

While these adjustment programs are expected even-tually to reduce inflationary pressures, their initialconsequence has sometimes been a rise in the level ofdomestic prices following corrective price adjustments.

A widespread feature of financial policies in devel-oping countries in recent years has been an accelerationin money and credit growth induced by excessive fiscaldeficits. Efforts to reduce fiscal deficits have beenhampered by falling government revenues owing todeclining economic activity, stagnation in trade, andthe difficulty of expanding the tax base during arecession. Attempts to reduce government expendi-tures have encountered social and political constraintsas well as the fear of retarding economic developmentby substantial reductions in capital expenditure. Since1982, however, many countries have pursued the

objective of fiscal restraint in a more determinedmanner. As a result, the average ratio of the fiscaldeficit to GDP of the non-oil developing countriesregistered a modest decline to 4V£ percent in 1983,after having widened from 3!/2 percent in 1977-81 to43/4 percent in 1982. This improvement in the fiscalposition permitted a deceleration in the rate of expan-sion of domestic credit. Credit growth in non-oildeveloping countries, which had reached 67 percentin 1982, fell back to 50 percent in 1983. There was,nevertheless, some increase in the average rate ofgrowth of the money stock, as the monetary impactof the balance of payments became less negative.

Among the oil exporting countries, substantial ad-justment measures have been made necessary bydeclining oil revenues, and in a few cases also by the

13


ANNUAL REPORT, 1984

need to moderate inflationary pressures. Virtually allthe members of this group took measures aimed atreducing public sector spending substantially, and inmany countries such measures were combined withefforts to increase domestic non-oil revenue. Never-theless, falling receipts from the petroleum sectorbrought about a widening in the overall fiscal deficit,from an average of 5!/4 percent of GDP in 1982 to 9percent of GDP in 1983.

External adjustment has involved, for many devel-oping countries, either an outright, planned reductionof investment outlays or an indirect reduction ininvestment spending brought about by restrictive mon-etary and fiscal policies and the higher cost or reducedavailability of capital. This is particularly true forcountries in the Western Hemisphere and in Africa,which have generally suffered reductions in the shareof investment in total GDP in recent years. Althoughthis adjustment has had adverse implications for growth,it needs to be viewed in the perspective of the accel-eration in investment spending that occurred in manyof these countries in the 1970s. During the mid-1970s,the relatively easy availability of private internationalcredit at low or negative real rates of interest encour-aged a rapid growth of investment spending in manycountries in the Western Hemisphere. In Africa, asimilar, though less pronounced, development tookplace in response to growing inflows of official financeon concessional terms. Although increased investmentwas generally associated with increased output andexports, easy access to external credit may haveencouraged some countries to reach levels of importsthat could not be sustained in the longer run and toavoid the reductions in consumption and investmentthat would otherwise have been called for. Moreover,negative real interest rates may have led to distortionsin the allocation of resources.

However, if the low real interest rates of the mid-1970s may have caused an expansion in investmentspending that was ultimately unsustainable, the sub-sequent rise in rates has had the opposite effect. Thesteep rise in the real cost of borrowing has narrowedthe range of economically attractive investment op-portunities, and has reduced the real rate of return(after allowance for the increased cost of borrowing)on all investments. The impact has been especiallysevere on past investments financed through floatingrate debt. The economic viability of these investmentshas been undermined by the higher real rates of returnrequired to match the increase in real interest costs.

Another difference between the experience of themid-1970s and that of the early 1980s is in the resourceuses of external credit. During most of the 1970s,although some borrowing was used to finance increasedenergy costs, growing capital inflows were in general

associated with a rising absorption of real resourcesfrom abroad. While credit was still available in 1980-82—albeit at very high rates of interest—it had to beused primarily to meet the increased cost of servicingthe large volume of debt accumulated in earlier yearsand to finance external deficits arising from the dete-rioration in the global economic environment, ratherthan to bring about increases in domestic outlays forinvestment. The early 1980s were also a period inwhich flows of industrial country aid to developingcountries flattened out. This meant that in the low-income countries, which rely heavily on concessionalborrowing, investment spending could not be increasedor even maintained at existing rates without cuttingalready low consumption levels.

Beyond the effects of the increasing cost and scarcityof external credit on investment, domestic capitalformation in developing countries has been affectedin the short term by policies that have to be employedto restore financial stability on a durable basis. Fiscalretrenchment has led to the curtailment of public sectorprojects, while monetary restraint has had the effectof limiting the flow of bank credit to the private sector.While in some cases resources released by the publicsector have been quickly reabsorbed through an in-crease in private investment activity, in general thiskind of switch in resource use takes time to have itseffect.

International Trade and Payments

With the progress of economic recovery in theindustrial countries, the volume of world trade beganto expand quite strongly in 1983, and the prolongeddeterioration in the terms of trade of non-oil developingcountries came to an end. (See Tables 5 and 6.)Importsinto industrial countries grew at an annual rate of over9 percent, in real terms, from the last quarter of 1982to the first quarter of 1984. Non-oil commodity pricesincreased by 20 percent in U.S. dollar terms betweenthe trough reached in November 1982 and May 1984.In consequence, the terms of trade of those developingcountries that are net importers of oil improved by anestimated 2 percent in 1983 over 1982, after havingdeteriorated by some 20 percent over the precedingfive years. For oil exporting countries, there was adecline in the terms of trade in 1983, which, however,provided only a limited offset to the improvement thathad occurred during 1979-81.

The principal change in the pattern of world currentaccount balances among major country groupings in1983 was a further substantial reduction in the deficitof non-oil developing countries, which fell by $26billion, to $56 billion. (See Table 7.)With the industrialcountries remaining in approximate balance and oil

14



Table 5. World Trade Summary, 1967-83 l

(Percentage changes)

World trade 3

VolumeUnit value

(in U.S. dollar terms)(in SDR terms) 4

Volume of tradeExports

Industrial countriesDeveloping countries

Oil exporting countriesNon-oil developing countries

ImportsIndustrial countriesDeveloping countries


Unit value of trade(in SDR terms) 4

ExportsIndustrial countriesDeveloping countries


ImportsIndustrial countriesDeveloping countries


Average1967-76 2

7.5

8.57.0

8.06.56.06.6

7.68.7

18.56.0

6.211.320.16.3

7.26.56.27.1


1977

5.0

9.07.5

5.32.40.54.1

4.410.216.37.7

6.610.98.4

13.4

7.96.57.36.2

1978

5.5

10.02.5

6.14.2

-2.910.0

5.17.23.88.6

5.2-4.0-6.2-2.2

2.33.14.92.4

1979

7.0

18.514.5

7.55.32.38.0

8.65.2

-8.510.7

11.525.439.715.0

15.412.89.5

14.2

1980

1.5

20.019.0

3.7-2.5

-12.59.0

-1.58.1

12.46.8

12.435.159.314.9

20.617.810.720.1

1981

1.0

-1.09.0

3.4-4.1

-15.67.8

-1.97.2

20.63.1

6.114.020.67.9

7.712.38.2

13.7

1982

-2.5

-4.02.5

-2.1-7.4

-18.41.7

-0.5-4.5

6.5-8.3

3.01.02.2

1.23.42.53.7

1983

2.0

-4.5-1.0

2.00.6

-7.25.3

4.1-3.4

-10.2-0.6

-0.3-2.8-8.4

0.9

-2.4—

0.6-0.2

1 For classification of countries in groups shown here, see Table 2 and Table 3, footnote 1. Excludes data for China prior to 1978.2 Compound annual rates of change.3 Averages based on data for the three groups of countries shown separately below and on partly estimated data for other countries (mainly

the U.S.S.R. and other nonmember countries of Eastern Europe and, for years prior to 1978, China). Figures are rounded to the nearest0.5 percent.

4 For years prior to 1970, an imputed value of $1.00 has been assigned to the SDR.

exporting countries in moderate deficit, the principalcounterpart to the improvement in the non-oil devel-oping countries' position was a reduction in the neg-ative "statistical discrepancy" for the world as awhole. The large size, and significant changes, in thisbalancing item should induce caution in the interpre-tation of recorded balance of payments developments,though it probably does not invalidate inferences drawnfrom broad trends in such developments.

The 1983 recovery in world trade permitted non-oildeveloping countries to resume import growth in thelatter part of that year, while still achieving a sizablefurther reduction in their external current accountdeficit. This deficit fell to the equivalent of 12!/2 percentof their export receipts, the lowest figure in a decade.The oil exporting countries, whose record surplus ofover $110 billion in 1980 had been converted into amoderate deficit by 1982, managed to stabilize theirposition in 1983. In their case, however, this was dueentirely to a substantial compression of imports, asboth the price and the volume of their exports contin-ued to decline.

Despite the improvements in the balance of pay-ments position of most developing countries, many ofthem continued to face severe external constraints.The reluctance of commercial banks to extend furthercredit to many of the most heavily indebted countries,which had come to a head in the second half of 1982,remained a central feature of international credit mar-kets in 1983 and the first half of 1984. Consequently,many developing countries had to have recourse toexceptional means of balance of payments financing,including rescheduling of existing debt and concertednew lending by banking consortia. These arrangementswere usually developed in the context of programs ofbalance of payments adjustment supported by theFund.

Among the industrial countries, the dominant featureof developments over the past year has been thecontinued strength of the U.S. dollar, and the verysubstantial widening in the current account deficit ofthe United States. Between the end of 1982 and mid-1984, the real effective exchange rate of the U.S. dollarrose by a further 5 percent, having risen by 31 percent

15


ANNUAL REPORT, 1984

Table 6. Summary of Terms of Trade and World Prices, 1967-83 l(Percentage changes)

Terms of trade

Industrial countries

Developing countriesOil exporting countriesNon-oil developing countries


Major exporters of manufacturesLow-income countries 3

Other net oil importers

Average1967-76 2

-1.0

4.513.1

-0.71.2

-1.0-1.1-0.6-0.7


1977

-1.2

4.11.06.86.96.85.0

16.46.1

1978

2.8

-6.9-10.5-4.5-4.3-4.5-3.3-7.9-5.1

1979

-3.4

11.227.60.8

19.3-2.1-2.8-0.6

0.2

1980

-6.8

14.743.9-4.311.5

-7.1-6.8

-10.4-9.1

1981

-1.5

1.511.5

-5.1-7.1-4.8-4.4-5.3-8.0

1982

1.8

-2.3-0.4-3.5-6.8-2.9-2.6-2.6-5.5

1983

2.1

-2.9-9.0

1.1-2.7

1.83.91.8

-0.2

World trade prices (in U.S.dollar terms) for majorcommodity groups 4

ManufacturesOilNon-oil primary commodities

(market prices)

7.521.7

7.4

8.09.3

21.2

14.50.4

-4.1

14.046.0

16.3

11.063.5

-6.010.0

-1.0-4.2

8.7 -14.6 -12.0

-3.0-12.1

6.7

1 Based on foreign trade unit values except where indicated. For classification of countries in groups shown here, see Table 2 and Ta-ble 3, footnote 1. Excludes data for China prior to 1978.

2 Compound annual rates of change.3 Excluding China and India.4 As represented, respectively, by (1) the United Nations export unit value index for the manufactures of the developed countries; (2) the

oil export unit values of the oil exporting countries; and (3) the Fund's International Financial Statistics index of market quotations for non-oil primary commodities.

during the previous two years: With the Japanese yenlittle changed, the principal counterweight to the dol-lar's strength was in the European currencies. TheFrench franc, the Italian lira, and the pound sterlingexperienced the largest declines against the dollar. Thestrength of the dollar must be largely attributed todevelopments affecting the capital account, notablythe large interest differential favoring investment indollar-denominated assets, the effects of tax changesand strong economic growth on the yield of equity andother investments in the United States, and the at-tractiveness of U.S. financial markets as a "safehaven" for foreign funds. The current account positionof the United States has continued to deterioratemarkedly; a deficit of $42 billion (including officialtransfers) was recorded in 1983, and data for the firstpart of 1984 suggest that the deficit could double inthe current year.

Industrial Countries

Exchange Rate Developments.—The rise in thevalue of the U.S. dollar during 1983 continued theextended upswing that had begun in the third quarterof 1980. Having appreciated by 30 percent in nominaleffective terms between that time and December 1982,the dollar rose by another 9!/2 percent from December

1982 to January 1984. It then declined by 4 percentfrom January to March 1984, but in the subsequentfew months tended to firm again. By the first quarterof 1984, the real effective value of the dollar (basedon relative normalized unit labor costs in manufactur-ing, adjusted for exchange rate movements) had risento a level more than 25 percent above its average levelfor 1973-82, the first decade of generalized floatingamong major currencies.

The continued appreciation of the U.S. dollar indi-cates that the preference for dollar-denominated assetsby market participants remained strong in 1983. Fac-tors that may have contributed to the strength of theseinvestor preferences included relatively high expectedreturns on both financial and real investments in theUnited States and the perceived safety of the U.S.financial system in a period of continued internationaluncertainties.

The recovery of the U.S. economy, which gatheredpace during 1983, together with the continued largesize of the federal budget deficit, eventually arrestedthe decline in U.S. interest rates that had been takingplace since 1981. Both short-term and long-term in-terest rates began to rise in mid-1983, pushing differ-entials vis-a-vis most other major currencies in adirection favoring assets denominated in U.S. dollars.The expectation that the conditions underlying thesehigh interest rates would persist provided an incentive

16



for substantial inflows of capital to the United Statesfrom abroad, satisfying the heavy net demand forsavings and simultaneously contributing to both theappreciation of the dollar and the deterioration of thecurrent account balance.

The strengthening of the U.S. economy in 1983 alsofostered expectations of relatively high returns on realinvestment, particularly in comparison with countrieswhere economic recovery remained weak. The growthof public and private demand for domestic credit,combined with the debt problems of a number of thelarger developing countries, led to a sharp decline inforeign lending by U.S. private banks. This also mayhave strengthened the U.S. currency, since borrowershad reduced access to dollars to convert into othercurrencies for the purpose of making payments.

The counterpart to the rise in the effective value ofthe dollar between late 1982 and mid-1984 is to befound largely in the European currencies (Chart 5).From December 1982 to May 1984, the deutsche markdepreciated substantially against the dollar (by 12percent) and to an even greater extent (by 17 percent)against the Japanese yen. In real effective terms, thedeutsche mark declined by about 5!/2 percent from thefourth quarter of 1982 to the first quarter of 1984,reaching a level 11 !/2 percent below its average for thedecade 1973-82. A factor that may have contributedto the decline in the deutsche mark against the othertwo major currencies was the easing of German mon-etary conditions during the first half of 1983. This hadthe effect of reducing real interest rates significantlybelow those in the United States and Japan. In addition,the trade performance of the Federal Republic ofGermany remained rather weak, given its relativecyclical position, especially in comparison with thatof Japan.

Other European currencies generally declined moreagainst the dollar during 1983 than did the deutschemark. Within the EMS, the persistence of inflationdifferentials was one of the factors that led to strongspeculative pressures that resulted in a realignment ofcentral rates in March 1983. The deutsche mark,Netherlands guilder, Belgian franc, Danish krone, andLuxembourg franc were revalued against the Frenchfranc, Italian lira, and Irish pound. During the remain-der of 1983, stability within the EMS was generallymaintained, though the Belgian franc fell below itslower divergence threshold in September and remainedthere until late March 1984. Some pressures re-emergedwithin the EMS in February 1984, when the deutschemark appreciated sharply against the U.S. dollar, butthey subsided during March and April after the dollarshowed renewed strength against the deutsche mark.

The pound sterling, which remained outside thecommon margins agreement of the EMS, also declined

during the period from late 1982 to mid-1984, fallingby about 6 percent in nominal effective terms and bysome 8 percent in real effective terms. This decline,which was similar to the average of EMS membercountries, may have reflected the continuing erosionof the British balance of payments surplus.

Compared with most European currencies, the Jap-anese yen and the Canadian dollar were relativelystrong against the U.S. dollar during 1983. Thestrengthening of Japan's current account balance sincemid-1980 has been substantial, particularly during thepast year. The effect of this strengthening on theexchange rate for the yen, though partly moderatedby increasing capital outflows, has nevertheless beenimportant. After reaching a four-year low in the fourthquarter of 1982, the yen was almost 10 percent higheragainst the dollar in the following quarter. Thereafter,fluctuations in the yen/dollar rate corresponded closelyto changes in the interest rate differential betweenJapan and the United States, with little net movementin the nominal rate until March 1984, when the yenrose by 4 percent compared with the previous month.

For most of the smaller industrial countries, changesin nominal exchange rates during 1983 tended to offsetthe differences between domestic inflation rates andthose in main competitor countries. However, therewere a few exceptions to this broad trend. Belgiumand Denmark—whose currencies had already depre-ciated in real terms in 1982—experienced further gainsin competitiveness during 1983, partly as a result ofthe general depreciation of the EMS currencies againstthe U.S. dollar and the Japanese yen and partly owingto incomes policies that have slowed the growth ofnormalized unit labor costs. Beginning in late 1982 andcontinuing through mid-1983, Spain allowed the pesetato depreciate in order to reduce balance of paymentspressures. In real effective terms, the level of thepeseta was 14 percent lower by the second half of1983 than its average level in 1982, although by March1984, 4 percentage points of this decline had beenreversed. The Swedish krona, which had depreciatedsubstantially in nominal and real terms in 1981 and1982, was stable in nominal effective terms during 1983but tended to appreciate somewhat in real terms. ByMarch 1984 the real effective exchange rate of theSwedish krona was 4 percent higher than its averagelevel in 1983, but was still some 22 percent below itsaverage value during the period 1978-80.

Current Account Developments.—The aggregatecurrent account position of the industrial countries,excluding official transfers, remained in approximatebalance in 1983, as it had been in 1981 and 1982.3 It

3 Including official transfers, the combined current account of thegroup of industrial countries recorded a deficit of $20-25 billionduring each of the past three years.

17


ANNUAL REPORT, 1984

Chart 5. Major Industrial Countries: Indices of Monthly Average U.S. Dollar and Effective Exchange Rates,January 1980-May 1984(Indices, 1977 = 100)

18



should be remembered, however, that the global bal-ance of payments accounts reflected some $80 billionof net unrecorded receipts during 1983. Given theheavy weight of the industrial countries in world trade,it seems likely that a significant part of these netreceipts should be attributed to them and that, con-sequently, they remained in substantial surplus.

The rather small movement in the recorded aggregatecurrent account balance of the industrial countriesduring this period was the net result of substantial butlargely offsetting shifts in the external positions ofindividual countries. (See Chart 6.) The U.S. currentaccount (including official transfers) shifted from asmall surplus in 1981 to a large deficit in 1983, whilethe current account surplus of Japan increased sub-stantially and the position of the Federal Republic ofGermany shifted from a large deficit to a moderatesurplus.

As in prior years, movements in the current accountbalances of the industrial countries in 1983 were closelylinked to movements in their merchandise trade bal-ances. In turn, the rather large shifts in trade balancesamong the industrial countries can be attributed tochanges in countries' competitive and relative cyclicalpositions, and to developments in oil trade. For thegroup as a whole, the $74 billion reduction in the oiltrade deficit in 1982-83 resulted not only from declinesin the price of oil measured in U.S. dollars, whichamounted to 7 percent in 1982 and 9 percent in 1983,but also from the continued drop in the volume of oilimports. The reduction in the net volume of oil importswas, however, substantially less in 1983 than in anyof the three preceding years (6 percent, compared withmore than 13 percent annually in 1980-82), largelybecause of the impact of economic recovery on thedemand for energy. Nevertheless, virtually all indus-trial countries showed some improvement in their oiltrade balances in 1983.

Among the industrial countries, developments in thepattern of non-oil trade balances during the past yearand a half were strongly influenced by the sizabledisparities in rates of growth of domestic demand inthe industrial countries themselves and in their prin-cipal export markets. The large changes in real ex-change rates that occurred over the past several yearswere also a major influence on the direction of non-oil trade flows because of their effects on internationalprice competitiveness among countries. (See Chart 7.)

For the United States, the loss of price competi-tiveness was an important factor contributing to thesharp deterioration in the non-oil trade balance duringthe past three years. The growth of U.S. non-oil exportvolumes fell short of market growth in each year from1981 to 1983. Moreover, in 1983, when economicactivity recovered sharply in the United States, the

volume of imports grew three times as fast as realdomestic demand.

While the effects of relative price changes on thevolume of trade flows may take several years to befully felt, the effects of changes in countries' relativecyclical positions are usually apparent at once. Forexample, the major swing in the relative cyclicalposition of the United States during the past two yearshad a substantial impact on the U.S trade balance. In1982, the decline in economic activity in the UnitedStates resulted in a sharp fall in the volume of imports,especially oil imports; then, in 1983 and the first quarterof 1984 the rebound in U.S. economic activity, whichwas earlier and stronger than in most other countries,contributed to the rapid increase in import volumes.

The United States may also have suffered from anadverse geographical pattern in its external trade. Inparticular, the contraction of import demand in anumber of Latin American countries affected theUnited States to a greater extent than other industrialcountries because of the large proportion of U.S.exports going to these countries. Another source ofweakness in the external position of the United Stateswas the $10 billion decline in the surplus on net servicesin 1981-83, largely the result of a cyclical decline inprofits and dividends from foreign direct investment.

The current account of Japan, in contrast to that ofthe United States, strengthened sharply in 1983 as aresult of earlier gains in competitiveness, the resump-tion of growth in foreign markets, and the lower growthof domestic demand. Export volumes increased muchfaster than the rise in foreign demand, while the risein the volume of non-oil imports was held to only 1percent—below the growth rate of domestic demandand well below that of total output. As Japan's oiltrade balance also continued to improve, the surplusof the current account as a whole, including officialtransfers, rose by $14 billion, to $21 billion.

The current account position of the Federal Republicof Germany, after moving from a deficit of $16 billionin 1980 to a surplus of $3!/2 billion in 1982, was littlechanged in 1983. Only at the end of 1983 and early in1984 were there significant signs of renewed buoyancyin export receipts. The weak export performance in1983 may have resulted, in part, from shifts in com-petitiveness within the EMS following the realignmentof central rates in March 1983 and, more importantly,from the effects of the accompanying adjustmentpolicies adopted by Germany's major trading partners.The volume of non-oil imports increased sharply in1983 (by 6l/2 percent) owing partly to the resumptionof growth in domestic demand after two years ofdecline. The weakness of exports and the upswing innon-oil imports during most of 1983 were offset by alower volume of oil imports.

19


ANNUAL REPORT, 1984

Chart 6. Major Industrial Countries: Payments Balances on Current Account, Including Official Transfers, asPercentage of GNP, 1979-First Quarter 1984 l

1 Based on seasonally adjusted data.

20



Chart 7. Major Industrial Countries: Relative Prices of Manufactures Adjusted for Exchange Rate Changes,1980-First Quarter 1984(Indices, 1977 = 100) '

1 Indices of the type shown here are frequently referred to as indices of real effective exchange rates. The data for first quarter 1984 arebased on preliminary staff estimates.2 Annual deflators for gross domestic product originating in manufacturing, with quarterly interpolations and extrapolations (beyond thelatest available data) based on wholesale price data for manufactures.

21


ANNUAL REPORT, 1984

Cyclical developments largely account for the re-ductions in the surpluses of the United Kingdom andCanada that took place during 1983. In both countries,the pace of domestic demand resulted in a deteriorationin the foreign balance in real terms. The decline in oilprices adversely affected the United Kingdom's re-ceipts from petroleum exports, but this effect wasmore than offset by an increase in net export volume.Competitiveness factors may also have played a role,especially in Canada, whose currency has appreciatedsteadily in real effective terms over the past severalyears.

The noteworthy improvement in the current accountposition of France and Italy reflects the strong adjust-ment measures taken following the 1983 EMS realign-ment, as well as the gains in external competitivenessrealized at that time. With domestic demand restrainedand with direct measures to hold down increases inproduction costs, the current account of each country(inclusive of official transfers) improved by $6-8 billionin 1983, leaving Italy with a small surplus and Francewith a small deficit.

The combined current account balance of the smallerindustrial countries improved by $11 billion in 1983,after showing little change in 1982. Slightly less thanhalf of this improvement was accounted for by anincrease in the surplus on non-oil trade; the remainderrepresented a further reduction in the oil trade deficit.During the past two years a number of countries inthis group, notably Belgium, Denmark, Ireland, Spain,and Sweden, have adopted policies designed to im-prove competitiveness and profitability in the industrialsector and to reduce excessively large public sectordeficits; these measures contributed to the improve-ment in non-oil trade performance during the pastyear. The improvement in Sweden's trade balance wasparticularly large, following the devaluation that tookplace in late 1982. In 1983, the growth of non-oil exportvolumes for this group of countries exceeded foreignmarket growth by 1 percentage point, compared witha loss of market share in the previous year. The growthof non-oil import volumes, on the other hand, waslower, owing to the continued stagnation of domesticdemand.

Developing Countries

Current Account Developments.—There was a sharpimprovement in the current account position of thenon-oil developing countries in 1983, reflecting ad-justment efforts made necessary by earlier adversedevelopments in their payments situation, as well asby the drying up of commercial lending after mid-1982.With the oil price increases of 1979-80, the worldwiderecession, and the escalation of interest rates, the

22

current account deficit of those countries had worseneddramatically, reaching $109 billion in 1981, against $30billion in 1977. (See Table 7.) The deficit fell to $82billion in 1982, reflecting in the main a compression ofimports in the face of a continued weakness in exportmarkets and increasing difficulty in obtaining externalfinancing. Although in 1983 there was a further declinein available financing, exports started to respond tothe recovery in the industrial world. The additionalreduction in the current account deficit, to $56 billion,was achieved without another overall decrease inreserves and with only a marginal further cutback inthe volume of imports.

The current account adjustment by the non-oil de-veloping countries over the past two years has beenjust as marked when expressed in relative terms. Asa proportion of exports of goods and services, thecombined current account deficit fell from some 24percent in 1981 to about 121/2 percent in 1983. Whilethe degree of adjustment has been uneven acrosscountries, some of the largest non-oil developing coun-tries, which were also among the largest borrowers,have been among those that have adjusted the most.The combined deficit of the 25 largest borrowingcountries (including 4 countries classified as major oilexporters) fell from $80 billion to $40 billion between1981 and 1983, while the deficit of the low-incomecountries, whose access to commercial finance had allalong been very limited, only fell from $15!/2 billion to$13 billion.

The experience of the major oil exporters differedin several respects from that of other developingcountries. After an initial surge in their current accountsurplus to $111 billion in 1980, there was a massivedecline in demand for their oil exports as a result ofenergy conservation measures in consuming countries,the global recession, inventory reductions, interfuelsubstitution, and rising oil production in other coun-tries. By 1982, the current account of the major oilexporters had moved into a deficit of $12 billion. Thebrunt of this shift was borne by those oil exporterswhose external position has traditionally been strong-est. All oil exporting countries have responded todeclining oil receipts by restraining domestic demand.

By 1983, these policies of restraint had broughtabout a marked slowing in the previously rapid dete-rioration of their current account position. As a result,the current account deficit of the major oil exportingcountries rose only slightly, to $16 billion, despite the15 percent reduction in the benchmark price of crudeoil decided on by the members of the Organization ofPetroleum Exporting Countries in March 1983.

Among both the oil exporting and non-oil developingcountries, balance of payments adjustment primarilytook the form of a compression of imports. For thenon-oil developing countries, for example, imports in



Table 7. Summary of Payments Balances on Current Account, 1977-83 l

(In billions of U.S. dollars)

Industrial countriesCanadaUnited StatesJapanFranceGermany, Fed. Rep. ofItalyUnited Kingdom

Other industrial countries

Developing countries


By analytical group 2



By areaAfrica (excl. South Africa)AsiaEuropeMiddle EastWestern Hemisphere

Total3

1977

-2.1-4.1

-11.711.11.08.53.12.0

-12.0

-1.0

29.4-30.4

-6.3-25.0-8.9-3.7

-12.5

-6.6-1.5-9.1-5.1-8.5

-3.1

1978

32.7-4.0

-12.317.08.5

13.47.95.5

-3.2

-36.6

5.7-42.3

-7.4-34.2-10.8-8.2

-15.2

-9.4-8.3-7.2-5.7

-13.2

-3.9

1979

-5.1-4.2

2.6-8.1

6.90.16.43.0

-11.8

0.5

62.5-62.0

-7.3-52.5-22.9-10.5-19.1

-9.9-16.9-10.1-7.2

-21.4

-4.6

1980

-38.1-1.2

6.6-9.9-2.5-8.3-9.512.7

-26.0

23.3

111.0-87.7

-10.2-74.2-32.5-14.1-27.6

-12.9-25.4-12.7-7.1

-33.1

-14.8

1981

4.8-5.410.76.3

-2.80.8

-7.518.1

-15.6

-55.7

53.4-109.1

-24.3-86.1-37.4-15.7-33.0

-14.0-23.2-10.4-11.5-45.5

-50.9

1982

3.21.9

-3.88.8

-9.510.2

-4.913.3

-13.0

-94.2

-12.0-82.2

-14.4-73.5-34.6-15.1-23.8

-12.5-14.6-6.9-9.3

-38.8

-91.0

1983

2.81.3

-35.522.1

-1.89.81.07.5

-1.6

-72.6

-16.2-56.4

-6.9-54.5-17.1-13.1-24.3

-10.8-10.7-5.5

-12.0-18.5

-69.8

1 On goods, services, and private transfers. For classification of countries in groups shown here, see Table 2 and Table 3, footnote 1.2 China, which is classified as a low-income country but is also a net oil exporter, is included in the total but not in the subgroups.3 Reflects errors, omissions, and asymmetries in reported balance of payments statistics on current account, plus balance of listed groups

with other countries (mainly the U.S.S.R. and other nonmember countries of Eastern Europe).

value terms fell by $61 billion between 1981 and 1983,exceeding the $53 billion improvement in the currentaccount during the same period. The volume of importsof the non-oil developing countries in 1983 was nohigher than it had been in 1979. (See Chart 8.)

The degree of import compression in recent yearshas varied considerably among individual countriesand regions depending on the extent of adjustmentnecessary, the promptness with which adjustmentmeasures were undertaken, and the success attendingsuch measures. The Western Hemisphere, with threeof the largest borrowers—Mexico, Brazil, and Argen-tina—was the region that delayed adjustment thelongest, through increased commercial borrowing, es-pecially at short term. After August 1982, when accessto commercial borrowing was effectively frozen forthe three countries just mentioned, as well as for mostother Latin American borrowers, the fall in importswas particularly sharp. The region's real imports droppedby one fifth in both 1982 and 1983, as net capitalinflows fell by half in each year, from $42 billion in1981 to $10 billion in 1983. The volume of imports ofAfrican countries, on the other hand, had alreadybegun to decline in 1981 and continued to do so through

1983. The situation facing African countries has beenmade more difficult by the 15 percent deterioration intheir terms of trade from 1980 through 1983, and byrecurrent droughts in large regions of the continent,particularly in 1983. The Asian region, by contrast,has been much more successful in adjusting to externalshocks. The volume of Asian countries' imports barelydropped in 1982 and picked up strongly in 1983. Thisachievement has been the result of prompt adjustmentto the declining availability of external financing. India,for example, launched a major adjustment program in1981 with the support of the Fund under an extendedarrangement. China has also had a very strong balanceof payments performance in recent years, following amajor reorientation and consolidation of its externallyfinanced investment program.

While import cuts have had to bear the brunt of theadjustment effort in most countries, the purchasingpower of exports has held up fairly well, consideringthe length and severity of the global recession. (SeeChart 9.)Real exports of non-oil developing countries(i.e., the value of exports deflated by the import priceindex) fell only slightly in 1982 and increased by over6 percent in 1983, the result of a 5 percent increase in

23


ANNUAL REPORT, 1984

Chart 8. Developing Countries: Volume of Imports,1975-83(Indices, 1975 = 100)


the volume of exports and a slight improvement in theterms of trade. The increases in export volume in 1983reflected, in many countries, measures to stimulateexports taken in the framework of structural adjust-ment programs. These measures included the estab-lishment of more realistic exchange rates and effortsto increase nontraditional exports, especially of man-ufactures. Such policies played a major role in therelatively strong growth in export volumes of devel-oping countries in Asia and Europe. The principalexceptions to the trend of increasing exports were tobe found among the oil exporting countries (whoseexport volumes are dependent primarily on demandrather than supply factors) and in the African region,where drought conditions affected the supply of agri-cultural commodities and the terms of trade remaineddepressed.

A further factor that has contributed to the declinein current account deficits since 1981 has been a markeddeceleration in the growth of net interest paymentsabroad. After nearly tripling in absolute terms between1979 and 1982, net interest payments by the non-oildeveloping countries remained unchanged in 1983 andactually fell as a proportion of exports. This reflected

both a slowdown in the growth of debt outstanding,associated with the 1982 debt crisis, and a decline innominal interest rates. These factors are discussed inmore detail below.

Although available information is fragmentary, thereare indications that the current account position of thenon-oil developing countries as a whole has continuedto improve in 1984. Monthly data for the industrialcountries show a progressive increase in their importsfrom non-oil developing countries, relative to theirexports to them, implying a strengthening of thedeveloping countries' trade balance with the industrialcountries. This improvement, however, appears to beunevenly distributed, with Asia continuing to be themain beneficiary.

In assessing future prospects for the developingcountries, particularly the non-oil countries and themajor borrowers among the oil exporters, a numberof uncertainties must be taken into account. First, therecent increase in interest rates, if it were to persist,could jeopardize the economic revival of heavily in-debted countries, both by increasing their debt-serv-

Chart 9. Developing Countries: Purchasing Power ofExports, 1975-83 !

(Indices, 1975 = 100)

1 Export earnings deflated by import prices, a measure whichincorporates developments in both exports in real terms and theterms of trade.


24



icing costs and by affecting market perceptions of theircreditworthiness and hence their ability to borrow.If this were to lead to a need for a further round ofgeneralized adjustment through import reduction, se-rious damage could be done both to the developingcountries' own development effort and to the growthof world trade and demand for industrial countries'exports. Of course, to the extent that higher interestrates are a reflection of stronger economic growth inindustrial countries, this stronger growth will haveoffsetting beneficial consequences for developingcountries' export earnings.

Second, the resolution of the present debt situationdepends on borrowing countries both developing thecapacity to earn increasing amounts of foreign ex-change and having access to markets that are expandingrapidly enough to absorb these additional exports. Thislatter condition serves to underscore the importancefor developing countries of a sustained recovery andthe preservation of a liberal trading environment inthe industrial world.

Financing and Debt.—As noted above, a substantialdecline in private creditors' willingness to increasetheir net claims on developing countries was theprimary force driving these countries' current andcapital accounts in 1983. From an environment inwhich large new loans were raised from private sourcesduring 1980-81, the situation changed to one in whichmany countries could obtain new loan commitmentsonly as part of financing packages established in thecontext of comprehensive, Fund-supported adjustmentprograms. This change in financial environment af-fected all countries that were significant borrowers ininternational financial markets. While much of the datapresented in this subsection pertains to non-oil devel-oping countries, by 1982 several among the major oilexporting countries faced similar circumstances.

The root causes of the change in creditors' attitudescan be traced to concerns that many debtor countrieswere not taking adequate steps to reduce their currentaccount deficits to sustainable levels. There were three,mutually reinforcing, reasons for this concern: thegrowing size of the total debt outstanding; shifts in itsmaturity structure; and the persistence of high ratesof interest which, with continuing weakness in exportmarkets, resulted in a sharp rise in debt service ratios.

The rapid increase in the outstanding debt of de-veloping countries reflected the large size of currentaccount deficits, which in turn had been made possibleby the ready availability of private lending. During1979-81 the aggregate debt of non-oil developing coun-tries had grown at an annual average rate of 19 percent.(See Table 8.) Among four oil exporting countries withsignificant foreign borrowing (Algeria, Indonesia,Nigeria, and Venezuela) indebtedness had also grown

rapidly, increasing at an average annual rate of 27percent from 1976 to 1979. While in the late 1970s thegrowth in the debt had been accompanied by a rapidexpansion of output and exports, this situation did notpersist after 1980. As a result, the debt/export ratio,which was 111 percent in 1980, had risen to 144 percentby 1982. The debt/GDP ratio, which had been fairlystable at about 24 percent in the late 1970s, rose to 33percent by 1982. Creditors' concerns were also aggra-vated by the undue concentration of debt in certaincountries and regions. (See Chart 10.) Africa and theWestern Hemisphere, which already had high ratiosof debt to exports and GDP in 1977, pursued borrowingstrategies that further increased these ratios. Bothregions allowed their debt/export ratios to rise to veryhigh levels by 1982—Africa's to 205 percent, and theWestern Hemisphere's to 274 percent. These increaseswere of particular concern for countries in the WesternHemisphere, where most borrowing was from com-mercial sources and thus especially vulnerable to shiftsin confidence.

The recourse of borrowers and lenders to shortermaturities for new lending compounded the problemsassociated with the growing size of the debt by in-creasing the vulnerability of borrowers to changes inmarket sentiment. During 1977-79, short-term debt ofnon-oil developing countries had remained at about 15percent of their total debt and was mainly related totrade flows. However, as part of their response to the1979-80 oil price increases, some developing countriesincreasingly substituted short-term borrowing for theless readily available long-term facilities. Conse-quently, short-term debt rose rapidly, reaching 20percent of total debt by 1982. The use of short-termborrowing for longer-term purposes created an increas-ingly severe mismatch between repayment obligationsand the returns generated by debt-financed outlays.Again, this trend was particularly noticeable in theWestern Hemisphere region, whose short-term debtrose as a proportion of total debt from 13 percent in1977 to over 23 percent by 1982. In relation to imports,the region's short-term debt rose from an average of40 percent in 1977-79 to 92 percent in 1982.

A third major concern of creditors was the risingdebt service costs facing borrowers. The non-oil de-veloping countries' total debt service payments roseat an average annual rate of 31 percent during 1978-81, with interest payments rising particularly rapidly.The effect of these rising payments on the debt serviceratio (i.e., all payments of interest and amortizationof long-term debt as a proportion of receipts fromexports of goods and services) was particularly severeafter export growth began to slow down in 1980. (SeeChart 11.)

Three factors explain the trends in debt service

25


ANNUAL REPORT, 1984

Chart 10. Non-Oil Developing Countries: Ratios ofDebt to Exports, 1977-83(In percent)

ratios shown in Chart 11. First, interest payments rosebecause the volume of debt increased, approximatelydoubling between 1978 and 1982. Second, interest rates,particularly on private loans, increased sharply after1979. The 25 major borrowers, whose debt is mainlycommercial in origin, paid an average 7.3 percentinterest rate in 1978 but 12.1 percent in 1982. The thirdtrend, which helps to explain the falling amortization/export ratio, is that the substitution of short-term forlong-term borrowing by some debtors after 1979 pusheddown the conventionally defined amortization ratio insubsequent years. This effect, which is most clearlyevident in the Western Hemisphere region, obscuresthe fact (recognized by creditors) that the rolling overof short-term debt may present problems that are everybit as difficult as refinancing the long-term debt thatis included in the amortization ratio.

Beyond the trends just described, other develop-ments in the early 1980s were undermining the abilityof developing countries to continue to finance largecurrent account deficits. Despite the high level ofprivate borrowing that was taking place, ratios ofofficial reserves to import payments were declining,from over 26 percent in 1978 to under 17 percent in1982. A further disturbing sign was that private capitalflight from the non-oil developing countries picked upafter 1979 and remained at high levels during 1980-82.This outflow not only compounded the financing prob-lems of some countries but also exerted a significantdestabilizing influence on external creditors' confi-dence.

26

As noted above, the combined effect of these variousdevelopments, together with the continuation of re-cessionary trends in the world economy, provoked afundamental shift in the willingness of private creditorsto extend financing after mid-1982. As a result, officialcreditors and international financial institutions, to-gether with commercial banks and the borrowingcountries themselves, had to engage in coordinatedefforts to restore stability in the financing of indebtedcountries. The main features of these efforts were theadoption of comprehensive programs of balance ofpayments adjustment, and the negotiation of a seriesof "financing packages" involving debt restructuringand in a number of cases concerted new lending. Thesepackages significantly influenced the pattern of currentaccount financing observed in 1983 and accounted forapproximately half of new bank lending to non-oildeveloping countries. The arrangements provided aneffective framework in which to reinforce the adjust-ment efforts of debtor countries and to influencecreditors in their attitude toward new lending.

A central feature of most financing packages wasthe rescheduling of a significant portion of an indebtedcountry's amortization payments. Such reschedulingdoes not give rise to new inflows of capital. Never-theless, it played an extremely important role in easingthe external financial constraints facing indebted coun-tries in a situation in which new lending was lessreadily available. The number of countries undertakinga multilateral rescheduling of their debt to officialcreditors rose from 6 in 1982 to 16 in 1983, a recordlevel. Debt restructuring agreements between devel-oping countries and their bank creditors also reacheda peak in 1983, when 17 countries (including 2 non-member countries) completed restructuring agree-ments. As a result of these arrangements, debt servicepayments on medium-term and long-term debt of thenon-oil developing countries were reduced by $8 billionin 1982 and by $19 billion in 1983, below what theywould otherwise have been. In addition, a large amountof short-term bank debt was converted to medium-term and long-term maturities.

Beyond the rescheduling of existing debts, a numberof financing packages involved commitments of newfunds, both from official and from private creditors.Some $15 billion of new bank credits were arrangedin 1983, mainly to countries in the Western Hemi-sphere. While this figure was much in excess of whatwould have been forthcoming in the absence of con-certed lending efforts, it represented a considerableslowdown in new lending commitments from the paceof earlier years. As may be seen from Table 8, netexternal borrowing by non-oil developing countriesfrom private creditors, most of which is debt to banks,fell by half from 1981 to 1982, and nearly halved againin 1983.

1 Excluding South Africa.



Chart 11. Non-Oil Developing Countries: Debt Service Ratios, 1977-83(In p'ercent of exports of goods and services)

1 Excluding South Africa.

27


ANNUAL REPORT, 1984

Table 8. Non-Oil Developing Countries: Current Account Financing, 1977-83 1

(In billions of U.S. dollars)1977 1978 1979 1980 1981 1982 1983

Current account deficit

Relatively '' stable/autonomous''financing flows

Non-debt-creating flowsLong-term borrowing from official

creditors 2

Other flows, net

Errors and omissions

Other financing flows, netReserve-related transactions

Use of reserves 3

Liabilities constituting foreignauthorities' reserves

Use of Fund creditArrears 4

Other net external borrowing 5

30

2714

133

-7

10-9

-12

102

18

42

3117

1412

-7

18-14-16

201

33

62

4124

1721

-3

24-12-12

-100

37

88

4424

2044

-15

59-2-7

421

61

109

5027

2359

-16

754

-5

763

70

82

4624

2237

-19

56194

867

36

56

4421

2313

-10

232

-6

1010

-2

20

1 For classification of countries in this group, see Table 3, footnote 1.2 Excluding monetary institutions.3 The flow of resources into reserves will not necessarily equal changes in the stock, owing to exchange rate movements.4 Arrears on current account items only.5 Essentially net borrowing from private creditors, almost all of which is from banks.

Financing flows other than private lending weremuch more stable from 1982 to 1983. Non-debt-creatingflows, which include direct investment and officialgrants, fell slightly, reflecting weakness in the climatefor direct investment. On the other hand, official long-term capital inflows were well maintained. Together,these relatively stable sources of finance covered aboutfour fifths of the non-oil developing countries' aggre-gate current deficit in 1983, against only about half in1982.

Fund assistance in support of adjustment efforts ledto increasing use of Fund credit in 1982 and 1983. Netuse of Fund credit, which had already increased sharplyin 1981, rose further to SDR 6.4 billion in 1982 andSDR 10.3 billion in 1983. The increased use of Fundcredit supplemented the non-oil developing countries'use of reserve-related liabilities in 1982, and offsetsome of the net repayment of these short-term liabil-ities in 1983.

Despite the increased use of Fund credit, arrearscontinued to increase in 1983, albeit at a slower pacethan in the previous year. The stock of arrears of alldeveloping countries had jumped from less than $7billion in 1981 to $23 billion at the end of 1982; in 1983they increased slightly further, to $27 billion. Grossreserves, however, increased by $0.8 billion during1983 after having fallen by $16.5 billion in 1982. Thefact that the aggregate reserves of developing countriescould rise slightly at the same time as arrears continuedto accumulate reflects mainly the different stage in theadjustment process reached by various countries.

As may be observed from Charts 10 and 11,developments in the financing of the non-oil developing

countries' current account deficit in 1982 and 1983have caused a notable break in some of the trends ofdebt and debt service that were observable in precedingyears. The growth rate of the aggregate debt of non-oil developing countries, which had declined from 18percent in 1981 to 13 percent in 1982, fell further to 6percent in 1983. Within this total, there was a reductionin short-term debt of some $23 billion in 1983 (over-whelmingly concentrated in the Western Hemisphere),associated in part with debt restructuring agreements,and this reduced the share of such debt to 15 percent,close to the average of the late 1970s. The debt serviceburden also declined in 1983, with the interest pay-ments ratio falling to 13.2 percent, from 14.3 percentin 1982, and the overall debt service ratio falling to21.6 percent from 24.5 percent.

The decline in the rate of growth of total debt reflectsfinancial market constraints as well as the substantialcompression that has taken place in the aggregatecurrent account deficit of non-oil developing countries.As far as the decline in the debt service ratio isconcerned, however, this is attributable largely to theimpact of debt rescheduling. The effect of debt re-scheduling on the aggregate debt service ratio of non-oil developing countries was to reduce it by 1.8percentage points in 1982, and by 4.1 percentage pointsin 1983. If the rescheduled debt service had been paidat the original maturity, these countries' debt serviceratios would have increased from about 21 percent in1981 to over 26 percent in 1982, and would havedeclined only marginally, to just under 26 percent, in1983.

Debt service ratios will continue to be held down in

28



1984 as further debt restructurings are put in place.Moreover, creditors' and debtors' expectations of theavailability of funds are now better aligned than wasthe case in 1982-83. Countries in the Western Hemi-sphere, which accounted for half the debt restructuringagreements in 1983, are prominent among those re-quiring further restructurings in 1984, with financialpackages having already been put in place for Mexicoand Brazil. However, the region remains criticallydependent on the floating interest rate loans offeredby private creditors. The trend toward higher interestrates in the industrial countries in early 1984 will bereflected in the interest payments required to servicethe region's debts. As noted above, however, to theextent that higher interest rates have been caused bymore rapid economic growth, this growth will alsohave resulted in higher export earnings for developingcountries.

Policy Issues

Although in 1983 there was a welcome improvementin economic growth in industrial countries, and afurther reduction in the external deficit of the non-oildeveloping countries, important issues continue toconfront policymakers. The recovery in the industrialworld remains uneven, and could be undermined bythe renewed upward movement of interest rates. Higherinterest rates also weaken the position of heavilyindebted developing countries, whose task is to convertthe success achieved in improving their balance ofpayments into a revival of domestic growth and de-velopment. Influencing both these issues is the specterof protectionism, which has been condemned moreeffectively than it has been resisted.

This section of the chapter focuses on these issuesas they affect the domestic economic policies andprospects of member countries. Issues related primar-ily to the working of the international monetary systemare dealt with in Chapter 2.

Sustaining Recovery in the IndustrialCountries

Now that the cyclical recovery from the globalrecession of the early 1980s is well under way inseveral of the major industrial countries and clearlyspreading to others, the essential task of economicpolicy is to guide it along an orderly path leadinggradually, but surely, back to satisfactory levels ofemployment and steady growth of real incomes. Forthis purpose, it is important that the authorities of the

major industrial countries maintain the basic principlesof the strategy they adopted several years ago to dealwith an unprecedented combination of high inflationand faltering growth. The progress already made to-ward restoration of a stable financial environment hasplayed a major role in initiating the present upswing;continuation of this progress will play a central rolein broadening and sustaining expansion.

The process of restoring financial stability is stillquite uneven and incomplete, and confidence in itscontinuation remains fragile in many countries. Al-though it is true that inflation has subsided to animpressive degree in nearly all of the industrial coun-tries, it is also true that it remains unduly high in someof them, and that the downward momentum of priceincreases will become harder to maintain as economicactivity continues to strengthen. Renewed rises ininterest rates in several countries represent anotherwarning that the speed at which increases in demandcan be accommodated without revival of inflationaryexpectations is by no means unlimited.

The foremost requirement for consolidation of therecovery, accordingly, is the firm application of mon-etary and fiscal policies continuously geared to main-tenance of an anti-inflationary environment. Observ-ance of this priority does not, of course, call foridentical policies among the various individual coun-tries, nor for rigid maintenance of a particular degreeof restraint in any of them. Since their circumstancesand recent experiences differ considerably, each ofthem will need to make flexible use of availablemonetary and fiscal instruments in accordance withits own situation.

Although continued monetary discipline will remainof central importance in every industrial country, thedegree of restraint applied will have to be greatest inthe countries where inflation remains seriously out ofline with the average elsewhere in the industrial world.Effective control of inflation would help to restoredomestic investment incentives and maintain interna-tional competitive positions that would permit domes-tic producers to share in the cyclical upswing in worldmarkets.

In the countries where the effectiveness of monetarydiscipline in bringing down inflation and laying thebasis for renewed growth has already been most amplydemonstrated, prudence in the provision of liquidityin the early phases of recovery will be necessary. Thetemptation to attempt to hold down interest rates byeasing monetary policy may be strong for some centralbanks, but it is to be hoped that it will be resisted.Failure to apply an adequate degree of restraint duringprevious cyclical expansions has been one of the primefactors making for rising inflation over much of thepast 15 years. In the present climate of expectations,

29


ANNUAL REPORT, 1984

an attempt to restrain interest rates through moreaccommodative monetary policies could be counter-productive even in the short run through its effects onmarket expectations.

Against the background of financial innovations andregulatory changes that have characterized the pastseveral years, gauging the actions necessary to main-tain an appropriate degree of monetary restraint with-out choking off the recovery will not be easy for anyof the major central banks. Most of them are relyingon indicative targets for expansion of key monetaryaggregates to guide their policy actions, but some ofthem have encountered serious technical problems ininterpreting shifting relationships between these ag-gregates and other economic and financial variables ina rapidly changing financial environment. Flexibilityin permitting deviations from targeted paths, or intaking account of alternative aggregates—and of suchother variables as exchange rates—has proved helpfulduring the past year or two and will probably benecessary in the future. However, caution regardingthe exercise of such flexibility is also necessary. If thesetting of publicized monetary targets is to remain ahelpful technique for checking inflationary expecta-tions and reducing uncertainty about macroeconomicpolicies, the frequency of deviations from targetedpaths will have to be limited to cases with compellingjustification.

In most of the industrial countries, the managementof money and credit has been complicated for a numberof years by the prevalence of large fiscal deficits. In afew countries, including some of the larger ones, theeffective orientation of fiscal policy has been out ofstep in important respects with the general strategy ofre-establishing a stable financial environment. Therehas thus been less uniformity in fiscal policies than inmonetary policies among the industrial countries, aswell as inconsistency within some of the individualcountries in the implementation of the two principalinstruments of demand management.

Over the past four years, the central governmentsin three of the major industrial countries—Japan, theFederal Republic of Germany, and the United King-dom—have carried out significant reductions of thestructural components of their budget deficits. Al-though these reductions were largely or wholly offsetin the two European countries by opposite changes incyclically responsive elements of the budget, theyprovided in all three cases a considerable degree ofsupport for the policy of monetary restraint that wasbeing implemented at the same time. In the UnitedStates, Italy, and Canada, on the other hand, centralgovernment deficits increased during the same period,not only for reasons associated with the adverseevolution of cyclical positions but also because of

structural changes that raised borrowing requirements.Unless measures are adopted to raise revenue or reducethe spending implied by existing fiscal programs, pro-spective government borrowing in these three coun-tries will tend to absorb proportions of private savingthat are very large by historical standards.

Even in the countries where structural improvementsin fiscal balances have been achieved during the pastfew years, actual deficits remain high. In Japan, thiscircumstance is a reflection of the degree of imbalancethat was reached before the current policy of fiscalretrenchment was adopted. In the United Kingdomand the Federal Republic of Germany, as well as inFrance, the magnitudes of the present deficits areperhaps mainly a manifestation of the influence ofcyclical conditions. The large borrowing requirementsassociated with all these imbalances have kept totaldemand for credit strong even at a time of relativelyweak domestic economic activity, enhancing the sen-sitivity of financial markets in these countries to thepressures now being generated by rising interest ratesin the United States and Canada.

The very brisk pace of recovery in the United Statesand Canada provides an exceptional opportunity forthose two countries to make useful and necessaryadjustments in their budgetary structures while avoid-ing some of the adverse repercussions that might haveresulted from such actions during the recession period.Apart from the long-run need to shift the balancebetween government and private use of private saving,some additional restraint on the growth of nominalspending may now be helpful for keeping total domesticdemand within sustainable bounds. Because of thesize of the U.S. economy and the magnitude of thecapital inflow now being attracted there, reduction ofthe U.S. Federal Government deficit could be expectedto have a significant impact on availability of fundsfor private investment throughout the world, as wellas in the United States itself.

In Italy and France, recovery has been much slowerin coming than in the industrial economies of NorthAmerica. With growth prospects handicapped by in-flation and weakness in the external accounts, how-ever, fiscal restraint is necessary for these countriesalso—particularly for Italy, whose budget deficit is byfar the largest, relative to GNP, among the majorcountries. Without fiscal discipline, monetary policy,even if well conceived, can achieve only limited results.

Japan and the Federal Republic of Germany, withtheir comparatively low rates of inflation, strong ex-ternal positions, and records of progress toward fiscalequilibrium, have perhaps less need than the countriesdiscussed above to press for rapid reduction of theirfiscal deficits. Nevertheless, strengthening investmentand growth over the longer run may depend importantly

30



on further gradual progress in that direction. For theUnited Kingdom, which also has a generally strongrecord of fiscal restraint in recent years, such progressremains central to the authorities' policy strategy, bothbecause it was interrupted in 1983 and because controlof inflation is more recent and less complete—andhence remains less secure—in that country than in theother two.

An integral part of the general strategy followedsince 1979 by the major industrial countries has beenan effort to reduce or eliminate various structuralrigidities that were believed to be impeding optimumallocation and full use of available resources. Towardthis end, a number of governments have adopted fiscalmeasures aimed—over and above their impact onoverall budgetary balances—at improving incentivesto work, to save, and to invest. Adjustments of wageindexation arrangements and social transfer schemeshave been fairly widespread, and government regula-tions of prices (particularly for energy), of interestrates in some countries, and of other aspects ofbusiness and financial operations have been removedor liberalized in a number of countries. Most of theseactions have been intended to give greater play tomarket forces in holding down costs and reallocatingresources in a more effective way.

Greater flexibility in the negotiation of wage con-tracts, particularly in Europe, appears to be essentialif profit margins of enterprises and investment incen-tives are to be restored to a degree that will expeditethe absorption of presently unemployed members ofthe labor force. Unduly rigid attitudes and practicesin the setting of wage rates have long tended to interferewith shifts of workers from declining industries intothose with greater potential for expansion—and in theprocess have obscured for all concerned the fullpotentials of the latter industries. For many Europeanenterprises, prospective profit margins at existing coststructures seem too small to warrant the risk and effortinvolved in innovative capital investments. Greaterflexibility and more realistic alignment of nominal wageincreases with current gains in productivity and withnational objectives regarding price stabilization wouldenhance the prospects for stronger investment andreduced unemployment.

Adjustment and Growth in DevelopingCountries

The length and severity of the downturn in economicgrowth in non-oil developing countries has made therestoration of adequate rates of economic expansionan urgent priority for policymakers. However, durableexpansion can take place only on the basis of a

strengthened balance of payments position and im-proved international creditworthiness.

Following the widening in their current accountdeficit associated with the 1979-80 rise in oil pricesand the recession in the industrial world that began in1980, many developing countries cushioned the impactof these external developments on their domesticeconomies by borrowing heavily from commercialsources to finance enlarged deficits. Such a strategycould perhaps have been justified if the adverse de-velopments in the external environment could havebeen identified as being of strictly temporary duration.In the event, however, the recession was prolonged,and the external position of borrowing countries wasfurther undermined by the effects of the continuedhigh level of interest rates—itself a result of industrialcountries' new-found determination to confront thethreat of cumulative increases in inflationary expec-tations.

With the benefit of hindsight, it may be seen thatpostponement of adjustment in 1979-81 made theeventual adjustment more difficult. Faced with anabrupt change in the availability of external finance,many developing countries had no option but to cutback sharply their current account deficit. With de-mand in the industrial world sluggish, the terms oftrade for primary producers remaining weak, andaccess to some industrial markets being restricted, theneeded improvement in developing countries' currentaccount positions could be brought about only throughimport compression.

The extent to which such import compression hasto be associated with a decline in the domestic growthrate depends, of course, on the flexibility with whichthe economies concerned are able to adapt to newcircumstances. Such flexibility is likely to be inhibitedby rigidities and distortions in the mechanism forresource allocation, such as those fostered by highrates of inflation, controls over domestic prices andwages, inappropriate exchange rates and interest rates,and restrictions on foreign trade and payments. Inpresent circumstances, the progressive removal of suchimpediments to the fuller and more effective use ofreal resources in developing countries must be a centralfeature of programs of economic adjustment.

Reductions in inflation are needed because, althoughit may be possible in principle to mitigate inflation'sadverse consequences on resource allocation, themethods that have to be employed in practice arerarely fully effective and are often inimical to therealization of productive potential. The more rapid therise in the overall price level, the greater, in general,are fluctuations in relative prices. At the same time,future inflation becomes more difficult to foresee, andgreater uncertainty surrounds the decision to save and

31


ANNUAL REPORT, 1984

invest productively. Capital tends to flow abroad orinto unproductive inflation hedges, thus further com-plicating the task of economic management.

Distortions in relative prices brought about by directcontrols are also harmful. In addition to the welfarelosses that stem from resource misallocation, therecan be budgetary costs when final product prices areheld down by subsidies. When they are held down byother means, such as administrative controls, produc-tion incentives are weakened and shortages develop,leading to black markets. The situation is particularlyserious when the items that are subsidized are in thetraded goods sector. In such a situation, various formsof rationing may have to be resorted to in order tobalance the supply and demand for foreign exchange.An economy's capacity to respond to external dis-turbances is reduced, since its propensity to consumetraded goods is artificially inflated relative to its ca-pacity to produce such goods.

Two prices with a particularly pervasive impact onan economy's capacity both to adjust in the short termand to grow in the long term are the exchange rateand the interest rate. An overvalued exchange rate is,in effect, a blanket subsidy on the consumption oftraded goods, and a tax on their production, with allthe adverse consequences just noted. Artificially lowinterest rates, particularly when they are negative inreal terms, reduce savings incentives and give rise tocapital flight, thus limiting domestic investment. Cor-rection of inappropriate interest and exchange rateshas been an important element in the economic strategyof a number of the most seriously indebted Fundmembers in 1983 and 1984. The actions they havetaken can play an important role in restoring dynamismto their foreign trade sectors. Employment and outputwill be encouraged directly in export and import-competing industries, and multiplier effects shouldhelp to raise output throughout the economy.

Foreign trade restrictions may occasionally be un-avoidable for countries whose external situation hasbecome particularly difficult. In anything other thanthe very short run, however, they tend to have adverseconsequences, both for the international trading en-vironment and for the countries that adopt them. Theallocation of scarce foreign exchange has to take placeby an administrative mechanism that is costly in termsof human resources, hard to make responsive tochanging economic requirements, and subject to abuse.

While policy adjustments by developing countriesthemselves can and must play the main role in restoringa satisfactory rate of growth to these countries' econ-omies, developments in the surrounding economicenvironment are clearly of fundamental importancealso. Growth must be maintained at a satisfactory ratein industrial countries if developing countries are to

succeed in their attempts to expand the size of thesectors of their economy producing for export. And,as discussed above, changes in policy stance in severalindustrial countries could help contain interest ratesand thereby allow the developing countries to devotea larger share of their foreign exchange earnings tothe acquisition of goods for the development effort. Itwill also be important for adequate finance to beavailable during the remaining stages of the adjustmentprocess. There is a heavy burden of debt falling duein the coming years that far exceeds the capacity ofdebtor countries to repay out of current earnings. Solong as borrowing countries are following well-con-ceived policies of medium-term adjustment, it is bothappropriate and prudent for lenders to make availablethe finance that enables these countries to sustainmoderate rates of growth of output and investment,while lengthening the maturity over which existingdebt is effectively repaid. For those low-income coun-tries that cannot expect to have significant access tocommercial sources of credit, an adequate level ofofficial development assistance is essential if the ad-justment efforts they are making are to bear their fullfruit in increased growth potential.

Protectionism

Among the most troubling developments of recentyears has been the strengthening of protectionist ten-dencies. While governments in most industrial coun-tries have generally resisted blatant interference withthe trading environment, they have displayed an in-creased willingness to accede to requests for specialmeasures on a case-by-case basis. These measureshave only occasionally taken the form of direct quotarestrictions on trade; more frequently they have in-volved indirect techniques. One such technique is thatof "voluntary export restraint," under which an ex-porting country is induced to limit its exports to certainmarkets in order to avoid presumably more severerestrictions imposed by the importing country. Othertechniques include the use of "nuisance" measures tocomplicate customs clearance procedures and in-creased resort to domestic legislation governing "un-fair" competition from abroad.

The case for resistance to protectionist pressures iswell known and widely accepted. Import restrictionsreduce competition in importing countries, thus push-ing up prices to consumers and retarding technicalinnovation. The support they provide to domesticemployment is limited and temporary. In the firstplace, resort to protection invites retaliation that givesrise to employment losses in export sectors of theeconomy. Even if this does not happen, the curtailment

32



of imports in one sector of the economy will, otherthings being equal, tend to push up the exchange rateand lead to an offsetting weakening of the trade balancein sectors that are not protected. Since protectivemeasures are invariably selective in their incidence,they tend to distort the pattern of resource allocationaway from most efficient channels. Where factors ofproduction are not employed in accordance with com-parative advantage, there are adverse effects not onlyon the level of output that is achievable in the shortterm but also on investment and hence on potentialoutput over the longer term.

In present circumstances, resistance to protection-ism acquires added importance from the need of heavilyindebted countries to enhance their foreign exchangeearnings in order to meet their large debt serviceobligations. Thus far, these countries have had to relyheavily on import compression to reduce their currentaccount deficit relative to their export earnings. Suchcompression cannot be regarded as indefinitely sus-tainable, at least not without unacceptable conse-quences for economic development. For developingcountries to achieve renewed growth in living stand-ards, along with a sustained improvement in their

external position, it will be essential for them to haveadequate access to expanding markets in the industrialcountries. At the same time, developing countriesshould themselves resist the temptation to resort toimport restrictions as an instrument of adjustment. Inthe medium term, adjustment can be regarded assustainable only if it is based on an improved allocationof resources, in accordance with the requirements ofinternational comparative advantage and domestic fi-nancial stability.

Now that world output and trade are once moreexpanding at a more satisfactory pace, conditionsshould be propitious for a serious attack on theprotectionist tendencies that have been allowed toflourish in a recessionary environment. Several inter-national meetings at the ministerial level have empha-sized the determination of participants to resist androll back protectionist measures. These meetings haveincluded, most recently, the Interim Committee meet-ing in April 1984 and the ministerial meeting of theOrganization for Economic Cooperation and Devel-opment in May 1984. It is to be hoped that the comingyear will see more success in bringing these intentionsto fruition than has been apparent hitherto.

33


Chapter 2Developments in theInternational Monetary System

This chapter deals with salient aspects of the presentinternational monetary system and its recent evolution.The first part of the chapter reviews exchange ratearrangements and policies of industrial and developingmember countries; it concludes with a discussion ofdevelopments in the Fund's surveillance over mem-bers' exchange rate policies. The second part of the

chapter takes up the question of international liquidity,beginning with an analysis of recent changes in officialinternational reserve holdings and proceeding to adescription of developments in private internationalcredit markets; it ends with a discussion of the ade-quacy of international reserves and the role of theFund in providing liquidity to its members.

Exchange Rates and Surveillance

Throughout 1983 and the first half of 1984, thepattern of exchange rates, especially the weakness ofmany of the major currencies against the U.S. dollar,remained a source of concern. While the reasons forthis pattern are not fully understood, it seems thatdivergences in economic and financial conditions—inparticular, the strength of the economic recovery inthe United States compared with that of other countriesand the renewed rise in U.S. interest rates—wereimportant contributing factors. Within the EuropeanMonetary System (EMS), the persistence of relativelyhigh inflation rates in a number of countries led to anew period of tension, followed by a realignment ofcentral rates in the first quarter of 1983. Since then,however, the adjustment efforts of the countries withrelatively high inflation have led to an abatement ofthe tension.

Most of the non-oil developing countries experienceda marked reduction in their current account deficits in1983 as a result of policy measures taken in thesecountries and, to a lesser extent, of the economicrecovery in industrial countries. In many instances,these policy measures included a significant devalua-tion of the exchange rate supported by a comprehensiveprogram to reduce the fiscal deficit and the rate ofcredit expansion, improve the allocation of publicinvestment, and, more broadly, restore an adequatesystem of interest rate and price incentives. In anumber of countries, however, progress toward re-

ducing the external deficit was brought about byprograms relying mainly on import restrictions anddomestic demand cuts, especially cuts in domesticinvestment, without adequate incentives for a switch-ing of economic resources into the export sector.

The developments during 1983 and the first part of1984 have demonstrated once more that any movetoward a stable system of exchange rates requiresdomestic policies that foster the achievement of stabledomestic economic and financial conditions, especiallyin the major industrial countries. A policy stanceconsistent with low inflation rates is important in thiscontext, but it is not enough. It is also important thatmonetary and fiscal policies be mutually supportive toavoid undue pressures on interest rates. In its sur-veillance activities, the Fund has continued to stressthe need for such a balanced configuration of policies.In the many developing countries with major externaland internal adjustment problems, the Fund has stressedthe need for comprehensive longer-run adjustmentpolicies aimed at an expansion of exports and arestoration of the basis for sustained growth, in additionto the short-run policy measures of demand restraintthat are often unavoidable.

Exchange Rate Issues in Industrial Countries

Concerns about the levels of exchange rates amongthe major currencies intensified during 1983 and the

34


CHAPTER 2: DEVELOPMENTS IN THE INTERNATIONAL MONETARY SYSTEM

first few months of 1984, in particular because of thecontinued strength of the U.S. dollar (Chart 12). Exceptfor the Japanese yen, which appreciated sharply againstthe U.S. dollar toward the end of 1982 and thenmaintained a relatively stable dollar value during 1983,the pattern of an appreciating dollar generally persistedthroughout 1983. The dollar then depreciated some-what in nominal effective terms during the first quarterof 1984, but rose again in the second quarter, ap-proaching the level reached in January.1 These ex-change rate movements raised the real value of thedollar to about 15 percent above its average value forthe decade 1973-82 in relation to the Japanese yenand the pound sterling, some 40 percent in relation tothe deutsche mark, and nearly 50 percent in relationto the French franc.

A country's average real exchange rate over thepast decade is, of course, not necessarily sustainableand appropriate under present circumstances. Changesin underlying economic and financial conditions oftencall for changes in real exchange rates. For example,the very sharp real appreciation of the pound sterlingfrom 1978 through the first quarter of 1981 can beexplained in part by the development of North Sea oilat a time of rapidly rising oil prices, while the subse-quent reversal was aided by the softening oil marketin 1982 and 1983. Also, shifts in private saving andinvestment patterns or in market confidence mayinduce changes in real exchange rates in order togenerate a balance between the current and capitalaccounts. The demand for U.S. dollars, in particular,has occasionally been stimulated by the traditionalrole of the United States as a haven for financialinvestments during periods of turmoil in other coun-tries. During the past year and a half, this demandmay also have been stimulated by the positive effectsof the strong economic recovery and the 1981 taxpackage on after-tax corporate profits and the expectedrate of return on investment.

In a narrow sense, one can even say that, in theabsence of intervention by the authorities in foreignexchange markets, exchange rates are always at equi-librium levels, since they are simply a reflection of thepreferences and expectations of market participantsengaged in free and open trading based on informationavailable to them. But that observation does not implythat serious misalignments cannot occur in terms ofthe relative prices at which international trade takesplace. Whenever stable domestic economic and finan-cial conditions are absent, developments in financialmarkets can lead to swings in exchange rates that,while reflecting the free play of forces in the foreign

1 Recent exchange rate developments are described in more detailin Chapter 1.

exchange market, may not be consistent with theproper functioning of the adjustment process in thegoods markets. This does not mean that the movementsin exchange rates per se are unjustified but that theinternational interest would be well served if both theunstable domestic conditions and the accompanyingmovements in exchange rates were eliminated. Forexample, a lack of balance between monetary andfiscal policies may lead to a rise in real interest rates,and an appreciation of the exchange rate to the pointof jeopardizing a country's international competitiveposition. Such a development would be detrimentalnot only to that country but also to its trading partnersbecause it would have to be reversed sooner or later,with all countries obliged to bear the cost of movingfactors of production first in and then out of certainsectors. Moreover, in the interim it may result in theintroduction of protectionist measures that may bedifficult to remove later.

The main reason for the current concern aboutexchange rates is that they appear to have exertedstrong pressure on trading patterns and current accountpositions of the major industrial countries. For ex-ample, the rise in the exchange value of the U.S. dollarduring the past several years has contributed to asharp weakening in the U.S. current account balance(including official transfers) from a surplus of $5 billionin 1981 to a deficit of $39 billion in 1983, which, ifcontinued, could have disquieting implications for theinternational allocation of world private saving. Onthe other hand, the U.S. current account deficit hashad beneficial effects on economic recovery in othercountries.

Economic and Financial Convergence

It is becoming increasingly apparent that the smoothfunctioning of the exchange rate system requires stableunderlying conditions in the major industrial countries,including low rates of inflation, sustainable growth ofreal incomes, and a stable pattern of financial condi-tions. In the absence of such conditions, exchangemarkets tend to generate large swings in, and unsus-tainable levels of, exchange rates as market partici-pants shift funds among currencies in response toactual or expected changes in relative economic andfinancial conditions.

Some important improvements in economic per-formance occurred during 1983 and the first part of1984. In particular, there was a continued trend towardimproved cost and price performance, with most ofthe major industrial countries recording reduced infla-tion in 1983, compared with the preceding three years.The average rise in the gross national product (GNP)

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ANNUAL REPORT, 1984

Chart 12. Selected Major Industrial Countries: Nominal and Real Bilateral Exchange Rates,1980-First Quarter 1984(Indices, 1973-82 = 100)

1 Nominal exchange rate multiplied by the ratio of normalized unit labor costs in manufacturing for the two countries. Normalized unitlabor costs are calculated by dividing an index of hourly labor costs by an index of potential output per man-hour.

36



deflators of the seven largest industrial countries,which had surpassed 9 percent in 1980, fell to 4l/2percent from the fourth quarter of 1982 to the fourthquarter of 1983 (Chart 13). Furthermore, the spreadbetween the highest and lowest inflation rates wasreduced somewhat, especially in comparison with 1980and 1981.

A similar improvement was recorded in the achieve-ment of real economic growth. The previous threeyears (1980-82) had been characterized by cyclicalswings in economic activity that were sizable and notsynchronous; five of the seven major countries—Japanand France being the exceptions—experienced a de-cline in real GNP in at least one of those years. In1982, the rate of change in real GNP in the majorcountries ranged from a 4 percent decline in Canadato a rise of over 3 percent in Japan, with an averagedecline of !/2 of 1 percent. In contrast, all of thesecountries showed positive growth on average during1983, although the rates of growth still ranged fromless than 1 percent to almost 7 percent.

As regards real interest rates, the evidence suggestsan increased dispersion of real long-term rates arounda higher average level in 1983 than in the years 1980-82, although real short-term rates moved down some-what in most countries (Chart 13). Real interest ratesare difficult to evaluate because they involve estimatingmarket expectations of inflation. These difficulties areparticularly pronounced at times when inflation ischanging rapidly, as it was during 1982 and 1983.Nonetheless, most plausible estimates, including theestimates shown in the chart that reflect interest ratesadjusted by a three-quarter moving average of actualinflation rates, indicate that in 1983 the high real long-term interest rates in the United States and Canadawere in marked contrast to the rates in the other largecountries. In the United States, the estimated reallong-term rate of 8 percent was about 6 percentagepoints higher than the average that prevailed duringthe 30-year period 1950-79. Part of this difference,however, may reflect a greater persistence of expectedinflation in the United States and Canada than isassumed in these estimates.

The balance between monetary and fiscal policiesalso continued to differ substantially among majorindustrial countries during 1983. Monetary policy hasbeen even more difficult than usual to assess duringthis period, owing to shifts in the demand for moneyat a time of financial deregulation in the United Statesand a number of other industrial countries, and pres-sures associated with the EMS realignment in March1983. On the whole, however, monetary growth seemsto have been at least moderately constrained in mostcountries (Chart 13). Less success has been achievedin controlling fiscal positions. In particular, fiscal

deficits in Canada and the United States were signifi-cantly larger in relation to GNP in 1983 than theaverage for the three preceding years. By contrast, inJapan and the Federal Republic of Germany, wherethe recovery was less advanced, the deficit in 1983was equal to, or smaller than, the average deficit inthe three preceding years. The following analysisdiscusses the effects of fiscal policies on exchangerates, as well as the broader issue of the role ofconvergence of economic performance to sustainablelevels among countries with floating exchange ratesand among countries having pegged rates or partici-pating in cooperative exchange arrangements.

Countries with Floating Exchange Rates

The role of convergence of economic performancein the smooth functioning of the exchange rate systemmay at one time have appeared to be less crucial forcountries with floating exchange rates. The pressuresthat arose from divergent policies and conditions inthe late 1960s and early 1970s furnished a primaryimpetus in the evolution of the current system. It wasfrequently argued at the time that floating exchangerates would enable countries to pursue domestic mon-etary objectives with a greater degree of independencethan was possible under fixed exchange rates. In theevent, divergent conditions—especially with respectto inflation—have proved to be a serious problem forcountries with floating rates as well. Indeed, theexperience of the instabilities associated with highinflation made it clear that a generalized reduction ofinflation was a prerequisite for creating the climate ofconfidence that was needed to underpin a smoothlyfunctioning exchange rate system.

Part of the problem associated with the high ratesof inflation experienced by many industrial countriesduring the 1970s and early 1980s was their unpredict-ability, which added to the risks of investing in financialassets denominated in those countries' currencies. Inaddition, the failure of some countries to controlinflation led to a decline of confidence in the sustain-ability of their policies. Market participants came toexpect inflationary policies to be reversed sooner orlater, but the magnitude and timing of those reversalswere subject to substantial uncertainty. The riskinessassociated with financial investment during periods ofhigh inflation reduced the confidence with which ex-pectations were formed, weakening the tendency to-ward stabilizing speculation in foreign exchange mar-kets.

A further problem was that inflation detracted fromthe smooth adjustment of floating exchange rates, evenamong countries with similar inflation rates, because

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ANNUAL REPORT, 1984

Chart 13. Seven Major Industrial Countries; Indicators of Economic Performance1

1 The dashed horizontal line in each panel represents the mean value of the plotted data, weighted by the relative size of each country'sgross national product for the 1980-82 period.2 Yields on government bonds with maturities ranging from 7 to 20 years deflated by a weighted average of the rate of inflation in thecurrent quarter and the next two quarters, with the deflator of private final domestic demand serving as the price index. Staff projections ofthis deflator are used for the most recent data.

38



Chart 13 (concluded). Seven Major Industrial Countries; Indicators of Economic Performance

3 Averages of daily rates on money market instruments of about 90 days' maturity, except for Japan, where the discount rate on two-month (private) bills is used. These rates are deflated by the same index used for long-term interest rates.

4 Money stocks used are M2 for the United States, Canada, France, and Italy; M2 plus certificates of deposit for Japan; sterling M3 forthe United Kingdom; and central bank money for the Federal Republic of Germany.

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1


ANNUAL REPORT, 1984

the relative prices of individual goods, services, andassets tended to be less stable and to have moredivergent patterns than in periods of greater overallprice stability. In turn, this instability led to increaseduncertainty about movements in relative prices. Tothe extent that these uncertainties pertained to pricesof internationally traded goods, they contributed di-rectly to increased volatility and misalignment ofexchange rates.

A related aspect of convergence that proved to beimportant is the maintenance of a steady stance ofdemand management policies. The cyclical pattern ofeconomic growth during the 1970s led to frequentchanges in these policies, which were at times coun-terproductive and added to uncertainty with regard tothe future course of the world economy. Even moreimportant, undue delays in the adoption of firm meas-ures to put an end to the rise in inflation made itultimately necessary to have a marked shift in policiesin 1979-80, with a very painful adjustment periodduring 1980-83.

The problems that are raised for the smooth func-tioning of the exchange rate system by large policy-induced cyclical swings in economic activity occurwhether or not those cycles are synchronous amongcountries. If the cycles are not synchronous, as wasthe case in the recessionary period of 1981-82, thenthe countries undergoing relatively rapid expansion ofdomestic demand will tend to have relatively weakexternal payments positions, and conversely. On theother hand, as the experience in 1972 and 1973 dem-onstrated, synchronous cyclical movements amongmajor countries can create large swings in prices ofprimary commodities. Such swings can seriously dis-rupt normal trading relationships and can add touncertainties about relative prices, thus contributingto exchange rate instability. The implementation ofsteadier demand management policies would contrib-ute to economic and exchange rate stability by fosteringan environment in which market participants couldhave greater confidence in the persistence of currentpolicies and the stability of underlying conditions.

Changes in circumstances do at times require short-run adjustments in economic policies. For example,large shifts in the demand for money resulting frominstitutional or regulatory innovations or from shiftsin preferences for holding various assets may occa-sionally need to be accommodated by the authoritiesthrough temporarily higher or lower monetary growthrates. This is particularly true from the vantage pointof the international financial system when changes inthe demand for money involve shifts among assetsdenominated in different currencies. Monetary au-thorities that have gained considerable credibility throughpast actions will normally be able to make the short-

run adjustment without significant effects on inflation-ary expectations. However, monetary authorities witha less well established credibility may have to exercisegreater caution, especially if the circumstances aresuch that the short-run adjustment could easily bemisinterpreted by economic agents.

Much progress was achieved in 1983 and the earlymonths of 1984 in the abatement of inflation and therestoration of real growth. What became apparent,however, was that this progress was not sufficient fora return to a sustainable pattern of exchange rates. Afurther requirement was that progress should also beachieved in the avoidance of abnormally high or lowreal interest rates. This objective is intrinsically im-portant, inasmuch as abnormally high real interestrates hinder private capital investment and create majorhardships for developing countries with substantialexternal indebtedness; on the other hand, negative realinterest rates give rise to inflation and encourageexcessive indebtedness. In addition, this objective isimportant because abnormally high real interest ratesin an industrial country with broad financial marketscan have a major effect on its exchange rate.

The emergence of very high real interest rates inthe United States after 1980 induced increases in othercountries that were generally somewhat smaller, re-sulting in sizable real interest rate differentials favoringthe U.S. dollar over other major currencies (Chart 14).These differentials apparently gave rise to a substantialflow of capital into dollar-denominated assets andconsequently may have contributed to the appreciationof the U.S. dollar in real terms. In addition, interestrates were quite volatile during 1980 and 1981 in relationto historical patterns, especially in the United Statesbut in a number of other countries as well, contributingto the volatility of exchange rates. During 1982, thereal interest rate differentials in favor of U.S. dollarinvestments over those in other major currenciestended to subside, as did the volatility of nominal andreal interest rates. Since the beginning of 1983, how-ever, these differentials have widened again as a resultof continued progress against inflation in the UnitedStates, as well as the rise in nominal U.S. interestrates. To a major degree, this renewed rise in U.S.interest rates reflects the strength of the recovery inthe United States, which has had beneficial effects onthe prospects for economic growth in other countries;but it is likely that the large U.S. fiscal deficit wasalso a contributing factor. Since convergence of realinterest rates could promote a more stable pattern ofexchange rate developments, it would be desirable forfiscal and monetary policies to foster such convergenceby taking adequate account of differences amongcountries in the flow of saving relative to the demandfor private investment.

40



Chart 14. Seven Major Industrial Countries: Monthly Average Real Long-Term Interest Rates, January 1980-May 1984 '(In percent per annum)

1 Yields on government bonds with maturities ranging from 7 to 20 years deflated by a weighted average of the rate of inflation in thecurrent quarter and the next two quarters, with the deflator of private final domestic demand serving as the price index. Staff projections ofthis deflator are used for the most recent data.

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ANNUAL REPORT, 1984

Countries with Managed Exchange Rates

The problems associated with a lack of convergenceof economic performance are also apparent in countrieswith pegged exchange rates and among those thatparticipate in cooperative exchange arrangements. Forthese countries, divergences of inflation rates havenecessitated periodic adjustments in central rates andhave sometimes subjected the currencies involved tobouts of destabilizing speculation. In addition, becauseinterest rates have tended to be relatively high incountries with higher inflation rates, investors in somecircumstances have been able to take advantage of therelative exchange rate certainty that follows a changeof parities by placing funds temporarily in those higher-yielding assets. A divergence of nominal interest rateshas then placed upward pressure on the high-inflationcountry's currency for a time, followed by downwardpressure once the competitive effects of the country'shigh inflation rate have begun to be felt.

The recent functioning of the EMS illustrates thesedifficulties and the ways that countries participatingin a joint floating arrangement have been able to copewith them. There has been a substantial divergence ininflation rates among the EMS member countries sincethe inception of the current system in March 1979.This pattern of divergence, along with other factorsaffecting competitive relationships, has resulted inseveral periods of tension and has necessitated a totalof seven realignments over the past five years. Thecumulative nominal depreciation of the Italian lira vis-a-vis the deutsche mark during this period has amountedto some 27 percent, roughly matching the cumulativeinflation differential; similar, though somewhat smaller,net movements have taken place for the French francand the Irish pound.

Adjustment of the EMS parities has sometimesoccurred in an atmosphere of pressure associated withanticipation of an impending realignment and withofficial intervention in support of existing parities. Toreduce these pressures and to promote convergenceof economic performance, most EMS realignmentshave been accompanied by the introduction of restric-tive budgetary or monetary policies in the high-inflationcountries. In particular, the most recent realignment,in March 1983, was accompanied by the implementa-tion of a package of restrictive measures in Franceinvolving both budgetary and monetary policies aswell as foreign exchange controls. Subsequently, mon-etary growth was successfully reduced in both Franceand Italy, and the real short-term interest rate differ-ential between France and the Federal Republic ofGermany switched from approximately 1 percentagepoint in favor of assets denominated in deutsche markjust before the realignment to about the same margin

in favor of French francs a year later. In addition,France, Ireland, and Italy have all made further effortsduring the past year to moderate inflationary pressuresby controlling government expenditure and reducingfiscal deficits.

The recent experiences of the other industrial coun-tries that have managed their exchange rates in termsof a composite of currencies—comprising Austria,Australia, Finland, Norway, and Sweden—also helpto illustrate the importance of convergence of economicperformance for the smooth management of exchangerates. The Austrian economy, for example, is closelyintegrated with that of the Federal Republic of Ger-many, and there has been in general a very high degreeof convergence between the two countries. Conse-quently, for several years the Austrian authorities havebeen able to maintain a rather stable relationshipbetween the schilling and the deutsche mark in bothnominal and real terms.

The Australian dollar was, until recently, managedin relation to a basket of currencies, with an exchangerate posted daily in terms of the U.S. dollar (theintervention currency for the authorities).2 During thelate 1970s and early 1980s, Australia's cost and priceperformance was close to that of its major tradingpartners. This situation, together with a flexible ap-proach to exchange rate management, permitted areasonable degree of stability in the real effectiveexchange rate for the Australian dollar, relative to thatobserved in the preceding period. However, in 1982-83, prices in Australia rose at a substantially morerapid rate than in its major trading partners, making itmore difficult to maintain international competitive-ness. Moreover, in the first part of 1983, exchangemarket pressures were exacerbated by heavy specu-lative capital flows around the time of the nationalelections. In these circumstances, the nominal ex-change rate was allowed to depreciate quite sharplyfrom the fourth quarter of 1981 to the first quarter of1983, culminating in a 10 percent devaluation withreference to the trade-weighted basket in March 1983.Until a wages pause began to take effect in the earlypart of 1983, much of the depreciation fed back intowage inflation through indexation. Consequently, thereal effective exchange rate, measured on the basis ofnormalized unit labor costs, declined only slightly fromthe high level of late 1981, and the current accountdeficit remained about 4 percent of GNP.

Finland, Norway, and Sweden provide a furtherexample of the importance of convergence of economic

2 On December 12, 1983, the Australian authorities announcedthat they were abandoning the administered exchange rate systemin favor of independent floating. This decision followed a period ofexceptional net foreign exchange inflow that was creating substantialdifficulties for the management of both domestic monetary policyand the exchange rate.

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performance for the management of exchange rates.These three countries are all close trading partnersand competitors in international markets, and eachone pegs its exchange rate to a trade-weighted currencybasket. During the late 1970s, inflation rates weresimilar both within this group of countries and betweenthem and their other major trading partners, andinterest rate policies were fairly effective in curbingspeculative pressures and maintaining exchange ratestability, with occasional adjustments of parities re-lieving shifts in competitive positions. In the early1980s, however, inflation rates in these countriesbecame higher than in their partner countries. By theautumn of 1982, the resulting loss of competitivenessled to a series of devaluations by all three countries.Since then, all of these countries have implementedpolicies intended to promote convergence by reducinginflation to rates closer to those prevailing abroad.The average rate of inflation in consumer prices inthese three countries, which had reached nearly 10percent during 1982, declined to JVz percent for the 12months through January 1984.

Exchange Rate Policies in DevelopingCountries

For most developing countries, exchange rate poli-cies since 1982 have been dominated by three majorfeatures in the economic setting: the pressing need tocarry out adjustments in the current account of thebalance of payments; the domestic economic situation,which in many instances was conditioned by high andrising rates of inflation; and large medium-term swingsin exchange rates among the major currencies. Thesetopics will be discussed after an examination of recentexchange rate developments.

Exchange Rate Developments

During 1983, the real effective exchange rates of thenon-oil developing countries, calculated as an averageacross countries weighted by gross domestic product(GDP), depreciated by over 6 percent, bringing thecumulative depreciation for the period 1982-83 to about13 percent (Chart 15); this change followed a cumu-lative appreciation of 8 percent over the previous threeyears.3 Nevertheless, the currencies of a large numberof these countries continued to appreciate in real

Chart 15. Developing Countries: Real EffectiveExchange Rates, 1977-83 '(Indices, 1977 = 100)

3 Indices of real effective exchange rates measure the evolutionof a country's prices relative to those of its trading partners, adjustedfor exchange rate changes. Prices are measured by the averageannual consumer price index, with indices of partner countriesaveraged by using import weights, and exchange rates are measuredby an import-weighted index of average annual effective exchangerates.

1 These indices measure the evolution of a country's prices relativeto those of its trading partners, adjusted for exchange rate changes.Prices are measured by the average annual consumer price index,with indices of partner countries averaged by using import weights,and exchange rates are measured by an import-weighted index ofaverage annual effective exchange rates. Group indices are GDP-weighted averages of country indices.

effective terms, as demonstrated by the fact that anunweighted average of real effective exchange rateindices for these countries appreciated by 2 percent in1982 and depreciated by less than 1 percent in 1983.4

The appreciation of real effective exchange rates in1978-81 was accompanied by a deterioration in currentaccount balances, supported by heavy external bor-rowing, and the real effective depreciation of 1982-83by many of these countries played a significant role intheir efforts to improve their current account balancesand overall external positions (see Chapter 1). Forexample, the adjustment in the average real effectiveexchange rate of the 25 major borrowers among de-veloping countries 5 amounted to a cumulative depre-

4 GDP weights were used for computing these averages for majorgroups of developing countries (Charts 15-17), in order that overalltrends for a group might reflect the relative importance of countrieswithin the group. Nevertheless, unweighted averages are alsoreported, because in some cases the experience of a few largecountries in a group might give a misleading impression of devel-opments in other countries in the group. Later in this section(Charts 18-20), only unweighted averages are presented, in orderto focus on the association between exchange rate developmentsand a special common characteristic of countries within each group.

5 This group consists of the 25 developing countries with thelargest total external debt at the end of 1982. These are, in order ofthe amount of their debt, Brazil, Mexico, Argentina, Korea, Indo-nesia, Venezuela, Israel, India, Chile, Egypt, Yugoslavia, Turkey,Algeria, the Philippines, South Africa, Portugal, Nigeria, Thailand,Malaysia, Peru, Pakistan, Morocco, Romania, Colombia, and Hun-gary.

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ANNUAL REPORT, 1984

Chart 16. Non-Oil Developing Countries: RealEffective Exchange Rates by Analytical Subgroupsof Countries, 1977-83 !

(Indices, 1977 = 100)


2 Within the group of "non-oil developing countries."

ciation of about 12 percent over 1982-83, following acumulative appreciation of nearly 10 percent over theyears 1978-81 (developments were similar for un-weighted averages).

By contrast, the major oil exporting countries tendedto experience an appreciation of their real effectiveexchange rates, with a cumulative appreciation for thegroup as a whole of 16 percent over the two-yearperiod 1982-83,6 despite relatively low domestic infla-tion rates for most of the countries in this group. Thisdevelopment can be explained in large part by thepolicy of a number of these countries of maintainingrelatively stable exchange rates between their curren-cies and the U.S. dollar, which appreciated over thisperiod against most other currencies.

Among the non-oil developing countries, the low-income countries experienced a slight depreciation ofreal effective exchange rates in both 1982 and 1983when averaged using GDP weights (Chart 16), but anunweighted average showed a significant appreciation

in both these years. The authorities in a number ofthese countries did not take exchange rate action toremedy a decline in international competitiveness,perhaps because they did not expect such action tohave an immediate impact on volumes of primaryproduct exports. The opposite was true for most othernon-oil developing countries, in which the manufac-turing sector plays a more important role in exportsand import substitution. For instance, major exportersof manufactures, other net oil importers, and net oilexporters all experienced substantial depreciations intheir real effective exchange rates in 1983, whenaveraged with GDP weights (although these changeswere less marked for unweighted averages). For anumber of countries in these categories, the deprecia-tion exceeded 10 percent, notably for Brazil, Chile,Ghana, Mexico, and Yugoslavia.

Some sharp regional differences in exchange ratetrends emerged among the non-oil developing countriesin 1983 (Chart 17). In Africa, after a tendency towardappreciation of real effective exchange rates over muchof the previous decade, there was a depreciation of5l/2 percent in 1983, using a GDP-weighted average ofnational indices. On the same basis, the averagedepreciation of real effective exchange rates was sharperamong non-oil developing countries in the Western

Chart 17. Non-Oil Developing Countries: RealEffective Exchange Rates by Region, 1977-83 '(Indices, 1977 = 100)

6 Similar developments are shown when using unweighted aver-ages across countries in this group.


44



Hemisphere (12 percent) and Europe (91/2 percent). InAsia, where changes in real effective exchange rateshave tended to be more moderate over the past halfdecade than in the other regions, there was on averageonly a slight depreciation in 1983. In the small MiddleEastern group (dominated by developments in Egyptand Israel), there was an average appreciation of 14percent.7

Exchange Rate Policies and ExternalImbalances

The relationship between exchange rate movementsand balance of payments developments over the pastfive years was complex. Sharp changes in both currentaccount balances and in the direction and magnitudeof capital movements were closely associated withexchange rate movements in many developing coun-tries. The large net inflows of lending received bythese countries in 1978-81 were cut back sharply in1982-83. Those major borrowing countries that re-scheduled their debt in 1982-83 experienced an espe-cially sharp swing between the appreciation of realeffective exchange rates between 1978 and 1981 andthe depreciation of 1982-83, while for major borrowerswith less severe debt problems there was a mild degreeof appreciation of real effective exchange rates overthe period 1980-83, after some depreciation in 1978and 1979. However, the experience of the reschedulingcountries—a period of appreciation of real effectiveexchange rates through 1981 followed by depreciationthereafter—was the more typical one for the non-oildeveloping countries as a whole (Chart 18).

The interpretation of these developments is compli-cated by the interdependence of exchange rates andcapital flows. In countries where exchange rate deter-mination is allowed some degree of sensitivity tomarket pressures, the impact of capital flows onexchange rates is a direct one. But even in countrieswhere the market does not influence these rates di-rectly, the exchange rate policies of the authoritieshave been strongly affected by the availability ofexternal finance. This is indeed suggested by thewidespread—in some cases, dramatic—exchange ratechanges after 1981, when drying up of financing flowsmade the need for external adjustment evident. It maybe argued, however, that the appreciation of the realeffective exchange rate creates a greater demand forexternal finance through its impact on the currentaccount. The large capital inflows experienced in some

Chart 18. Major Borrowing Developing Countries:Average Real Effective Exchange Rates, 1977-83 l

(Indices, 1977 = 100)

7 For all these regions, unweighted averages of national indiceschanged in the same direction as the GDP-weighted averages,although in most cases the changes were smaller.

1 This group consists of the 25 developing countries with thelargest total external debt at the end of 1982. These are, in order ofthe amount of their debt, Brazil, Mexico, Argentina, Korea, Indo-nesia, Venezuela, Israel, India, Chile, Egypt, Yugoslavia, Turkey,Algeria, the Philippines, South Africa, Portugal, Nigeria, Thailand,Malaysia, Peru, Pakistan, Morocco, Romania, Colombia, and Hun-gary.

The indices measure the evolution of a country's prices relativeto those of its trading partners, adjusted for exchange rate changes.Prices are measured by the average annual consumer price index,with indices of partner countries averaged by using import weights,and exchange rates are measured by an import-weighted index ofaverage annual effective exchange rates. Group indices are un-weighted averages of country indices.

countries prior to 1982 were in part a response to thegrowth of current account deficits, which in turnreflected, among other factors, real effective exchangerates that had become increasingly appreciated.

It is nevertheless difficult to determine the relativecontribution of several concurrent policies to thecurrent account improvement achieved by the non-oildeveloping countries. In addition to exchange rateadjustments, the fall in incomes and output, as wellas trade and exchange restrictions, played key roles.The available evidence shows that countries that actedto maintain their international price competitiveness—in other words, to avoid substantial real effectiveappreciation of their currencies—during the period1978-81 were, on the whole, better able to keep thedeterioration of their current accounts in check thanwere countries whose international price competitive-ness, as measured by their real effective exchangerates, had been allowed to decline. Moreover, theformer countries were more successful in adjusting tothe difficult external situation prevailing in 1982-83

45


ANNUAL REPORT, 1984

than were the latter countries. These tendencies canbe illustrated by comparing the experience of thosenon-oil developing countries whose currencies depre-ciated in real effective terms over the years 1978-81with those whose currencies appreciated. While theaverage ratio8 of the current account deficit to totalexports of the appreciating group steadily rose from1978 to 1982, with only a slight reversal in 1983, thatof the depreciating group increased only slightly overthe same period and declined sharply in 1982 and 1983,showing by the latter year a substantial decline from1978. Although real effective exchange rates are not aperfect measure of international competitiveness andthe latter is certainly not the only factor determiningthe sign and size of the current account, this evidencesuggests that exchange rate policies contributed toexternal adjustments carried out by developing coun-tries during this period.

In the period 1979-83, the authorities of manydeveloping countries encountered several dilemmaswith regard to exchange rate policies.9 A major problemwas whether to allow exchange rates to reflect fully,partially, or not at all the impact on the balance ofpayments of the salient external developments occur-ring during this period—the increase in petroleumprices in 1979-80, the rise in interest rates after 1979,the recession in the industrial countries, and the cuttingback of international lending by the commercial banks.Difficult judgments had to be made, in an environmentof considerable uncertainty, as to whether these de-velopments were of a temporary or permanent natureand, if temporary, of how long a duration. It was notimplausible to believe that at least some of the devel-opments were temporary, but, when the availabilityof external financing declined, the need for immediateaction was apparent. At first, some countries soughtto avoid exchange rate action by imposing trade andexchange restrictions. By 1982, however, it was evi-dent that a serious balance of payments crisis haddeveloped and that it was necessary to increase ex-ternal competitiveness to achieve viable positions withregard to the balance of payments, the level of debt,and the size of debt service payments. Hence, sub-stantial exchange rate adjustments were carried out in1982-83 by a number of countries.

Nevertheless, as indicated earlier, many countrieswith current account positions that had deterioratedmarkedly up to 1982 still have not undertaken adequateexchange rate adjustments. These countries, therefore,have had to carry out adjustments in their balance of

payments positions principally by means of measuresto reduce aggregate demand and of restrictions onimports and external payments. A large number ofnon-oil developing countries introduced or intensifiedimport restrictions in 1982 or 1983—although, to besure, certain restrictions were reduced or eliminated,sometimes in connection with Fund programs. Whilerestrictive measures were considered necessary tomeet the immediate balance of payments crisis, theycannot in the long run provide an adequate substitutefor measures to improve the price competitiveness ofthe sectors producing traded goods in these countries.Such improvement will depend not only on exchangerate policies and the removal of price-distorting sub-sidies and controls but also on the success of controllingthe level of aggregate demand, especially the demandof the public sector.

While there can be little doubt that exchange rateadjustments improved the external positions of thecountries undertaking them, there is reason to believethat the impact of these adjustments on the currentaccount was less marked than it would have beenunder different circumstances. First, the fact that somany countries were simultaneously attempting toimprove their external competitiveness tended to dampenthe effect of exchange rate measures on the currentaccount position of individual countries. In addition,the scope for improved export performance for thedeveloping countries, as a result of exchange rateadjustments, was limited by the existence of protectivetariffs and quantitative restrictions in the industrialcountries. Finally, the effects of exchange rate ad-justments undertaken so far may not yet have beenfully realized, because of the lags between the initialadjustment and the expected increase in market shares,and also because the initial adjustments occurred whilethe industrial economies were still in recession.

Global developments over the past several yearshave had a significantly different impact on countriesexporting oil10 than on oil importing developing coun-tries (see Chapter 1), although there have been strikingcontrasts within the former group. For those oil ex-porting countries that had financed a rapid rise ingovernment expenditure after 1980 with heavy bor-rowing from abroad, the decline in the price of oilsince 1981, which was accompanied by lower oil exportvolumes and higher interest rates, created an especiallydifficult situation. In the 1970s, these oil exportingcountries had already faced the problem of choosingan appropriate exchange rate, particularly when de-mand for oil was high, since the short-run equilibrium

8 Unweighted average of ratios of countries in each group.9 Problems arising from the role of exchange rates in the manage-

ment of domestic demand and from the task of managing exchangerates in a world of floating rates among major currencies are topicstaken up in the following subsections.

10 The reference to oil exporting countries in this paragraphincludes both the group of major oil exporters and that of net oilexporters among the "non-oil developing countries."

46



rate was not always consistent with the objective ofthe authorities of these countries to expand their non-oil traded goods sectors. In many countries that exportoil, real appreciation of the effective exchange ratewas permitted to occur during the 1970s; subsequently,when some of these countries (e.g., Mexico, Indonesia,and Venezuela) were faced with serious balance ofpayments strains, exchange rate adjustments were thenused to help remedy the situation. In Indonesia, thelong-run danger of allowing the competitiveness of thenon-oil traded goods sector to weaken was seen at arelatively early stage, and a major exchange ratedevaluation was carried out in 1978, as well as in 1983.

In centrally planned economies, as noted in previousAnnual Reports, exchange rate policies may not playthe same role as in market economies. This role variesamong planned economies depending on the extent towhich individual units of production make their deci-sions on the basis of price incentives rather thanquantitative targets and direct allocations of inputsfrom the central economic authority. In a number ofmember countries with planned economies, steps havebeen taken to expose individual enterprises to changesin world prices, to unify exchange rates (thereby betterreflecting the set of relative prices prevailing in theworld economy), and to adjust rates in the directionsuggested by changes in the underlying balance ofpayments position.

Exchange Rates and Domestic Policies

An important factor determining the course of ex-change rate policies, including the choice of exchangearrangement, is the domestic policy setting. Domesticconsiderations often weigh heavily in decisions to allowthe domestic currency to appreciate or depreciate. Inparticular, the movement in the real effective exchangerate of the currency depends on whether the nominalexchange rate is adjusted in line with differencesbetween domestic and foreign rates of inflation. At thesame time, changes in the nominal exchange rate areoften perceived as an important influence on the levelof domestic prices.

If every country adjusted the external value of itscurrency exactly in line with differences betweendomestic and foreign inflation rates, real exchangerates would remain constant and there would conse-quently be no difference in the real effective exchangerate performance of low-inflation, medium-inflation,and high-inflation countries.11 In fact, however, there

11 For the purpose of this grouping, "high inflation" was definedas an average of more than 31 percent over the period 1979-83;"medium inflation" as an average of 11 to 31 percent; and "lowinflation" as an average of less than 11 percent.

were striking differences among these groups for cer-tain periods during the past decade (Chart 19).

The real effective exchange rates of high-inflationcountries appreciated, on average, substantially be-tween 1975 and 1980, and then sharply depreciated(correcting the previous overvaluation) between 1980and 1983. For many of these countries, the downwardadjustment of exchange rates began only in 1982, aftera period of heavy borrowing and real appreciation ofexchange rates in the period preceding 1982. A fewcountries (Argentina and Uruguay) experimented withschemes to exert a downward influence on inflationaryexpectations by keeping the exchange rate overvalued.Obviously, the substantial real depreciation after 1981was made necessary by the previous appreciation.

For medium-inflation countries, the pattern wasquite different, with the real effective exchange rategradually depreciating over the period 1974-79 andthereafter steadily appreciating. The tendency for ex-change rate adjustments to lag behind inflation after1979 was especially strong in countries where inflationsignificantly exceeded the historical norm and wastherefore regarded as a temporary phenomenon (e.g.,many African countries). In some of these countries,also, the fear that devaluation would further stimulate

Chart 19. Developing Countries: Average RealEffective Exchange Rates for Low-, Medium-, andHigh-Inflation Countries, 1977-83 1

(Indices, 1977 = 100)

1 These indices measure the evolution of a country's prices relativeto those of its trading partners, adjusted for exchange rate changes.Prices are measured by the average annual consumer price index,with indices of partner countries averaged by using import weights,and exchange rates are measured by an import-weighted index ofaverage annual effective exchange rates. Group indices are un-weighted averages of country indices.

47


ANNUAL REPORT, 1984

inflationary pressures may also have hindered timelyexchange rate adjustments.

For low-inflation countries, changes have in generalbeen more muted, with a gradual real appreciation ofabout 8 percent occurring from 1978 to 1983. Thisappreciation was in part related to the fact that anumber of these countries pegged their currencies tothe U.S. dollar (see section on Exchange Arrange-ments) and did not choose to alter the level of the pegduring this period, thereby allowing their currenciesto appreciate with the U.S. dollar against non-dollarcurrencies.

The implementation of required exchange rate ad-justments has been complicated by the high rates ofinflation prevalent in many of the adjusting countries.For example, in 28 member countries12 inflation ratesaveraged 20 percent or more during the period 1979-83. In such economies, the direction and implemen-tation of exchange rate policy became a major concernof the authorities and necessarily posed more compli-cated choices than in countries with relatively lowrates of inflation.

One approach that has been taken in recent yearsin a number of countries—industrial as well as devel-oping—is to gear exchange rate policies, at least inpart, to domestic price objectives. Such use of ex-change rate policy has taken different forms. In somecountries, the authorities deliberately maintain a fixedexchange rate that overvalues the domestic currency:this policy of "cheap imports" is expected both tokeep domestic prices down and to weaken upwardpressures on wages. In other countries, a depreciationof the domestic currency is simply avoided or delayedbecause of its anticipated impact on domestic prices.The concerns of the authorities in this regard influencedexchange rate policies in Chile, Mexico, and numerousAfrican countries, as well as in some oil exportingcountries, during the inflationary surge following theincrease in oil prices in 1979-80.

A related technique used in several countries sincethe mid-1970s (Argentina, Chile, Portugal, and Uru-guay) is to preannounce a schedule of future exchangerates, which may, at least initially, be somewhatovervalued. This policy, which has tended to beassociated with relatively high rates of inflation, isintended not only to dampen domestic price increasesbut also to influence expectations. When accompaniedby appropriate fiscal and monetary policies, such apolicy might contribute to a gradual decline in the rateof inflation, until it fell below the preannounced rateof devaluation, and hence to future exchange ratesthat were no longer overvalued. Nevertheless, this

12 Out of 104 developing countries (both oil exporting and non-oildeveloping countries) for which data were available.

policy has in some cases also led to overvaluation ofthe domestic currency, a deteriorating current account,the distortion of relative prices, and foreign exchangeearnings that not only fell but were also funneled intoblack markets; any slowing of inflation thereby achievedtended to be temporary.

Countries with high or accelerating inflation haddifficulty in coordinating exchange rate policies withother policies affecting the money supply, wages, andcontrolled prices. While the adverse effects of per-mitting the domestic currency to become overvaluedwere evident, there was a countervailing fear of en-tering into an inflationary spiral in which an effectivelyindexed exchange rate played a key role. In somecountries (notably Chile) exchange rate developmentstended to have an asymmetric, or ratchet, effect onreal wages. While an appreciation of the rate auto-matically raised real wages, the corresponding de-pression of real wages caused by a depreciation tendedto be resisted by wage earners, resulting in a rise inunemployment to the extent that such resistance wassuccessful.

The task of coordinating exchange rate and interestrate policies also proved to be especially complicatedin an inflationary setting, particularly if it was uncertainwhether inflation would accelerate or decelerate. Al-most all countries rejected the approach of permittingboth rates to be determined in the free market becauseof the thinness of the markets involved. When theauthorities set both rates, the problem arose thatexpectations created by the rates might not be con-sistent with the goals of the authorities. For example,in countries where capital outflows were permitted (orcould not be successfully controlled), an overvaluedexchange rate tended to provoke expectations of adevaluation, which in turn led to capital outflows: thiswas the experience of certain Latin American countriesin 1981-82. When interest rates were raised—some-times to rates exceeding in real terms those prevailingin international markets—in order to induce the place-ment of financial savings within the country, the resultwas either to raise the public's expected rate of inflation(because officially determined interest rates were re-garded as a signal of the authorities' own expectations)or, when private expectations were not affected in thisway, to discourage borrowing for private investment.Conducting exchange rate and interest rate policiesthat avoid such outcomes continues to be one of themost difficult tasks facing the authorities in countriessuffering from both external payments problems andhigh inflation.

The ability of governments to deal with problems ofthe sort just described has generally been enhancedby a firm control over the fiscal balance. When theauthorities have been seen to be unable to prevent the

48



fiscal deficit from rising or to reduce it when it hadalready become excessive, expectations with respectto both the exchange rate and inflation have tended tobecome more volatile, and the authorities' margin formaneuver with regard to their exchange rate andinterest rate policies has been narrowed.

Impact of Exchange Arrangements

An analysis of movements in real effective exchangerates by type of exchange arrangement reveals, notsurprisingly, that currencies pegged to the U.S. dollarhave appreciated substantially (about 25 percent) since1980 (Chart 20). In most of the countries affected,exchange rates have not been adjusted downwardagainst the dollar to offset the influence of the effectiveappreciation of the dollar itself. Currencies pegged tothe SDR, as well as those pegged to a composite, havealso appreciated over this period, but by less thanthose pegged to the U.S. dollar. It may be noted thatall three of these groups include some oil exportingcountries. In 1983 there was continued depreciation(again, since 1980) of currencies pegged to the Frenchfranc and of currencies classified in the category of

Chart 20. Developing Countries: Real EffectiveExchange Rates by Exchange Arrangements,1977-83 >(Indices, 1977 = 100)

1 These indices measure the evolution of a country's prices relativeto those of its trading partners, adjusted for exchange rate changes.Prices are measured by the average annual consumer price index,with indices of partner countries averaged by using import weights,and exchange rates are measured by an import-weighted index ofaverage annual effective exchange rates. Group indices are un-weighted averages of country indices.

other exchange arrangements (including those coun-tries moving exchange rates according to a set ofindicators).

The large changes in exchange rates that have takenplace among the major currencies over the past fiveyears have had a substantial impact on the developingcountries, not only on their real effective exchangerates (as shown above) but also on such variables ascommodity prices, the real value of international re-serves, and external debt. In particular, the dollarappreciation tended to depress commodity prices inU.S. dollar terms while nominal magnitudes of debtservice (which was mainly in dollars) remained un-changed, thereby raising the real burden of debtservice. To the extent that the currency compositionof reserves differs from that of payments, the realvalue of reserves varies with changes in exchangerates among the currencies in which reserves are held.

The impact of changes in exchange rates amongmajor currencies on the variables just mentioned can-not be prevented by choosing a particular exchangerate regime. The effect of such changes on commodityprices in terms of one of the internationally tradedcurrencies cannot be offset by an exporting countryunless it possesses, alone or together with otherexporters, a certain degree of monopolistic power inits export markets. Fluctuations in the real values ofinternational reserves and external debt resulting fromforeign exchange rate movements can be reduced bymanagement of the currency composition of externalassets and liabilities but not by pegging to a particularcurrency composite.

Some effects of exchange rate movements, however,can be offset, at least partially, through the choice ofexchange arrangement. For example, when the cur-rency composition of import ^payments differs fromthat of export receipts, or when trade is conducted inmore than one foreign currency, a change in exchangerates among major currencies will alter the balance oftrade in domestic currency terms, thereby affectingthe level of aggregate income and demand; this impactcan be muted through choice of an appropriate cur-rency composite to which to peg the local currency.The same type of exchange arrangement can be usedto reduce, on average and over time, the exchangerisk faced by individual traders because contracts aredenominated in a foreign currency other than that towhich the domestic currency is pegged, or to dampenvariations in any key economic variables, such asexternal competitiveness, that are measured by realeffective exchange rates. The choice of currency, orcurrencies, to which to peg the local currency hassometimes also been used to reduce the extent towhich inflation is transmitted from major trading part-ners through increases in the prices of their exports.

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ANNUAL REPORT, 1984

Table 9. Developing Countries: Exchange Rate Arrangements, End of June 1978-84 ]

(Number of countries)

Pegged to a single currencyU.S. dollarFrench francPound sterlingOther currency

Pegged to compositeSDROther composite

Flexible arrangementsAdjusted according to

a set of indicatorsOther 2

Total

1978

62411443

281513

23

518

113

1979

61411433

271314

29

425

117

1980

58401413

321517

28

325

118

1981

56381413

321418

32

428

120

1982

56381314

341519

35

431

125

1983

54361314

351421

36

531

125

1984

51331314

351124

39

633

125

1 Based on midyear classifications; excludes Democratic Kampuchea, for which no current information is available. For classification ofcountries in the group shown here, see Chapter 1, Table 3, footnote 1.

2 This category comprises the following categories used in Table 10: "Flexibility limited vis-a-vis single currency," "Other managedfloating," and "Independently floating."

It is also generally true, however, that no exchangearrangement can entirely offset all these effects, be-cause an arrangement that is especially well suited tosmooth the effects of foreign exchange rate fluctuationsin one respect (e.g., variations in average externalcompetitiveness) may deal less effectively with othertypes of effects (e.g., those on the domestic currencyvalue of the balance of trade). Hence, the ideal ex-change arrangement, taking into account all relevantcriteria, will generally involve a compromise among avariety of objectives. Nevertheless, for medium- andhigh-inflation countries, the objective of maintainingexternal competitiveness is a dominant one, requiringfrequent adjustment of exchange rates more or less inline with the difference between domestic and foreigninflation.

The response of developing countries to the ex-change rate environment they face is shown by theevolution of their exchange arrangements (Table 9).Although no radical shifts occurred in the pattern ofsuch arrangements in the 12 months ended June 30,1984, there has been over the past five years a gradualincrease in arrangements involving either a peg of thedomestic currency to a composite of other currenciesor flexible exchange arrangements, paralleled by adecrease in arrangements under which the domesticcurrency is pegged to a single currency. The fact thatthere are still 51 of the latter type of arrangementssuggests that in many countries the single currencypeg is either highly advantageous in terms of conven-ience, especially when the bulk of external transactionsis conducted in a single foreign currency, or is per-ceived as a cornerstone of domestic financial policiesand, therefore, also of confidence in the nationalcurrency.

Surveillance Over Exchange Rate Policies

Against the background of an improving but stilldifficult world economic and financial situation, theFund has continued to attach great importance to theexercise of its surveillance function. An importantaspect of this function is the need to ensure that theexchange rate policies of Fund members are guidedby the three principles enunciated in the 1977 document"Surveillance Over Exchange Rate Policies," whichenjoins members to avoid manipulating exchange ratesor the international monetary system, to intervene inthe exchange market if necessary to counter disorderlyconditions, and to take into account in their interven-tion policies the interest of other members.13 Muchmore broadly, however, the Fund's surveillance activ-ities are concerned with the obligations of its membersunder Section 1 of Article IV of the Articles ofAgreement. This section not only proscribes the ma-nipulation of exchange rates but also obliges membersto collaborate with the Fund and other members topromote a stable system of exchange rates. In partic-ular, it refers to the need for each member to directits economic and financial policies toward the objectiveof fostering orderly economic growth with reasonableprice stability and to seek to promote stability byfostering orderly underlying economic and financialconditions. In this wider dimension, surveillance em-braces, in addition to exchange rate policies andpolicies adopted for balance of payments purposes,policies that are undertaken primarily for domestic

13 See Executive Board Decision No. 5392-(77/63), adoptedApril 29, 1977, Selected Decisions of the International MonetaryFund and Selected Documents, Tenth Issue (Washington, 1983),pages 10-14 (hereinafter referred to as Selected Decisions).

50



reasons but also have consequences for exchange ratesand for the international monetary system as a whole.

In March 1984, the Executive Board conducted bothits biennial review of the 1977 document and its annualreview of the implementation of surveillance.14 TheBoard's conclusion was that the experience in theimplementation of surveillance did not call for a re-vision of the principles and procedures set out in thedocument, but that it did call for more active imple-mentation. In this context, the Board stressed that,while the assessment of exchange rate policies was acomplex task, the Fund had to take a position on theappropriateness of members' exchange rate policies,irrespective of the exchange arrangements chosen byan individual member and of the member's need forFund financial support. The Board also stressed that,to have firm and effective surveillance, it was necessarythat Fund members give active and broad support tothe positions taken by the institution.

A further point noted during the 1984 surveillancereview was that many of the international economicdifficulties of recent years have been associated withthe pronounced swings in exchange rates betweenmajor industrial countries, and with the repercussionsof the prevailing low levels of economic activity andhigh interest rates in these countries on the rest of theworld. There was a broadly shared view that to someextent these developments resulted from domesticpolicies in major industrial countries that did notsufficiently promote the evolution of stable economicand financial conditions and also failed to take accountof the implications for other countries and for theinternational monetary system as a whole. Therefore,the Executive Board concluded that it was incumbenton the Fund to form a view on the domestic policiesneeded to foster the smooth working of the systemand to attempt to persuade its members to follow suchpolicies.

Issues in the Implementation ofSurveillance

The restoration of stable domestic economic andfinancial conditions in the major industrial countriesremained one of the central issues in the implemen-tation of Fund surveillance during 1983 and the firsthalf of 1984. The nature of foreign exchange marketsis such that it is unrealistic to assume that muchprogress can be made in the direction of reducingexchange rate instability among the major currencies

14 See Executive Board Decisions Nos. 7645-(84/40) and 7646-(84/40), adopted March 12, 1984 (reproduced in Appendix II).

as long as domestic conditions are unstable in somefundamental ways. The existence of an inflation prob-lem, in particular, is bound to be accompanied byexchange rate instability because economic agents willbe uncertain as to the future level of inflation, theimpact on the balance of payments, the correctivefinancial measures that will be used, and the degreeof success of these measures. Stable domestic condi-tions, however, involve much more than an absenceof inflation. They require a monetary policy that isviewed by economic agents as insuring them againsta return of inflation. They also depend on a fiscalpolicy that is adequately supportive of the monetarystance and is consistent with the financing of privatecapital formation without undue pressures on realinterest rates.

While there is generally no disagreement with respectto the need for a restoration of stable domestic con-ditions, policymakers at times differ as to how thisaim is best achieved. In recent years, it is mainly inthe fiscal area that opinions have tended to differ. InJapan, the Federal Republic of Germany, and theUnited Kingdom, the first priority of fiscal policy wasto reduce the fiscal deficit, if only because this wasthe best way to foster a reduction of interest rates anda recovery of private investment. On the other hand,in the United States the authorities were convincedthat the first priority of fiscal policy was a reductionof the tax burden imposed on the private sector; ifthis reduction led to an excessive fiscal deficit, thengovernment expenditures must be reduced. If thisreduction turned out to be a long and arduous task, itwould still be better—in the view of the U.S. author-ities—to have a deficit that was high by historicalstandards for a number of years than to abandon theplan to reduce the tax burden.

The authorities of various countries have also as-sessed differently the importance of the relationshipsamong the fiscal deficit, interest rates, and the exchangerate. The main problem in this area is that the rela-tionships are often obscured by a number of factors,including the level and composition of governmentspending and taxes, the extent to which governmentdebt is perceived to be wealth by investors, the ratioof government debt to GNP, and expectations. Ex-pectations are important in several respects. First,expectations are an important element influencing theeffect of fiscal expansion on interest rates. For ex-ample, fiscal expansion may lead to higher long-terminterest rates, even during a period of relatively lowprivate demand for credit, if economic agents havereasons to expect that the expansion will persist whenthe private demand for credit recovers. Second, ex-pectations also influence the relation between interestrates and exchange rates. The expectation that the

51


ANNUAL REPORT, 1984

fiscal expansion is to be accommodated by an expan-sionary monetary policy often will be associated withanticipations of higher inflation, in which case thecombination of policies could lead to a rise in nominaldomestic interest rates associated with a depreciationof the exchange rate. In contrast, the expectation thatthe fiscal expansion is not to be accommodated maycontribute to a rise in domestic real interest rates andan appreciation of the exchange rate. This complexityof the relationship between fiscal policies and exchangerates explains the lack of a systematic correlation,either over time or across countries, between fiscalpolicies and exchange rates. It also explains why, inany specific case, it is often difficult for the authoritiesin different countries to arrive at a common judgmentof the contribution of fiscal policy to exchange ratedevelopments.

In the monetary area, the problems have beenessentially technical rather than related to any fun-damental differences of view. In all major industrialcountries, increased reliance has been placed over thepast several years on the control of monetary growthas the principal way to set monetary policies in themedium term. More recently, however, large changesin velocity have obliged a number of central banks toadopt a flexible and judgmental approach to the de-termination of monetary growth. Part of the problemis temporary, associated with the rather sudden de-creases in inflation and in nominal interest rates thathave characterized the past two years. But part of itmay be longer lasting, being associated with the de-velopment of close substitutes for money balances astraditionally defined and with the increase in substi-tution among major currencies on the internationallevel. For all these reasons, it has become particularlydifficult to determine the appropriate rates of growthof monetary aggregates, and, therefore, to assesswhether specific exchange rate developments are theresult of excessively low or high rates of monetarygrowth.

While the complexities involved in assessing thesource of exchange rate problems and other problemsresulting from international interdependence are alltoo real, they should not be exaggerated. In someinstances, there is little doubt with respect to the basicsource of the problem, even though it may be difficultto give a precise description of the relevant relation-ships. The Fund has then a clear mandate to press thecountry concerned to improve its policy stance. Attimes, the process of distinguishing the various issuesinvolved can help to reduce divergences of view. It isessential for the success of surveillance that, wheneverthe exchange rate implications of certain policies arenot well understood, a serious attempt be made at avery early stage to work toward a common understand-

ing of the processes at work. This is why the Fundhas endeavored to develop its analysis in this domainin recent years, and why it has sought through itsvarious publications, through informal contacts be-tween the Managing Director and member countries,through participation in meetings of the Group of Tenand other country groups, and through Article IVconsultations to present the conclusions of its work toits members.

More specifically, during the past year and a halfthe Fund has forcefully advocated the adoption ofpolicy measures that would help to foster a favorableconvergence of financial conditions among its industrialmembers. The progress that many industrial countrieshave made toward restoring noninflationary sustain-able rates of economic growth is encouraging, not onlyfor its own sake but for its salubrious effects on theexchange rate system. The consolidation and furtheringof these gains over the next few years should go fartoward enhancing the stability of exchange rates amongthe major industrial countries and reducing pressureson trading relationships and on the economic prospectsof other countries. But the one area where progressis so far lacking in a number of countries is also oneof those most directly important for the smooth op-eration of the exchange rate system: the attainment ofbalanced and consistent macroeconomic policies so asto reduce the incentive for the shifting of financialassets among currencies in search of relatively highreturns. Only by making progress in this area willcountries be able to provide financial markets with themeans to formulate stable expectations based on areasonable certainty that policies as well as economicperformance will be sustained over the medium term.

The serious economic problems faced by developingcountries were the other central issue in the imple-mentation of Fund surveillance during 1983 and thefirst half of 1984. The Fund has continuously stressedthat these problems are partly the result of unsatisfac-tory economic conditions in developed countries. Overthe past year and a half, developing countries havebenefited from the strong expansion of economicactivity and imports in the United States. Nevertheless,on the whole the external environment remains un-favorable to them, especially because of the highinterest rates in international capital markets and thestill relatively low level of economic activity in manyindustrial countries. Thus, further improvements inthe underlying economic and financial conditions indeveloped countries—particularly the major industrialcountries—would greatly ease the adjustment prob-lems of developing countries by fostering an enlargeddemand for their exports and a reduction in the interestrates on their foreign debt.

At the same time, the Fund has stressed that de-

52



veloping countries must further strengthen their ad-justment efforts to restore a sustainable external po-sition and to renew the process of economic growth.They cannot afford to wait for better conditions inindustrial countries. Furthermore, in many instances,economic problems can also be traced to domesticeconomic policies. Ultimately, the developing coun-tries have no choice but to harness their economicresources to expand exports and replace certain im-ports with due regard to comparative advantage, whileproviding adequate incentives for the investment ofnational saving at home rather than abroad and forforeign equity investment. To achieve these objectives,it is equally essential to keep aggregate demandunder control through appropriate fiscal and monetarypolicies and to improve domestic resource allo-cation through a rationalization of the structure ofincentives.

In both respects, exchange rate policies can beexpected to play a key role. The experience of anumber of developing countries over the past two orthree years, including Indonesia, Mexico, Pakistan,Somalia, Turkey, and Uganda, has demonstrated oncemore that exchange rate flexibility, accompanied by aremoval of controls on domestic prices and the imple-mentation of appropriate fiscal and monetary policies,can contribute to external adjustment in developing aswell as developed countries. Because of national dif-ferences in economic structure, the contribution ofexchange rate flexibility to the adjustment process isgreater in some countries than in others; and thatcontribution may in some respects also be limited bythe global nature of the current adjustment problem.But there is no doubt that exchange rates do influencethe aggregate volume of products, especially manu-factures, that the industrial countries import fromdeveloping countries; that in all countries the efficiencyof allocation of foreign exchange among domesticeconomic agents is greatly enhanced when the priceof foreign exchange is permitted to reflect its truescarcity; that the process of lowering unduly high realwage rates is often facilitated by an exchange rateadjustment; and that a realistic exchange rate is ulti-mately necessary to avoid a flight of domestic capital.Furthermore, the use of trade and exchange restrictionsis a more costly form of adjustment in the long runbecause of its detrimental effect on the efficiency ofresource allocation.

Exchange rate flexibility and the removal of controlson domestic prices should not, however, be viewedas policies taken in isolation from others. Reducedfiscal deficits, for example, are required for improvedcontrol over the growth of monetary aggregates. Withinadequate control of monetary growth, exchange rateflexibility will restore overall balance of payments

equilibrium, but at the cost of runaway inflation and,possibly, a dislocation of the domestic economy. TheFund in its surveillance activities has therefore con-tinued to stress that improvement in economic per-formance requires the implementation of domesticfinancial policies that provide appropriate support forexchange rate adjustment. Given the magnitude of theproblems faced by many developing countries, ad-justment also requires a longer-run strategy aimed atimproving the overall efficiency of the productionsystem, increasing private saving and investment, andexploiting developments in a country's comparativeadvantage. This is also a crucial aspect of the adjust-ment policies that the Fund, in cooperation with theInternational Bank for Reconstruction and Develop-ment, has been advocating in its discussions withmember countries.

Throughout 1983 and the first half of 1984, the Fundhas continued to encourage the commercial banks toprovide adequate financing in support of Fund-assistedadjustment programs. In many cases, the debt burdenof the country, in particular the indebtedness to banks,is such that a continuation of the support of the banksis absolutely necessary if the adjustment program isto proceed with a reasonable chance of success. Whenthe country has shown a serious willingness to adjust,commercial banks have generally become more forth-coming and have provided a critical level of financing.For the smaller low-income developing countries, inparticular many of the African countries, that continueto have limited access to financial markets or cannotafford the interest rate prevailing in these markets, thelevel of external financing depends more heavily onforeign aid, and hence the lack of real growth in aidoften undermines the success of adjustment efforts inthese countries.

Possibly the most detrimental effect of the economicproblems faced by developed and developing countriesalike over the past few years is the increase in traderestrictions, especially restrictions taking the form ofnontariff barriers negotiated on a bilateral basis outsidethe framework of the General Agreement on Tariffsand Trade (GATT). There are many reasons for thisgrowth of protectionism. Some are related to theunwillingness to accept the consequences of changesin comparative advantage. Others are more directlyrelated to the exchange rates currently prevailingamong the major currencies, the desire on the part ofmany developing countries to limit the depreciation oftheir exchange rates despite the persistence of ex-tremely high inflation rates, and the belief in countriessuffering from unemployment that import restrictionsmay safeguard jobs. Whether related to exchange rateissues or not, the proliferation of trade barriers hasnow reached a stage at which the effectiveness of

53


ANNUAL REPORT, 1984

exchange rate adjustments and the efficiency of themultilateral trading system are in jeopardy.

As was indicated in the 1983 Annual Report, theFund has intensified its collaboration with the GATTand has placed greater emphasis on issues of protec-tionism in all of its surveillance activities. So far,however, progress in restraining the rise of protec-tionism has been very disappointing. Not only havethere been no concrete policy actions to resumeprogress toward an open multilateral trading environ-ment, but, in fact, protectionist measures have beenintensified. One especially worrisome consequence ofthis evolution is that it hinders the adjustment processof developing countries with high external indebted-ness. These countries must expand their exports ofmanufactured and agricultural products at a rapid rateover the next few years if they are to restore anadequate external position while sustaining a moderaterate of economic growth. This, however, will bepossible only if there is a reversal of the currentprotectionist tendencies.

Procedures for Implementing Surveillance

The Fund carries out its surveillance activities bothin a multilateral context and through its consultationswith individual members. These activities are sup-ported by a continuous monitoring of developmentsin exchange rates and exchange arrangements.

The world economic outlook exercise remains themain framework for multilateral surveillance. Thecomprehensive analysis of the world economy and theexchange rate system that is undertaken in the worldeconomic outlook papers prepared at least twice eachyear provides a basis for the reviews by the ExecutiveBoard and the Interim Committee of the central sur-veillance issues, including those that are related to theglobal effects of the economic policies of major coun-tries. In recent years, these papers have emphasizeda medium-term approach. In particular, medium-termscenarios have been developed to highlight the policiesneeded to achieve a sustainable noninflationary recov-ery in the industrial countries and to analyze theadjustment and debt problems of developing countries.Aside from these papers, the staff also prepares Ex-ecutive Board papers on particular surveillance issues.During 1983 and early 1984, papers on particular issuesincluded "Issues in the Assessment of the ExchangeRates of Industrial Countries," and "The ExchangeRate System: Lessons of the Past and Options for theFuture."15

15 Published as Occasional Papers Nos. 29 and 30 (Washington:International Monetary Fund, June 1984).

Another channel for multilateral surveillance isthe participation of the management of the Fund invarious multilateral meetings of the major industrialcountries. The Managing Director often participatesin the meetings of the ministers and governors of theGroup of Ten and, since the 1982 economic summitmeeting, in the regular meetings of the ministers ofthe five countries whose currencies are part of theSDR basket. On these occasions, the Managing Di-rector has reviewed recent economic developmentsand has underlined the need for cooperation in orderto put in place policies designed to achieve convergencetoward a lasting reduction in inflation, higher employ-ment, and sustainable economic growth. More broadly,the Managing Director has stressed the need for majorcountries, in framing their domestic policies, to giveweight to the impact of their decisions on exchangerates and on economic conditions in other countries.

One subject that has continued to be given particularprominence in the multilateral surveillance activitiesof the Fund in 1983 and early 1984 is the problem ofexternal indebtedness. The importance attached to thissubject was underscored by a number of ExecutiveBoard meetings on questions related to Fund policiesin the context of external debt-servicing problems anddevelopments in international capital markets. More-over, a number of projects were initiated to furtherimprove the monitoring, presentation, and analysis ofexternal indebtedness. New tables on internationalbanking statistics have been incorporated in the Fund'sInternational Financial Statistics beginning with theJanuary 1984 issue. Because of the seriousness of thedebt problem, cooperation with official and privatecreditors has intensified. Members of the Fund staffcooperate closely with official creditors in the ParisClub, and adjustment programs supported by Fundresources in the upper credit tranches remain a pre-requisite for the consideration of rescheduling re-quests. Furthermore, when private flows are impairedand countries are seeking comprehensive packages offinancial assistance from commercial banks, the Fundnow often finds it necessary to adopt a more activerole in securing confirmation from both official andprivate creditors that the external financing assump-tions of economic adjustment programs are realistic.In this connection, the Fund staff has also beenprepared, at the request of a debtor country, to discussthe outlook for the country's external payments withprivate financial institutions, as well as with officialagencies.

The main channel for the Fund's exercise of sur-veillance in a bilateral context is the Article IV con-sultation. Even though the basic procedures of theseconsultations have remained unchanged in recent years,there is a continuing evolution in Fund practices with

54



respect to the subject matters covered. The range oftopics has been enlarged particularly in respect ofinternational interdependence, external debt, and pro-tectionism. Consultation reports for the major indus-trial countries now include a section on the interna-tional repercussions of their domestic policies.Furthermore, there has been an increasing emphasisin consultation reports on the elaboration of medium-term scenarios concerning the external debt position,which often includes a sensitivity analysis with respectto the major assumptions. This analysis is now viewedas an analytical tool that should be part of the set ofelements used in any assessment of the sustainabilityof the balance of payments situation of all countriesregardless of their debt situation. There has also beenan increasing emphasis on trade policy matters. Ofspecial importance is the emphasis in the 1984 sur-veillance review on the need to cover in consultationreports the protectionist measures and export subsidiesadopted by members as a result of their participationin customs unions or other regional arrangements.Moreover, to the extent possible the economic costsof protectionist measures taken by individual countriesor groups of countries since the last Article IV con-sultation should be quantified, and the impact ofprotectionism on domestic adjustment should be ex-amined where relevant. More generally, there is nowto be greater emphasis on following up on the conclu-sions of previous consultations in evaluating currentpolicies.

The timing and timeliness of Article IV consultationsare of considerable importance. In principle, consul-tations are to take place annually, but in practice eventhe operational guideline that had been adopted—ofcovering three fourths of the membership annually—was not met in the early 1980s. This slippage led theExecutive Board on the occasion of the 1983 surveil-lance review to decide on the implementation of astricter adherence to an annual consultation cycle formost members—including in particular those whosepolicies have a substantial impact on other economies,those that have Fund-supported programs, and thosefor which there are substantial doubts about the me-dium-term viability of the balance of payments situa-tion. Furthermore, it was decided that at the conclusionof each consultation a date would be set by whichthe Executive Board discussion of the next consulta-tion was expected to be concluded. These proceduralchanges have led to a marked increase in the frequencyof consultations during the past year and a half, withmembership coverage rising to 80 percent during 1983.The improvement in coverage was particularly markedfor countries with Fund-supported programs; all ofthem were covered during 1983 or the first few monthsof 1984.

Another decision that was taken during the 1983review and implemented in the course of 1983 was theinitiation of a system whereby the Executive Board isnotified regularly of all sizable changes in real effectiveexchange rates. This system supplements existingprocedures for notification of changes in membercountries' nominal exchange rates. Currently, all ex-cept 35 Fund members are covered by the new system.For the remaining members, the unavailability ofreliable price or other data has so far made thecomputation of a meaningful index of the real effectiveexchange rate difficult, but efforts are continuing tomake the system comprehensive. Under the newsystem, a large change in a country's real effectiveexchange rate since the last Executive Board discus-sion of the country's exchange rate policies results inthe issuance of an information notice to the Board.This notice includes a brief factual discussion ofdevelopments in the member's exchange rate and itscosts and prices, together with a statement of howthese were related to changes in the balance of pay-ments and to other developments in the economy.

Exchange Arrangements

The international exchange rate system has contin-ued to evolve toward greater flexibility of arrangementsin recent years. A major aspect of this evolution hasbeen the substitution of various forms of managedfloating for pegged arrangements—in particular, ar-rangements involving a peg to a single currency.Another feature of the movement away from singlecurrency pegs has been the increased use of currencycomposites, including the SDR, which has helped toreduce short-run fluctuations in effective exchangerates. Of the 18 members that changed their exchangearrangements in 1983 and the first half of 1984, 5ceased to peg their currencies (including 1 de factopeg) and adopted more flexible exchange rate arrange-ments. Another member that previously maintainedits currency with limited flexibility vis-a-vis the U.S.dollar adopted a regime of managed floating. Fourother members whose currencies were previouslypegged to the U.S. dollar adopted currency compositesas pegs (2 of them choosing the SDR), while 3 othermembers gave up pegging to the SDR basket andpegged instead to a currency composite tailored toreflect more closely their particular trading patterns.Only one member changed from a more flexible ex-change arrangement to pegging its currency to that ofanother member.

Developing countries made increased use of inflationdifferentials, alone or in combination with other fac-tors, as an indicator for automatic or quasi-automatic

55


ANNUAL REPORT, 1984

adjustment of an otherwise pegged arrangement. Asof the end of the first quarter of 1984, 8 membershad incorporated in their exchange arrangements apolicy of periodic adjustment of the exchange rate tomaintain international competitiveness according tosuch an indicator, while 5 other members undertooksuch a policy as part of a program supported by theuse of Fund resources in 1983 and in the first quarterof 1984.

In sum, the number of Fund members with "moreflexible" exchange rate arrangements increased from33 at the end of 1982 to 38 at the end of June 1984 (ofa total membership of 146).16 The number of countriespegging to a single currency declined from 56 to 51over the same period, while the number of thosepegging to a composite of currencies increased from38 to 39. Arrangements in the intermediate groupbetween pegged and flexible arrangements (labeled"flexibility limited") declined from 18 to 17. Since theinception of the present classification system, at theend of 1981, the proportion of Fund members with"more flexible" arrangements has risen from 21 per-cent to 26 percent, and those pegging to a currencycomposite from 25 percent to 27 percent. The use ofthe SDR as a peg declined, however, from 10 percent

to 7l/2 percent of the membership, as compositestailored to individual trade patterns were preferred.

At the end of June 1984, the currencies of 51 memberswere pegged to a single currency—33 to the U.S.dollar, 13 to the French franc, 2 to the South Africanrand, and 1 each to the Indian rupee, the poundsterling, and the Spanish peseta (Table 10). Elevencurrencies were pegged to the SDR and 28 to othercurrency composites. In all, therefore, 90 membershad exchange arrangements classified under the"pegged" category. Seventeen members maintainedexchange arrangements classified in the "flexibilitylimited" category. Within this group, 9 currencieswere in the subclassification "single currency" (allvis-a-vis the U.S. dollar) as a result of having theirexchange rates fluctuate within the equivalent of mar-gins of 2Vi percent or less against an identifiable singlecurrency of another member; the other 8 currencieswere those of countries maintaining cooperative ar-rangements under the EMS. Thirty-eight membersmaintained exchange arrangements in the "more flex-ible" category; of these, 6 adjusted their exchangerates according to a set of indicators, 24 managedfloating rates, and the currencies of 8 members floatedindependently.

International Liquidity, Reserves, and Capital Markets

The current recovery from the world recession andthe response of financial market participants to theexternal payments difficulties of many developingcountries had a major impact on the expansion anddistribution of international liquidity during 1983. Manycountries pursued a policy of rebuilding their reserveholdings in order to offset the losses of foreign ex-change reserves in 1982. This expansion of internationalreserves encompassed diverse patterns of growth inits components of official holdings of gold, foreignexchange, SDRs, and reserve positions in the Fund.

The remainder of this chapter examines a numberof aspects of the recent movements in internationalreserves and liquidity. First, there is a review of therecent growth, composition, distribution, and sourcesof international reserves, non-gold reserves, and for-eign exchange reserves. Second, an examination ofthe roles of private international financial markets andofficial agencies in the provision of international li-quidity and the financing of the adjustment process isundertaken. In addition to considering the implicationsfor international liquidity of reduced access for manycountries to financial markets, this discussion describesthe efforts of debtor countries, banks, national agen-

16 No information is available on Democratic Kampuchea.

cies, and international organizations to develop asmooth and orderly adjustment process in the periodsince the emergence of large external payments diffi-culties in 1982. Next, the issues involved in determiningthe adequacy of international reserves are reviewed.Finally, there is a discussion of the role of the Fundin the provision of international liquidity through theextension of conditional credit and SDR allocation.

Recent Evolution of Official Reserve Assets

In 1983, total international reserves were affectedby renewed accumulation of non-gold reserves and adecline in the market value of official gold holdings.The growth of non-gold reserves reflected larger hold-ings of both Fund-related reserve assets and foreignexchange reserves. While all the major country groupsincreased their holdings of Fund-related reserve assets,the expansion of foreign exchange reserves was theresult of accumulations in industrial countries and non-oil developing countries that outweighed reduced hold-ings in the oil exporting countries. A decline in themarket price of gold reduced the market value ofofficial gold holdings by 12 percent. The reduction inthe market value of official gold holdings in 1983 was

56


Table 10. Exchange Rate Arrangements as of June 30, 1984 '

1 No current information is available for Democratic Kampuchea.2 All exchange rates have shown limited flexibility vis-a-vis the U.S. dollar.3 Member maintains dual exchange markets involving multiple exchange arrangements. The arrangement

shown is that maintained in the major market.4 Exchange rates are determined on the basis of a fixed relationship to the SDR, within margins of

up to ± 7.25 percent. However, because of the maintenance of a relatively stable relationship withthe U.S. dollar, these margins are not always observed.

5 The exchange rate is maintained within overall margins of ± 7.5 percent around the fixed shilling/

SDR relationship; however, the exchange rate will be re-evaluated when indicative margins of ± 2.25percent are exceeded.

6 The exchange rate is maintained within margins of ± 2.25 percent.7 Margins of ± 6 percent are maintained with respect to the currencies of other countries participating

in the exchange rate mechanism of the European Monetary System.8 The exchange rate is maintained within margins of ± 5 percent on either side of a weighted

composite of the currencies of the main trading partners.

U.S. dollar

Antigua andBarbuda

Bahamas 3

BarbadosBelizeBolivia

DjiboutiDominicaDominican

Republic 3

Egypt3

El Salvador 3

EthiopiaGrenadaGuatemalaHaiti

HondurasIraqLao People's

DemocraticRepublic

LiberiaLibyan Arab

Jamahiriya

Nicaragua 3

OmanPanamaParaguaySt. Lucia

St. Vincentand theGrenadines

Sierra LeoneSudan 3

SurinameSyrian

ArabRepublic 3

Trinidad andTobago

Venezuela 3

Yemen ArabRepublic

Yemen, People'sDemocraticRepublic of

Frenchfranc

BeninCameroonCentral

AfricanRepublic

ChadComoros

CongoGabonIvory CoastMaliNigerSenegal

TogoUpper Volta

Pegged to

Othercurrency

Bhutan(Indianrupee)

EquatorialGuinea(Spanishpeseta)

The Gambia(poundsterling)

Lesotho(SouthAfricanrand)

Swaziland(SouthAfricanrand)

SDR

BurmaBurundiGuinea 3

Iran,IslamicRepublic of

JordanKenya 6

RwandaSao Tome

andPrincipe

Seychelles

VanuatuViet Nam

Othercomposite

Algeria 3

AustriaBangladeshBotswanaCape VerdeChina 3

CyprusFijiFinland 6

HungaryKuwaitMadagascar

MalawiMalaysia 6

MaltaMauritaniaMauritiusNepal

NorwayPapua New

GuineaRomaniaSingapore

SolomonIslands

SwedenTanzaniaTunisiaZambiaZimbabwe

Singlecurrency 2

Afghanistan 3

Bahrain 4

GhanaGuyanaMaldivesQatar 4

Saudi Arabia 4

ThailandUnited Arab

Emirates 4

Flexibility Limited vis-a-visa Single Currency orGroup of Currencies

Cooperativearrangements

Belgium 3

DenmarkFranceGermany,

FederalRepublic of

IrelandItaly 7

Luxembourg 3

Netherlands

Adjustedaccordingto a set ofindicators

BrazilChile 3

ColombiaPeru3

PortugalSomalia 5

More Flexible

Othermanagedfloating

ArgentinaCosta

Rica3

Ecuador 3

Greece

Guinea-Bissau

IcelandIndia •IndonesiaIsrael

JamaicaKoreaMexico 3

MoroccoNew ZealandNigeria

PakistanPhilippinesSpainSri LankaTurkey

Uganda 3

WesternSamoa

YugoslaviaZaire

Independentlyfloating

AustraliaCanadaJapanLebanonSouth

Africa

UnitedKingdom

United StatesUruguay


ANNUAL REPORT, 1984

slightly larger than the increase in non-gold reserves,and total international reserves, including gold valuedat market prices, declined by 2 percent.

Non-Gold Reserves

Non-gold reserves increased by 10 percent in 1983to SDR 364 billion at the end of the year (Table 11).Although this rate of growth of non-gold reserves waslower than the average rate of growth experiencedduring the period from 1973 to 1980, it represented arecovery from 5 percent growth in 1981 and a declineof 2 percent in 1982.

The expansion of non-gold reserves in 1983 bySDR 33 billion represented increased holdings of bothFund-related assets and foreign exchange. Fund-re-lated reserve assets grew by SDR 10 billion (24 per-cent), and foreign exchange reserves expanded bySDR 22 billion (8 percent). Since Fund-related reserveassets grew at a more rapid rate than foreign exchangereserves, the share of Fund-related reserves in totalnon-gold reserves continued to rise to 15 percent in1983.

The larger stock of non-gold reserves at the end of1983 reflected additional holdings by industrial coun-tries (SDR 21 billion) and non-oil developing countries(SDR 13 billion) and lower holdings by oil exportingcountries (SDR 0.9 billion). As a result of thesechanges, industrial countries held 56 percent of totalnon-gold reserves, the oil exporting countries 19 per-cent, and the non-oil developing countries 25 percent.

Foreign Exchange Reserves

Although the increase of 8 percent in foreign ex-change reserves in 1983 was lower than the averageannual growth rate of 14 percent during the periodfrom 1973 to 1980, it represented a considerable expan-sion of foreign exchange reserves when compared withthe growth of 2 percent in 1981 and the decline of 4percent in 1982. Foreign exchange reserves increasedin 1983 for the industrial countries and the non-oildeveloping countries but declined for oil exportingcountries (Table 11). Foreign exchange reserves inindustrial countries, after declining for two consecutiveyears, increased by SDR 15 billion during 1983. Theexperiences of the various countries in the group,however, were not uniform. The largest expansions inforeign exchange reserves occurred in Italy (SDR 6.3billion) and France (SDR 4.0 billion), as a result ofsignificant improvements in their current and capitalaccount balances following the devaluation of their

currencies in the realignment of central rates in theEuropean Monetary System in March 1983. On theother hand, the largest contraction of foreign exchangereserves occurred in the United States (SDR 3.3billion). For oil exporting countries, movements inforeign exchange reserves have been closely associatedwith changes in their oil export earnings. Followingthe oil price increases of 1979-80, oil export earningsincreased sharply from 1978 to 1980, but then declinedin the three subsequent years because of falling worldoil consumption and oil prices. As a result, the currentaccount surplus of oil exporting countries fell from $111billion in 1980 to $53 billion in 1981, and turned intodeficits in 1982 ($12 billion) and 1983 ($16 billion). Atthe same time, foreign exchange reserves, which hadgrown by almost SDR 27 billion during 1979-81, fell bynearly SDR 12 billion during 1982-83.

Non-oil developing countries increased their hold-ings of foreign exchange reserves by SDR 13 billion in1983. This accumulation of reserves during a period oflimited access to international financial markets wasbrought about in part by significant improvements intheir current account positions. Since the variousgroups of non-oil developing countries faced differentexternal financing constraints and undertook diverseadjustment programs, their experiences regarding theaccumulation of foreign exchange reserves also dif-fered. Many Asian countries retained access to inter-national financial markets and reduced their currentaccount deficits in 1983, and they accumulated almostSDR 10 billion of foreign exchange reserves, withChina expanding its holdings significantly. In contrast,Middle Eastern countries, whose current account def-icit increased from $9.3 billion in 1982 to $12 billion in1983, saw their holdings of foreign exchange reservesdecline by SDR 0.8 billion. African, European, andWestern Hemisphere countries, which on the wholeimproved their current account balance in 1983, ac-cumulated some modest amounts of foreign exchangereserves. African countries increased their holdingsby SDR 0.6 billion, European developing countries bySDR 1.1 billion, and Western Hemisphere countriesby SDR 1.9 billion, with a large increase in Mexicoand significant declines in Argentina and Colombia.

At the end of 1983, 54 percent of foreign exchangereserves were held by the industrial countries, 18percent by the oil exporting countries, and 28 percentby the non-oil developing countries. In 1973, in con-trast, the shares were 64 percent for the industrialcountries, 10 percent for the oil exporting countries,and 26 percent for the non-oil developing countries.This redistribution of foreign exchange reserves, es-sentially from the industrial countries to the oil ex-porting countries, did not occur at a uniform pacethroughout the decade. While the share of the oil

58



Table 11. Official Holdings of Reserve Assets, End of Selected Years 1978-83 and End of March 1984 '(In billions of SDRs)

All countriesTotal reserves excluding gold

Fund-related assetsReserve positions in the FundSDRs

Subtotal, Fund-related assetsForeign exchange

Total reserves excluding goldGold2

Quantity (millions of ounces)Value at London market price

Industrial countriesTotal reserves excluding gold





Oil exporting countriesTotal reserves excluding gold

Fund-related assets

14.88.1

22.9224.2247.1

1,036.8179.9

9.66.4

11.812.524.2

249.9274.1

944.43

367.1

7.79.3

16.0127.2143.1

884.2153.4

17.1136.1153.2

789.13

306.7

16.811.828.6

293.1321.8

952.4440.2

10.78.9

19.6164.7184.3

787.9364.2

21.316.437.7

299.0336.7

951.5325.0

13.511.925.5

159.6185.1

787.6269.0

25.517.743.2

287.8331.0

947.1392.3

17.114.131.1

153.2184.4

787.3326.1

39.114.453.5

310.1363.6

945.7344.6

25.611.537.1

167.8204.9

786.6286.6

40.014.654.6

310.5365.1

945.5345.2

25.911.837.7

170.1207.8

786.4287.1

Reserve positions in the FundSDRs




Non-oil developing countriesTotal reserves excluding gold





4.40.54.9

40.144.9

36.36.3

0.91.22.1

56.959.0

116.420.2

3.01.04.0

51.055.0

36.714.2

1.02.13.2

62.765.9

118.746.1

4.11.25.3

62.868.1

40.118.5

2.11.73.8

65.669.3

124.557.5

5.81.87.5

66.674.1

41.714.2

2.02.74.7

72.877.5

122.341.8

6.72.18.8

59.868.6

42.017.4

1.71.63.2

74.978.1

117.848.8

11.31.5

12.854.967.7

42.215.4

2.31.43.6

87.491.1

116.942.6

12.11.6

13.750.764.3

42.215.4

2.01.23.3

89.793.0

116.942.7

Source: International Monetary Fund, International Financial Statistics.1 "Fund-related assets" comprise reserve positions in the Fund and SDR holdings of all Fund members and Switzerland. Claims by

Switzerland on the Fund are included in the line showing reserve positions in the Fund. The entries under "Foreign exchange" and "Gold"comprise official holdings of those Fund members for which data are available and certain other countries or areas, including Switzerland.For classification of countries in groups shown here, see Chapter 1, Table 2 and Table 3, footnote 1.

2 One troy ounce equals 31.103 grams. The market price is the afternoon price fixed in London on the last business day of each period.3 The decrease recorded in the quantity of countries' official gold holdings from the end of 1978 to the end of 1979 reflects mainly the

deposit by the members of the European Monetary System of 20 percent of their gold holdings with the European Monetary CooperationFund. The European currency units issued in return for these deposits are shown as part of the countries' official foreign exchange holdings.

exporting countries increased by 17 percentage pointsin 1974, it declined by 9 percentage points in 1978.Although variations in the shares of the three majorgroups have been less pronounced since 1978, the shareof the oil exporting countries in foreign exchangereserves declined by 5 percentage points in the pasttwo years.

Holdings of Fund-Related Reserve Assets

In 1983, holdings of Fund-related reserve assetsincreased by 24 percent to SDR 54 billion, but thisdevelopment encompassed sharply contrasting behav-ior for reserve positions in the Fund and holdings ofSDRs. While reserve positions in the Fund increased

59

1978 1979 1980 1981 1982 1983March1984


ANNUAL REPORT, 1984

by SDR 14 billion, SDR holdings by member countriesdeclined by SDR 3.3 billion. These changes wereassociated with the increase in quotas under the EighthGeneral Review of Quotas. Since member countriespaid 22 percent of their quota increase in 1983 in SDRs,their holdings of SDRs declined and their reservepositions in the Fund increased simultaneously. TheseSDR payments were made in December 1983 andamounted to SDR 6.0 billion. There was no SDRallocation during 1982 or 1983.

Fund-related reserve assets increased in 1983 for allcountry groups, but the larger holdings of industrialcountries and oil exporting countries accounted formost of the total increase of SDR 10 billion. Industrialcountries increased their holdings by SDR 6.0 billion,with the United States experiencing the largest indi-vidual accumulation, SDR 4.2 billion, mainly as aresult of the large purchases of U.S. dollars from theFund by member countries. Oil exporting countriesincreased their holdings by SDR 4.0 billion. SaudiArabia raised its holdings by SDR 4.2 billion, largelyas a result of additional Fund borrowing from thatcountry. Non-oil developing countries added SDR 0.4billion to their holdings. At the end of 1983, industrialcountries held 69 percent of total Fund-related reserveassets, oil exporting countries held 24 percent, andnon-oil developing countries held the remaining 7percent.

Gold

In 1983, the movements in the market value of goldreserves reflected a small change in the physicalamount of official holdings of gold, accompanied by arelatively large change in its market price. Throughoutthe period since 1973, physical holdings of gold reserveshave remained quite constant, apart from a decline by9 percent in 1979. This decline was largely associatedwith the deposits by the members of the EuropeanMonetary System of 20 percent of their gold holdingswith the European Monetary Cooperation Fund inexchange for European currency units (ECUs). Thedistribution of gold holdings among the various countrygroups has also remained fairly constant. At the endof 1983, the total physical amount of gold held asinternational reserves was 946 million ounces, of whichindustrial countries held 83 percent, oil exportingcountries 5 percent, and non-oil developing countries12 percent.

The market price of gold has shown large changesduring the past decade, ranging from SDR 90 an ounceat one point in August 1976 to SDR 639 an ounce atone point in January 1980. Given the rather fixedphysical stock of gold reserves, fluctuations in the

market value of official gold holdings mirror changesin the market price of gold. During 1983, a decline of12 percent in the market price of gold reduced themarket value of official gold holdings to SDR 345billion.

The share of gold valued at market prices in totalinternational reserves has been strongly influenced bythe sharp fluctuations in the market price of gold duringthe past decade. The share declined from 52 percentin 1974 to 38 percent in 1977, and then increased to 58percent in 1980. The decline in gold prices in 1983,together with the increase in non-gold reserves, re-duced the share of gold in total international reservesfrom 54 percent in 1982 to 49 percent in 1983. In thatyear, the share of total reserves held by the industrialcountries was 58 percent, the share of oil exportingcountries equaled 19 percent, and the share of thenon-oil developing countries was 32 percent.

Developments in First Quarter of 1984

In the first quarter of 1984, non-gold reservesrose by SDR 1.5 billion. There was a small increase(SDR 0.4 billion) in the foreign exchange componentand a somewhat larger rise (SDR 1.1 billion) in theholdings of Fund-related reserve assets, with holdingsof SDRs growing by SDR 0.2 billion and reservepositions in the Fund by SDR 0.9 billion. The increasein non-gold reserves during the first quarter of 1984was not shared by all major country groups. While theholdings of oil exporting countries fell by SDR 3.4billion, continuing the decline first evident in 1982, theindustrial countries and the non-oil developing coun-tries increased their holdings by SDR 2.9 billion andSDR 1.9 billion, respectively.

Since the market value of official gold holdings alsoincreased slightly during the first quarter of 1984 as aresult of a small increase in the market price of gold,total reserve holdings rose by SDR 2.1 billion duringthe same period. The total physical amount of officialgold holdings and the distribution among the majorcountry groups remained constant.

Currency Composition and Sources ofForeign Exchange Reserves

This section examines the currency composition offoreign exchange reserves, the effects of exchange ratemovements and market transactions on official hold-ings of major currencies, and the sources of foreignexchange reserves.

60



Table 12. Share of National Currencies in Total Identified Official Holdings of Foreign Exchange, End of SelectedYears 1976-83 }

(In percent)

1976 1977 1978 1979 1980 1981 1982 1983

Memorandum:1983

ECUs TreatedSeparately 2

All countriesU.S. dollarPound sterlingDeutsche markFrench francSwiss francNetherlands guilderJapanese yenUnspecified currencies

Industrial countriesU.S. dollarPound sterlingDeutsche markFrench francSwiss francNetherlands guilderJapanese yenUnspecified currencies

Developing countries 3

U.S. dollarPound sterlingDeutsche markFrench francSwiss francNetherlands guilderJapanese yenUnspecified currencies

76.51.89.01.62.30.92.05.9

100.0

87.00.86.20.51.10.61.81.9

100.0

68.82.6

11.42.53.41.22.27.8

100.0

77.91.79.21.32.40.92.34.3

100.0

89.00.85.60.31.00.51.61.1

100.0

75.61.7

11.01.22.30.93.24.2

100.0

86.20.78.00.41.30.52.10.8

100.0

72.82.0

12.61.42.71.13.54.0

100.0 100.0

66.73.0

15.11.73.21.34.24.8

83.50.79.80.61.60.62.50.7

100.0

67.82.7

12.82.23.91.23.16.5

100.0

62.33.0

14.92.33.71.54.67.6

100.0

62.73.3

15.62.23.81.54.56.5

100.0

77.60.8

14.50.51.80.73.40/7

100.0

56.95.1

15.83.04.71.95.17.5

100.0

69.42.2

13.21.42.81.24.15/7

100.0

78.70.8

13.10.51.80.83.60.7

100.0

63.53.6

13.82.53.91.64.76.3

100.0

69.12.6

11.91.22.40.84.27.8

100.0

77.10.9

12.80.41.80.64.223

100.0

64.14.1

13.12.43.81.54.66.4

100.0

77.41.0

13.40.31.50.54.7M

100.0

66.54.5

11.32.13.51.34.16/7

100.0

58.82.4

10.61.02.20.73.8

20.5100.0

56.70.8

10.90.31.20.43.8

26.0100.0

66.54.5

11.32.13.51.34.16/7

100.0

Sources: Various Fund publications and Fund staff estimates.1 The detail in each of the columns may not add to 100 because of rounding. Starting with 1979, the SDR value of European currency units

(ECUs) issued against U.S. dollars is added to the SDR value of U.S. dollars, but the SDR value of ECUs issued against gold is excludedfrom the total distributed here. For classification of countries in groups shown here, see Chapter 1, Table 2 and Table 3, footnote 1.

2 This column is for comparison and indicates the currency composition of reserves when holdings of ECUs are treated as a separatereserve asset, unlike the earlier columns starting with 1979 as is explained in the preceding footnote. The share of ECUs, amounting to 13.5percent for the total and 25.0 percent for the industrial countries, respectively, has been added to that of unspecified currencies.

3 The calculations here rely to a greater extent on Fund staff estimates, especially for the oil exporting countries, than do those providedfor the group of industrial countries.

Currency Composition

The growing diversification of currency reservesthat was evident in the period 1977-80 has not contin-ued. Since the diversification of the late 1970s was inpart undertaken to minimize the risk of large capitallosses owing to the depreciation of the U.S. dollar,the sharp appreciation of the U.S. dollar and high realreturns on U.S. dollar assets that emerged in the early1980s increased the attractiveness of U.S. dollar reserveassets and limited the incentives for further diversifi-cation (Table 12). When the SDR value of ECUs issuedagainst gold is not counted as part of foreign exchangereserves, the share of U.S. dollar assets (includingECUs issued against dollars) in total official holdingsof foreign exchange declined from 78 percent in 1977to 67 percent in 1980 but then recovered to 69 percent

in 1983. A slightly different picture emerges if ECUs,which were introduced in 1979 and accounted for 14percent of total foreign exchange reserves in 1983, aretreated separately. Under this alternative treatment ofECUs, the share of the U.S. dollar declined from 78percent in 1977 to 55 percent in 1980. It then increasedto 58 percent in 1981 and remained stable at that levelduring 1982 and 1983.

The currency composition of the increase in theSDR value of foreign exchange reserves in 1983 canalso be decomposed into price and quantity changes.While total foreign exchange reserves increased bySDR 22.3 billion in 1983, U.S. dollar reserves rose bySDR 14.4 billion and ECU reserves by SDR 4.1 billion(Table 13). Changes in the SDR value of officialholdings of the other major currencies were muchsmaller. The increase in the SDR value of U.S. dollar

61

68.52.5

12.51.42.71.04.27.2

100.0


ANNUAL REPORT, 1984

Table 13. Currency Composition of Official Holdings of Foreign Exchange, End of 1978-End of 1983 '(In millions of SDRs)

1978 1979 1980 1981 1982 1983

U.S. dollarChange in holdings

Quantity changeEffect of price change

Year-end value

12,21123,362

-11,151169,424

- 14,054- 12,5882

-1,467155,369

5,841612

5,229161,211

12,496-3,20015,696

173,706

-5,855-14,831

8,976167,852

14,4205,4768,945

182,272Pound sterling

Change in holdingsQuantity changeEffect of price change

Year-end valueDeutsche mark


Year-end valueFrench franc


Year-end valueSwiss franc


Year-end valueNetherlands guilder


Year-end valueJapanese yen


Year-end valueEuropean currency units

Change in holdingsQuantity change3

Effect of price changeYear-end value

278313

-343,782

6,0844,5741,509

24,556

17850

1282,705

275-346

6225,156

293145148

2,016

2,4201,796

6237,107

692373319

4,474

4,1083,0171,091

28,664

40232082

3,107

96487787

6,120

380329

512,396

7802,410

-1,6317,887

32,70627,2955,411

32,706

3,0042,395

6097,478

9,47712,549

-3,07138,141

1,2631,592-3294,370

2,0882,631-5428,209

8991,127-2273,296

2,802942

1,86010,689

14,952-1,54516,49747,658

-1,599-690-9105,879

-2,671-806

-1,86535,470

-485155

-6403,885

-611-1,086

4757,598

-1599

-1683,137

242115128

10,931

-4,727-2,143-2,58442,931

4981,185-6886,377

-2,852-2,833

-1932,617

-31181

-3923,574

-522-141-3807,076

-502-470-33

2,635

105257

-15211,037

-5,007-1,460-3,54737,925

9291,294-3657,306

3673,153

-2,78632,985

-368160

-5283,206

-389-144-2456,687

-353-109-2442,281

705-20725

11,742

4,0741,1952,879

41,999

Sum of the aboveChange in holdings

Quantity changeEffect of price change

Year-end value

21,73929,894

-8,155214,745

25,97822,0343,943

240,723

40,32820,30320,025

281,052

2,486-7,64610,132

283,537

-14,446-18,212

3,766269,092

19,38611,0068,380

288,478

Total official holdings4

Change in holdingsYear-end value

20,406224,172

25,683249,855

43,268293,123

5,890299,013

-11,191287,822

22,274310,095

Source: Fund staff estimates.1 The currency composition of foreign exchange is based on the Fund's currency survey and on estimates derived mainly, but not solely,

from official national reports. The numbers in this table should be regarded as estimates that are subject to adjustment as more informationis received. Quantity changes are derived by multiplying the change in official holdings of each currency from the end of one quarter to thenext by the average of the two SDR prices of that currency prevailing at the corresponding dates (except that the average of daily rates isused to obtain the average quarterly SDR price of the U.S. dollar). This procedure converts the change in the quantity of national currenciesfrom own units to SDR units of account. Subtracting the SDR value of the quantity change so derived from the quarterly change in the SDRvalue of foreign exchange held at the end of two successive quarters and cumulating these differences yields the effect of price changes overthe years shown.

2Reflects mainly deposits of U.S. dollars by members of the European Monetary System (EMS) in the European Monetary CooperationFund.

3Quantity changes in European currency units (ECUs) issued against dollars are evaluated by applying the SDR price of the U.S. dollaron the swap date to the estimated change in dollar holdings. Similarly, quantity changes in ECUs issued against gold are determined byapplying the SDR price of the ECU on the swap date to the ECU price of gold used by the EMS and multiplying by the change in the numberof ounces.

4Include a residual whose currency composition could not be ascertained, as well as holdings of currencies other than those shown.

62



reserves in 1983 resulted from both a larger quantityof officially held U.S. dollars (up by SDR 5.5 billion)and the effects of the appreciation of the dollar interms of the SDR (adding SDR 8.9 billion). Thiscontrasts with the experience of 1982, when a largedrop in the quantity of officially held U.S. dollars wasonly partially offset by the appreciation of the U.S.dollar in terms of the SDR, resulting in a significantdecline in U.S. dollar reserves.

The increase in the SDR value of official holdingsof ECUs in 1983 also reflected positive quantity andprice changes. ECUs are issued by the EuropeanMonetary Cooperation Fund to the central banks ofthe members in exchange for the deposit of 20 percentof the gold holdings and 20 percent of the gross U.S.dollar holdings of these institutions. These swaps arerenewed every three months, and changes in themembers' holdings of U.S. dollars and gold, as wellas in the market price of gold and in the value of theU.S. dollar, affect the amount of ECUs outstanding.Quantity and price changes in the SDR value of ECUholdings, therefore, depend on the evolution of its twocomponents, gold and U.S. dollars. In 1983, the positivequantity effect, SDR 1.2 billion, resulted solely fromincreases in the quantity of dollars deposited at theEuropean Monetary Cooperation Fund, since thequantity of gold deposited remained virtually un-changed at 85.7 million ounces during the year. Thepositive price effect, SDR 2.9 billion, resulted fromboth the appreciation of the U.S. dollar with respectto the SDR and the increase in the swap price of goldin terms of SDRs during the year.17 The significantincrease in the SDR value of ECU holdings thatresulted from positive quantity and price changes in1983 contrasts sharply with the two previous years,when negative quantity and price changes producedsignificant declines in the SDR value of ECU holdings.

The other major currencies have also been affectedby the process of diversification of international re-serves. The share of the deutsche mark, the secondmost important currency in official portfolios after theU.S. dollar, has declined steadily from 15.1 percent in1980 to 11.9 percent in 1983. A similar, although lesspronounced, trend is observed in the shares of theSwiss franc, which fell from 3.2 percent in 1980 to 2.4percent in 1983, and the Netherlands guilder, which

17 Although the SDR market price of gold showed a decliningtrend during 1983, the swap price of gold in terms of SDRs increasedas a lagged response to the increase in gold price during the secondhalf of 1982. According to the method used for valuing gold againstECUs, the ECU swap price is equal to the lower of the two prices:the average of the prices recorded daily at the two London fixingsduring the previous six calendar months and the average price ofthe two fixings on the penultimate working day of the period. Forany given date, the swap price in terms of SDRs is obtained bymultiplying the SDR/ECU exchange rate on that date by the ECUswap price on the latest swap date.

declined from 1.3 percent in 1980 to 0.8 percent in 1983.While the share of the pound sterling has shown aslightly upward trend in the past three years, the sharesof the French franc and the Japanese yen have notchanged significantly.

For these other major currencies, the quantity changesin the SDR value of the official holdings in 1983 waspositive for the pound sterling, the deutsche mark,and the French franc and negative for the Swiss franc,the Netherlands guilder, and the Japanese yen. Theprice changes reflected relative exchange rate move-ments. While the price change was positive for holdingsof Japanese yen owing to the appreciation of the yenwith respect to the SDR, it was negative for all theother currencies except the U.S. dollar, reflecting theirdepreciation with respect to the SDR.

When all the major currencies are taken together,the change in the SDR value of foreign exchangereserves in 1983 showed a sharp contrast to the ex-perience of the previous year. While a positive pricechange was outweighed by a larger negative quantitychange in 1982, a positive price change of SDR 8.4billion was reinforced by a positive quantity changeof SDR 11.0 billion in 1983.

The pattern of currency diversification differs be-tween industrial countries and developing countries(Table 12). Historically, the industrial countries haveheld a greater proportion of their reserves in U.S.dollars than have the developing countries. As a result,the share of reserves accounted for by the other majorcurrencies has been larger in developing countries thanin industrial countries. Although this relationship alsoheld in 1983, there has been a different tendencybetween the two country groups during the past fewyears. While the share of the U.S. dollar in total foreignexchange reserves remained at about 77 percent inindustrial countries from 1980 to 1983, it increased from57 percent to 67 percent in developing countries duringthe same period. This shift to U.S. dollar reserves indeveloping countries was reflected in a reduction inthe shares of each of the other major currencies, inparticular the deutsche mark, whose share declinedfrom about 16 percent in 1980 to 11 percent in 1983.

Expected rates of return, together with considera-tions of liquidity and risks, exert an important influenceon the allocation of international reserves among assetsdenominated in different currencies. Since expectedrates of return cannot be directly observed, realizedrates of return in short-term investments denominatedin the major reserve currencies can provide someindication of the yields on reserve holdings as well asthe uncertainty that gives rise to portfolio diversifi-cation. During the past decade, the rates of return, interms of SDRs, on investments in the five currenciesthat currently comprise the SDR basket diverged

63


ANNUAL REPORT, 1984

Table 14. Placement of Official Holdings of Foreign Exchange Reserves, End of Year 1976-83 '(In billions of SDRs)

Liabilities of residents of the United States to foreign official institutionsItems not included in reported official U.S. dollar holdings2

Reported official U.S. dollar claims on residents of the United StatesReported official claims on residents of other countries denominated in

the debtor's own currencySubtotal

1976

79-8

1977

104-10

1978

120-7

1979

109-13

1980

123-22

1981

139-35

1982

149-50

1983

163-52

Identified official holdings of EurocurrenciesEurodollarsOther currencies

Subtotal

European currency unitsResidual3

Total official holdings of foreign exchange

471360

—14

162

541973

18204

472168

—16

224

492574

3317

250

543488

4815

293

603393

4320

299

573087

3826

288

573390

4326

310

Sources: International Monetary Fund, International Financial Statistics', U.S. Treasury Department, Bulletin', and Fund staff estimates.1 Official foreign exchange reserves of Fund members and certain other countries and areas, including Switzerland. Beginning in April

1978, Saudi Arabian holdings exclude the foreign exchange cover against a note issue, which amounted to SDR 4.3 billion at the end ofMarch 1978.

2 Mainly U.S. dollars deposited with the European Monetary Cooperation Fund in connection with the issuance of European currencyunits, U.S. obligations to official institutions in countries not reporting to the International Monetary Fund, and U.S. obligations that are notclassified as foreign exchange reserves in the reports provided to the International Monetary Fund by the holders.

3 Part of this residual occurs because some member countries do not classify all the foreign exchange claims that they report to the Fund.Includes identified official claims on the International Bank for Reconstruction and Development, on the International DevelopmentAssociation, and the statistical discrepancy.

substantially.18 Although interest rate differentials ex-plain part of this divergence of yields, the dominantfactor has been the differences among the rates ofappreciation or depreciation of each currency withrespect to the SDR. For example, a U.S. dollar-denominated investment would have produced thelowest rate of return among investments denominatedin the different currencies in 1978, when there was alarge depreciation of the U.S. dollar with respect tothe SDR; and it would have produced the highest rateof return in 1981 and 1982, when the U.S. dollarappreciated substantially with respect to the SDR. In1983, an investment denominated in Japanese yen hadthe highest rate of return (22 percent) and the highestrate of appreciation with respect to the SDR. Incontrast, investments denominated in French francsand pounds sterling had the lowest rate of return(1 percent) and the highest rates of depreciation withrespect to the SDR. At the same time, the U.S. dollarappreciated with respect to the SDR and produced arate of return of 12 percent on U.S. dollar investments,while the deutsche mark depreciated with respect tothe SDR and produced a rate of return of 2 percenton deutsche mark investments. The uncertainty re-

18 See Annual Report of the Executive Board for the FinancialYear Ended April 30, 1982 (Washington: International MonetaryFund, 1982), page 67 (hereinafter referred to as Annual Report,19—}, for a description of the procedure followed to calculate therates of return that are compared in this section.

garding the realized rate of returns, which reflectsmainly the size and duration of unexpected exchangerate changes, provides incentives for the diversificationof international reserves among investments denomi-nated in different currencies.

Placement of Foreign Exchange Reserves

Increased official claims on residents of the UnitedStates and ECUs accounted for much of the growthof foreign exchange reserves in 1983 (Table 14). Whileforeign exchange reserves increased by SDR 22 billion,official claims on residents of the United States grewby SDR 12 billion and ECUs by SDR 5 billion. Otherholdings of foreign exchange reserves expanded bymore modest amounts. Official claims on residents ofcountries other than the United States in the debtor'sown currency grew by SDR 2 billion, and officialEurocurrency deposits grew by SDR 3 billion. Sinceofficial Eurodollar deposits did not change from theprevious year, the entire increase in official Eurocur-rency deposits is accounted for by official deposits inother currencies.

Over the past four years there has been no significantchange in the composition of the holdings of foreignexchange reserves. At the end of 1983, official claimson residents of the United States accounted for 36percent of total foreign exchange reserves, officialclaims on residents of other countries for 13 percent,

64

71

1788

94

19113

113

27140

96

30126

101

41142

104

39143

99

38137

111

40151



official Eurocurrency deposits for 29 percent, andECUs for 14 percent. Official Eurodollars amountedto 63 percent of total official Eurocurrency deposits.

The holdings of the various reserve currencies havebeen influenced not only by official portfolio prefer-ences and foreign exchange market intervention butalso by external payments developments and changesin the access of countries to international financialmarkets. The U.S. dollar has remained the principalintervention currency for most authorities. The otherreserve currencies have served much more as invest-ments, hedges against exchange risk, or working bal-ances. In this regard, the relatively large decline inthe quantity of U.S. dollar holdings in 1981 and 1982reflected to some degree the foreign exchange marketintervention undertaken by the authorities in a numberof industrial countries intended to limit the deprecia-tions of their currencies relative to the U.S. dollar.

Changes in official holdings of U.S. dollars have attimes paralleled movements in the U.S. current ac-count balance. For example, the U.S. current accountdeficits of $12 billion in both 1977 and 1978 wereaccompanied by a large increase in official holdings ofU.S. dollars, even though the share of U.S. dollars intotal holdings of foreign exchange reserves fell from78 percent to 76 percent as a result of a depreciationof the U.S. dollar relative to the SDR. A U.S. currentaccount surplus in 1979 was associated with a declinein official claims on residents of the United States.Continued surpluses in 1980 and 1981, however, wereaccompanied by rising official U.S. dollar claims. In1982, the U.S. current account deficit was accompaniedby larger liabilities of U.S. residents to foreign officialinstitutions but a decline in reported official U.S. dollarclaims on residents in the United States. This divergentbehavior reflected, in part, the foreign exchange marketintervention undertaken in the industrial countries andthe extensive use of foreign exchange reserves bymany developing countries to meet external paymentswhen new credits could not be readily obtained frominternational financial markets. In 1983, however, thelarger U.S. current account deficit ($39 billion) wasaccompanied by an increase in official holdings of U.S.dollar claims and a larger share of U.S. dollars in totalforeign exchange reserves.

The Role of International Financial Marketsin the Provision of Liquidity and theAdjustment Process

Throughout the 1970s and early 1980s, internationalfinancial markets came to play an increasingly im-portant role in the provision of international liquidityand the financing of the adjustment process. This

section reviews these developments since 1973, butplaces emphasis on the period 1982-83. Although amajor proportion of international lending involvesloans to borrowers in industrial countries, the discus-sion focuses on lending to developing countries inorder to examine the relation between current accountimbalances, debt service commitments, conditions inthe world economy, and disturbances in financialmarkets.

Since mid-1982, activity in international financialmarkets has been strongly affected by the externalpayments difficulties of a number of developing coun-tries. During the period January 1983 to April 1984,17 developing members of the Fund underwent mul-tilateral debt restructurings involving an estimated $94billion in bank debt. In addition, there were officialmultilateral debt renegotiations to reschedule pay-ments on debt owed to, or guaranteed by, the govern-ments or appropriate agencies of creditor countries.Despite these difficulties, an unprecedented degree ofcooperation among international banks, the developingcountry debtors, and national and international agen-cies made possible an orderly balance of paymentsadjustment process based on a case-by-case approachinvolving the implementation of a Fund stand-by pro-gram, the restructuring of amounts in arrears and ofdebt falling due, and, in some important instances, thearrangement of new credits from international banks.The more limited access to international financialmarkets by many developing countries has nonethelessaffected the availability of international liquidity. Inthe late 1970s and early 1980s, access to the interna-tional banking markets allowed many countries toeconomize on holdings of actual reserves, and anumber of countries increased their international li-quidity through establishing credit lines that wouldallow them to borrow reserves when needed. However,events since August 1982 have shown that the amountsof borrowed reserves available to individual countries,as well as to groups of countries, could be subject toabrupt change. Thus, even though actual reserves ofdeveloping countries increased in 1983, their morelimited access to the international markets may wellhave resulted in a decline in the overall internationalliquidity available to this group. Since the disturbancesin international financial markets in 1982 and 1983 areintimately related to economic and financial develop-ments in earlier years, this section first reviews theexperience in the years 1973-81 before consideringdevelopments in 1982 and 1983.

Developments in 1973-81

During the period 1973-81, the role of capital marketsin the international adjustment process expanded sharply

65


ANNUAL REPORT, 1984

as private lending became an increasingly importantsource of financing for large external payments im-balances. The first major increase in private interna-tional lending occurred in the period 1973-75, whichwas characterized by the need to recycle the currentaccount surpluses of the major oil exporting countriesthat had grown from $7 billion in 1973 to $69 billion in1974 before declining to $35 billion in 1975. During thisperiod, the current account deficit of the non-oildeveloping countries grew from $11 billion in 1973 to$37 billion in 1974 and to $46 billion in 1975. Despitethese current account deficits, this group of countrieswas nonetheless able to increase its holdings of non-gold reserves by more than $10 billion over the years1973-76, in part owing to the sharp inflow of privatecredits. As the share of net external borrowing fromprivate sources relative to the aggregate of currentaccount deficits and reserve accumulations of the non-oil developing countries rose from 27 percent in 1973to 51 percent in 1975, non-oil developing countriesalmost tripled their external debt from $130 billion to$337 billion. This large-scale borrowing, which in partconstituted an attempt to produce a more gradualadjustment to the sharp changes in international pricestructures, was facilitated by the low average real costof borrowing19 of l/2 of 1 percent per annum during1974-78. In some of these countries, however, theborrowing was used to finance not only an adjustmentto external developments but also extensive investmentand government spending programs.

While there were a number of sources of funds tofinance this increased lending, deposits from oil ex-porting countries with international banks were espe-cially important. Such deposits increased by $30 billionin 1974 and by about $11-13 billion in each of thefollowing three years.

Movements in external payments imbalances in theperiod immediately following the second major in-crease in the price of oil in 1979-80 were similar tothose experienced in the period after 1974. The currentaccount deficits of the non-oil developing countriesrose from $42 billion in 1978 to $88 billion in 1980 and$109 billion in 1981. The holdings of non-gold reservesby non-oil developing countries nonetheless rose bynearly $21 billion, as international bank lending againbecame a major source of financing balance of pay-ments deficits and reserve accumulation. The externaldebt of non-oil developing countries grew from $395

19 The real cost of borrowing is measured as the London interbankoffered rate (LIBOR) on three-month U.S. dollar deposits less therate of change of the GDP deflator in the United States. Alternatively,if the rate of change of the export unit value of the non-oil developingcountries is used as a measure of inflation, then the implicit realinterest rate was a negative 2.5 percent per annum.

billion in 1979 to $633 billion in 1982 and $669 billionin 1983.

Although the pattern of payments imbalances andprivate capital inflows of the early 1980s was similarto that of the middle 1970s, there were differences inmacroeconomic policies pursued by the industrial anddeveloping countries, as well as in general economicconditions in the world economy. While monetary andfiscal policies in the mid-1970s had been directed in anumber of countries toward promoting a recoveryfrom the 1975 recession, the presence of high andrapidly rising inflation rates in 1979-80 resulted in adetermined effort to control inflation in many industrialcountries. Inflation (as measured by the change inGNP deflators) in the industrial countries declinedfrom 9 percent in 1980 and 1981 to 5 percent in 1983.The rate of growth of output also fell sharply in bothindustrial and developing countries. One aspect of theresponse of the financial markets to these changes inpolicies and economic developments was the emerg-ence of high real rates of interest, reaching an averageof 7 percent in 1981 and 1982.

These developments had a pronounced effect on therelation between financial markets and major borrow-ers among the developing countries. In the course ofthe 1970s, the composition of the debt of many devel-oping countries had changed toward liabilities to pri-vate lenders based on commercial terms and towardshorter maturities. These changes in the compositionof their external debt made the debt-servicing capacityof developing countries more vulnerable to risinginterest rates and falling exports. The shift in thecomposition of the external liabilities toward debtobtained on commercial terms meant that the devel-oping countries experienced a rapid increase in theirdebt service as interest rates rose during 1979-81. Inaddition, the shortening of the maturity of bank debtalso implied that changing creditor perceptions oflending risks could quickly create major refinancingproblems.

These developments were reflected in the rise of theratio of external debt to GDP of non-oil developingcountries from 122 percent in 1981 to 144 percent in 1982and 150 percent in 1983, as well as in the increase inthe external debt service ratio20 from 27 percent in 1981to 32 percent in 1982 and 37 percent in 1983; both ofthese ratios had remained virtually unchanged from1977 to 1980. As a result of the high real cost of bankloans, worsening terms of trade, and shrinking exportvolumes, borrowing by many non-oil developing coun-tries continued to expand in 1981 and 1982.

20 Ratio of interest and amortization payments to the total exportsof goods and services.

66



Developments in 1982-83

The emergence of external payments problems fora number of developing countries during the secondhalf of 1982 reduced sharply and rapidly the access ofmany member countries to international financial mar-kets. National monetary authorities, internationalagencies, debtor countries, and creditor banks coor-dinated their efforts to prevent a widening of the crisisand a severe and possibly prolonged interruption ofinternational credit and trade. Since the approach tothese problems was to deal separately with externalpayments difficulties of individual countries, adjust-ment programs supported by the use of the Fund'sresources have become a central element in the currentapproach to the resolution of debt crises.

While there were four debt restructuring agreements21

with commercial banks involving an estimated total of$1.6 billion in 1982, there were 15 agreements involving17 countries (including two nonmembers) for an esti-mated $67 billion in 1983. In addition, there were alsosix debt reschedulings through the Paris Club in 1982and 16 in 1983, involving total rescheduled amounts of$629 million and $11 billion, respectively. The termson rescheduled debt varied, but there are some broadsimilarities. Bank debt rescheduling usually coveredfrom 80 to 100 percent of principal falling due onmedium-term debt that had not previously been re-scheduled. The grace period on rescheduled debtextended from two to three years and the new matur-ities averaged between eight and nine years. Theinterest spreads above the London interbank offeredrate (LIBOR) on rescheduled debt ranged from !3/4 to2Vi percent, and rescheduling fees averaged 1 to P/2percent of the amounts restructured. Generally, thebest terms were received by countries undertakingstrong adjustment programs. In almost half of thereschedulings, short-term debt was also restructured.The treatment of interbank deposits generally involvedthe greatest difficulties and, in some cases, restoringsuch deposits was not entirely successful. Severalrecent debt renegotiations were complicated by theexistence of substantial external obligations of theprivate sector, often without public guarantee. Thelack of foreign exchange forced some governments toassume, and then to reschedule, the obligations ofprivate debtors, which were able to service debt in

21 Bank debt restructuring is defined here to cover either therescheduling or the refinancing, or both, of debt service paymentsin arrears and/or of future service payments on the short-term andmedium-term debt, or both. Rescheduling is a formal deferment ofdebt service payments over a period exceeding one year, with newmaturities applying to the deferred amounts. Refinancing either isa straight rollover of maturing debt obligations or involves theconversion of existing debt service payments into new medium-term loans.

local currency but unable to obtain the requisite amountof foreign exchange. Multilateral rescheduling throughthe Paris Club of debt owed to or guaranteed by officialcreditors also required, as a precondition, agreementbetween the debtor country and the Fund on the useof Fund resources in the upper credit tranches.

While banks have generally been unwilling to re-schedule future interest payments and almost alwayshave insisted on the elimination of interest arrears,they have in several instances, including most of thelarge borrowers, committed new financing in advanceof scheduled interest payments. Such commitmentsfor additional financing totaled $15 billion in 1983.

Debt restructuring in 1983 had a major impact onthe debt service payments of non-oil developing coun-tries. These payments were reduced by $8 billion in1982 and by $19 billion in 1983—by 2 percent and 4percent of exports, respectively. Furthermore, therestructuring of debt resulted in a decline of short-term debt by $20 billion in 1983. The reserve holdingsof many developing countries were also sharply af-fected by reduced access to international financialmarkets and the need to service external payments.For the first time since 1978, the non-gold reserves ofoil exporting countries declined in 1982. Although thereserves of non-oil developing countries grew margin-ally in 1982, most of this increase reflected largerholdings by certain Asian countries, with other regionalgroups (especially in the Western Hemisphere) show-ing sharp declines.

The adjustment efforts of many developing countriesand the decreased willingness of the banks to extendcredit to certain countries were reflected in a relativelysmall increase in the total debt of developing countries,from $725 billion in 1982 to $768 billion in 1983.

International bank lending declined from $162 billionin 1982 to $138 billion in 1983 (Table 15). Lending toborrowers in industrial countries, which continued toaccount for the bulk of this cross-border lending (68percent in 1983), declined from $117 billion in 1982 to$95 billion in 1983, reflecting low private credit de-mands and greater reliance on bond issuance ratherthan bank loans. New lending to non-oil developingcountries fell from $41 billion in 1982 to $27 billion in1983. More than half of the growth of banks' claimson non-oil developing countries in 1983 took the formof coordinated lending to four Latin American coun-tries and Yugoslavia in conjunction with bank debtrestructurings and Fund-supported programs; lendingto Mexico alone accounted for over $4 billion. Loansto oil exporting developing countries were $5 billionin 1983, compared with $9 billion in 1982.

These reduced lending flows reflected not only theadjustment efforts of developing countries but also theattempts of international banks to improve the risk-

67


ANNUAL REPORT, 1984

Table 15. Net External Bank Lending and Deposit Taking, 1982-831(In billions of U.S. dollars)

FirstHalf

SecondHalf

1982

Borrowing by2

Industrial countriesOffshore centers3

Developing countriesOil exportingNon-oil

Unallocated4

Total

Deposit taking from5



Unallocated4

Total

Change in net liabilities of 6



Unallocated4

Total

614

325

27-27

70

56125

-38

1083

5-8278

19-37-13

5619184

14-192

5996

—6

1488

-3101248

-154

FirstHalf

SecondHalf

1983

9-1

9-211-314

1574

-485

31

-6-8

523

-8-17

861323

7162

124

8319193

164

125

3-6

44

—-2-1

1982

11723509

41-28162

1152111

-31424

171

22

391227

-52-9

1983

9512325

27-1138

982623-124

9

156

-3-14

963

-10-18

Sources: International Monetary Fund, International Financial Statistics; and staff estimates.1 Data on lending and deposit taking are derived from stock data on liabilities and assets, including a correction for valuation changes

owing to exchange rate movements. For classification of countries in groups shown here, see Chapter 1, Table 2 and Table 3, footnote 1.2 As measured by differences in the liabilities of borrowing countries, defined as cross-border interbank accounts by residence of borrowing

bank plus international bank credits to nonbanks by residence of borrower.3 Consisting of the Bahamas, Bahrain, the Cayman Islands, Hong Kong, the Netherlands Antilles, Panama, and Singapore.4 Including centrally planned economies that are not Fund members and certain international organizations.5 As measured by differences in the assets of depositing countries, defined as cross-border interbank accounts by residence of lending

bank plus international bank deposits of nonbanks by residence of depositor.6 Lending to minus deposits taken from.

adjusted return on their assets. In part, this hasinvolved more comprehensive consideration of countryrisk factors and some emphasis on directing newlending toward lower-risk activities such as bondunderwriting and trade financing rather than largesyndicated loans. However, in 1983, lending oppor-tunities in many markets were limited because ofreduced external payments imbalances as well as lowlevels of economic activity. As a result, the interna-tional capital market became segmented, with little orno expansion in new spontaneous lending to manydeveloping countries, while many borrowers fromindustrial countries and a limited number of developingcountries obtained credits on highly competitive terms.

The increased segmenting of borrowers accordingto perceived lending risks also contributed to thehistorically high level of activity in the internationalbond markets in 1982 and 1983. Although total inter-national bond issues reached $76 billion in 1982 and

$77 billion in 1983, few developing countries had accessto these markets; and bond issues of developingcountries fell by $1.4 billion from 1982 to 1983. Increasedbond placements have generally been confined to high-quality borrowers from industrial countries and se-lected European and Asian developing countries.Floating rate notes issued in large volumes by the mostcreditworthy borrowers were considered by many—but not all—financial institutions as more liquid andless risky securities. Issues of floating rate notes rosefrom $15 billion in 1982 to $20 billion in 1983, whenthey constituted 25 percent of total international bondissues. International banks have often been willing toabsorb floating rate notes at a lower yield than syn-dicated loans in order to improve the risk and liquidityfeatures of their balance sheets.

The sources of funds for this international banklending also changed in 1983. New deposits fromindustrial countries declined from $115 billion in 1982

68



to $98 billion in 1983, with banks from the UnitedStates reducing their new deposits from $80 billion in1982 to $34 billion in 1983. In contrast, new depositsfrom both oil exporting and non-oil developing coun-tries increased, reflecting in part a buildup of grossofficial reserves.

As a result of these developments in lending anddeposit taking in 1983, private and public agents inindustrial countries more than doubled their net bor-rowing from the international banking system (Ta-ble 15); and agents in the United States switched frombeing net lenders of $34 billion in 1982 to being netborrowers of $8 billion in 1983. The net flow to non-oil developing countries from banks in the rest of theworld declined sharply to small amounts.

Adequacy of Reserves and the Role of theFund

The recent changes in reserve holdings and capitalmarket conditions described in the two precedingsections are important factors that affect the adequacyof the stocks of international reserves and liquidity.This section considers the impact of these changesand other macroeconomic developments and alsoexamines the role of the Fund in the provision ofinternational liquidity.

Adequacy of International Reserves

An adequate stock of reserves is one that is con-sistent with the smooth functioning of the internationalmonetary system, an expansion of world trade, andthe absence of persistent inflation or deflation. Anadequate level of reserves may be larger or smallerthan the desired holdings of reserves under a particularset of asset prices and economic conditions. Forexample, an effective demand for reserves that reflectsa depressed level of international trade and high interestcosts could be considerably smaller than the amountof reserves that would be held under more favorableconditions. In assessing the adequacy of the stock ofinternational reserves, current economic conditionsand, in particular, the factors currently influencing thesupply of reserves must be evaluated. The effectivedemand for reserves is influenced by such factors asthe level and variability of trade flows, the willingnessof the authorities to adopt timely stabilization programsaimed at reducing payments imbalances, the speedwith which external imbalances respond to policychanges, the opportunity cost of holding reserves, theexchange rate regime, the size and nature of thedomestic and external shocks that affect a country,

and the extent to which a country has access tointernational capital markets. Empirical studies of thedemand for reserves in industrial and developing coun-tries suggest that the reserve demands in the world asa whole and in each of these two country groups werereasonably stable during the 1970s. Although it hadbeen anticipated that there would be a significantreduction in the demand for reserves in the periodfollowing the end of the Bretton Woods par valuesystem and the move toward a greater degree ofexchange rate flexibility, it has generally been foundthat the demand for reserves for all countries takentogether has continued to grow roughly in accordancewith the pattern observed earlier under the par valuesystem. In part, this continued growth in reserveholdings reflected the greater variability of trade flows,interest rates, and other macroeconomic variables thatwas evident in the 1970s and early 1980s. The growthof world trade became significantly more variable inthe decade 1974-83 than in earlier years. Using thestandard deviation of the rate of growth of worldimports as a measure of variability, the import varia-bility increased from 10 percent in 1965-73 to 19percent in 1974-83. This greater variability quite likelystimulated the precautionary demand for reserves.

Over the long term, total reserves have, in fact,grown approximately in proportion to the value ofimports. For example, the ratio of non-gold reservesto imports for all countries has had an average valueof 21 percent and has remained within the narrowrange from 20 to 25 percent between 1974 and 1983;for the industrial countries, it has fluctuated between14 and 19 percent; and for the non-oil developingcountries, it has moved between 18 and 27 percent(Table 16). In contrast, the ratio of the oil exportingcountries has fallen from 110 percent in 1974 to 50percent in 1983. Apart from periods involving majorchanges in exchange rates or financial market condi-tions, these reserve ratios have also been relativelystable over longer periods. The ratio of reserves toimports for all countries had average values of 17percent for the period 1959-63 and 20 percent during1979-83. Thus, while the ratios of reserves to importsdo not reflect all of the factors influencing the demandfor reserves, they may provide an indication of likelytrend movements in the effective demand for reserves.

Even if countries adjust their actual holdings ofreserves to their effective demands, there is still theissue of whether the supply of reserves is adequatefor the smooth functioning of the international mone-tary system. The supply of reserves is affected by themonetary and fiscal policies of the reserve currencycountries as well as by the state of their balance ofpayments, movements in the market price of gold, andchanging access to international capital markets. Pol-

69


ANNUAL REPORT, 1984

Table 16. Ratio of Non-Gold Reserves to Imports,End of Year 1970-83 '(In percent)

Year

19701971197219731974

19751976197719781979

1980198119821983

AllCountries

17.424.828.222.620.2

21.921.124.022.919.6

20.919.720.220.9

IndustrialCountries

16.024.626.219.815.0

16.114.317.418.715.1

17.216.016.717.0

OilExportingCountries

39.458.068.357.8

110.0

90.988.979.750.457.6

61.550.044.850.3

Non-OilDevelopingCountries

19.020.229.126.418.2

18.322.525.827.123.4

19.918.519.420.9

1 The annual rate of imports in the fourth quarter is the divisorof the stock of reserves at year-end. For classification of countriesin groups shown here, see Chapter 1, Table 2 and Table 3, foot-note 1.

icies of monetary restraint in the reserve center coun-tries will tend to slow the growth of foreign exchangereserves, both those held as direct claims on reservecenters and those placed in offshore financial markets.The monetary restraint observed in many industrialcountries since the early 1980s has contributed to theslowing in the growth of international reserves.

Movements in the price of gold have appreciablyaffected the reserves of countries holding a largeproportion of their reserves in the form of gold. Whilethe rise in the market price of gold from 1973 to theearly months of 1980 sharply raised the market valueof official gold reserves, that value has receded since1980 because of a general downward trend in themarket price of gold. For the past two years, themarket price of gold and the market value of officialgold holdings have stabilized at a level not quitehalfway between the levels at the beginning of the1970s and a decade later. For many countries, partic-ularly the developing economies, this influence wasnot very strong, since their gold holdings were rela-tively small.

Of much greater importance for many developingcountries was their reduced access to internationalcapital markets. In the 1970s and early 1980s, borrowingin international financial markets became an increas-ingly important source of international reserves. Asthe external payments problems of a number of majordebtor countries emerged in the period after August1982, a large number of countries were unable to obtainnew credits from international financial institutionsand had to use existing reserves to meet a variety ofexternal payments. Reduced access to international

financial markets may therefore have been a factorcontributing to the decline in international reserves in1982 for many countries and, even more, to theadequacy of international liquidity, which reflects ac-cess to international credit as well as actual reserveholdings. During 1983, non-gold reserve holdings ofnon-oil developing countries increased sharply, reflect-ing, in part, significant improvements in their currentaccount positions and sustained flows of official trans-fers and credits. However, a significant part of thisaccumulation was accounted for by a small number ofAsian countries.

The impact of the sharp changes in the growth ofinternational reserves during 1982 and 1983 on theadequacy of international reserves is subject to differ-ent interpretations. On the one hand, the decline inreserve holdings in 1982 experienced by many coun-tries could have reflected adjustment to a lower effec-tive demand associated with reduced values of inter-national trade and payments and adverse financialmarket conditions. The higher reserve holdings for anumber of non-oil developing countries since 1983would, in turn, reflect improving economic conditionsassociated with the recovery of world output and thevolume of trade. On the other hand, reserve holdingscould have declined relative to both the effectivedemand for reserves and an adequate stock of reserves.

The reduced access of many developing countriesto international financial markets, which has made itdifficult to replenish depressed reserve holdings exceptthrough current account surpluses, may have slowedthe pace of adjustment of actual reserve holdings tothe level effectively demanded. This reduction inmarket access may have reflected changing perceptionsof market participants regarding the ability of individualcountries to service their external obligations over anextended period. Such credit reputations can be influ-enced by both external factors (e.g., high real inter-national interest rates) and internal developments (e.g.,inappropriate domestic adjustment policies). For manycountries, reduced access to financial markets hasraised the cost of adjusting reserve positions, asmeasured either by real borrowing rates or by forgoneimports. When reserve holdings are constrained byeffective demand, reserves will rise only as the effec-tive demand for reserves grows with international tradeand payments. By contrast, in a situation where supplyconstraints prevent adjustment of reserve holdings toeffective demand, an increase in the supply of reservescan reduce the real cost of generating reserves andthereby lead to a rise in actual holdings.

These two interpretations may be valid for differentgroups of countries. Countries with ready access tointernational credit markets and strong balance ofpayments positions can readily ensure the growth of

70



their reserve holdings, which will, therefore, fullyreflect their effective demand for reserves. Adverseconditions of reserve supply would neither depress thereserve holdings of these countries below the amountsthey feel are needed in the conduct of their externaleconomic relations, nor would their policies be affectedin any appreciable way by changes in the conditionsunder which reserves are being supplied. On the otherhand, countries with little or no access to internationalcapital markets and a constrained potential for affectingtheir holdings of reserves through exchange rate pol-icies are likely, in a period of growing values ofinternational trade and settlements, to hold smallerreserves than required for the efficient conduct of theirinternational transactions. For countries facing such asituation, the receipt of additional reserve assets maywell lead to greater reserve holdings rather than ad-ditional spending. Such behavior seems evident in theefforts of many developing countries to rebuild theirreserve holdings even in the presence of seriousexternal payments problems.

The Role of the Fund in the Provision ofLiquidity

Recent developments in holdings of Fund-relatedreserve assets—SDKs and reserve positions in theFund—have been reviewed earlier in this chapter.While SDKs are created through allocation, members'reserve positions in the Fund come into existence asclaims on the Fund that are the counterpart of mem-bers' subscriptions paid in other reserve assets and ofcredit extended to the Fund. At the end of 1983, themost important source of these Fund-related reserveassets was the credit made available to the Fund byits members, which at SDR 31 billion accounted foralmost three fifths of the total. The resources lent tothe Fund are used to provide temporary financialsupport to members carrying out balance of paymentsadjustment programs. The largest part of these creditsto member countries is extended in conjunction withprograms of economic policy agreed between themembers in question and the Fund, with certainspecified features of the programs being consideredconditions for the continuation of the phased financialsupport. Access by Fund members to this type ofinternational credit constitutes an extension of inter-national liquidity beyond that provided by reserveholdings and access to private international creditmarkets. In comparison with these other sources ofliquidity, the Fund's credit is characterized by its

conditionality, which gives it an important role amongthe assets and availabilities that constitute internationalliquidity.

At the end of 1983, the Fund's resources rose as aresult of an increase in Fund quotas from SDR 61billion to SDR 90 billion.22 In addition, borrowingarrangements totaling SDR 6 billion with the Bank forInternational Settlements, the National Bank of Bel-gium, Japan, and Saudi Arabia have been concluded.These commitments are intended to supplement theregular quota resources of the Fund and make itpossible in 1984 to continue providing access to Fundresources within specified limits to members witheconomic adjustment programs that merit support ona more substantial scale than would be permitted byquota resources alone. Under certain circumstances,the Fund may also obtain access to additional resourcesas a result of the enlargement of the General Arrange-ments to Borrow (GAB) from SDR 6.4 billion toSDR 17 billion (reflecting full participation by theSwiss National Bank) and the conclusion of a borrow-ing arrangement with Saudi Arabia in association withthe GAB for an amount of SDR 1.5 billion.

Although recent developments in international li-quidity, the world economy, and international financialmarkets have led to extensive discussions of the roleof the SDR and the possibility of an SDR allocation,there have been no allocations since January 1, 1981.Because of the continuing growth of other non-goldreserves, the share of cumulative SDR allocationsdeclined from 6.5 percent of non-gold reserves at theend of January 1981 to 6.0 percent at the end of March1984. Allocations are made on the basis of proposalsby the Managing Director, concurred in by the Ex-ecutive Board, and approved by the Board of Gover-nors by an 85 percent majority of the total votingpower. Although the question of further SDR alloca-tions has been kept under continuous review by theExecutive Board during the past two years, it has notbeen possible to make a proposal for a new allocationthat commands the required support of members with85 percent of the total voting power in the Fund. Atits April 1984 meeting, the Interim Committee agreedthat the Executive Board should continue its exami-nation of the issues involved before the next meetingof the Committee in September 1984, and that theManaging Director should then present a report on theoutcome of the Board's discussions.

22 See Chapter 3 for a more detailed discussion of these devel-opments.

71


Chapter 3Activities of the Fund

Introduction

The extensive use of the Fund's resources continuedin the year ended April 30, 1984, with gross purchases(SDR 10.2 billion) close to the record level of thepreceding year (see Table 17). At the end of the year,35 adjustment programs were in effect, with a totalcommitment of SDR 18.6 billion, of which about onehalf had been drawn. The amount of total Fund creditoutstanding increased from SDR 23.6 billion (85 coun-tries) at the end of 1982/83 to SDR 31.7 billion (84countries) at the end of 1983/84. The bulk of the Fund'sfinancial assistance has been through purchases underupper tranche conditionally, in keeping with the Fund'spolicy of combining adjustment and financing (seeTable 18).

The Fund's liquidity position was strengthened con-siderably during the year as a result of (i) the increasein quotas under the Eighth General Review (fromSDR 61.1 billion to SDR 89.2 billion); (ii) the enlarge-ment (from SDR 6.4 billion to SDR 17 billion) of theGeneral Arrangements to Borrow (GAB); (iii) thecompletion of the associated arrangement of SaudiArabia with the GAB (SDR 1.5 billion); and (iv) theputting into place of other borrowing arrangements(totaling SDR 6 billion) with the Saudi Arabian Mon-etary Agency (SAMA), the Bank for InternationalSettlements (BIS), Japan, and the National Bank ofBelgium. The prospective demand for Fund assistance,however, is expected to remain at a high level giventhe continued payments imbalances of a number ofcountries, some of which face structural difficultiesthat involve longer-run adjustment efforts. The Fund,therefore, needs to continue to manage its liquidityposition carefully so as to avoid any gap between thedemand and supply of usable resources.

The continuing need of members for Fund assistancerequired the Executive Board to take a new set ofdecisions that would enable the Fund to continue toprovide appropriate financial assistance to membersexperiencing large payments imbalances in relation to

their quotas. Under these decisions, the enlargedaccess policy will remain in effect until the end of1984, and may be extended beyond that date, subjectto a further decision by the Board. The ExecutiveBoard set guidelines to determine the extent of mem-bers' access to Fund resources under the enlargedaccess policy, and reduced the maximum limits onaccess, in terms of percentage of quota. The Boardalso reduced the limits in terms of quota on drawingsunder the compensatory and buffer stock financingfacilities. The limits on enlarged access as well asthose governing drawings under the compensatory andbuffer stock financing facilities will be reviewed notlater than December 31, 1984 and annually thereafterin the light of all relevant factors, including the mag-nitude of members' payments imbalances and devel-opments in the Fund's liquidity. While extending theenlarged access policy, the Fund has sought to maintainappropriate standards of conditionality in the use ofits resources. The Executive Board formulated newguidelines specifying the criteria that the Fund willuse in reviewing requests for use of the compensatoryfinancing facility.

In addition to providing direct balance of paymentsfinancing in support of adjustment programs, the Fundcontinued to facilitate financing arrangements for debtormember countries in collaboration with governments,central banks, the Bank for International Settlements,the World Bank, and commercial banks. A key aspectof the Fund's role has been to explain to all partiesconcerned the thrust of the adjustment policies beingundertaken by the debtor countries involved.

The Fund is a cooperative intergovernmental insti-tution which relies largely on its members to providethe finance to enable it to assist other members inbalance of payments difficulties. To facilitate the re-constitution of Fund resources the Executive Boardagreed on a formula to increase the attractiveness ofcreditor positions in the Fund relative to other inter-national reserve assets. Under the formula, the rateof remuneration on creditor positions in the Fund was

72


CHAPTER 3: ACTIVITIES OF THE FUND

1977 1978 1979 1980 1981 1982 1983 1984 1977-84

By TypeI.

II.

III.

General Resources AccountGross purchases1

Net purchases2

Administered AccountsTrust Fund loansOil facility subsidy account

payments (grants)Supplementary financing

facility subsidy accountpayments (grants)

SDR allocationsTotal

4,749.7(3,882.4)

31.7

27.5

—

—4,808.9

2,367.3(-2,113.5)

268.2

25.0

——

2,660.5

1,239.2(-3,588.0)

670.0

19.1

—

4,032.65,960.9

2,210(-1,362

961

27

4,0337,233

.8

.9)

.7

.8

.2

.5

4,385.9(1,575.3)

1,059.9^

50.1

—

4,052.59,548.4

6,960.2(5,066.0)

—

9.3

22.9

—6,992.4

10,258.2(8,711.5)

—

2.5

44.3

—10,305.0

10,164.1 42,335.4(8, 148.9) (20,3 19.7)

—

11.7

68.5

—10,244.3

2,991.5

173.0

135.7

12,118.357,753.9

1 Excluding purchases in the reserve tranche.2 Purchases minus repurchases; net repurchases (-).3 For classification of countries in groups shown here, see Chapter 1, Table 2 and Table 3, footnote 1.

raised from 85 percent of the SDR interest rate to88.33 percent on May 1, 1984 and will be further raisedto 91.66 percent on May 1, 1985 and to 94.99 percenton May 1, 1986. The relationship between the rate ofremuneration and the SDR interest rate may be furtheradjusted depending on interest rate developments andwill be reviewed again before May 1, 1987.

In keeping with its objective of promoting the roleof the SDR reserve asset in the international mone-tary system, the Fund took further decisions to im-prove the asset characteristics of the SDR. Effective

July 29, 1983, the rate of SDR interest and charges isbeing calculated weekly instead of quarterly, and thepayment of interest on SDR holdings is being madequarterly instead of annually. The greater frequencyof calculations and payment of the SDR interest rateis intended to make the yield on SDR holdings com-petitive with alternative reserve assets.

No allocations of SDRs have been made since 1981,which was the last year of the third basic period. Thequestion of an allocation of SDRs in the current—thatis, the fourth—basic period, was considered again by

73

Table 17. Selected Financial Activities by Type and Country, 1977-84(In millions of SDKs)

Financial Year Ended April 30

Industrial countries3

United StatesUnited KingdomItalyOthers

Developing countries3

Oil exportingNon-oil developing

AfricaAsiaEuropeMiddle EastWestern Hemisphere

All countries

2,198.1

1,700.0—

498.1

2,610.8—

2,610.8635.3603.8340.1199.5832.1

4,808.9

1,438.8

1,250.090.098.8

1,221.7—

1,221.7336.6435.4271.6143.135.0

2,660.5

2,593.7874.1304.2129.0

1,286.4

3,367.2369.3

2,997.9861.7

1,011.5249.0289.7586.0

5,960.9

2,617.6874.1304.2128.9

1,310.4

4,615.9369.3

4,246.67,262.61,197.4

765.8152.4868.4

7,233.5

2,543.9857.3298.3126.5

1,261.8

7,004.3380.3

6,624.01,472.93,448.3

981.275.7

646.09,548.4

—

——

6,992.4—

6,992.47,999.93,163.51,326.0

0.8502.2

6,992.4

54.0

—54.0

10,251.065.1

10,185.92,072.13,106.11,188.1

25.23,794.4

10,305.0

—

——

10,244.3360.0

9,884.31,665.32,279.51,658.3

0.74,280.5

10,244.3

11,446.12,605.53,856.7

474.44,509.5

46,307.71,544.0

44,763.710,306.415,245.56,780.1

887.111,544.657,753.8

IV. Memorandum:Stand-by and extended ar-

rangements as of April 30

Number of arrangements

CommitmentsAs percent of total

quotasUndrawn balances

As percent of commit-ments

20

5,197.6

17.83,581.1

68.9

22

5,759.3

17.83,638.8

63.2

20

1,600.4

4.11,377.5

86.1

29

3,049.7

7.82,718.0

89.1

37

9,475.1

15.98,076.4

85.2

35

16,206.3

26.711,154.6

68.8

39

25,025.5

41.016,405.1

65.6

35

18,569.4

20.99,269.5

49.9

V. Outstanding Fund credit

Number of countries

13,655

71

12,066

72

8,873

73

8,306

74

9,545

78

14,802

79

23,590

85

31,742

84

By Country (1 + II + III)


ANNUAL REPORT, 1984

Financial Year Ended April

I.

II.

III.

Purchases under tranche policiesFirst credit trancheUpper credit tranchesExtended Fund facility

Purchases under special facilitiesOil facilityCompensatory financing facilityBuffer stock financing facility

Total I + II

1977

2.560.781.590.19

2.190.441.75

4.75

1978

2.050.091.850.11

0.32

0.32

2.37

1979

0.720.130.350.24

0.51

0.460.05

1.23

1980

1.310.160.930.22

0.89

0.860.03

2.20

1981

3.600.781.900.92

0.78

0.78

4.38

301982

5.330.022.732.58

1.63

1.63

6.96

1983

6.170.033.682.46

4.09

3.740.35

10.26

1984

8.88

4.164.72

1.28

1.180.10

10.16

the Interim Committee at its meeting on April 12, 1984.Most members of the Committee were convinced thatthere was increased evidence for an SDR allocationand that such an allocation would be in full conformitywith the requirements of the Fund's Articles and wouldstrengthen the world economy and the internationalmonetary system. Some other members of the Com-mittee, however, continued to feel that long-term globalneed to supplement existing reserve assets had notbeen demonstrated. No conclusion regarding SDRallocation was reached at this meeting, but it wasagreed that the Executive Board should continue itsurgent examination of the issues involved and that theManaging Director should present a further report onthe outcome of the Executive Board's discussion atthe next meeting of the Interim Committee, in Wash-ington, D.C., on September 22, 1984.

In March 1984, the Executive Board concluded acomprehensive review of the procedures for surveil-lance and consultations with members under Arti-cle IV. It was agreed that the experience in theimplementation of surveillance did not call for anyrevision of principles and procedures but for moreactive implementation and strong political support fromthe membership. The next annual review will beconducted not later than April 1, 1985.

During the year the Fund continued to offer trainingthrough the IMF Institute to officials of membergovernments and maintained its technical assistanceservices at a high level in the areas of central banking,fiscal affairs, and statistics.

Membership and Quotas

Membership and Participation in the SDRDepartment

As of April 30, 1984 the total membership of theFund was 146, all of whom were participants in the

SDR Department. Saint Christopher and Nevis appliedfor membership on August 2, 1983, and the Board ofGovernors approved the terms and conditions of itsmembership on April 4, 1984, establishing a quota forthe new member of SDR 4.5 million. The People'sRepublic of Mozambique applied for membership onMay 3, 1984, and on July 18, 1984 the Republic ofKiribati applied for membership.

Eighth General Review of Quotas

An increase in the total of Fund quotas fromSDR 61,059.8 million to SDR 90,034.8 million underthe Eighth General Review of Quotas was authorizedby the Board of Governors on March 31, 1983.1

Increases in quotas were proposed for all membersexcept Democratic Kampuchea, which, as in the Sev-enth General Review, did not participate in the EighthGeneral Review of Quotas.

The resolution of the Board of Governors set forththat a member could consent to the increase in itsquota at any time before November 30, 1983 and thatno increase in quota could take effect until the Funddetermined that members having not less than 70percent of total quotas on February 28, 1983 hadconsented to the amount of increase proposed in theresolution for these members (consents for amountsless than those proposed were not permitted). Theparticipation requirement was reached on Novem-ber 30, 1983 and the Fund made that determination.To give the members that had not yet consented further

1 See Board of Governors Resolution No. 38-1, adoptedMarch 31, 1983, Summary Proceedings of the Thirty-Eighth AnnualMeeting of the Board of Governors, September 27-30, 1983 (Wash-ington: International Monetary Fund, 1983), pages 268-72.

74

Table 18. Purchases Under Tranche Policies and Special Facilities, 1977-84(In billions of SDKs)



opportunity to consent to the proposed increases intheir quotas, the period of consent was extended twice,to January 31, 1984 and to March 15, 1984. By thelatter date, all members except the Islamic Republicof Iran, Singapore, and the United Arab Emirates hadconsented to the proposed increases in their quotas.The proposed quota increases for these three memberstotaled SDR 798.5 million, representing 2.8 percent ofthe total of proposed increases. The increases cameinto effect when subscriptions were paid within 30days following consent. All of the 142 members thathad consented to increases in quotas had completedpayment of their subscriptions by April 20, 1984,raising the total of Fund quotas to its present level ofSDR 89,236.3 million.

Members were required to pay 25 percent of theirquota increases in SDRs, or in the currencies of othercountries specified by the Fund, with the concurrenceof the issuers, or in any combination of SDRs andsuch currencies. The balance of the increase was tobe paid by each member in its own currency. Underan arrangement set up by the Fund and some memberswith large SDR holdings, a number of members thatdid not have sufficient SDRs or foreign exchangeholdings to pay the reserve asset portion of their quotaincrease were enabled to borrow SDRs; under thisarrangement, 39 members borrowed SDR 540.2 millionfrom 11 other members to pay for the reserve assetportion of their quota increases. Simultaneously, theypurchased the reserve tranche positions created bythis payment and used the proceeds to repay theirSDR loans. No interest, fee, or commission wascharged for the use of this facility by either the Fundor the lenders.

Payments of quota increases amounted toSDR 28,176.5 million, of which 25 percent (SDR 7,044.1million) represented payments of the reserve assetportion of quota increases. Asset payments made inSDRs equaled SDR 6,194.7 million, and paymentsmade in the currencies of other members specified bythe Fund, with the concurrence of the issuers, totaledSDR 849.4 million. The reserve asset portion of theincrease in quotas was paid in SDRs by 126 members,in foreign currencies by 11 members, and in combi-nations of SDRs and foreign currencies by 5 members.The currencies used in payments comprised thefollowing: SDR 331.9 million in deutsche mark,SDR 331.9 million in Japanese yen, SDR 131.3 millionin U.S. dollars, and SDR 54.3 million in poundssterling. Most payments for quota increases (97.4percent) were made in December 1983. Individualmembers' quotas in the Fund at the end of April 1983and April 1984, and the effective date of increase inthe quota of each member, are shown in Appendix I,Table 1.2.

Transactions and Operations in theGeneral Resources Account

Total purchases in the General Resources Account(SDR 10.2 billion)2 during 1983/84 were close to therecord level of SDR 10.3 billion of the previous year.Credit tranche purchases, at SDR 4.2 billion, werelarger than in the previous year (SDR 3.7 billion), andpurchases under the extended Fund facility nearlydoubled, from SDR 2.5 billion to SDR 4.7 billion.However, purchases under the buffer stock and com-pensatory financing facilities, at SDR 102 million andSDR 1.2 billion, respectively, were both less than onethird of their levels in the previous year. At theend of the financial year 1983/84, outstanding pur-chases amounted to SDR 31.7 billion, compared withSDR 23.6 billion in the previous year (see Chart 21).

The bulk of the total repurchases in 1983/84, amount-ing to SDR 2.0 billion against SDR 1.6 billion in 1982/83, were in respect of purchases financed from ordinaryresources. About half of the total repurchases wererelated to credit tranche purchases and a little overone third to purchases under the compensatory fi-nancing facility.

Purchases

Reserve Tranche Purchases

Reserve tranche purchases were made by 75 mem-bers for a total of SDR 1.4 billion, which was somewhatlarger than the purchases of SDR 1.1 billion in theprevious year. The option provided to members undera decision of the Executive Board in April 19813 toretain their reserve tranche positions when making useof credit tranches, or of the extended Fund facility,meant that asset payments for quota increases createdreserve tranche positions for all members, includingthose that had outstanding purchases. This decision,together with the decision on attribution of reductionsin the Fund's holdings of currencies,4 was reviewed

2 This excludes purchases in the "reserve tranche." A memberhas a reserve tranche position in the Fund by the extent to whichthe Fund's holdings of a member's currency in the General ResourcesAccount, after deducting holdings of the member's currency resultingfrom all purchases (i.e., in the credit tranches, under the extendedFund facility, and under the special facilities) are less than its quota.Reserve tranche purchases represent a use of members' own reservesheld in the form of reserve positions in the Fund and therefore donot constitute use of Fund credit.

3 Executive Board Decision No. 6830-(81/65), adopted April 22,1981, effective May 1, 1981, Selected Decisions, Tenth Issue,page 299.

4 Executive Board Decision No. 6831-(81/65), adopted April 22,1981, effective May 1, 1981, as amended by Decision No. 7059-(82/23), adopted February 22, 1982, Selected Decisions, Tenth Issue,pages 108-109.

75


ANNUAL REPORT, 1984

Chart 21. Use of Fund's Resources as at April 30,1973-84(In billions of SDRs)

by the Executive Board in April 1984. It was agreedthat the experience under the decision had been sat-isfactory; the decisions had enhanced the asset char-acteristics of reserve tranche positions and had alsoprovided members with added flexibility in the man-agement of their reserves and in their financial relationswith the Fund. The Executive Board concluded, there-fore, that the decisions should remain in effect withoutany change, on the understanding that they would bekept under review by the staff.

Credit Tranche Purchases

Purchases in the credit tranches rose to a newpeak of SDR 4.2 billion in 1983/84 from the previoushigh level of SDR 3.7 billion in 1982/83 (see Table 19).All of these purchases were made under stand-byarrangements by 43 members. The largest amountspurchased were by Yugoslavia (SDR 379.0 million),Hungary (SDR 376.9 million), Argentina (SDR 299.8million), Romania (SDR 275.5 million), Korea(SDR 256.0 million), and Turkey (SDR 202.5 million).(See Appendix I, Table 1.6.) About one third of thefinancing provided under stand-by arrangements(SDR 1.5 billion) was from the Fund's ordinary re-sources, and the remaining SDR 2.7 billion was fromborrowed resources under the supplementary financing

facility (SDR 0.5 billion) and the enlarged access policy(SDR 2.2 billion). This pattern of financing compareswith SDR 1.3 billion used from ordinary resources andSDR 1.9 billion from borrowed resources in 1982/83.

New commitments under stand-by arrangements for25 members totaled SDR 4.3 billion, compared withSDR 5.4 billion for 27 members in 1982/83. (SeeAppendix I, Table 1.3.) Eleven arrangements were fora one-year period, in amounts ranging from SDR 2.4million for the Solomon Islands to SDR 425.0 millionfor Hungary. The other fourteen arrangements werefor periods of 10!/2 months to 2l/2 years in amountsbetween SDR 12.8 million for The Gambia andSDR 575.8 million for Korea. The arrangement forKorea for a period of 20 months was the largest stand-by arrangement approved during the year. The secondlargest arrangement was for Portugal (SDR 445 million)over a 17-month period. Of the SDR 4.3 billion com-mitted under these stand-by arrangements during thefinancial year, more than half, SDR 2.4 billion, is tobe financed under the enlarged access policy, leavingan amount of SDR 1.9 billion committed from theFund's ordinary resources.

One arrangement (for Turkey) approved during theyear was canceled before the expiration date, with anunused balance of SDR 168.75 million, and was re-placed by a new arrangement. Four other arrangements(Argentina, Liberia, Romania, and Senegal) approvedin the two previous financial years were also canceledin 1983/84 prior to their dates of expiration. The amountsthat had not been purchased under these arrangementstotaled SDR 1.2 billion. As at April 30, 1984, undrawnbalances under stand-by arrangements amounted toSDR 3.1 billion; one arrangement was inoperativebecause of the member's failure to observe perform-ance criteria.

Extended Fund Facility

The Executive Board reviewed in November 1983the decision on the extended Fund facility, which wasestablished in 19745 to provide medium-term assistanceto members to overcome serious structural balance ofpayments maladjustments. It was decided that itsprovisions remained appropriate and that the decisionshould be reviewed again not later than December 31,1984.

Purchases under extended arrangements in 1983/84rose to a record SDR 4.7 billion, compared withpurchases of SDR 2.6 billion and SDR 2.5 billion in

5 Executive Board Decision No. 4377-(74/114), adopted Septem-ber 13, 1974, as amended by Decisions Nos. 6339-(79/179), Decem-ber 3, 1979, and 6830-(81/65), April 22, 1981, effective May 1, 1981,Selected Decisions, Tenth Issue, pages 27-31.

76



Table 19. Flow of Transactions in the General Resources Account and Resulting Stocks, 1978-84(In millions of SDKs)

Type of Transaction

Total purchasesReserve trancheCredit tranchesBuffer stock financing facilityCompensatory financing facilityExtended Fund facility

Total repurchases

Gold salesReplenishment up to May 31, 1978Competitive bidsNoncompetitive bidsIn distributions

Outstanding borrowingsIn connection with oil facilityUnder General Arrangements to BorrowFrom Swiss National BankSupplementary financing facilityUnder policy on enlarged access

Holdings of the General Resources Accountat end of year

Usable currencies1

SDRsGold2

1978

2,503136

1,937

322109

4,485

452239——213

6,3291,576

154——

11,2001,3714,507

1979

3,7202,480

48548

465242

4,859

453—18151

220

4,257111———

8,8001,2904,055

1980

2,433222

1,10626

863216

3,776

419—

1871

231

2,474111—502—

10,6001,4073,636

1981

4,860474

2,682

784920

2,853

——

——

1,528111—2,018—

23,0005,4453,620

1982

8,0411,0802,748

1,6352,578

2,010

————

526111—4,112

1,358

17,0005,4563,620

1983

11,3921,1343,703

3523,7402,463

1,555

————

18111—6,037

4,120

14,0004,3353,620

1984

11,5181,3544,164

1021,1804,718

2,018

————

———6,915

6,876

32,9006,4373,620

Reserve tranche positions of membersat end of year 9,025 8,310 8,380 13,125 15,621 20,592 27,415

1 "Usable currencies" are those that are available to the Fund for net sales through the operational budget, except for those currenciesheld by the Fund in excess of quota. Since the Second Amendment became effective on April 1, 1978, the criterion for including currenciesfor net sales is that the members concerned have a balance of payments and reserve position that the Fund considers "sufficiently strong"for that purpose.

2 Valued at SDR 35 a fine ounce.

1981/82 and 1982/83, respectively. Of the purchasesmade by 11 members, those of India and Brazil(SDR 1.5 billion each) and by Mexico (SDR 1.2 billion)were the largest. The remaining SDR 0.5 billion waspurchased by Dominica, the Dominican Republic,Grenada, Ivory Coast, Jamaica, Malawi, Pakistan, andPeru in amounts ranging from SDR 1.1 million byGrenada to SDR 165 million by Peru. Of total purchasesunder the facility, SDR 2.3 billion was financed fromordinary resources, SDR 1.8 billion from enlargedaccess resources, and SDR 0.6 billion from resourcesthat became available under the supplementary fi-nancing facility. Four arrangements expired during theyear, of which three had unused balances totalingSDR 302.4 million. Two arrangements were canceled,with balances undrawn totaling SDR 397.4 million.

New commitments were approved under three-yearextended arrangements in 1983/84 for Grenada(SDR 13.5 million) and Malawi (SDR 100.0 million);financing of SDR 23.1 million was to be provided fromordinary resources and SDR 90.5 million from bor-rowed resources. As of April 30, 1984, extendedarrangements were in effect for five members, withundrawn commitments amounting to SDR 6.2 billion,

compared with undrawn commitments of SDR 11.5billion under nine arrangements a year earlier.

Supplementary Financing Facility

The supplementary financing facility, established inAugust 19776 to provide additional financing underarrangements in conjunction with the use of the Fund'sordinary resources, was financed by 14 lenders, whichagreed to provide a total of SDR 7.8 billion underspecified terms and conditions consistent with thestrength of their external position. Under these agree-ments, funds could not be committed after Febru-ary 22, 1982 nor be borrowed by the Fund after Febru-ary 22, 1984. In order to be able to utilize resourcesthat might become available during the two years afterFebruary 22, 1982 as a result of cancellation or expi-ration of arrangements that had not been fully drawn,the Executive Board adopted a decision on Febru-ary 5, 1982 that made it possible for the Fund to

6 Executive Board Decision No. 5508-(77/127), adopted Au-gust 29, 1977, Selected Decisions, Tenth Issue, pages 33-38.

77

Financial Year Ended April 30


ANNUAL REPORT, 1984

substitute supplementary financing for enlarged accessresources in arrangements that had been approved formembers, provided the necessary amendment to thearrangement was requested by the member beforeFebruary 22, 1982.7 As a result, the arrangements of12 members were amended to provide for such sub-stitution at the discretion of the Managing Director onthe occasion of each purchase.

Disbursements of supplementary financing in pur-chases by members in 1983/84 amounted to SDR 1.1billion, representing the major portion of the balanceof SDR 1.6 billion that had not been disbursed as ofApril 30, 1983. Of this amount, SDR 0.5 billion rep-resented substitution for enlarged access resources inconnection with purchases under the extended arrange-ment with India. In the previous financial year, suchsubstitutions totaled SDR 0.8 billion and involved thearrangements with The Gambia, India, Liberia, andMauritius. In total, SDR 7.2 billion of the SDR 7.8billion that had been available under the borrowingagreements was called upon and disbursed. Some ofthe undrawn balances at the time of expiration of thefacility could not be utilized because the externalpositions of the lenders were not sufficiently strong.

Policy on Enlarged Access

The policy on enlarged access to Fund resources,adopted by the Executive Board on March 11, 19818,enabled the Fund—following the full commitment ofresources from the supplementary financing facility—to continue to provide assistance to members whosebalance of payments imbalances are large in relationto their quotas and which need resources in largeramounts and for longer periods than are availableunder the regular credit tranches.9

Without a decision by the Executive Board to extendthe enlarged access policy, the Fund could not approvearrangements under the policy after the Eighth GeneralReview of Quotas became effective on November 30,1983. The Executive Board therefore decided10 toextend the policy on enlarged access up to the end of1984, when the matter is to be reviewed again. Indetermining access to the Fund's resources under thepolicy during 1984, the Executive Board agreed onguidelines that follow the recommendations of theInterim Committee. Access by members during 1984

7 Executive Board Decision No. 7047-(82/13), adopted Febru-ary 5, 1982, Selected Decisions, Tenth Issue, pages 58-60.

8 Executive Board Decision No. 6783-(81/40), adopted March 11,1981, Selected Decisions, Tenth Issue, pages 40-45.

9 For details, see Annual Report, 1981, pages 85-88.10 Executive Board Decision No. 7599-(84/3), adopted January 6,

1984 (reproduced in Appendix II).

will be subject to annual limits of 102 or 125 percentof quota, three-year limits of 306 or 375 percent ofquota, and cumulative limits of 408 or 500 percent ofquota, depending on the seriousness of the member'sbalance of payments needs and the strength of itsadjustment efforts. The access limits are not regardedas targets; within these limits, the amount of accessin individual cases can vary according to the circum-stances of the members and, in exceptional circum-stances, can even exceed the limits. The access policywill be reviewed before December 31, 1984 and an-nually thereafter.

While reviewing the policy on enlarged access, theExecutive Board simplified the provisions that deter-mine the relative proportions of ordinary and borrowedresources to be used under stand-by and extendedarrangements.11 The new proportions are as follows:(a) Under a stand-by arrangement, purchases will bemade with ordinary and borrowed resources in theratio of 2 to 1 in the first credit tranche and 1 to 1 inthe next three credit tranches. Thereafter, purchaseswill be made with borrowed resources only, (b) Underan extended arrangement, purchases will be made withordinary and borrowed resources in the ratio of 1 to1 until the outstanding use of the upper credit tranchesand the extended Fund facility equals 140 percent ofquota. Thereafter purchases will be made with bor-rowed resources only. The new proportions are alsoapplicable to amounts that had not been purchasedunder existing arrangements as of the effective dateof the decision (i.e., January 6, 1984).

Compensatory Financing Facility

Under the compensatory financing facility the Fundprovides financial assistance to members experiencingbalance of payments difficulties arising from temporaryexport shortfalls and/or from increases in the cost ofcereal imports caused by factors largely outside theircontrol. Members have the option of including ser-vices—workers' remittances and travel receipts—andcereal import costs, as well as merchandise exports,in the calculations.

In July 1983 the Executive Board undertook acomprehensive review of the facility, including thecereal decision and the buffer stock financing facility,and subsequently also reviewed various aspects of thefacilities separately. It was decided to make no changesin the facilities, but, as the decision on cereals12 wasestablished for an initial period of four years, this

11 Executive Board Decision No. 7601-(84/3), adopted January 6,1984 (reproduced in Appendix II).

12 Executive Board Decision No. 6860-(81/81), adopted May 13,1981, Selected Decisions, Tenth Issue, pages 65-70.

78



decision will be reviewed again prior to its expirationin mid-1985.

In September 1983, the Board adopted the guidelineson the requirement of cooperation in respect of pur-chases under the compensatory financing facility as aresult of which the conditionality for purchases underthis facility is brought more closely in line with thatapplying to purchases in the credit tranches.13 Follow-ing the review of the guidelines on members' accessto the Fund's resources, the Executive Board reviewedthe access limits under the compensatory financingfacility and decided to reduce the quota limits (basedon new quotas) applicable under the facility.14 Theseparate limits of 100 percent of quota on outstandingpurchases relating to export shortfalls or cereal importexcesses were reduced to 83 percent; the joint limit of125 percent on outstanding purchases relating to bothexport shortfalls and cereal import excesses was re-duced to 105 percent.

PURCHASES RELATING TO EXPORT FLUCTUATIONS

In 1983/84, 13 members purchased a total ofSDR 1.2 billion, about one third of the all-time highlevel of SDR 3.7 billion purchased by 29 members in1982/83. The decline in purchases in 1983/84 repre-sented a reversal of the sharp increase during thepreceding two years that were associated with the1981-82 world recession. The largest purchases wereby Indonesia (SDR 360.0 million), Portugal (SDR 258.0million), Ghana (SDR 120.5 million), and Zaire(SDR 114.5 million). The remaining amounts rangedfrom SDR 1.2 million by Western Samoa to SDR 97.2million by Zambia. Outstanding purchases under thefacility as of April 30, 1984 amounted to SDR 6.8billion by 72 members, or 22 percent of total outstand-ing use of Fund resources. Of these 72 members, 60were also making use of Fund resources under stand-by and extended arrangements. Thirty members hadcompensatory financing purchases outstanding in ex-cess of 50 percent of their quotas, but none was at 100percent of quota.

PURCHASES RELATING TO EXCESSES IN THE COSTOF CEREAL IMPORTS

For the first time since this decision became effectivein May 1981, no purchases were made under it during

the financial year. Since its inception, five members(Bangladesh, Kenya, Korea, Malawi, and Morocco)have made six purchases totaling SDR 498 million, ofwhich SDR 469 million was outstanding as ofApril 30, 1984.

Buffer Stock Financing Facility

Assistance under the Fund's buffer stock financingfacility, established in 1969, is available to membersin balance of payments need for financing their con-tributions to approved international buffer stocks ofprimary products. Purchases under this facility by fivemembers in 1983/84 totaled SDR 102.0 million, com-pared with purchases by ten members amounting toSDR 352 million purchased in 1982/83. Three of themembers, the Dominican Republic, Brazil, and Zim-babwe made purchases in connection with their obli-gations to constitute special stocks of sugar under the1977 International Sugar Agreement. One member,Thailand, purchased SDR 21.8 million to make itscompulsory contributions to the buffer stock of theSixth International Tin Agreement, and another mem-ber, Ivory Coast, purchased SDR 1.0 million for itscontributions to the buffer stock of the InternationalNatural Rubber Agreement.

Since the establishment of the buffer stock financingfacility in 1969,15 Fund assistance in connection withthe Fourth, Fifth, and Sixth International Tin Agree-ments, the International Sugar Agreement, and theInternational Natural Rubber Agreement had, as ofApril 30, 1984, been extended to 18 members for atotal of SDR 557.7 million. As of April 30, 1984purchases outstanding under the facility (12 members)amounted to SDR 375.3 million.

The new access limit on outstanding purchases underthis facility in January 1984, following the increase inquotas under the Eighth General Review, was reducedfrom 50 percent of quota to 45 percent of new quotas.16

Repurchases

During 1983/84 repurchases totaled SDR 2,018 mil-lion, compared with SDR 1,555 million in 1982/83. (SeeAppendix I, Table 1.7.) The major portion (89 percent)of total repurchases was with respect to purchasesfinanced from ordinary resources. About 49 percent

13 Executive Board Decision No. 7528-(83/140), adopted Septem-ber 14, 1983 (reproduced in Appendix II).


15 Executive Board Decision No. 2772-(69/47), adopted June 25,1969, as amended by Decision No. 4913-(75/207), adopted Decem-ber 24, 1975, Selected Decisions, Tenth Issue, pages 70-71.


79


ANNUAL REPORT, 1984

of the total repurchases were related to credit tranchepurchases, mostly under stand-by arrangements and asmaller amount under extended arrangements; 35 per-cent of repurchases were in respect of purchases underthe compensatory financing facility. Most of the re-mainder was on account of purchases under the bufferstock and the supplementary financing facilities. Avery small amount represented repurchases made earlyin May 1983 relating to purchases under the 1974 and1975 oil facilities. As of May 11, 1983, all repurchaseswith respect to purchases under the 1974 and 1975 oilfacilities were completed.

Two members, China (SDR 450 million) and Aus-tralia (SDR 32.5 million), made repurchases in accord-ance with the guidelines for early repurchases, underwhich members are expected to repurchase calculatedamounts in advance of the normal schedule in theevent of improvements in their balance of paymentsand reserve positions.17 One member, South Africa,repurchased on August 30, 1983, at its own initiative,SDR 50.0 million in advance of its scheduled commit-ment. Two countries, Tanzania (SDR 13.9 million) andthe Central African Republic (SDR 0.2 million), re-purchased SDR 14.1 million, reflecting purchases underthe compensatory financing facility made on the basisof partly estimated export data that were later foundto be in excess of the actual shortfalls.

Fund Liquidity

The Fund's liquidity position is reviewed regularlyby the Executive Board. In looking at all the relevantfactors, the Board particularly takes into account theneed to maintain the liquidity of creditors' claims onthe Fund and the Fund's ability to meet its responsi-bilities in helping to finance adjustment policies of itsmembers. The latest of these reviews was carried outin April 1984. The Fund must have adequate ordinaryand borrowed resources to meet possible demands forencashment of reserve tranche positions or creditors'claims (all of which are generally encashable on rep-resentation of balance of payments need) and to coverexisting and foreseeable demands for the use of itsresources.

The Fund's ordinary resources that are immediatelyavailable for use consist of usable currencies and theSDRs held in the General Resources Account.18 The

17 Executive Board Decisions Nos. 5704-(78/39), adoptedMarch 22, 1978, effective April 1, 1978, and 6172-(79/101), adoptedJune 28, 1979, Selected Decisions, Tenth Issue, pages 101-105.

18 The Fund's holdings of gold (103.440 million ounces valued atSDR 35 a fine ounce) are not included in the category of immediatelyusable resources. The sale of this gold for any purpose requires an85 percent majority of the total voting power of the Fund.

usable currencies are those of the members whosebalance of payments and gross reserve positions areconsidered by the Executive Board to be sufficientlystrong to be sold by the Fund through its operationalbudget to finance other members' purchases in aparticular quarter. Decisions in this respect are takeneach quarter and, consequently, the list of usablecurrencies varies with changes in members' externalpayments and reserve positions. The SDRs held inthe General Resources Account are the most liquidasset of the Fund because they are always usable,whereas the usability of a currency in a particularquarter depends on whether the issuing member'sexternal position is sufficiently strong. The Fund'sliquidity position improved substantially as a result of(i) payments for the quota increases under the EighthGeneral Review of Quotas, which added nearlySDR 20 billion to usable currencies and SDRs; (ii) theenlargement of the General Arrangements to Borrow,including the full participation by the Swiss NationalBank and the conclusion of a borrowing arrangementwith Saudi Arabia in association with the GAB; and(iii) the additional borrowing agreements for SDR 6billion concluded in April 1984 to support the enlargedaccess policy. The number of usable currencies alsoincreased during the financial year as a result of theimprovement in the external positions of ten membersand their consequent addition to the operationalbudgets.

As a result of these factors, the Fund's total holdingsof usable currencies and SDRs on April 30, 1984, atSDR 39.5 billion, were more than double their level ayear earlier (SDR 18.7 billion). The uncommittedlines of credit on that date were close to SDR 3 billion,and the GAB and the associated arrangement, for atotal of SDR 18.5 billion, had not been used. Liquidclaims on the Fund as of April 30, 1984 amounted toSDR 41.2 billion, consisting of outstanding borrowingof SDR 13.8 billion and reserve tranche positions ofSDR 27.4 billion. The bulk of these liquid claims wereheld by members in strong balance of payments andreserve positions with no immediate need to encashthese claims on the Fund. In addition to these claims,undrawn balances under arrangements amounted toSDR 9.3 billion. The latter amount was reduced bySDR 1.1 billion on May 1, 1984 as a result of thecancellation of India's extended arrangement. The totalamount of resources released for other uses as a resultof all the canceled arrangements equaled SDR 2.9billion.

The Fund's SDR holdings in the General ResourcesAccount, amounting to SDR 6.4 billion as of April 30,1984, accounted for 30 percent of the net cumulativeallocation (SDR 21 billion), compared with 20 percenta year ago. This increase largely reflected the use of

80



SDKs in asset payments for quota increases under theEighth General Review of Quotas. The ExecutiveBoard decided19 that the Fund, in determining therelative use of currencies and SDKs in Fund transac-tions and operations, will be guided by the aim ofreducing the Fund's SDR holdings to a level of ap-proximately SDR 4 billion by May 31, 1985. TheFund's SDR holdings will be reviewed again by April1985 to determine whether and to what extent theyshould be reduced further.

Borrowing

Borrowing provides an important temporary supple-ment to the Fund's ordinary resources (mainly quotasubscriptions). All borrowing by the Fund to date hasbeen from official sources, which include its members,Switzerland, and central banks and other official in-stitutions in these countries.

The Fund's guidelines for borrowing were reviewedfollowing completion of the Eighth General Review ofQuotas.20 Under the guidelines, outstanding borrow-ings, plus unused lines of credit to the Fund, will notbe allowed to exceed the range of 50 to 60 percent ofthe total of Fund quotas. In respect of the GAB andassociated borrowing arrangements, the determinationof the total of outstanding borrowing plus unusedcredit lines will be made on the basis of outstandingborrowings, or two thirds of the total under thesearrangements, whichever is the greater. The proportionof the GAB that is to be included in the calculationswas increased, as a result of the review, from one halfto two thirds, primarily to reflect the fact that theresources derived from the GAB may now be used incertain circumstances to finance purchases by non-GAB participants. On April 30, 1984, the Fund's totaloutstanding borrowing and unused lines of credit,calculated in accordance with these guidelines, amountedto SDR 34.4 billion, equivalent to 38.7 percent ofquotas (33.1 percent of quotas on April 30, 1983). Theguidelines will be reviewed again in case of majordevelopments, including any significant change in theGAB or associated arrangements and, in any event,when the Board of Governors has completed the NinthGeneral Review of Quotas. The Fund's current bor-rowing arrangements are described below.

General Arrangements to Borrow andAssociated Arrangements

The purpose of the General Arrangements to Borrowis to provide supplementary resources to the Fund ifneeded to forestall or cope with an impairment of theinternational monetary system. Originally concludedbetween the Fund and ten individual member countries(the Group of Ten) in 1962 for four years, the Arrange-ments have been periodically reviewed and renewedwith some modifications. Switzerland became associ-ated with the GAB in 1964. The last borrowing underthe GAB was in 1978 in connection with a reservetranche purchase by the United States, and this amountwas fully repaid in November 1983.

On January 18, 1983 the Ministers and Governorsof the Group of Ten agreed on revisions and a majorenlargement of the GAB from about SDR 6.4 billionto SDR 17.0 billion. The revision and enlargement ofthe GAB were approved by the Executive Board onFebruary 24, 1983 and came into effect on Decem-ber 26,1983, when all ten of the original participants hadnotified the Fund of their concurrence.21 In accordancewith provisions of the revised GAB decision, the SwissNational Bank became a participant on April 10,1984.

Under the revised GAB the Fund can enter intoassociated borrowing agreements. One such agreement

Table 20. Lenders and Amounts of Credit Arrange-ments Under the General Arrangements to Borrowand Associated Arrangements

Lender Amount

United StatesDeutsche BundesbankJapanFranceUnited KingdomItalyCanadaNetherlandsBelgiumSveriges RiksbankSwiss National Bank

Total

Credit arrangements associated with the Gen-eral Arrangements to Borrow:

Saudi Arabia

Total General Arrangements to Borrow andassociated lines of credit

(In SDRs)

4,250,000,0002,380,000,0002,125,000,0001,700,000,0001,700,000,0001,105,000,000

892,500,000850,000,000595,000,000382,500,000

1,020,000,000171000,000,000

1,500,000,000

18,500,000,000

19 Executive Board Decision No. 7626-(84/23)S, adopted Febru-ary 13, 1984, Selected Decisions, Supplement to Tenth Issue,page 19.

20 Executive Board Decision No. 7589-(83/181), adopted Decem-ber 23, 1983 (reproduced in Appendix II).

21 Executive Board Decision No. 7337-(83/37), adopted Febru-ary 24, 1983, Selected Decisions, Tenth Issue, pages 131-45.

81


ANNUAL REPORT, 1984

has been concluded with Saudi Arabia, for SDR 1.5billion, and came into effect at the same time as therevised GAB. (See Table 20.) The other principalrevisions of the GAB are as follows:22

(i) The Fund will be permitted to borrow undercertain circumstances to finance transactionswith members that are not GAB participants,

(ii) The interest rate is amended to equal the com-bined market interest rate computed by theFund from time to time to determine the SDRrate,

(iii) The credit arrangements of participants aredenominated in SDRs.

The revised GAB decision will be in effect for fiveyears from its effective date, subject to further reviewand renewal. The Fund and the participants in theGAB will review the functioning of the decision whenconsidering renewal of the arrangements.


Borrowing arrangements under the supplementaryfinancing facility were concluded with 13 membercountries and the Swiss National Bank.23 (See Appen-dix I, Table 1.9.) None of the funds were to be com-mitted after February 22, 1982 or to be disbursed afterFebruary 22, 1984.

Borrowing under the supplementary financing facil-ity during 1983/84 amounted to SDR 1.1 billion, bring-ing the total of such borrowings to SDR 7.2 billionover the period of five years since the facility wasactivated. An amount of SDR 0.6 billion remainedundrawn at the expiration of the agreements, of whichSDR 0.3 billion had not been called because the balanceof payments and reserve positions of some lenderswere not sufficiently strong.

Repayments under the supplementary financing fa-cility, which began in November 1982, amounted toSDR 202 million during the financial year, bringing thetotal amount of repayments to SDR 317.4 million byApril 30, 1984. The remaining repayments due by thefinal maturity date of April 30, 1991 amount toSDR 6.9 million.

agreement for SDR 8.0 billion with the Saudi ArabianMonetary Agency in May 1981. The Fund had bor-rowed SDR 3.6 billion under the agreement throughApril 30, 1983, and further borrowings amounted toSDR 2.1 billion in 1983/84. The commitment periodunder the agreement with SAM A expires on May 6,1987.

Short-Term Borrowing

Under agreements concluded in 1981, the centralbanks or official agencies of 18 countries agreed tomake available to the Fund the equivalent of SDR 1.3billion over a commitment period of two years. Ofthat amount, SDR 675 million v/as provided under aborrowing agreement with the Bank for InternationalSettlements. At the end of the financial year 1983/84,the amount of SDR 1.3 billion had been fully utilized,except for a very small amount that was not drawnbefore an agreement expired. These short-term bor-rowings by the Fund, of which SDR 1.17 million wasoutstanding on April 30, 1984, are to be repaid in fullin the period to end-January 1985.

At the end of April 1984, the Fund concluded fournew short-term borrowing agreements for a total ofSDR 6 billion with SAMA, the BIS, Japan, and theNational Bank of Belgium. The agreement with SAMAtakes the form of a supplement to its 1981 borrowingagreement with the Fund.

The four new borrowing agreements (all denomi-nated in SDRs) are broadly parallel with respect totheir principal terms and conditions, with variationsreflecting the lenders' preferences and the Fund'sprojected requirements for utilizing the resources avail-able under the agreements. The drawdown periodunder three of the agreements is for one year, beginningon April 30, 1984 in respect of the BIS and Japan andon June 30, 1984 in the case of Belgium. Drawings onthe agreement with SAMA may be made by the Fundbeginning in 1985 and through May 6, 1987. The finalmaturity of each drawing under the agreements willbe two and one half years after the date of the drawing.

Borrowing to Finance Enlarged Access

Medium-Term Borrowing

The Fund's policy on enlarged access became op-erational with the signing of a medium-term borrowing

22 For further details, see Annual Report, 1983, pages 94-95.23 Executive Board Decision No. 5508-(77/127), adopted Au-

gust 29, 1977, Selected Decisions, Tenth Issue, pages 33-38.

Borrowed Resources Suspense Accounts

The borrowed resources suspense accounts holdfunds borrowed under the policy of enlarged accesspending their use in purchases, or amounts receivedin repurchases pending repayments to lenders. Theamounts are invested in SDK-denominated assets atprevailing short-term SDR interest rates in order toprotect their capital value in terms of the SDR, togenerate income to offset the borrowing cost, and to

82



relieve the Fund of exchange risk.24 During 1983/84the assets in the account consisted entirely of depositswith the Bank for International Settlements, whichtotaled SDR 0.6 million on April 30, 1984, substantiallyless than one half of the SDR 1.7 million a year before.

Financial Position

The Fund, under the current decisions of the Ex-ecutive Board, as noted in the Annual Report for 1982,aims at maintaining over time a positive income po-sition for the Fund and concessionality in the rate ofcharge on the use of ordinary resources consistentwith an appropriate rate of remuneration for creditorsand a modest increase in the Fund's reserves overtime.

On January 6, 1984, a decision was taken by theExecutive Board to narrow the differential betweenthe rate of remuneration and the SDR interest rate byraising the remuneration coefficient (i.e., the ratio ofthe rate of remuneration to the SDR interest rate) instages.25 Under this decision, the Executive Boardagreed on a formula whereby the remunerationcoefficient would be raised on May 1 of each of theyears 1984, 1985, and 1986 to specified levels, withadditional adjustments depending on interest rate de-velopments. For the financial year beginning May 1,1984, the rate of remuneration was increased to 88.33percent of the SDR rate of interest and will be furtherincreased to 91.66 percent and 94.99 percent of theSDR rate of interest on May 1, 1985 and May 1, 1986,respectively. A review of the rate of remuneration willbe held between May 1, 1986 and May 1, 1987, takinginto account all relevant factors, including the SDRinterest rate and the rate of charge.

The Fund pays remuneration to those members thathold a remunerated reserve tranche position. Such aposition exists whenever the Fund's holdings of amember's currency (after exclusion of currency hold-ings representing the counterpart of the member'soutstanding use of Fund credit) are lower than the"norm" for remuneration. The norm for countries thatwere members of the Fund prior to the Second Amend-ment of the Articles of Agreement (April 1, 1978) isthe sum of 75 percent of their quotas at the date ofthe Second Amendment plus the increases in theirquotas after that date. For members that joined theFund after April 1, 1978, the norm is the weightedaverage of the norms applicable to all other members

on the date the member joined the Fund plus anyincreases in their quotas after that date. At the end ofApril 1984, the average of the norms for all Fundmembers was 91.71 percent of quota.

The SDR rates of interest and the rates of remuner-ation applicable in 1983/84 are given in Table 21. (Seealso Chart 22.)

Charges and Remuneration

Under the procedures in effect since May 1, 1981the Executive Board determines at the beginning ofeach financial year a rate of charge applicable tomembers' use of the Fund's ordinary resources. Therate of charge is based on the estimated income andexpense of the Fund for the year ahead and takes into

24 See Annual Report, 1983, page 96.25 Executive Board Decision No. 7603-(84/3), adopted January 6,

1984 (reproduced in Appendix II).

Period Beginning

April 1, 1983July 1, 1983August 1, 1983August 8, 1983August 15, 1983August 22, 1983August 29, 1983September 5, 1983September 12, 1983September 19, 1983September 26, 1983October 3, 1983October 10, 1983October 17, 1983October 24, 1983October 31, 1983November 7, 1983November 14, 1983November 21, 1983November 28, 1983December 5, 1983December 12, 1983December 19, 1983December 26, 1983January 2, 1984January 9, 1984January 16, 1984January 23, 1984January 30, 1984February 6, 1984February 13, 1984February 20, 1984February 27, 1984March 5, 1984March 12, 1984March 19, 1984March 26, 1984April 2, 1984April 9, 1984April 16, 1984April 23, 1984April 30, 1984May 1, 1984May 7, 1984

SDRInterest Rate

8.528.658.818.969.038.898.848.938.848.798.648.568.538.638.508.478.598.568.638.608.678.728.808.708.698.578.518.638.608.628.688.738.748.688.758.829.008.958.928.948.948.918.919.03

Rate ofRemuneration

7.247.357.497.627.687.567.517.597.517.477.347.287.257.347.237.207.307.287.347.317.377.417.487.407.397.287.237.347.317.337.387.427.437.387.447.507.657.617.587.607.607.577.877.98

83

Table 21. SDR Interest Rate and Rate ofRemuneration


ANNUAL REPORT, 1984

Chart 22. SDR Interest Rate, Rate of Remuneration, and Short-Term Interest Rates, July 1974-June 19841(In percent per annum)

1 Data are monthly averages. Up to December 1980, short-term domestic interest rates are the yield on three-month treasury bills for theUnited Kingdom and the United States, the rate on three-month interbank deposits for France and the Federal Republic of Germany, andthe call money market rate (unconditional) for Japan. From January 1981, the yield on U.S. Treasury bills was converted to a couponequivalent basis, and the discount rate on two-month (private) bills was used for Japan. From March 1981, the basis for the interbank ratesfor France and the Federal Republic of Germany was converted from a 360-day year to a 365-day year.

account a target amount of net income for the year.For the financial year 1983/84, the rate of charge to beapplied to holdings arising from purchases financedfrom the Fund's ordinary resources was set by theExecutive Board at 6.6 percent per annum. Followingthe review of the Fund's income position in May 1984,a rate of 7 percent will apply from May 1, 1984.

The charges applicable to holdings arising frompurchases by members financed with borrowed re-sources under the oil facility, the supplementary fi-nancing facility, and the policy on enlarged accessreflect the costs incurred by the Fund in borrowing tofinance these facilities. The rates of charge applicableto purchases under the oil facility for 1975 had pro-gressed to the maximum level of 7.875 percent perannum during the year under review. As the bal-

ances under the oil facility have all been repurchased,this schedule of charges no longer applied after May1983. The rates of charges applied to the use ofborrowed resources under the supplementary financingfacility and the policy on enlarged access continuedto be determined on the same basis as in the previousfinancial years. The rate of charge under the supple-mentary financing facility is the rate of interest paidby the Fund plus 0.2 percent in the first three and onehalf years and plus 0.325 percent after three and onehalf years. Under the enlarged access policy, the rateof charge is the net cost of borrowing by the Fundplus 0.2 percent per annum. The average rates ofinterest per annum on outstanding Fund borrowingsfor the year ended April 30, 1984 were 4 percent(General Arrangements to Borrow), 7.25 percent (oil

84



facility), 11.49 percent (supplementary financing facil-ity), and 10.32 percent (enlarged access to resources).All GAB and oil facility loans were repaid during1983/84.

Income, Expense, and Reserves

For the financial year ended April 30, 1984, theFund's net income was SDR 73 million, comparedwith SDR 65 million in 1982/83. These results reflectan increase in operational income of SDR 747 million,primarily from periodic charges. The increase in in-come from periodic charges, SDR 819 million, reflectedthe increase in use of the Fund's resources. Netoperational income for the year ended April 30, 1984was SDR 266 million, compared with SDR 257 millionin 1982/83. The total Fund holdings of members'currencies subject to charges (i.e., Fund credit ex-tended to members) amounted to SDR 31,742 millionon April 30, 1984, compared with SDR 23,590 millionon April 30, 1983. The Fund's average holdings ofSDRs in 1983/84 were marginally lower than in theprevious year, and the interest on these holdings wasalso lower than in 1982/83 as a result of lower interestrates (8.70 percent in 1983/84 and 10.20 percent in1982/83).

The Fund's operational expense, comprising remu-neration payable by the Fund on the use of creditorcurrencies and interest on borrowing, increased bySDR 738 million over the previous year, to SDR 2,526million. This reflected increases both in remuneration(SDR 305 million) and interest payments (SDR 433million) over the previous year. Outstanding borrowingon April 30, 1984 amounted to SDR 13,791 million,compared with SDR 10,952 million at the end of1982/83.

Although the average rate of remuneration in 1983/84 was lower than in the previous year (7.39 percentin 1983/84 and 8.42 percent in 1982/83), the Fund'sremuneration expense was greater owing mainly to theexpansion of members' remunerated positions result-ing from the increase in the financing provided tomembers from the Fund's ordinary resources. Re-munerated positions of members at April 30, 1984amounted to SDR 21,200 million, compared withSDR 14,997 million at the end of 1982/83. The remu-neration paid in 1983/84 amounted to SDR 1,286.32million (70 member countries), against SDR 981.12million paid in 1982/83 (74 member countries). Ad-ministrative expenses of the Fund in 1983/84 wereSDR 193 million, compared with SDR 191 million inthe previous year.

A statement of the Fund's operational income and

expense is shown in Appendix VII, and detailsof administrative expenses are shown in Appendix VI.

The Articles of Agreement and the Rules and Reg-ulations provide that the Fund shall determine at theend of each financial year the disposition of its netincome for that year. If the net income for the yearexceeds the target amount for the year, the ExecutiveBoard will consider whether the whole or a part of theexcess should be used to reduce the rate of charge, orincrease the rate of remuneration to not more than therate of interest on the SDR, retroactively for the yearjust ended, or both, or to place all or part of the excessto reserves. The Executive Board determined that thenet income for the financial year ended April 30, 1984shall be placed to the special reserve, which can beused for all purposes except a general distribution tomembers. Total reserves of the Fund, taking intoaccount the net income for 1983/84, amounted toSDR 1,074 million as against SDR 1,000 million at theend of 1982/83. Over the past seven years, the Fund'stotal reserves, even with the successive addition ofnet income since 1978, have declined steadily inrelation to all relevant financial magnitudes, namely,quotas, credit to members, borrowings and liquidclaims on the Fund, and the volume of the Fund'sgross income and expense.

SDR Department

The most notable feature of activity in the SDRDepartment26 during 1983/84 was the record level oftotal transfers, which amounted to SDR 22.6 billion,about double the amount for 1982/83 (SDR 11.0 billion)and well in excess of the previous peak in 1980/81(SDR 12.2 billion). This exceptionally large volumeof transfers reflected the use of SDRs by a largenumber of participants to pay the reserve asset com-ponent of their quota increase payments pursuant tothe Eighth General Review of Quotas.

The Rules and Regulations of the Fund provide fora review of the rate of interest on holdings of SDRsand of the rate of remuneration on members' creditorpositions in the Fund at the conclusion of each financialyear. From May 1, 1981 until April 30, 1984, the SDRrate of interest was maintained at 100 percent of thecombined market rate of interest and the rate ofremuneration at 85 percent of the SDR rate of interest.

26 Executive Board Decision No. 7481-(83/112), adopted July 26,1983, effective August 1,1983 (reproduced in Appendix II) introducesa new Rule B-6 which adopts usage of the term "SDR" (or "SDRs"as appropriate) as standard procedure in Fund documents, corre-spondence, and publications, in place of the expression "specialdrawing rights." The new rule allows for a different usage of theterm if the text is in a language in which that usage has beenestablished.

85


ANNUAL REPORT, 1984

The Executive Board adopted a decision, effectiveAugust 1, 1983, on the SDR interest rate and relatedmatters. The general purpose of the decision was tofurther enhance the role of the SDR as an internationalreserve asset by bringing its yield closer in line withyields on other reserve assets included in the SDRinterest basket.27 This decision amended the Fund'sRules relating to the determination and payment ofinterest and charges on SDRs (Rule T-l) and ofremuneration (Rules 1-9 and I-10). Commencing Au-gust 1, 1983, the SDR interest rate and charges, aswell as the rate of remuneration on members' creditorpositions, have been calculated on a weekly insteadof a quarterly basis. The combined market interestrate used to determine the SDR interest rate is cal-culated on Friday (using the interest rates of that day);the SDR interest rate becomes effective the followingMonday and applies until the following Sunday. Con-sequent upon the weekly determination of the SDRinterest rate, the 15-day reference period used here-tofore to calculate the combined market interest ratewas replaced with a single reference day. EffectiveAugust 1, 1983, the timing of payment of SDR interestand charges, as well as remuneration, was changedfrom an annual to a quarterly frequency.

Prescribed Holders of SDRs

During the year ended April 30, 1984, the Fundprescribed one more institution (the East AfricanDevelopment Bank) as a holder of SDRs, bringing to14 the total number of "prescribed holders." The Fundalso prescribed the Eastern Caribbean Central Bankas a holder of SDRs. The Bank is the successor to theEast Caribbean Currency Authority, which itself wasa prescribed holder. The prescribed holders now com-prise four central banks (the Bank of Central AfricanStates, Yaounde; the Central Bank of West AfricanStates, Dakar; the Eastern Caribbean Central Bank,Basseterre, St. Kitts; and the Swiss National Bank,Zurich); three intergovernmental monetary institutions(the Bank for International Settlements, Basle; theAndean Reserve Fund, Bogota; and the Arab MonetaryFund, Abu Dhabi); and seven development institutions(the Asian Development Bank, Manila; the East Af-rican Development Bank, Kampala; the InternationalBank for Reconstruction and Development, Washing-ton, D.C.; the International Development Association,

"Executive Board Decision No. 7480-(83/112)G/S, adoptedJuly 26, 1983, effective August 1, 1983 (reproduced in Appendix II).The SDR interest rate is the weighted average of the market yieldson the following short-term money market instruments: three-monthU.S. Treasury bills; three-month interbank deposits in the FederalRepublic of Germany; three-month interbank money against privatepaper in France; three-month U.K. Treasury bills; and the discounton two-month (private) bills in Japan.

Washington, D.C.; the International Fund for Agri-cultural Development, Rome; the Islamic DevelopmentBank, Jeddah; and the Nordic Investment Bank, Hel-sinki).

Prescribed holders can acquire and use SDRs intransactions and operations by agreement with partic-ipants in the SDR Department (Fund members) andother prescribed holders under the same terms andconditions as participants. They cannot receive allo-cations of SDRs nor use SDRs in transactions withdesignation. During the year, transfers involving pre-scribed holders amounted to SDR 206 million, com-pared with SDR 126 million in the preceding year.These transfers comprised SDR 103 million in trans-actions by agreement, SDR 83 million in loans,SDR 18 million in settlement of financial obligations,and SDR 2 million in interest receipts on their SDRholdings. At the end of April 1984, seven institutionsheld SDR 37 million, more than double the SDR 16million held by five prescribed holders at the end ofApril 1983. Their highest level of holdings at a month-end was SDR 61 million in August 1983, and the lowestwas SDR 29 million in December 1983.

Transactions and Operations in SDRs28

Transactions by Agreement

Transactions by agreement during 1983/84 amountedto SDR 3,175 million, the highest annual level to date.29

The volume of transactions by agreement exceededthe volume of transactions with designation (discussedbelow) for the first time since 1978/79. The bulk of thetransactions by agreement represented acquisitions ofSDRs by members that needed SDRs to pay the reserveasset portion of the quota increase, charges to theFund's General Resources Account, or net charges onthe use of SDRs. The major sellers of SDRs in 1983/84 were the Federal Republic of Germany, the UnitedKingdom, Japan, Italy, and Colombia.

Transactions with Designation

The designation mechanism ensures that participantscan obtain currency against SDRs if they have a balanceof payments need. In 1983/84, 44 participants usedSDR 2,402 million in transactions with designation toobtain currencies from 23 participants designated by

28 See Appendix I, Tables 1.11 and 1.12.29 Under this category of transactions, participants and prescribed

holders can use SDRs by mutual agreement with one another inexchange for any currency for which the Fund has established arepresentative rate, and without any requirement of a balance ofpayments need and without any further authorization by the Fund.

86



the Fund. Of this total, SDR 2,313 million representedthe immediate use of SDRs acquired from the Fund'sGeneral Resources Account in purchases, and theremainder represented the use of participants' ownSDR holdings. About 60 percent of SDRs received inpurchases were used in transactions with designation,compared with 71 percent in 1982/83 and an averageof 76 percent over the preceding four years. Of the 23countries designated to provide currency in exchangefor SDRs, 14 industrial countries received SDR 2,137million, 3 oil exporting countries received SDR 24million, and 5 non-oil developing countries receivedSDR 241 million. The largest amounts of currency indesignated transactions were provided by the UnitedKingdom, the Federal Republic of Germany, Italy,Canada, China, and the United States.

Additional Uses of SDRs

The Fund permits additional uses of SDRs amongparticipants and prescribed holders.30 Such opera-tions, which are in the nature of voluntary transfersother than transactions by agreement, amountedto SDR 1,194 million in 1983/84. Of this total,SDR 1,080 million represented loans and repaymentsof SDRs in connection with payments for quota in-creases. SDRs were used in ten loans (other than forquota payments) for a total of SDR 89 million, primarilyfor balance of payments support by an internationalfinancial organization to its member countries. TwoFund members also made loans, one to another mem-ber and one to a prescribed holder.

SDRs were used in the settlement of 14 financialobligations (other than in repayment of loans for quotapayments) for a total of SDR 25 million. These transfersrepresented primarily debt service on loans. Two ofthe transfers represented the drawing down by aprescribed holder of a deposit denominated in currencywith the central bank of a participant, and one of thetransfers represented partial payment of a capitalsubscription. The cumulative total of SDRs transferredin all such operations since they were first permittedin 1978 was SDR 1,748 million at the end of April1984.

Transactions Involving the GeneralResources Account

The General Resources Account's holdings of SDRson April 30, 1984 were SDR 6,437 million, compared

30 These are currently as follows: to use SDRs in the settlementof financial obligations; to buy and sell SDRs forward; to borrow,lend, or pledge SDRs; to use SDRs in swaps; to make donations(grants) of SDRs; and to use SDRs as security for performance offinancial obligations. See Selected Decisions, Tenth Issue,pages 278-88.

with SDR 4,335 million on April 30, 1983. In May1983, the Executive Board adopted a decision thataimed at reducing the Fund's SDR holdings to ap-proximately SDR 1.5 billion by the end of 1983, andthis level was reached by the end of November 1983.After quota payments had increased the Fund's hold-ings of SDRs to SDR 7,175 million by the end ofJanuary 1984, the Executive Board decided that theamount of SDRs the Fund would transfer in purchaseswould be guided by the aim of reducing those holdingsto approximately SDR 4 billion by May 31, 1985.31

The use of SDRs in purchases is the principal instru-ment by which the Fund can influence the level of itsSDR holdings in the General Resources Account.

Inflows

The bulk of the inflows of SDRs to the GeneralResources Account, amounting to SDR 6,195 million,represented payment of quota increases, followed bypayment of charges on the use of Fund resources.

Repurchases that were discharged at the member'soption in SDRs rather than in a currency specified bythe Fund amounted to SDR 392 million, comparedwith SDR 566 million in 1982/83. Repurchases dis-charged in SDRs amounted to 18 percent of totalrepurchases in 1983/84, compared with the 36 percentof total repurchases made in SDRs in 1982/83. Thistendency to use currencies rather than SDRs in re-purchases resulted from the low level of SDR holdingsof many countries, especially after the quota subscrip-tion payments were made.

Outflowss

SDRs transferred from the General Resources Ac-count to members amounted to SDR 6,794 million,compared with SDR 3,714 million in 1982/83. Themajor outflow was the use of SDR 3,876 million inpurchases, which accounted for 61 percent of totalpurchases financed from the Fund's ordinary resourcesand was the largest volume of SDR purchases in anyfinancial year to date. The substantial transfers ofSDRs in purchases reflected the aim of reducing theGeneral Resources Account's SDR holdings to ap-proximately SDR 4 billion by the end of May 1985.Payment of remuneration amounted to SDR 1,573million to 79 countries, compared with SDR 861 millionin 1982/83. This increase also reflected the fact that1983/84 was a transitional year in which the paymentof remuneration was changed from an annual to a

31 Executive Board Decision No. 7626-(84/23)S, adopted Febru-ary 13, 1984 (reproduced in Appendix II).

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ANNUAL REPORT, 1984

quarterly basis. The payment in May 1983 representedaccrued remuneration during the financial year 1982/83, while payments in November 1983 and February1984 represented accruals over the previous quarter.The Fund used a total of SDR 989 million to payinterest and make repayments of principal to lendersto the Fund. The most important items were repay-ments of SDR 777 million to two countries (the FederalRepublic of Germany and Japan) on Fund borrowingunder the General Arrangements to Borrow. TheGeneral Resources Account also sold SDR 330 millionto countries needing them to pay charges to the Fundor to settle charges on their net use of SDRs.

Pattern of Holdings by Participants

Despite the large volume of turnover of SDRs, therewas little change in the pattern of SDR holdings amongthe main groups of countries in 1983/84. As at May 1,1984 (after payment of interest and charges), industrialcountries held 78 percent of total SDR holdings byparticipants, compared with 81 percent on April 30,1983, while non-oil developing countries held 11 per-cent, against 8 percent in April 1983. The share inholdings of the oil exporting countries was unchangedat 11 percent. The shares of the three main groups ofcountries in cumulative allocations of SDRs are 67percent for industrial countries, 26 percent for non-oildeveloping countries, and 7 percent for oil exportingcountries.

SDR as a Unit of Account Outside theFund and as a Currency Peg

In addition to its uses as a medium of exchange andsettlement among participants and prescribed holders,the SDR, which is the unit of account for Fundtransactions and operations and for its administeredaccounts, is also used as a unit of account (or as thebasis for a unit of account) by a number of internationaland regional organizations and in capital markets.32 Anumber of international conventions use the SDR toexpress monetary magnitudes, notably those express-ing liability limits in the international transport ofgoods and services.

32 The international and regional organizations using the SDR asa unit of account, or as the basis for a unit of account, were theAfrican Development Bank, African Development Fund, ArabMonetary Fund, Asian Clearing Union, Asian Development Bank,Great Lakes States Development Bank, East African DevelopmentBank, Economic Community of West African States, EuropeanConference of Postal and Telecommunications Administrations,International Centre for Settlement of Investment Disputes, Inter-national Development Association, International Fund for Agricul-tural Development, International Telecommunication Union, IslamicDevelopment Bank, Nordic Investment Bank, and the UniversalPostal Union.

In recent years, the SDR has been playing anincreasing role both as a denominator and as a unit ofcontract, and in some cases as the basis for a privatelyissued currency composite. Considerable interest wasshown in the private use of SDR-denominated assetsin 1981, following the reduction from 16 to 5 in thenumber of currencies in the SDR valuation basket,effective January 1, 1981. However, the diminishedprivate market interest in SDR-denominated instru-ments observed during 1982 continued during 1983.No SDR-denominated bond issues took place during1983, and the amount of SDR-denominated depositsand bank credits has remained modest. This lack ofactivity seems to reflect the continued strength of theU.S. dollar during the year.

As of June 30, 1984, 11 countries had currenciespegged to the SDR, against 14 countries as ofJune 30, 1983. When a member pegs its currency tothe SDR, the value of its currency is fixed in terms ofthe SDR and is set in terms of currencies by referenceto the SDR value of those currencies, as calculatedand published daily by the Fund.

Administered Accounts

The Fund administers as a Trustee, in addition toits Staff Retirement Plan, two accounts for membercountries, namely, the Trust Fund and the supple-mentary financing facility subsidy account. Anotheradministered account, the oil facility subsidy account,was terminated in August 1983 after completion ofrepayment of purchases under the facility. Theseadministered accounts are separate from the Fund'sGeneral Department and the SDR Department.

The Trust Fund, which used part of the proceeds ofgold auctioned by the Fund to make loans on conces-sional terms to low-income member countries, wasterminated as of April 30, 1981.33 The responsibilitiesof the Fund thereafter are confined to the receipt anddisposition of interest and loan repayments and thecompletion of any unfinished business. Two install-ments of semiannual interest payments for a totalamount of SDR 14.7 million were collected in June1983 and January 1984. Repayments of Trust Fundloans, which began in July 1982, were made by 38countries in 1983/84 and amounted to SDR 114.1million. As of April 30, 1984, Trust Fund loans out-standing amounted to SDR 2,861.9 million.

33 Executive Board Decision No. 6704-(80/185) TR, adopted De-cember 17, 1980, Selected Decisions, Tenth Issue, pages 318-20.

88



Oil Facility Subsidy Account

The oil facility subsidy account was established onAugust 1, 1975 to assist Fund members most seriouslyaffected by oil price increases to meet part of the costof using the resources of the 1975 oil facility, whichwas in operation from June 1975 through May 1976.It was the first trust arrangement established by theFund for a particular group of Fund members. In thatsense, the account was a forerunner of the Trust Fundand the supplementary financing facility subsidy ac-count. The contributions to the account, amounting toSDR 160 million from 24 member countries and Switz-erland, demonstrated a significant cooperative re-sponse to help meet the needs of the poorest membersof the Fund during generally difficult internationalfinancial circumstances.34 In addition to the contribu-tions, the account was also financed by the earnings,amounting to SDR 26.5 million, on the investments ofthe contributions, pending their disbursement.

The amount of subsidy for each eligible memberwas calculated as a percentage per annum on theaverage daily balances subject to charges of the mem-

34 The contributing members were Australia, Austria, Belgium,Brazil, Canada, Denmark, Finland, France, the Federal Republicof Germany, Greece, the Islamic Republic of Iran, Italy, Japan,Luxembourg, the Netherlands, New Zealand, Norway, Saudi Ara-bia, South Africa, Spain, Sweden, the United Kingdom, Venezuela,and Yugoslavia.

ber's outstanding purchases under the 1975 oil facility.Following subsidy payments in June 1983 at 5 percentfor the period May 1, 1982 through May 11, 1983 (thedate of the last scheduled repurchases under the 1975oil facility), a balance of SDR 11.7 million remainedin the account. Subsequently, an additional paymentwas made to eligible beneficiaries at a rate of 0.33percent per annum on average balances that wereeligible for subsidy during the lifetime of the facility.This payment was made in early August 1983 to allthe 25 recipients in proportion to their eligible averagebalances. This raised the rate of subsidy to all eligiblemembers over the life of the account from 5 percentper annum to 5.33 percent. These payments fullyutilized the remaining resources of the account, whichwas terminated on August 15,1983. The total paymentsunder the account amounted to SDR 186.8 million.The recipients and the amounts disbursed are shownin Table 22.

Subsidy payments from the account amounted to anequivalent of 68.6 percent of the total charges paid byeligible beneficiaries on their drawings under the oilfacility and 10.8 percent of the total charges paid byeligible beneficiaries on their total indebtedness to theFund over the financial years 1976-83. The subsidypayments amounted to 23.2 percent of total oil facilitydrawings and increased the grant element in drawingsunder the facility to 30 percent. Thus, the subsidy

Table 22. Total Use of 1975 Oil Facility by Beneficiaries, and Total Subsidy Payments, 1976-83(In millions of SDKs)

BangladeshCameroonCentral African RepublicEgyptGrenada

HaitiIndiaIvory CoastKenyaMalawi

MaliMauritaniaMoroccoPakistanPapua New Guinea

PhilippinesSenegalSierra LeoneSri LankaSudan

TanzaniaWestern SamoaYemen, People's Democratic Republic ofZaireZambia

Total

Total Useof 1975

Oil Facility

40.4711.792.66

31.680.49

4.14201.34

10.3527.933.73

3.995.32

18.00111.0114.80

152.039.914.97

34.1318.30

20.610.42

12.0232.5329.72

802.33

Total Chargeson Use of 1975

Oil Facility

15.784.601.04

12.350.19

1.6141.08

2.1610.891.45

1.562.087.02

43.274.12

59.273.861.95

13.307.23

8.040.164.70

12.7411.60

272.05

SubsidyPayments

11.063.220.738.660.13

1.1328.75

1.517.631.02

1.091.464.92

30.322.93

41.522.711.369.325.05

5.630.113.298.904.31

186.76

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ANNUAL REPORT, 1984

Table 23. Supplementary Financing Facility SubsidyAccount: Contributions Received to April 30, 1984(In millions of SDRs)

Contributor

DonationsAustraliaAustriaDenmarkFinlandFrance

NetherlandsNorwaySaudi ArabiaSwedenSwitzerland

Subtotal

LoansBelgiumLuxembourg

Subtotal

Amount ofContribution

2.01.21.50.89.3

4.11.4

22.22.22.4

47.1

4.40.24.6

Total 51.7

eligibility for assistance from the International Devel-opment Association (IDA) receive the full rate ofsubsidy, which does not exceed 3 percent per annum;those with a per capita income in 1979 above the IDAlevel, but not more than that of the member that hadthe highest per capita income of those countries thatwere eligible to receive assistance from the TrustFund, receive subsidies at one half the full rate. Allpayments to date have been made at the maximumrates, that is, 3 percent and 1.5 percent.

The payments under the account to eligible memberstotaled SDR 217.18 million. (See Table 24.) Foureligible members had not paid the charges due on thebalances to which the subsidy was to be applied.Consequently the subsidy payments to those membershave been withheld until those charges are paid. Pendingfurther payments of subsidy, the investments of theaccount are held in SDR-denominated deposits with theBank for International Settlements. As of April 30,1984, these deposits amounted to SDR 98.4 million,with accrued interest of SDR 2.2 million.

account fulfilled its objective of substantially reducingthe net cost to those most seriously affected membersthat used the 1975 oil facility.

Supplementary Financing Facility SubsidyAccount

The supplementary financing facility subsidy ac-count was established in December 1980 to reduce thecost for low-income developing members of using thesupplementary financing facility. The primary sourcesof funds for the account are from repayments of, andinterest on, Trust Fund loans (up to SDR 750 million),which are transferred to the account via the specialdisbursement account.35 By April 30, 1984 the accounthad received SDR 174.9 million from this source. Inaddition, the account is financed through donationsand loans and through income on the investment ofresources held pending disbursement. Details of con-tributions received by April 30, 1984 are shown inTable 23.

Subsidy payments are calculated as a percentageper annum of the average daily balance of the Fund'sholdings of a member's currency that result frompurchases under the supplementary financing facilityand are consistent with the repurchase provisions ofthat facility. Eligible countries are divided into twogroups: those with per capita incomes in 1979 equalto or below the per capita income used to determine

35 This is an account in the General Department of the Fundwhich receives repayments and interest from Trust Fund loans andis used for purposes consistent with those of the Fund.

Consultations with Member Countries

As noted in Chapter 2, Article IV consultations withmembers are the principal vehicle for the exercise ofFund surveillance over the exchange rate policies ofindividual member countries. Article IV consultationsare required, in principle, to take place annually andto be completed not later than three months after thetermination of discussions between the member andthe staff. While in practice it has been impossible toattain the objective of annual consultations with allmembers, procedural changes that were introducedlast year to ensure greater regularity of consultationsare proving effective.

In 1983/84, the Fund completed 117 Article IVconsultations (up from 98 in 1982/83 and from 79 in1981/82), of which 65 were with countries availingthemselves of the transitional arrangements underArticle XIV and 52 with countries that had formallyaccepted the obligations of Article VIII. Membershipcoverage rose to 78 percent. The marked increase inconsultations included virtually all members for whichconsultations were clearly overdue, except in a fewcases involving security problems.

In addition to the regular Article IV consultations,special consultations were held with major industrialcountries in connection with the world economicoutlook reviews by the Executive Board, and the staffhas informally visited some countries to keep informedof important developments and to ascertain the mem-ber's reasons for particular policy actions.

90



Table 24. Drawings Under Supplementary Financing Facility by Eligible Members, and Subsidy Payments(In millions of SDKs)

Recipients of subsidy at 3 percentBangladeshBoliviaDominicaGambia, TheGuyana

IndiaKenyaLiberiaMadagascarMalawi

MauritaniaPakistanPhilippinesSenegalSierra Leone

Sri LankaSudanTanzaniaTogoZambia

Subtotal

TotalDrawings to

June 30, 1983

110.025.54.54.8

30.9

1,200.094.842.422.228.1

17.3537.1333.054.217.2

171.416.37.3—

2,717.0

TotalSubsidy Payments

11.163.090.250.231.77

46.848.362.472.222.87

1.3938.1832.534.351.65

0.59 '11.871.340.723.52 2

175.40

Recipients of subsidy at 1.5 percentIvory CoastJamaicaMauritiusMoroccoPeru

Subtotal

Total

286.4217.269.2

109.7195.1877.6

3,594.6

7.5611.073.467.07

12.6241.78

217.181 Subsidy paid in respect of Fund holdings in excess of 140 percent of quota under the Fund's policy on exceptional use.2 Subsidy paid in respect of Fund holdings in excess of 200 percent of quota under the Fund's policy on exceptional use.

During 1983/84, three countries, Belize (June 14,1983), Iceland (September 19, 1983), and Antigua andBarbuda (November 22, 1983) accepted the obligationsof Article VIII, Sections 2, 3, and 4 of the Articles ofAgreement, raising to 59 the number of members thathave formally accepted these obligations. Eighty-sevenmembers were availing themselves of the transitionalarrangements under Article XIV, Section 2 at the endof the financial year.

Debt Restructuring

Since mid-1982, Fund management and staff havefrequently assisted member countries in the resolutionof debt-servicing difficulties with international banksand in the arrangement of new medium-term financiallending packages. From January 1983 to April 1984,17 Fund member countries—all within the group ofdeveloping countries—signed debt restructuring agree-ments with international banks. Amounts restructured

and new financing arranged as part of the restructuringin conjunction with Fund-supported adjustment pro-grams reached some $94 billion, or the equivalent ofmore than 20 percent of the bank debt of developingcountries. In 1983, bank debt restructurings reducedthe debt service of non-oil developing countries by anestimated $24 billion, or the equivalent of 5 percent oftheir exports of goods and services. Restructuringsagreed to in the first four months of 1984 are projectedto result in a further reduction of debt service paymentsby at least $10 billion. In late 1983 and early 1984, anarrowing of spreads and a lengthening of grace periodsand final maturities occurred for countries that hadpreviously undergone debt restructurings and madesignificant progress in implementing Fund-supportedadjustment programs.

The extent of official multilateral debt reschedulingshas risen sharply in recent years. During 1982, 6 Fundmember countries rescheduled an estimated debt of$500 million owed to official creditors. However, inthe 16-month period ended April 30, 1984, the number

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ANNUAL REPORT, 1984

of official debt reschedulings with Fund membersreached 18, involving an estimated total debt of $10.9billion. Over the period since 1981, of the total numberof reschedulings involved (24), the majority (16) cov-ered debt owed by African countries.

With the exception of Mexico (where the resched-uling was concluded at a meeting of creditors held atthe Organization for Economic Cooperation and De-velopment—OECD), the official debt rescheduling ne-gotiations were conducted under the auspices of theParis Club. In all cases, the rescheduling agreementwas concluded only after the Fund's Executive Boardhad approved a stand-by or extended arrangementinvolving upper credit tranche conditionality with thedebtor country concerned. Fund staff representativesparticipated as observers in all of the OECD and ParisClub meetings.

Technical Assistance and Training

During 1983/84, technical assistance continued to bean important part of the Fund's work. Such assistanceis provided at the request of members and includestraining at headquarters, staff missions to membercountries, and the stationing of staff members andoutside experts in member countries, as well as theassistance customarily provided through the Fund'sconsultation procedures under Article IV or in con-nection with adjustment programs.

During 1983/84, the IMF Institute continued the highlevel of operations of previous years. It conducted 13courses, and for the second time held seminars onCentral Banking and on Budgeting and ExpenditureControl. The number of participants attending seminarstotaled 63, a decline from 84 in 1982/83 when threeseminars were held, while the number of participantsin the regular Institute training courses increased by142 to 426. Altogether, some 4,000 officials from 145member countries have participated in the programsof the IMF Institute since its inception in 1964.

The 18-week Financial Analysis and Policy coursein English presented an exposition of the Fund'sprocedures and policies, and examined the tools ofeconomic analysis and forecasting. It devoted specialattention to the instruments of monetary, fiscal, andbalance of payments policies that are being employedunder changing national and international conditions.Special facilities were provided to permit Arabic-speaking participants to follow the course in their ownlanguage. The 12-week course on Financial Program-ming and Policy, conducted separately in English,French, and Spanish, is shorter and more intensivethan the course on Financial Analysis and Policy. Itreviewed techniques of financial programming, ex-

amined the Fund's procedures and policies, and dealtwith the problems of policy formulation and imple-mentation related to the short-term and medium-termeconomic management. The course on Techniquesof Economic Analysis was conducted in Englishand French over an 8-week period. It described theprincipal macroeconomic accounts, the tools of eco-nomic analysis, and the Fund's policies and proce-dures. Special arrangements for Arabic-speaking par-ticipants were also made for this course. The 10-weekcourse on Public Finance was offered in English, incooperation with the Fiscal Affairs Department. Itdealt with the objectives, instruments, and proceduresof public finance, emphasizing the fiscal problems ofdeveloping countries. The 8-week course on Bal-ance of Payments Methodology was presented inEnglish, in collaboration with the Bureau of Statistics.It focused on the concepts and definitions that areused in the Fund's Balance of Payments Manual. The8-week course on Government Finance Statisticswas conducted in English and French, also in coop-eration with the Bureau of Statistics. This courseapplied the concepts, definitions, and procedures inthe Draft Manual on Government Finance Statisticsfor compiling statistics from accounts in the publicsector.

The Institute's External Training activities under-went considerable expansion during 1983/84. Countryseminars were conducted in Egypt and Nepal andfocused on the economic problems and policy issuesfacing these countries; a regional seminar on financialpolicy was held in Barbados, concentrating on issuesof common interest to the Caribbean countries; and acourse on banking and monetary policy was conductedin China. Lecturing assistance was also provided tofive regional organizations and national training insti-tutions.

The provision of technical assistance on fiscal mat-ters to member countries continues to be a majoractivity of the Fiscal Affairs Department. Advice againcovered a wide range of fiscal subjects on both policyand administration related to taxes, the budget systemand procedures, accounting, auditing, and financialreporting. Such technical assistance contributed tosuccessful adjustment in a number of countries byeasing constraints on the effective implementation offiscal adjustment measures. This assistance continuedto be given through a mixture of staff missions andthe use of members of the panel of fiscal experts, mostoften by field assignments. In 1983/84 technical as-sistance was given to 44 countries, compared with 45in 1982/83, 52 in 1981/82, and 38 in 1980/81. During1983/84 there were 42 long-term and 38 short-termassignments in the field, totaling 80 individual assign-ments and 379 man-months; 56 panel members and 19

92



staff members undertook technical assistance work.Support and guidance to experts in the field is providedfrom headquarters. In January-February 1984, theFiscal Affairs Department held a French-language sem-inar on budget and expenditure control problems,attended by 32 senior officers from member countries.

Technical assistance continued to be provided bythe Central Banking Department through the assign-ment of resident experts to member countries andthrough advisory services. During the financial year,experts and consultants served on assignments inexecutive or advisory positions with central monetaryinstitutions and provided about 91 staff-years of as-sistance, most of which was in the fields of researchand statistics, bank supervision, and banking andforeign exchange operations. Departmental staff car-ried out 23 advisory and assessment missions andparticipated in 9 missions led by Area Departments.Advice was given on topics that included centralbanking and financial system legislation (in cooperationwith the Legal Department), procedures to follow inorganizing a monetary union, organization and oper-ation of central banks, structure and development ofthe financial system, and the design of monetary policyinstruments.

The program of technical assistance in the area ofexternal debt, which was instituted in the CentralBanking Department last year, underwent significantexpansion during the financial year. Experts and con-sultants have been assigned to 14 member countriesto assist in the establishment of a permanent nationalmachinery for the reporting, control, and managementof external debt operations, and in the collection ofdebt statistics.

A second seminar on central banking, attended bysenior officials of central banks of member countries,was conducted jointly by the Central Banking De-partment and the IMF Institute in August 1983. TheDepartment also collaborated with the Institute inconducting the course on banking and monetary policyin China in October 1983. During the year, furtherprogress was made in expanding the Department'scomputerized data base of central banking legislationand in instituting new research programs in support ofthe advisory work of the Department.

Technical assistance in statistics continues to be animportant part of the work of the Bureau of Statistics,which makes such assistance available through mis-sions to member countries and visits by nationaltechnicians to Fund headquarters for training. Thebulk of the assistance is provided through missionsthat are undertaken in response to requests frommember countries and is concentrated on statisticalassistance in money and banking, balance of payments,government finance, international banking, and general

economic data. During 1983/84, the staff of the Bureauof Statistics participated in 72 technical assistancemissions to 57 countries and 2 regional organizations(Central Bank of West African States and the EasternCaribbean Central Bank). Bureau staff also gave lec-tures on balance of payments methodology, govern-ment finance statistics, and other statistics. In addition,13 officials from countries or regional organizationsvisited the Bureau for training in the various fields ofstatistics.

In 1983/84, the Bureau of Computing Services pro-vided technical assistance to two member countries—Pakistan and Ethiopia—to review the current computerapplications, methodology, and procedures for pro-cessing financial and economic data, to assess theavailable computing technology and facilities, and toprovide technical advice on the development of acomprehensive plan for the establishment of comput-erized data bases. These data bases will benefit themember country and will support the work of theBureau of Statistics and the respective Area Depart-ments by providing timely and convenient access toaccurate financial and economic data.

Relations with Other InternationalOrganizations

Considerations relating to the problem of the un-precedented levels of external debt of a number ofdeveloping member countries heavily influenced theFund's relations with other international organizationsin the economic and financial fields during the pastyear. As noted earlier, perhaps the most obvious andimmediate manifestation of the Fund's involvement inthe areas of debt renegotiation and aid coordinationwas the attendance by its staff at the series of meetingson the rescheduling of external debt, which have cometo be known as Paris Club meetings. During 1983/84,the Fund attended meetings on debt reschedulings forBrazil, the Central African Republic, Ecuador, IvoryCoast, Liberia, Madagascar, Malawi, Morocco, Peru,Romania, Senegal, Sierra Leone, Zaire, and Zambia.The Fund was also represented at a meeting of principalaid donor countries with Morocco convened by theWorld Bank in Washington on September 28, 1983,and, pursuant to that meeting, convened a gatheringat the Fund's Paris Office on November 3, 1983 on thesubject of coordination of balance of payments assist-ance to Morocco. At the invitation of the World Bank,the Fund participated in meetings of the Aid Groupsfor Bangladesh, Nepal, and Sri Lanka, in the Con-sultative Group meetings for Ghana, Kenya, Mauritius,the Philippines, Somalia, Sudan, Uganda, and Zaire,and in the meetings of the Consortia for India and for

93


ANNUAL REPORT, 1984

Pakistan, all convened in Paris. A Fund staff memberwas also present at the twenty-sixth meeting of theIntergovernmental Group on Indonesia, held onJune 13-14, 1983 in The Hague, under the sponsorshipof the Government of the Netherlands.

The Fund strengthened its already close ties withother international and regional organizations sharingcommon interests, especially the World Bank, withwhich it has developed a unique relationship over theyears. Information and expertise are regularly ex-changed between the two institutions, and staff mem-bers of each organization participate, on occasion, inthe missions and related activities of the other. Co-operation with the Organization of American States,especially with its Inter-American Economic and So-cial Council and the Permanent Executive Committee,and with regional development and financial institu-tions in Africa, Asia and the Pacific area, Latin Americaand the Caribbean, and the Middle East has also been,and continues to be, of considerable importance to theFund. Relations with the United Nations are main-tained primarily by the Office of the Fund's SpecialRepresentative to the United Nations in New York,as well as by frequent exchanges of views and byoccasional exchanges of documents with the agency'srelevant organs, especially with the regional economiccommissions. The Fund maintains a European officein Paris, among the responsibilities of which is themaintenance of continuous liaison with the Organiza-tion for Economic Cooperation and Development, theCommission of the European Communities, and theBank for International Settlements. The Fund's Officein Geneva is responsible for liaison with the UnitedNations Conference on Trade and Development(UNCTAD) and its various bodies, and with theGeneral Agreement on Tariffs and Trade (GATT).These efforts are supplemented, as necessary, by theassignment of headquarters' staff and resident repre-sentatives in the field. Activities include the exchangeof pertinent documents with other organizations andthe attendance by staff members at meetings andseminars, either as participants or as observers.

As part of the Fund's effort to strengthen its rela-tionship with the GATT, information and expertise,as well as copies of pertinent documents, were pro-vided to that organization's Committee on Balance ofPayments Restrictions in connection with its consul-tations with common member countries on trade re-strictions imposed for balance of payments purposes.A Fund observer was also present at certain meetingsof the GATT Council of Representatives, and at thethirty-ninth session of the CONTRACTING PARTIES. Inresponse to a request received by the Managing Di-rector from the Director-General of the GATT, Fundstaff prepared a paper entitled "Exchange Rate Vol-

atility and World Trade," for use by both organiza-tions and published by the Fund as Occasional PaperNo. 28.

The Managing Director participated in the meetingof the ministers of seven major industrial countriesheld in Paris on May 11, 1983, to discuss trade andfinance linkages, and attended the celebrations for theWorld Day of Peace held on May 25, 1983 at theUnited Nations Industrial Development Organization'sheadquarters in Vienna. He addressed the meeting ofUNCTAD VI in Belgrade on June 8, 1983 and theSecond Regular Session of the United Nations Eco-nomic and Social Council in Geneva on July 8. Heparticipated in meetings of the Bank for InternationalSettlements, held in Basle, in July and November 1983,delivered an address to the United Nations Adminis-trative Committee on Coordination in New York onOctober 27, 1983, and presented a statement to theLondon meeting of that body on April 16, 1984. TheManaging Director also took part in the meetings ofthe ministers and central bank governors of the Groupof Ten in Washington on September 24, 1983 andApril 12, 1984, as well as a gathering of the ministersand governors of five major industrial countries onApril 11, 1984. In addition, he attended a meeting ofthe Group of Ten governors in Basle on November 7,1983. He attended the ministerial meetings of theIntergovernmental Group of Twenty-Four on Inter-national Monetary Affairs, which took place in Wash-ington, D.C. on September 24, 1983 and April 11,1984, at the time of the Interim and DevelopmentCommittee meetings. He was also present at a meetingin New York convened by the Secretary-General ofthe United Nations on March 20, 1984 to discuss theeconomic problems of Africa.

The Fund often shares its technical expertise withregional organizations, through the participation ofFund staff in seminars and joint studies. In 1983/84,staff members participated in a seminar on exchangecontrol policies and economic development for centralbank officials of member states of the African Centrefor Monetary Studies, held under the sponsorship ofthat institution in Bujumbura, Burundi, April 24-May 4, 1984. At the request of the Arab MonetaryFund (AMF), a training advisor was provided toorganize a Banker's Training Institute to providecourses and seminars in central and commercial bank-ing, so as to upgrade skills and strengthen the financialstructure of the organization's 20 members. Also, theFund provided an advisor to work with the AMF'sTreasury and Investments Department to assist in themanagement of the investment portfolio. The Fundadvised the Commission of the European CommunitiesDirectorate-General of Economic and Financial Affairson development of its work in forecasting and policy

94


analysis and on the implementation of a previous study,prepared with Fund assistance, on the suitability ofthe Commission's macroeconomic and internationaltrade models. At the request of the CooperationCouncil of the Arab States of the Gulf, the Fundprovided technical assistance for a study on bankingarrangements in the region, and is preparing anotherstudy on exchange arrangements in the six membercountries of the organization.

Executive Directors and Staff

In the year ended April 30, 1984, there were 114appointments to the Fund's regular staff and 73 sep-arations. At the end of the financial year, the staffnumbered 1,619 and was drawn from 96 countries.


External Relations

During the financial year the Fund continued itsprogram of seminars for nonofficials. Begun in 1981,the seventh and eighth seminars in the program wereconducted in German on October 11-14,1983 in Baden,Austria, and in French on April 24-27 in Dakar,Senegal. These seminars are aimed at promoting un-derstanding of what the Fund is doing to help memberssolve their balance of payments problems. Thoseparticipating in the seminars are scholars, journalists,and others interested in the work of the Fund. Theproceedings of the seminars are usually published inthe language in which they are conducted. The pub-lications issued by the Fund in 1983/84 are listed inAppendix I, Table 1.14.

95


Appendices

PageI. Fund Activities in 1983/84 101

List of Tables

I.I. Exchange Rates and Exchange Arrangements, June 29, 19841.2. Increases in Quotas, April 30, 1983 and April 30, 19841.3. Fund Stand-By Arrangements for Members, Financial Year

Ended April 30, 19841.4. Summary of Members' Purchases and Repurchases, Financial

Years Ended April 30, 1948-841.5. Summary of Stand-By Arrangements That Became Effective

During the Financial Years Ended April 30, 1953-841.6. Purchases of Currencies and SDRs from the Fund, Financial Year

Ended April 30, 19841.7. Repurchases of Currencies from the Fund, Financial Year Ended

April 30, 19841.8. Extended Fund Facility Arrangements for Members, July 7, 1975-

April 30, 19841.9. Borrowing in Connection with Purchases Under the

Supplementary Financing Facility and Repayments to Lenders,May 29, 1980-April 30, 1984

1. 10. Schedule of Fund Charges1. 11. Transfers of SDRs, January 1, 1970-April 30, 19841.12. Summary of Transactions and Operations in SDRs, Financial

Year Ended April 30, 19841.13. Members That Have Accepted the Obligations of Article VIII,

April 30, 19841.14. Publications Issued, Financial Year Ended April 30, 1984

II. Principal Policy Decisions of the Executive BoardA. Surveillance over Members' Exchange Rate Policies

(a) Review of Surveillance over Exchange Rate Policies(b) Review of Implementation of Procedures for Surveillance . . . .Attachment to Decision No. 7646-(84/40): Managing Director's

Summing UpB. Adoption of Term "SDR" as Standard Usage by FundC. SDR Interest Rate and Related Matters: Amendment of Rules 1-9,

MO, and T-lD. Rate of Remuneration: Amendment of Rule I- 10E. Level of Fund's SDR HoldingsF. Policy on Enlarged Access to the Fund's Resources: Extension of

PeriodG. Policy on Enlarged Access to the Fund's Resources: Criteria for

Amount of Access in Individual Cases

102106

109

110

110

111

113

115

116116117

118

122123

124124124124

124128

128129130

130

131

97


APPENDICES

Page

H.

I.

J.

K.

L.M.

N.O.

P.Q.R.S.

T.

HI.

IV.

V.

VI.

VII.

VIII.

98

Chairman's Summary of Executive Board DiscussionAttachment to Chairman's Summary: Section II of Staff PaperPolicy on Enlarged Access to the Fund's Resources: Guidelines

on Access LimitsPolicy on Enlarged Access to the Fund's Resources: Use of

Ordinary and Borrowed ResourcesValue Date of Purchases Under Arrangements Involving Enlarged

Access Resources(a) Amendment of Rule G-4(b)(b) Amendment of Forms of Stand-By and Extended

ArrangementsOverdue Payments to the Fund: Performance Criterion Under

Stand-By and Extended ArrangementsOil Facility: Subsidy Account — Final Report on TerminationCompensatory Financing of Export Fluctuations: Guidelines on

CooperationAttachment to Decision No. 7528-(83/140): EBS/83/171,

Supplement 1Compensatory Financing of Export Fluctuations: Access LimitsCompensatory Financing of Fluctuations in the Cost of Cereal

Imports: Access LimitsBuffer Stock Financing Facility: Access LimitsGuidelines for Borrowing by the FundGeneral Arrangements to Borrow: Transferability of ClaimsBorrowing Agreement with Saudi Arabia in Association with the

General Arrangements to Borrow: Transferability of Claims . . .Treatment of Reserve Tranche — Attribution of Reduction in

Fund's Holdings of Currencies: Review

Press Communiques of the Interim Committee and theDevelopment Committee

Interim Committee of the Board of Governors on the InternationalMonetary System

Press CommuniquesTwenty-First Meeting, Washington, September 25, 1983

Annex: Interim Committee Attendance, September 25, 1983Twenty-Second Meeting, Washington, April 12, 1984

Annex: Interim Committee Attendance, April 12, 1984Joint Ministerial Committee of the Boards of Governors of the

Bank and the Fund on the Transfer of Real Resources toDeveloping Countries (Development Committee)

Press CommuniquesTwenty-Second Meeting, Washington, September 26, 1983 . .Twenty-Third Meeting, Washington, April 13, 1984

Executive Directors and Voting Power on April 30, 1984

Changes in Membership of Executive Board

Administrative Budget

Comparative Statement of Income and Expense

Financial Statements

131132

134

135

135135

135

136136

137

137138

138138138139

140

141

142

142142142144145147

149149149150

154

157

160

161

162


APPENDICES

99

Report of the External Audit CommitteeGeneral Department

Balance SheetStatement of Income and ExpenseStatement of Changes in ReservesNotes to the Financial Statements

Schedule 1Schedule 2Schedule 3Schedule 4

SDR DepartmentStatement of Allocations and HoldingsStatement of Receipt and Use of SDRsNote to the Financial Statements

Subsidy AccountStatement of Financial PositionNotes to the Financial Statement

Supplementary Financing Facility Subsidy AccountBalance SheetStatement of Changes in ResourcesNotes to the Financial Statements

Trust FundBalance SheetStatement of Income and ExpenseStatement of Changes in Trust ResourcesNotes to the Financial Statements

Staff Retirement PlanReport of the External Audit CommitteeStatement of Accumulated Plan Benefits and Net AssetsAvailable for BenefitsStatement of Changes in Accumulated Plan BenefitsStatement of Changes in Net Assets Available for Benefits . .Notes to the Financial Statements

Page162163163164165166170173174175176176177178179179180181181182183184184185186187188188

189190191192


Appendix IFund Activities in 1983/84

This appendix supplements the information on the Fund given in Chapter 3.In general, the statistical data contained in the tables do not go beyond the endof the financial year ended April 30,1984. In two tables in this appendix, however,data relating to a later period are included, viz., Table I.I on exchange rates andexchange arrangements and Table 1.10 setting forth the charges on the use of theFund's resources.

101


Table I.I. Exchange Rates and Exchange Arrangements, June 29, 1984 'Pegged to Limited Flexibility More Flexibility3

Member Currency U.S. dollar2

Currency Under AdjustedOther composite Vis-a-vis cooperative according Other

French single other single arrange- to a set of managed Floatingfranc2 currency2 SDR2 than SDR3 currency3-4 ments^-5 indicators floating independently

Afghanistan AfghaniAlgeria dinarAntigua and East Caribbean

Barbuda dollarArgentina peso argentineAustralia dollar

Austria schillingBahamas dollarBahrain dinarBangladesh takaBarbados dollar

Belgium francBelize dollarBenin francBhutan ngultrumBolivia peso

Botswana pulaBrazil cruzeiroBurma kyatBurundi francCameroon franc

Canada dollarCape Verde escudoCentral African

Republic francChad francChile peso

China yuanColombia pesoComoros francCongo francCosta Rica co!6n

Cyprus poundDenmark kroneDjibouti francDominica East Caribbean

dollarDominican Republic peso

Ecuador sucreEgypt poundEl Salvador co!6nEquatorial Guinea ekweleEthiopia birr

Fiji dollarFinland markkaFrance francGabon franc

2.70

1.00

2.0113

2.00

2,019.5

50.00l.OO6

19.526

4.930750.60

25.200.376

177.721

2.701.00

0.702.50

2.072.00 7

50.004.00 8

50.00

50.0050.00

50.0050.00

8.1385122.7

1.22085

84.4388

2.2473

0.57921

1.072965.901

56.680

50.8601.16104

1,719.00

91.48

100.40

10.2125

8.5445

41.75

1.3194

63.15

Gambia the


Germany, FederalRepublic of

GhanaGreeceGrenada

Guatemala

GuineaGuinea-BissauGuyanaHaitiHonduras

HungaryIcelandIndiaIndonesiaIran, Islamic

Republic of

IraqIrelandIsraelItalyIvory Coast

JamaicaJapanJordanKampuchea,

Democratic 9

Kenya

KoreaKuwaitLao People's

DemocraticRepublic

LebanonLesotho

LiberiaLibyan Arab

JamahiriyaLuxembourgMadagascarMalawi

MalaysiaMaldivesMaliMaltaMauritania

MauritiusMexicoMoroccoNepalNetherlands

New ZealandNicaraguaNigerNigeriaNorway

deutsche markcedidrachmaEast Caribbean

dollarquetzal

sylipesodollargourdelempira

forintkr6narupeerupiah

rial

dinarpoundshekellirafranc

dollaryendinar

delshilling

wondinar

poundloti

dollar

dinarfrancfranckwacha

ringgitrufiyaafrancliraouguiya

rupeepesodirhamrupeeguilder

dollarcordobafrancnairakrone

35.02.7842

2.701.00

5.002.00

24.6853

3.75

49.0497

92.30

0.310857

50.001,716.025

110.25

84.054

29.9811.1998

1,015.0

236.40

0.387747

14.786818

237.50

0.29431

803.4

1.00

0.296053

6.0250

50.00

601.7111.39140

2.3200

0.45693466.52

13.600

56.68

7.05

50.00

16.10

7.9915

3.1535

167.468.8209

0.74855$

l.OO10

3.85

10.00

10.00

0.909091

1.57754


Table LI (concluded). Exchange Rates and Exchange Arrangements, June 29, 1984 'Pegged to Limited Flexibility More Flexibility3

Currency Under AdjustedOther composite Vis-a-vis cooperative according Other

French single other single arrange- to a set of managed FloatingMember Currency U.S. dollar2 franc 2 currency 2 SDR2 than SDR3 currency 3 - 4 ments 3 - 5 indicators floating independently

OmanPakistan rupeePanama balboaPapua New Guinea kinaParaguay guarani

Peru solPhilippines pesoPortugal escudoQatar riyalRomania leu

Rwanda francSt. Lucia East Caribbean

dollarSt. Vincent East Caribbean

dollarSao Tom<£ and

Principe dobraSaudi Arabia riyal

Senegal francSeychelles rupeeSierra Leone leoneSingapore dollarSolomon Islands dollar

Somalia shillingSouth Africa randSpain pesetaSri Lanka rupeeSudan pound

Suriname guilderSwaziland lilangeniSweden kronaSyrian Arab

Republic poundTanzania shilling

Thailand bahtTogo francTrinidad and Tobago dollarTunisia dinarTurkey lira

Uganda shillingUnited Arab

Emirates dirhamUnited Kingdom poundUnited States dollarUpper Volta franc

Uruguay new pesoVanuatu vatuVenezuela bolivarViet Nam dongWestern Samoa tala

0.3454

1.00

160.00

2.70

2.70

2.50

1.30

1.785

3.925

2.4090

7.50

50.00

50.00

50.00

l.OO10

0.816994

102.71

45.25

7.2345

100.60

10.37883

14 r>

2.13251.28107

8.184

17.1714

0.76150

23.00

1 £.11

3.64

3.505

3,335.08

143.71418.002

13.9878

17.5556

157.89525.17

369.94

320.00

0.7392631.00

53.88

1.81732

1.35446

rialomani


Yemen ArabRepublic

Yemen, People'sDemocraticRepublic of

Yugoslavia

ZaireZambiaZimbabwe

rial

dinardinar

zairekwachadollar

5.410

0.345399

1.67870 1.201201

143.1968

36.20

1 For further explanation of the classification of exchange rate arrangements, in particular maximum margins of 2.25 percent (for the Italian lira, 6 percent) for exchange rates infor members that maintain dual exchange markets involving multiple exchange rate transactions in the official markets between their currencies and those of the other countriesarrangements, see Table 10. Exchange rates for Zambia and Nigeria are for the end of in this group.April and the end of May, respectively. 6 Per Indian rupee

2 Rates as notified to the Fund and in terms of domestic currency units per unit listed. 7 Per Spanish peseta.3 Market rates in domestic currency units per U.S. dollar. 8 Per pound sterling.4 All exchange rates have shown limited flexibility against the U.S. dollar. 9 Information not available.5 Belgium, Denmark, France, the Federal Republic of Germany, Ireland, Italy, Luxem- 10 Per South African rand,

bourg, and the Netherlands are participating in the European Monetary System and maintain


APPENDIX I (continued). FUND ACTIVITIES IN 1983/84

Table 1.2. Increases in Quotas,(In millions of SDKs)

Member

AfghanistanAlgeriaAntigua and BarbudaArgentinaAustralia

AustriaBahamasBahrainBangladeshBarbados

BelgiumBelizeBeninBhutanBolivia

BotswanaBrazilBurmaBurundiCameroon

CanadaCape VerdeCentral African RepublicChadChile

ChinaColombiaComorosCongoCosta Rica

CyprusDenmarkDjiboutiDominicaDominican Republic

EcuadorEgyptEl SalvadorEquatorial GuineaEthiopia

FijiFinlandFranceGabonGambia, The

Germany, Federal Republic ofGhanaGreeceGrenadaGuatemala


HungaryIcelandIndiaIndonesiaIran, Islamic Republic of


April 30, 1983

Quota onApril 30, 1983

67.50427.50

3.60802.50

1,185.00

495.0049.5030.00

228.0025.50

1,335.007.20

24.001.70

67.50

13.50997.50109.5034.5067.50

2,035.503.00

24.0024.00

325.50

1,800.00289.50

3.5025.5061.50

51.00465.00

5.702.90

82.50

105.00342.0064.5015.0054.00

27.00393.00

2,878.5045.0013.50

3,234.00159.00277.50

4.5076.50

45.005.90

37.5034.5051.00

375.0043.50

1,717.50720.00660.00

234.10232.50307.50

1,860.00114.00

and April 30, 1984


86.70623.10

5.001,113.001,619.20

775.6066.4048.90

287.5034.10

2,080.409.50

31.302.50

90.70

22.101,461.30

137.0042.7092.70

2,941.004.50

30.4030.60

440.50

2,390.90394.20

4.5037.3084.10

69.70711.00

8.004.00

112.10

150.70463.4089.0018.4070.60

36.50574.90

4,482.8073.1017.10

5,403.70204.50399.90

6.00108.00

57.907.50

49.2044.1067.80

530.7059.60

2,207.701,009.70

660.002

504.00343.40446.60

2,909.10165.50

1

Effective Dateof Change

Dec. 30, 1983Dec. 21, 1983Dec. 30, 1983Dec. 28, 1983Dec. 23, 1983


Dec. 9, 1983Dec. 30, 1983Dec. 30, 1983Jan. 27, 1984Dec. 29, 1983



Dec. 30, 1983Dec. 23, 1983Mar. 16, 1984Dec. 30, 1983Dec. 27, 1983

Dec. 30, 1983Dec. 30, 1983Mar. 12, 1984Dec. 23, 1983Dec. 28, 1983





Dec. 23, 1983Dec. 29, 1983Dec. 30, 1983Dec. 27, 1983

Feb. 28, 1984Dec. 30, 1983Dec. 30, 1983Dec. 29, 1983Dec. 30, 1983

106



Table 1.2 (continued). Increases in Quotas, April 30, 1983 and April 30, 1984 '(In millions of SDKs)

Member

JamaicaJapanJordanKampuchea, Democratic 3

Kenya

KoreaKuwaitLao People's Democratic RepublicLebanonLesotho

LiberiaLibyan Arab JamahiriyaLuxembourgMadagascarMalawi




OmanPakistanPanamaPapua New GuineaParaguay

PeruPhilippinesPortugalQatarRomania

RwandaSt. LuciaSt. VincentSao Tome and PrincipeSaudi Arabia

SenegalSeychellesSierra LeoneSingaporeSolomon Islands

SomaliaSouth AfricaSpainSri LankaSudan

SurinameSwazilandSwedenSyrian Arab RepublicTanzania

ThailandTogoTrinidad and TobagoTunisiaTurkey


111.002,488.50

45.0025.00

103.50

255.90393.3024.0027.9010.50

55.50298.4046.5051.0028.50

379.501.40

40.5030.0025.50

40.50802.50225.0028.50

1,422.00

348.0051.0024.00

540.00442.50

30.00427.5067.5045.0034.50

246.00315.00258.0066.20

367.50

34.505.402.603.00

2,100.00

63.002.00

46.5092.403.20

34.50636.00835.50178.50132.00

37.5018.00

675.0094.5082.50

271.5028.50

123.0094.50

300.00


145.504,223.30

73.9025.00

142.00

462.80635.3029.3078.7015.10

71.30515.7077.0066.4037.20

550.602.00

50.8045.1033.90

53.601,165.50

306.6037.30

2,264.80

461.6068.2033.70

849.50699.00

63.10546.30102.2065.9048.40

330.90440.40376.60114.90523.40

43.807.504.004.00

3,202.40

85.103.00

57.9092.40 2

5.00

44.20915.70

1,286.00223.10169.70

49.3024.70

1,064.30139.10107.00

386.6038.40

170.10138.20429.10


Feb. 10, 1984Dec. 23, 1983Dec. 30, 1983

Dec. 30, 1983

Dec. 30, 1983Dec. 20, 1983Feb. 24, 1984Dec.. 30, 1983Dec. 28, 1983

Dec. 30, 1983Apr. 13, 1984Dec. 22, 1983Dec. 20, 1983Dec. 7, 1983



Dec. 30, 1983Apr. 10, 1984Dec. 30, 1983Dec. 23, 1983Dec. 29, 1983


Feb. 17, 1984Dec. 28, 1983Dec. 30, 1983Dec. 28, 1983Dec. 23, 1983

Dec. 30, 1983Dec. 30, 1983Dec. 28, 1983Jan. 31, 1984Dec. 30, 1983

Dec. 30, 1983Dec. 20, 1983Dec. 30, 1983

—Dec. 20, 1983


Dec. 30, 1983Dec. 30, 1983Dec. 30, 1983Feb. 23, 1984Dec. 22, 1983


107



Table 1.2 (concluded). Increases in Quotas, April 30, 1983 and April 30, 1984(In millions of SDKs)

Member

UgandaUnited Arab EmiratesUnited KingdomUnited StatesUpper Volta

UruguayVanuatuVenezuelaViet NamWestern Samoa

Yemen Arab RepublicYemen, People's Democratic

Republic ofYugoslaviaZaireZambia


75.00202.60

4,387.5012,607.50

24.00

126.006.90

990.00135.00

4.50

19.50

61.50415.50228.00211.50


99.60202.60 2

6,194.0017,918.30

31.60

163.809.00

1,371.50176.80

6.00

43.30

77.20613.00291.00270.30


Dec. 22, 1983

Dec. 30, 1983Dec. 29, 1983Jan. 4, 1984


Dec. 29, 1983

Dec. 30, 1983Dec. 26, 1983Dec. 12, 1983Dec. 28, 1983

Zimbabwe 150.00 191.00 Feb. 3, 1984

1 Board of Governors Resolution No. 38-1, Increases in Quotas of Members—Eighth GeneralReview, adopted March 31, 1983.

2 The Islamic Republic of Iran, Singapore, and the United Arab Emirates did not consent to thequota increases proposed for them under the Eighth General Review.

3 Democratic Kampuchea did not participate in the Eighth General Review of Quotas.

108

1



1 Arrangement canceled on January 23, 1984.2 Arrangement canceled on September 13, 1983.3 Arrangement approved in financial year 1981/82 and canceled on January 31, 1984.4 Arrangement canceled on September 18, 1983.5 Arrangement canceled on April 3, 1984.

109

ArgentinaBangladeshBarbadosCentral African RepublicChile

Costa RicaEcuadorEl SalvadorGambia, TheGhana

GuatemalaGuineaHaiti

HondurasHungary

KenyaKoreaLiberia

Madagascar

Malawi

Mali

MauritiusMoroccoNigerPanama

PeruPhilippinesPortugalRomaniaSenegal

Sierra LeoneSolomon IslandsSomaliaSouth AfricaSri Lanka

SudanThailandTogoTurkey

Uganda

UruguayWestern SamoaYugoslaviaZaireZambia

ZimbabweTotal

Table 1.3. Fund Stand-By Arrangements for Members, Financial Year Ended April 30, 1984(In millions of SDKs)

Amount Approved Amount ApprovedTotal Number in 1982/83 in 1983/84 Amount Not Amount Notof Stand-Bys Current Arrangement Purchased Purchased

Approved Of which: Of which: at Expira- as offor Member Date of Date of borrowed borrowed tion or Can- April 30,

Member Since 1953 inception expiration Total resources Total resources cellation 1984

1,500.0068.4031.8818.00500.00

92.25

43.00

25.0034.50

76.50475.00

175.95

55.00

51.00

22.00

30.38

315.00

(1,102.50)47.25

60.00364.00

170.00271.5021.37

112.50

378.00

211.50

100 00

5,449.98 2,885.39 4,287.33 2,420.19 1,954.58 3,111.90

15.3614.66246.84

45.88

754.35

157.50

12.83238.50

114.75

17.64

44.62229.26

166.21

44.11

26.05

8.56

150.28

(746.18)23.91

49.38

134.81189.1612.02

97.56

283.50

143.73

187 50

60.00

425.00

575.77

55.00

33.00

63.00

50.202.40

100.00

225.00225.00

95.00

3.38370.00228.00

75.77

6.42121.80

40.5049.50300.0018.00150.00

445.00

250.00

66.92

45.23

212.50

575.77

55.00

16.50

34.6246.87246.33

120.27

222.20

38.32

24.06

57.00

39.44

95.00

185.00135.17

899.49

13.50

13.50

15.30

20.00

10.20

215.00

285.0041.34

205.00

168.75

67.50

3.90

216.00

39.37

10.2047.70

57.37

39.00

297.50

46.15319.77

13.00

30.00

24.5016.50170.008.4075.00

250.00

278.60

15.75

31.201.44

50.00

168.75

30.00

226.80

370.00150.00

125.00

10413

13

8101346

101

19

132

51517

5

3

7

591

16

16334

62

1058

833

15

5

135954

2

Jan.Mar.Oct.Apr.Jan.

Dec.JulyJulyApr.Aug.

Aug.Dec.Aug.Nov.Nov.Dec.Jan.

Mar.JulySeptSeptJulyApr.Aug.

MayDec.MaySeptOct.June

Apr.Feb.Oct.JuneNovSept

Feb.JuneJulyNovSept

Feb.NovMar.JuneApr.Aug.Sept

Apr.JuneApr.Dec.Apr.

Mar.

24,28,

1,22,10,

20,25,16,23,3,

31,1,9,7,5,8,

13,

21,8,

29,14,9,

10,6,

21,9,

18,16,5,

24,

26,25,

7,15,24.19,

3,22,15i3,

14,

23.17.4.

24.4,

i i i16:

22.27!18.27!18,

23,

19831983198219831983

19821983198219841983

1983198219821983198219821984

1983198319821983198219841982

198219831983198319831983

198419831983198119821983

19841983198219821983

1983198219831983198419821983

19831983198419831983

1983

Apr.Aug.MayApr.Jan.

Dec.JulyJulyJulyAug

Dec.NovSeptSeptDec.Jan.Jan.

SeptMarSeptSeptJulyMarAug

MayMayAugMarDecDec

JulyFeb.Feb.JuneNovSept

Feb.JuneJan.DecJuly

MarDecApr,JuneApr,AugSepl

Apr,JuneAprMarApr

Sepl

23,31,31,21,9,

19,24,15,22,2,

31,30,30,30,31,7,

12,

20,31,28,13,8,

31,5,

20,31,17,15,4,

31,

31,28,28,14,23,18,

2,21,14,31,31,

9,31,3,

23,3,

10,15,

21,26,17,26,17,

22,

198411983198419841985

19831984198319851984

1984198319831985198319841985

19841985198321984198319851983

198319851984198519841985

19851984198519843198341984

19851984198419831984

1984198319841984'198519831984

19851984198519851984

1984



Table 1.4. Summary of Members9 Purchases andRepurchases, Financial Years Ended April 30,1948-84(In millions of SDKs)

Total 86,929.45

Table 1.5. Summary of Stand-By Arrangements ThatBecame Effective During the Financial Years EndedApril 30, 1953-84'(In millions of SDKs)

Year

19481949195019511952

19531954195519561957

19581959196019611962

19631964196519661967

19681969197019711972

19731974197519761977

19781979198019811982

19831984

Total Purchasesby Members

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

1,175.431,057.725,102.456,591.424,910.33

2,503.013,719.582,433.264,860.018,040.62

11,391.8911,517.73

Total Repurchasesby Members

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

540.30672.49518.08960.10868.19

4,485.014,859.183,775.832,852.932,009.88

1,555.122,017.65

Year

40,771.30 2

1 Includes purchases that are not subject to repurchase.2 Excludes sales of currency and adjustments that have the effect

of repurchase.

Total

Number

546

Amount

19531954195519561957

19581959196019611962

19631964196519661967

19681969197019711972

19731974197519761977

19781979198019811982

19831984

22229

1115141524

1919242425

3226231813

1315141819

1814242119

2725

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

1,188.024,679.64

1,285.09507.85

2,479.365,197.933,106.21

5,449.984,287.33

49,318.331 Includes renewals and extensions for one year or less, except

the renewals each six months of the stand-by arrangement forBelgium granted in June 1952 until that member purchased the fullamount of the equivalent of SDR 50 million in April 1957.

no


Table 1.6. Purchases of Currencies and SDKs from the Fund, Financial Year Ended April 30, 1984(In millions of SDRs)

Within Credit Tranche

Under stand-by arrangements

MemberPurchasing

AfghanistanAntigua and BarbudaArgentinaBangladeshBarbados

BelizeBeninBoliviaBrazilBurma

CameroonCentral African RepublicChileChadColombia

CongoCosta RicaDjiboutiDominicaDominican Republic


GabonGambia, TheGhanaGrenadaGuatemala


HungaryIndiaIndonesiaIraqIsrael

Ivory CoastJamaicaJordanKenyaKorea

Lao People's Democratic RepublicLiberiaLuxembourgMadagascarMalawi

WithinReserveTranche

15.090.35

77.63——

—1.835.80

115.95—

13.002.70

28.753.25

258.61

3.275.650.580.287.40

30.356.130.854.17

0.040.90

11.380.387.88

4.680.402.932.404.20

——

67.4834.78

12.888.63

16.572.78

51.72

1.333.957.635.03

—

Ordinaryresources

——

136.3045.607.27

—————

_—

73.65——_

33.55———

62.05

—15.50

——

_1.32

97.18—

22.62

—

—18.1413.91

177.11————_

———_2

_

——

1.50—

Supple-mentary Enlargedfinancing accessfacility resources

— —— —— 163.47— —— 8.33_ _

— —— —— —

— —_ _

— 4.50— 88.35— —— —_ _

— 40.25

— —— —— —

— 56.08

— —— —— —— —_ _

— 1.32— 93.62_ _

— 34.76

— —— —— 20.36— 16.69

— 199.79_ _

— —— —— —_ _

— —

— —— 84.60— 256.00_ _

— 42.00

— —— 1.50— 6.00

Under Decision on

Extended Fund facility

Supple-mentary Enlarged Com- Total

Ordinary financing access pensatory Buffer Pur-resources facility resources financing stock chases

— — — — — 15.09— — — — — 0.35— — — — — 377.40— — — — — 45.60— — — — — 15.60

— — — 3.60 — 3.60— — — — — 1.83— — — — — 5.80

748.00 — 748.00 — 64.47 1,676.42— — — 29.15 — 29.15

— — — — — 13.00— — — — — 7.20— — — — — 190.75— — — — — 3.25— — — — — 258.61

— — — — — 3.27— — — 18.60 — 98.05— — — — — 0.58

0.85 1.28 — — _ 2 4 124.75 — 24.75 — 12.64 69.54

— — — 85.40 — 203.53— — — — — 30.35— — — — — 21.63— — — — — 0.85— — — — — 4.17

— — — — — 0.04— — — — — 3.53— — — 120.50 — 322.68— — 1.13 — — 1.50— — — — — 65.26

— — — — — 4.68— — — — — 0.40— — — — — 2.93— — — — — 40.90— — — — — 34.80

— — — — — 376.90750.00 450.001 300.00 — — 1,500.00

— — — 360.00 — 360.00— — — — — 67.48— — — — — 34.78

— H5.43 — — 0.98 129.28— — 74.80 — — 83.43— — — — — 16.57— — — — — 87.38— — — — — 307.72

— — — — — 1.33— — — — — 45.95— — — — — 7.63— — — — — 8.03

H.09 — 3.91 — — 21.00

Purchases Financed with

Ordinary resources

Curren-cies

_

136.30

1.77

_

448.00—_

102.33

100.00

_33.55

0.6221.88

102.68

7.75

—

_

81.70

11.45

10.1013.86

37.82250.00

—

_

16.57

51.73

_

3.59

SDRs

15.090.35

77.6345.605.50

3.601.835.80

480.4229.15

13.002.700.073.25

158.61

3.2724.250.580.51

22.91

44.7730.3513.880.854.17

0.042.22

147.360.38

19.05

4.680.402.93

10.434.25

139.30500.00360.0067.4834.78

13.858.63

2.78—

1.333.957.636.537.50

Supple-- mentary

financingfacility

_

—

_

——_

—

1.28—_

—

_

—

—

_450.00

—

115.43

—

_

—

Enlargedaccess

resources

_

163.47

8.33

_

—748.00

—_

4.5088.35

—

40.25

—24.75

56.08

—

_1.32

93.621.13

34.76

_

20.3616.69

199.79300.00

—

_74.80

84.60256.00

42.00

1.509.91


Table 1.6 (concluded). Purchases of Currencies and SDKs from the Fund, Financial Year Ended April 30, 1984(In millions of SDKs)

Within Credit Tranche Under Decision on

Under stand-by arrangements Extended Fund facility

MemberPurchasing

MaldivesMaliMauritaniaMauritiusMexico

MoroccoNepalNetherlandsNicaraguaNiger

NigeriaPakistanPanamaPeruPhilippines

PortugalRomaniaSenegalSeychellesSao Tom6 and Principe

Sierra LeoneSolomon IslandsSomaliaSri LankaSt. Lucia

SudanSurinameSwazilandSyrian Arab RepublicTanzania

ThailandTogoTurkeyUgandaUruguay

Yemen, People's Democratic Republic ofViet NamWestern SamoaYugoslaviaZaire

ZambiaZimbabwe

Total

WithinReserveTranche

0.452.582.103.28

25.71

20.402.20

79.554.30

—

77.38

8.68

—31.35

48.7738.985.530.690.90

2.85

2.4311.150.53

9.4310.83

—11.156.13

2.48—

6.15—

3.9310.450.38

52.6715.75

14.7110.25

1,353.59

Ordinaryresources

3.00

—2.63

—

53.67

—

9.60

29.73—

50.00

99.3386.8222.19

——

10.540.96

32.79—

4.71

_

—

39.268.90

112.50

—61.57

3.38_

26.56

48.6655.80

1,468.27

Supple-mentary Enlargedfinancing access Ordinaryfacility resources resources

— 13.00 —

— —— 30.37 —— — 601.88

— 76.33 —

— — ———

— — —

_ _ 47.50— 45.27 —— — 111.09— — —

— 67.08 —— 188.68 —— 25.06 —

— — —— — —

— 8.46 —

— 26.25 —— 17.21 —— — —

— 97.29 —

—— —_ _ _

— — —

— 137.44 —— 10.48 —

90.00 — —— 102.50 —— 89.63 —

—

379.00 — —— 51.44 —

— 63.84 —— 59.20 —

469.00 2,227.14 2,295.16

Supple-mentary Enlarged Corn-financing access pensatoryfacility resources financing

— —— — —_ _ —— 601.88 —

— — _

— — ——_ — —

_ _ 24.00

47.50 — —— — 58.90— 53.91 —— — —

— — 258.00

—_ _ _

— — —— — —

—_ _ _

— — —

— —— — 9.00_ _ _

— — —

_ _ _

— — —— — —— — —

— — —— — 1.15_ _ _

— — 114.50

_ _ 97.20_ _ _

614.21 1,808.37 1,180.00

Bufferstock

——

——

——_—

———

———

_

—

_

——

21.81

————

—

——_

2.10

102.00

TotalPur-

chases

0.4518.582.10

36.281,229.46

150.402.20

79.554.30

33.60

77.3895.00

142.58165.0081.35

473.17314.4852.780.690.90

21.850.96

28.6861.150.53

111.4310.839.00

11.156.13

198.5121.85

202.50108.65151.20

3.9310.454.90

431.67208.25

224.41127.35

11,517.73

Purchases Financed with

Ordinary resources

Curren-cies

3.00——

399.62

—

—79.55——

47.5018.3079.4450.00

148.09—

15.030.69

—

8.84

_17.58

—

4.6210.83

—

——

3.63—

—37.79

—3.51

—92.50

112.4247.89

2,612.53

SDRs

0.452.582.105.91

227.97

74.072.20

—4.30

33.60

77.38

—79.0131.6531.35

258.00125.7912.68

—0.90

4.550.%2.43

26.360.53

9.51—

9.0011.156.13

61.067.74

112.506.15

23.78

3.9310.451.39

52.6764.31

48.1520.25

3,786.48

Supple-- mentary Enlarged

financing accessfacility resources

— 13.00

— —— 30.37— 601.88

— 76.33— —

— —— —— —

47.50 —— 45.27— 53.91— —

— 67.08— 188.68— 25.06

— —— —

— 8.46

— —— 26.25— 17.21— —

— 97.29

— —— —— —— —

— 137.44— 10.48

90.00 —— 102.50— 89.63_ _

— —— —379.00 _— 51.44

— 63.84— 59.20

1,083.21 4,035.51

1 Purchase financed from supplementary financing facility resources in substitution for enlarged access resources, Executive Board Decision No. 7047-(82/13), adopted February 5, 1982. (See Selected Decisions of the International MonetaryFund and Selected Documents, Tenth Issue (Washington, 1983), page 58.)

2 Less than SDR 50,000.



Table 1.7. Repurchases of Currencies from the Fund, Financial Year Ended April 30, 1984(In millions of SDKs)

Repurchases in Respect of Purchases of

Borrowed Resources Ordinary Resources

SupplementaryMemberRepurchasing

AustraliaBangladeshBoliviaBurmaBurundi

CameroonCentral African RepublicChileChinaCosta Rica

CyprusDominicaDominican RepublicEgyptEquatorial Guinea

EthiopiaFinlandGabonGambia, TheGhana

Guinea-BissauGuyanaIndiaIsraelJamaica

KenyaKoreaLao People's Democratic RepublicLiberiaMadagascar

MalawiMalaysiaMaliMauritaniaMauritius

MoroccoNepalNicaraguaPeruPhilippines

RomaniaSenegalSierra LeoneSomaliaSouth Africa

Sri LankaSudanTanzaniaThailandTogo

TurkeyUgandaViet NamWestern SamoaYemen, People's Democratic Republic of

Oil facility

_0.9—

—

0.3— 3

0.4

0.5—

—0.7—

7.2—

—

——

—

0.2————

——

0.1—

1.1———3.4

——

—_

—

—

5.7—

0.5

financingfacility

—4.5

—

——

1.3

——

——

—

—

——

21.4

2.218.6

—1.00.6

1.0—

0.56.1_——

42.213.2

1.1

—_8.8

—

67.3—

—

Credit Extended Fundtranche

_8.96.3

11.3—

——450.0 '——

0.38.0——

—6.60.8

16.0

————

11.327.80.62.8—

1.2——

—10.6

——

37.163.3

6.5—4.1

0.450.0 5

9.58.93.8

17.00.9

60.20.31.30.4—

facility

_

——

—

—

———

—————

——

—

———6.7

1.3————

————

———31.9

——

—

6.71.3——

————

Compensatoryfinancing

_

—1.9

4.8

1.3 2

—10.3

3.70.52.3—1.6

18.0——1.7—

0.71.9

66.518.117.8

34.560.0

—10.211.0

9.5—2.6

5.3—

14.03.84.3

15.468.8

66.15.3—

—

26.123.4 6

8.6—

35.815.0

—0.5—

Bufferstock

32.5 '——

—

——

—

——————————

—

———

—

———

l . O 4

—

——

————

————

—

——————

Total

32.59.8

12.711.34.8

0.31.3

3

450.012.0

4.20.8

10.20.71.6

18.07.26.62.5

16.0

0.71.9

66.518.146.0

49.5106.5

0.614.011.6

11.71.02.65.9

16.7

15.13.84.3

94.7180.6

72.66.34.10.4

50.0

16.244.927.225.60.9

169.015.31.30.80.5

113



Table 1.7 (concluded). Repurchases of Currencies from the Fund, Financial Year Ended April 30, 1984(In millions of SDKs)

Repurchases in Respect

Borrowed Resources

MemberRepurchasing

YugoslaviaZaireZambia

Total

Oil facility

3.52.00.7

27.3

Supplementaryfinancingfacility

12.2

202.0

Credittranche

50.018.696.9

991.7

of Purchases of

Ordinary Resources

Extended Fundfacility

47.8

Compensatoryfinancing

138.5

6.1715.3

Bufferstock

33.4

Total

204.220.7

103.62,017.6

1 Early repurchases in accordance with the guidelines for early repurchase, Executive Board Decision No. 6172-(79/101), adoptedJune 28, 1979. (See Selected Decisions of the International Monetary Fund and Selected Documents, Tenth Issue (Washington, 1983),page 103.)

2 Of which, SDR 0.2 million was an overcompensation in a purchase under the compensatory financing decision.3 Less than SDR 50,000.4 Repurchases under the buffer stock financing facility (rubber) in accordance with paragraph 3(b)(i) of Executive Board Decision No. 7246-

(82/147), adopted November 12, 1982. (See Selected Decisions of the International Monetary Fund and Selected Documents, Tenth Issue(Washington, 1983), page 78.)

5 Advance repurchase.6 Of which, SDR 13.9 million was an overcompensation in a purchase under the compensatory financing decision.

114



Table 1.8. Extended Fund Facility Arrangements for Members, July 7, 1975-April 30, 1984(In millions of SDRs)

Member

Approved in previousfinancial years

BangladeshBrazilCosta RicaDominicaDominican RepublicEgyptGabonGuyana

HaitiHondurasIndiaIvory CoastJamaica

KenyaMexico

Morocco

Pakistan

PeruPhilippinesSenegalSierra LeoneSri LankaSudanZaireZambia

Date ofInception

12/8/803/1/83

6/17/812/6/81

1/21/837/28/786/27/806/25/797/25/80

10/25/786/28/7911/9/812/27/816/9/78

6/11/794/13/817/7/751/1/771/1/83

10/8/803/9/81

11/24/8012/2/816/7/824/2/768/8/80

3/30/811/1/795/4/79

6/22/815/8/81

Date ofExpiration

12/7/832/28/866/16/842/5/84

1/20/867/27/81

12/31/826/24/827/24/83

10/24/816/27/8211/8/842/22/846/8/81

6/10/814/12/847/6/78

12/31/7912/31/8510/7/8310/7/83

11/23/8311/23/83

6/6/854/1/798/7/83

2/22/8412/31/81

5/3/826/21/845/7/84

TotalAmount of

Arrangement

800.00 '4,239.38

276.75 2

8.55371.25600.0034.0062.75 3

150.00 4

32.2047.60

5,000.00484.50200.00 5

260.00 6

477.70 7

67.20518.00 8

3,410.63810.00 9

817.05 10

1,268.00"919.00650.00 12

217.00 13

184.80 14

186.00 15

260.30427.00 16

912.00 17

800.00 18

Of Which:BorrowedResources

480.802,842.88

190.654.49

255.75——35.00

116.37

2,595.50324.90

—227.10390.55

——

2,287.13600.00567.00869.00490.12311.56

—126.00121.81

—303.80632.94674.00

Amount NotPurchased atExpiration orCancellation

580.00—

254.25—

—525.0034.0052.7598.2721.4023.70

—38.47

130.00175.0074.9059.50

518.00—663.00

680.55919.00189.00385.00

—143.70152.50

——737.00

500.00

Of TotalAmount Approved,

Amount NotPurchased as ofApril 30, 1984

2,618.50

247.50

1,100.00

2,106.57

Subtotal 24,491.66 14,447.35 6,954.99 6,072.57

Approved duringfinancial year 1983/84

GrenadaMalawi

SubtotalTotal

8/24/839/19/83

8/23/869/18/86

13.50 19

100.00113.50

24,605.16

8.9881.4790.45

14,537.80

12.37

12.376,967.36

85.0085.00

6,157.57

1 Arrangement canceled as of June 21, 1982.2 Canceled as of December 20, 1982 and replaced by a stand-by arrangement.3 Canceled as of June 24, 1980.4 Arrangement augmented by SDR 50.00 million in July 1981 to a total of SDR 150.00 million. Arrangement canceled as of July 22, 1982.5 Canceled as of June 10, 1979.6 Canceled as of April 12, 1981.7 Arrangement augmented by SDR 241.30 million in June 1981 to a total of SDR 477.70 million.8 Includes augmentation by repurchase equivalent to SDR 100.00 million.9 Canceled as of March 8, 1981.10 Arrangement canceled as of April 25, 1982 and replaced by a stand-by arrangement.11 Canceled as of December 1, 1981.12 Arrangement canceled as of April 25, 1984.13 Includes augmentation by repurchase equivalent to SDR 38.75 million.14 Canceled as of September 10, 1981 and replaced by a stand-by arrangement.15 Arrangement augmented by SDR 22.30 million in June 1981 to a total of SDR 186.00 million. Arrangement canceled as of April 6, 1982.16 Arrangement augmented by SDR 227.00 million in November 1980, canceled on February 17, 1982, and replaced by a stand-by

arrangement.17 Arrangement canceled as of June 22, 1982.18 Arrangement canceled as of July 3, 1982.19 Arrangement canceled as of January 23, 1984.

115



Table 1.9. Borrowing in Connection with Purchases Under the Supplementary Financing Facility and Repaymentsto Lenders, May 29, 1980-April 30, 1984(In millions of SDKs)

Lender

Abu DhabiAustrian National BankBanque Nationale de BelgiqueCanadaDeutsche Bundesbank

Banco de GuatemalaJapanCentral Bank of KuwaitDe Nederlandsche Bank, N.V.Central Bank of Nigeria

Saudi Arabian Monetary AgencySwiss National BankUnited StatesCentral Bank of Venezuela

Total

Total Amountof Agreement

150.0050.00

150.00200.00

1,050.00

30.00900.00400.00100.00220.00

1,934.00650.00

1,450.00500.00

7,784.00

AmountBorrowed

105.2250.0012.34

173.611, 050.00 3

8.36 4

886.69400.00100.0069.85 5

1,906.74 3

650.001,450.00

369.427,232.22 6

AmountUndrawn atExpirationof Agree-ments l

44.78

137.6626.39

21.6413.31

150.15

27.26

—130.58551.78

AmountRepaid 2

4.580.993.084.11

8.3633.5412.242.58

69.85

107.1921.8731.8717.14

317.39

BorrowingOutstanding as of

April 30, 1984

100.6449.019.25

169.50877.99

853.15387.7697.42

1,971.56628.13

1,418.13352.28

6,914.83

1 Agreements lapsed on February 22, 1984.2 Repayments began on November 24, 1982.3 Claims totaling SDR 172.011 million under the supplementary financing facility were transferred by the Deutsche Bundesbank to the

Saudi Arabian Monetary Agency against U.S. dollars on November 13, 1980.4 Claims totaling SDR 8.356 million were repaid in advance to the Banco de Guatemala on February 8, 1982. This encashment was

refinanced by a call on the Swiss National Bank.5 Claims totaling SDR 69.850 million were repaid in advance to the Central Bank of Nigeria on April 8 and 9, 1982. This encashment was

financed by calls in equal amounts under the supplementary financing facility borrowing agreements with Japan and the United States, inagreement with these lenders.

6 Of which, SDR 1,083.21 million was borrowed in the financial year 1983/84.

Table 1.10. Schedule of Fund Charges

Charges in percent per annum1 payable on holdings for the periods stated:

PURCHASES IN THE CREDIT TRANCHES AND UNDER THE COMPENSATORYFINANCING, BUFFER STOCK FINANCING, AND EXTENDED FUND FACILITIES

Service chargePeriodic charge

May 1, 1982through

April 30, 1984

0.56.6

FromMay 1, 1984

0.57.0


Up to 3!/2 yearsOver 3*/2 years

SUPPLEMENTARY FINANCING FACILITY0.5

Rate of interest paid by the Fund plus 0.2 percentRate of interest paid by the Fund plus 0.325 percent


ENLARGED ACCESS POLICY0.5Net cost of borrowing by the Fund plus 0.2 percent

1 Except for service charge, which is payable once per transaction and is stated as a percent ofthe amount of the transaction.

116



Table 1. 11. Transfers of SDKs, January(In millions of SDKs)

Transfers among participants andprescribed holders

Transactions with designationFrom own holdingsFrom purchases of SDKs from Fund

Transactions by agreementPrescribed operationsNet interest on SDRs

Total

Transfers from participants to GeneralResources Account

RepurchasesChargesQuota paymentsInterest received on General Resources Account

holdingsAssessments

Total

Transfers from General Resources Accountto participants and prescribed holders

PurchasesRepayments of Fund borrowingsInterest on Fund borrowingsIn exchange for other members' currencies

Acquisitions to pay chargesAcquisitions to make quota payments

RemunerationReconstitutionOther

TotalTotal transfers

General Resources Account holdingsat end of period

1, 1970-April 30, 1984

Annual AverageJan. 1, 1970-Apr. 30, 1978

22241

439—42

743

30625924

161

606

172—4

——26

21029

4421,792

1,371

Financial Years Ended April 30

1979

741,0061,533

—71

2,684

502717

19

572

1,297

1,106389

8—

136755

1,3785,358

1,290

1980

3461,025

362—

1901,923

994557

1

821

1,634

1,2836421

——140

54

1,5175,074

1,407

1981

3921,490

418—

2232,525

930587

5,091

2662

6,875

2,03316150

—3412192013

2,83712,237

5,445

1982

4891,3891,242

158245

3,520

838968266

6572

2,732

2,035144143

27—

348—23

2,7218,972

5,456

1983

9961,7171,281

396273

4,664

5661,497

83

4442

2,593

2,41928

224

162—

861—20

3,71410,970

4,335

1984

892,3133,1751,194

1886,959

3922,1596,195

1473

8,896

3,876787202

330—

1,573—26

6,79422,649

6,437

TotalJan. 1, 1970-Apr. 30, 1984

4,2389,282

11,6661,7481,536

28,470

6,7728,643

11,856

1,78821

29,079

14,1851,223

685

529341

3,4961,851

33322,64280,191

6,437

117


Table 1.12. Summary of Transactions and(In thousands of SDKs)

Holders

PARTICIPANTS










TotalHoldings

April 30, 1983

14,450141,016

—12.61486,014

216,2155,293

16,7024,584

17

614,340—1,285

21,114

6,37316,2301,0831,833

88

24,105100436220

6,173

182,580181,719

—71

2,954

580176,080

393121

2,163

11962

1,596—

2,310

3,18792,853

777,061200344

Operations in SDKs,

Receipts fromParticipants

and Prescribed HoldersDesignated

————

118,582

77,942————

6,900————

————

274,475————

192,67914,800

————

9,487———

————

————

Other

4,800—

350159,503

—

18,675——

28,710820

575——8,695

262,73015,919

—1,900

2,000—2,600—

43,900

147,725—324

2,40012,150

5,675——

3947,961

12,72545,62511,525

85010,000

6,80079,1206,125

14,950900

Financial Year Ended April 30,

Transfers toParticipants


15,086—

———

——38,600—

3,582———

370,73029,018

——

—————

167,801——16,400

————19,768

44,14830,3506,050

——

———

2,054

Other

——350

77,625—

116,263————

96,292———5,800

115,950——

7,200

——

—900—

114,811—

2,0005,650

—————

—6,125

850—

—5,00015,293

—900

Receiptsfrom theGeneral

ResourcesAccount

15,66311,676

35299,810

—

27,880231

45,6495,535

22,3423,7631,825

2011,625

992496,88629,150

33613,562

7,62727

2,7113,4243,100

199178,717

143,270

24,925

7305,940

639806

29,726

50,23930,35016,3192,6474,991

2804,051

64,79457

5,655

1984

Transfersto the

GeneralResourcesAccount

4,80048,900

350152,78156,036

70,1504,2254,725

31,3634,435

186,350739

1,825

12,895__

225,06411,815

9306,306

226,375

4,6442,000

35,011

158,61126,175

2342,950

16,975

5,15361,500

5751,252

14,477

17,10033,62713,265

1,82214,938

3,26652,820

401,07513,9393,186

Interest,Charges,

andAssess-

ment (Net)

-525+ 428

- 13,895-16,341

+ 1,219-245+ 424

-1,856-250

+ 2,862+ 1

-360+ 1

-1,166

+ 122- 15,592-1,880

-532-926

-28,272-22

-356-319

-5,291

+ 2,277+ 3,868

-104-356-996

-826-468-33-18

-1,329

-1,382-5,946-1,086

-819-430

-184-2,902

-15,631-586-222

Positions as at April

Holdings

14,502104,220

227,626

132,219

155,5171,053

12,4027,1241,687

363,80119

92524

1,573

7,48748,5103,439

7071,119

53,560105746425

12,872

366,85070,317

1434

8

1,006129,539

42451

4,276

3457,0142,914

61,932

6,817115,302415,980

681538

Net_cumulativeallocations

26,703128,640

318,370470,545

179,04510,2306,200

47,1208,039

485,246

9,409

26,703

4,359358,67043,47413,69724,463

779,290620

9,3259,409

121,924

236,800114,271

7169,719

23,726

19,438178,864

1,178592

31,585

32,929135,92424,985

5,81211,160

6,958142,690

1,079,87014,0915,121

30, 1984

Holdings aspercent ofcumulativeallocations

54.381.0

8.728.1

86.910.3

200.015.121.0

75.0

9.8

5.9

171.713.57.95.24.6

6.917.08.04.5

10.6

154.961.50.14.5—

5.272.436.08.6

13.5

1.05.2

11.70.1

17.3

98.080.838.54.8

10.5






JamaicaJapanJordanKampuchea, DemocraticKenya






OmanPakistanPanamaPapua New Guinea

1,893,354813

29—44

—33

6481,507

3,324909

231,82496,191

305,378

4,28988,199

1,407712,216

4,889

2,032,94316,4361,8764,221

18,22676,279

—1,802

835

136,47415,2521,498

983

111,516142535

26,105497

1,5754;077

26,788649

811,333

514351

7,25628,510

294,511

12,09013,132

56424,10397 5A1

516,284—————

————

——————

4,077

—285,595—

23,948———

————

————

2,054——5,892—

———81,500

————

48,104

7,000——

i *nn

131,70022,37536,653

37515,465

3,225400

2,9254,0506,050

83,2005,625

254,42580,700

—

97,475—

60,50051,85059,010

14,9155,650

——

85,700

266,725—

1,32510,5421,417

3,950——

4,8504,725

————

10,831

16,255153,49048,800

—13,925

39,4144,300

—77,37533,917

_151,45011,660

—

—118,800——18,408

———9,700

1,700

127,311—

200,000360,000

—

30,000—

34,000——

————

—————

———

3,000

—450——4,000

2,632197,74511,000

——

—33,600——

—35,434—

1,444,78211,375

—375—

3,225400

2,9252,400

———

6,87589,290

—

71,210——

246,99912,875

8,625211,999

—————

1,325——

3,950——

3,850—————

4,344

3,275—

50,536—

270,643

4,300—

77,37575,675

6,700—

30,000—

765,602148,509

2,798861

19,488

6,476746

4,32118,8196,795

140,612735

580,824372,819

2,799

72,9486,060

34,79049,26314,669

63,941331,101

938—6,065

1,36123,7174,221

560—

21,59422,5208,511

14,41610,283

9,013494

5,2642,6762,932

7,772230,97692,2683,134

46,805

1255,792

33,99977,37527,423

2,393497

79,2913

1 886

542,42532,83530,600

71915,317

3,984558

3,7196,8379,255

70,9135,454

459,41890,363

—

67,47527,72553,518

262,27557,463

64,412433,700

——88,875

269,09360,5002,179

12,7001,150

18,65654,3257,625

14,4769,846

20,315150

5,0353,7755,520

16,997152,63091,4542,938

210,700

28,4355,2833,475

77,37564,125

8,275137,06419,8278,1941 475

+ 36,935-2,435-4,382

-124-1,203

-2,492-163-635-576-819

+ 599-704

-25,001-10,016+ 2,771

-2,523+ 5

-4,428+ 6,339-1,565

-5,819+ 51,807

+ 19-601-954

-2,490+ 2,278-1,322

-116-115

-2,905+ 4,194

-47-842-441

-1,482-7

-688+ 959-396

-677- 12,423-3,635

-341+ 11,877

-5,610-860-117

-5,707+ 6,958

+ 491-7,201

-843+ 522-1-810

1,356,6686,2514,499

1868

25

4,0042,578

29,5111,111

375,77942

310,947

3,50470,6164,750

595,9896,664

1,799,75017,3931,2766,157

14,72841,774

72089

986

32108,86316,0911,5962,704

100,7862976

31,857—

2,02125,74511,231

504484,098

6,008

4,06322,803

271,112

7,00020,8145,410

16,43311 981

1,210.76062,983

103,544930

27,678

17,6041,212

14,53013,69719,057

16,409681,170238,956244,056

68,46487,263

106,360702,40037,828

40,613891,690

16,88715,41736,990

72,91126,7449,4094,3933,739

21,00758,77116,95519,27010,975

139,048282

15,91211,2889,719

15,744290,02085,6898,105

530,340

141,32219,4839,409

157,155167,770

6,262169,98926,3229,300

11 £Q7

112.1

9.94.31.90.2

2.0

29.213.5

6.855.2

127.4

5.180.94.5

84.917.6

201.8103.0

8.316.6

20.2156.2

7.72.0

26.4

0.2185.294.98.3

24.6

72.510.20.5

282.2—

12.88.9

13.16.2

91.3

4.3

43.214.5

161.6

111.812.220.6

176.7998 AParaguay


Table 1.12 (concluded). Summary of Transactions and(In thousands of SDKs)

Holders

PARTICIPANTSPeruPhilippinesPortugalQatarRomania

RwandaSt. LuciaSt. VincentSao Tom6 and PrincipeSaudi Arabia







Yemen Arab RepublicYemen, People's Democratic Rep. ofYugoslaviaZaireZambia

TotalHoldings

April 30, 1983

1349,998

6515,6359,075

10,525

49339

615,421

139674

52,6771,255

82369,853

172,7875,2355,116

8,3885,884

233,7539,3581,358

16,9762,474

85,56014,1794,664

3,08450,743

823,8664,800,321

7,320

2333

400,578—67

14,83910,620

55—92

Operations in SDKs,

Receipts fromParticipants


5,178—

—

—_

—_

3,000

—_

22,408

—

11,563517,708169,314

—

——

————

Other

115,450104,45046,533

—90,805

525

—

18,974

—3,820——

19,32080,300

23,5289,425

__6,048

21,05013,5809,097

66,0002,815

—134,975

14,470—144,850

174,800—

19,550525—10,450

375

14,62711,701

242,67415,75027,872

Financial

Transfers toParticipants

and Prescribed Holders

Designated

226,000—74,070

—

904—

4,659———

6,475

19,708—

1,500

—

21,3525,268

—

—

—

——

18,477———680

14,627

—52,6724,000

20,230

Other

31,35030,000

—38,975

525

—

5,525—2,850

7,000—

4,437

—9,425

3,94013,90040,77513,7726,125

2,475——43,000

6,150—565,552

174,800—

——10,450—

3,000

—15,75014,700

Year Ended April 30, 1984

Receiptsfrom theGeneral

ResourcesAccount

32,30231,475

260,2822,075

128,976

329833108935

167,963

16,96423

8,9867,189

963

2,478—10,687

26,99952,905

2289,0008,262

11,1629,757

61,8158,312

—957

113,100

28,635

—96,243707,422

304

27,68630

36,20517,9651,699

233,925

55,418115,47888,209

Transfersto the

GeneralResourcesAccount

144,152108,27240,05412,175

110,707

2,32569399

250275,600

19,468100

8,168—

654

10,900121,065112,64232,95955,736

2,9502,141

97,32511,15012,705

88,3274,618

11,77510,925

192,290

35,241

—451,625663,850

1,900

21,904525

95,37511,888

1,221

6,5425,413

224,44955,78878,264

Interest,Charges,

andAssess-

ment (Net)

-3,576-5,022-2,237

+ 181-3,324

-149-106-15-11

+ 21,673

-3,321-12

-763+ 1,842

+ 59

-555-7,887-6,182-3,094-2,284

-75+ 65

-1,251-1,207-1,374

-2,807-419

+ 2,374-946

-4,799

-1,230+ 770

-43,419+ 15,617

-96

-2,094+ 1

+ 3,902-6,077

-40

+ 320-304

-6,586- 12,323-2,978

Positions as at April

Holdings

1581,2808,590

10,8941,780

8,3803443

109529,457

2,96549

1,70054,708

1,623

25521,20164,649

——

1,6503,456

126,7147,972

9

32,304820

98,5673,265

12,650

3,56763,076

522,0715,028,824

5,628

4,99334

345,310

—200

8,64017,52914,44043,367

—

Netcumulativeallocations

91,319116,59553,32012,82275,950

13,697742354620

195,527

24,462406

17,45516,475

654

13,697220,360298,80570,86852,192

7,7506,432

246,52536,56431,372

84,65210,97546,23134,243

112,307

29,39638,737

1,913,0704,899,530

9,409

49,977

—316,89047,658

1,142

6,16022,583

155,16186,30968,298

30, 1984Holdings aspercent ofcumulativeallocations

0.21.1

16.185.02.3

61.24.6

12.217.6

270.8

12.112.19.7

332.1248.0

1.99.6

21.6——

21.353.751.421.8

—

38.27.5

213.29.5

11.3

12.1162.827.3

102.659.8

10.0—109.0—17.5

140.377.69.3

50.2—


ZimbabweTotal Participants

PRESCRIBED HOLDERS

Arab Monetary FundBank of Central African StatesEast African Development BankEastern Caribbean Central BankIslamic Development BankNordic Investment BankSwiss National Bank

Total Prescribed Holders

GENERAL RESOURCES ACCOUNT

Total

4,16817,107,542

2,879186

735

8412,575

16,459

4,334,909

21,458,910

20,3002,401,989 4,258,284

93,0058,5001,850

1,0006,919

111,274

8,745,696

2,401,989 13,115,253

16,2982,401,989 4,277,112

77,7847,750

6,912

92,446

6,793,775

2,401,989 11,163,332

20,651 23,3966,793,775 8,745,696

6,793,775 8,745,696

-372- 176,225

+ 1,038+ 107

+ 32+ 44+ 6

+ 556

+ 1,783

+ 149,900

-24,542

5,054 10,20014,960,568 21,433,330

19,1381,0421,850

7681,044

9713,131

37,070

6,436,730

21.434,368 21,433,330

49.569.8



Table 1.13. Members That Have Accepted theObligations of Article VIII, April 30, 1984

MemberEffective Dateof Acceptance

Antigua and BarbudaArgentinaAustraliaAustriaBahamas

BahrainBelgiumBelizeBoliviaCanada

ChileCosta RicaDenmarkDjiboutiDominica

Dominican RepublicEcuadorEl SalvadorFijiFinland

FranceGermany, Fed. Rep. ofGuatemalaGuyanaHaiti

HondurasIcelandIrelandItalyJamaica

JapanKuwaitLuxembourgMalaysiaMexico

NetherlandsNew ZealandNicaraguaNorwayOman

PanamaPapua New GuineaPeruQatarSt. Lucia

St. VincentSaudi ArabiaSeychellesSingaporeSolomon Islands

South AfricaSurinameSwedenUnited Arab EmiratesUnited Kingdom

United StatesUruguayVanuatuVenezuela

November 22, 1983May 14, 1968July 1, 1965August 1, 1962December 5, 1973

March 20, 1973February 15, 1961June 14, 1983June 5, 1967March 25, 1952

July 27, 1977February 1, 1965May 1, 1967September 19, 1980December 13, 1979

August 1, 1953August 31, 1970November 6, 1946August 4, 1972September 25, 1979

February 15, 1961February 15, 1961January 27, 1947December 27, 1966December 22, 1953

July 1, 1950September 19, 1983February 15, 1961February 15, 1961February 22, 1963

April 1, 1964April 5, 1963February 15, 1961November 11, 1968November 12, 1946

February 15, 1961August 5, 1982July 20, 1964May 11, 1967June 19, 1974

November 26, 1946December 4, 1975February 15, 1961June 4, 1973May 30, 1980

August 24, 1981March 22, 1961January 3, 1978November 9, 1968July 24, 1979

September 15, 1973June 29, 1978February 15, 1961February 13, 1974February 15, 1961

December 10, 1946May 2, 1980December 1, 1982July 1, 1976

122


APPENDIX I (concluded). FUND ACTIVITIES IN 1983/84

Table 1.14. Publications Issued, Financial Year Ended April 30, 1984

Reports and Other Documents

Annual Report of the Executive Board for the Financial Year EndedApril 30, 1983(English, French, German, and Spanish). Free

Annual Report on Exchange Arrangements and Exchange Restric-tions, 1983One copy free; additional copies US$12.00 each.

By-Laws, Rules and RegulationsFortieth Issue (English, French, and Spanish). Free

Summary Proceedings of the Thirty-Eighth Annual Meeting of theBoard of Governors Free

Subscription Publications

Balance of Payments StatisticsVol. 35. A two-part yearbook and 12 monthly booklets. US$38.00a year. US$19.00 to university libraries, faculty members, andstudents. US$12.00 for yearbook only.

Direction of Trade StatisticsMonthly, with yearbook.US$36.00 a year. US$18.00 to university libraries, faculty mem-bers, and students. US$10.00 for yearbook only.

Government Finance Statistics YearbookVol. VII, 1983. (Introduction and title of lines in English, French,and Spanish). US$20.00 a year. US$10.00 to university li-braries, faculty members, and students.

International Financial StatisticsMonthly, with yearbook and two supplements (English, French,and Spanish). US$100.00 a year. US$50.00 to university li-braries, faculty members, and students.

Staff PapersFour times a year. US$15.00 a year.libraries, faculty members, and students.

US$7.50 to university

University libraries, faculty members, and students may obtainthe five publications listed above at a special rate of US$80.00for all five publications.

For users of Fund publications that have access to a computer,tape subscriptions to Balance of Payments Statistics, Directionof Trade Statistics, Government Finance Statistics Yearbook, andInternational Financial Statistics are available at US$1,500.00 ayear each. This price includes the book version. The price touniversities is US$500.00 a year for each publication.

Occasional Papers

No. 19 The European Monetary System: The Experience, 1979-82By Horst Ungerer, with Owen Evans and Peter Nyberg

No. 20 Alternatives to the Central Bank in the Developing WorldBy Charles Collyns

No. 21 World Economic Outlook: A Survey by the Staff of theInternational Monetary Fund

No. 22 Interest Rate Policies in Developing CountriesBy the Research Department of the International Monetary Fund

No. 23 International Capital Markets: Developments and Pros-pects, 1983By Richard Williams, Peter Keller, John Lipsky, and DonaldMathieson

No. 24 Government Employment and Pay: Some InternationalComparisonsBy Peter S. Heller and Alan A. Tait

No. 25 Recent Multilateral Debt Restructurings with Official andBank CreditorsBy a Staff Team Headed by E. Brau and R.C. Williams, with P.M.Keller and M. Nowak

No. 26 The Fund, Commercial Banks, and Member CountriesBy Paul Mentr6

Occasional Papers No. 21, the World Economic Outlook, andNo. 23 are available for US$8.00 each, with a special price ofUS$5.00 each for university libraries, faculty members, andstudents. Occasional Papers No. 19, No. 20, No. 22, No. 24,No. 25, and No. 26 are available for US$5.00 each, with a specialprice of US$3.00 each for university libraries, faculty members,and students.

Books

Adjustment, Conditionality, and International FinancingEdited by Joaquin Muns. In English and Spanish. US$10.00

Exchange Rate Regimes and Policy InterdependenceEdited by A.W. Hooke. US$8.00

The Fund and China in the International Monetary SystemEdited by A.W. Hooke. Cloth, US$10.00 Paper, US$5.00

Government Budgeting and Expenditure Controls: Theory andPracticeBy A. Premchand. Cloth, US$24.00 Paper, US$18.00

International Money and Credit: The Policy RolesEdited by George M. von Furstenberg. Cloth, US$28.50Paper, US$15.00

Pamphlet Series

No. 37 The International Monetary Fund: Its Evolution, Organi-zation, and Activities (third edition)By A.W. Hooke (English, French, and Spanish). Free

No. 39 Order in International Finance, the Promotion of IMFStand-By Arrangements, and the Drafting of Private Loan Agree-mentsBy Joseph Gold (French and Spanish). Free

No. 40 SDRs, Currencies, and Gold: Sixth Survey of New LegalDevelopmentsBy Joseph Gold (English). Free

Other

Finance & DevelopmentIssued jointly with IBRD; quarterly (English, Arabic, French,German, Portuguese, and Spanish). Free

IMF SurveyTwice monthly but only once in December (English, French, andSpanish). Private firms and individuals are charged for delivery atan annual rate of US$30.00.

123


Appendix IIPrincipal Policy Decisions ofthe Executive Board

A. Surveillance over Members' Exchange Rate Policies

(a) Review of Surveillance over Exchange Rate Policies

The Executive Board has reviewed the document "Surveillance over ExchangeRate Policies" as provided in paragraph 2 of Executive Board Decision No. 5392-(77/63),! adopted April 29, 1977, and will review it again at an appropriate timenot later than April 1, 1986.

Decision No. 7645-(84/40)March 12, 1984

(b) Review of Implementation of Procedures for Surveillance

The Executive Board has also reviewed the procedures relating to the generalimplementation of the Fund's surveillance over members' exchange rate policies,as required by paragraph VI of Procedures for Surveillance in the document"Surveillance over Exchange Rate Policies" referred to in (a) above, includingthe procedures for the conduct of consultations under Article IV, which consul-tations shall comprehend the consultations under Article VIII and Article XIV,and approves the continuation of the procedures as described in SM/84/44, in thelight of the Managing Director's summing up, until the next annual review, whichshall be conducted not later than April 1, 1985.

Decision No. 7646-(84/40)March 12, 1984

Attachment to Decision No. 7646-(84/40)Managing Director's Summing Up

In our review, Directors once again indicated the great importance they attachto the Fund's role in the field of surveillance. They also stressed that effectivesurveillance requires the full cooperation of members and that it must be conductedin an effective and evenhanded way.

The discussion encompassed two reviews: the biennial review of the basicdocument setting out the principles of surveillance and the annual review of theimplementation of surveillance. I shall refer first to Directors' remarks on thekey issues encountered in the conduct of surveillance that can be related to theprinciples and procedures set out in the documents. Second, I shall refer to theremarks relating to the various methods through which surveillance is carriedout: the multilateral aspects, Article IV consultations, and exchange rate moni-toring.

124

1 Selected Decisions of the In-ternational Monetary Fund andSelected Documents, Tenth Issue(Washington, 1983), pages 10-14.


APPENDIX II (continued). PRINCIPAL POLICY DECISIONS

I. Key Issues in the Conduct of Surveillance

In focusing on the substance of surveillance, a number of Directors stressedthat the Fund should be more energetic in its efforts to make surveillance effective,evenhanded, and symmetrical. The following conclusions emerged from thediscussions.

First, while many Directors recognized that the assessment of exchange ratepolicies was a very complex task, they stressed that it was incumbent on theFund to form a view on the appropriateness of members' exchange rate policies,irrespective of the exchange arrangements chosen by individual members and ofthe member's need for Fund financial support. This principle is the core of Arti-cle IV. In practice, it is often difficult to determine with quantitative precisionthe magnitude of an exchange rate's "out-of-lineness." But if the Fund isconvinced that a rate is out-of-line, it must express that view in the first instanceto the authorities of the countries directly involved. A few Directors held theview that the staff sometimes seemed insufficiently flexible, and somewhatdogmatic in its views with regard to exchange rates, with a tendency tooverestimate the effectiveness of exchange rate depreciation, particularly indeveloping countries and centrally planned economies.

Second, the staffs determination of the adequacy of the exchange rate policyin an individual country is not merely an econometric exercise; it is somethingthat touches on the functioning of the international monetary system. Thus it isimportant that when the Fund staff is convinced of a maladjustment in exchangerates, it should seek agreement of the membership on that judgment and on thenecessary policy changes. It can happen that national authorities have domesticgoals and constraints that may result in an inappropriate exchange rate in thejudgment of the Fund. In such instances, through Article IV consultations andother reviews, the matter is brought to the attention of the Executive Board;after discussion and Board agreement with the staff position, the country isinformed. Beyond that, the effectiveness of the Fund's surveillance proceduresrequires that the members of this institution give active and broad support to thepositions taken by the Fund.

Third, Directors supported the view that many of the international economicdifficulties of recent years have been associated with the pronounced swings inexchange rates between major industrial countries and with the repercussions ofthe low levels of economic activity and high interest rates prevailing in thesecountries on the rest of the world. Many Directors noted that to some extentthese developments resulted from domestic policy stances in major industrialcountries that, in their view, did not sufficiently promote the convergence offavorable economic conditions and that failed to take account of the implicationsfor other countries and for the international monetary system as a whole. MostDirectors felt that this failure to integrate international interests, rather than anydeliberate attempt to manipulate exchange rates or the international monetarysystem, was the real problem. Therefore, the Fund had to form a view on thedomestic policies needed to foster a smooth working of the system and had toattempt to persuade its members to follow such policies. On the basis of theseconsiderations, Directors agreed that the experience in the implementation ofsurveillance does not call for a revision of the principles and procedures set outin the documents, but calls for more active implementation.

II. Methods of Surveillance

Multilateral aspects

Directors considered that the world economic outlook provided a valuableframework for analyzing global surveillance issues, and indeed considered it

125



indispensable for evaluating the global effects of the economic policies of majorcountries. They welcomed the increasing emphasis on a medium-term approachand in particular on the development of medium-term balance of paymentsscenarios. They also called for increased analysis of the interaction of individualmembers' domestic policies, including the regional consequences of individualmembers' policies.

Directors considered it important that the Fund continue to place publicemphasis on surveillance through different channels, such as publications andstatements by the Managing Director. They also considered the more active roleof the Fund in looking for solutions to the problems of external debt andprotectionism in multilateral contexts to be essential. With regard to trade mattersin particular, a number of Directors emphasized that the Fund's work couldusefully enhance the GATT's activities while fully respecting the responsibilitiesof that institution.

Article IV consultations

In view of the Fund's obligation to form a view on the exchange rate policiesof members, Directors generally endorsed the practice in staff reports of providingclear appraisals of exchange rate policies. Several Directors felt that the Fundstaff was still less explicit in its exchange rate policy pronouncements for largeindustrial countries than it was in the case of smaller countries. The view wasalso put forward that an appraisal of the exchange rate policy of a member in anArticle IV consultation should be made, whenever appropriate, in a multilateralframework.

Directors welcomed the recent emphasis on medium-term scenarios in theanalysis of external debt and encouraged the staff to make further progress inpresentation and analysis, with possibly alternative scenarios on debt, and tomake more explicit the assumptions that underlie these projections and thesensitivity of the scenarios to changes in assumptions. Directors also called forincreased emphasis on the medium term when assessing underlying paymentsbalances as part of the appraisal of members' policies even when external debtor the financing of external imbalances was not a major concern.

The need for continued development of staff analyses in consultation reportsof issues related to protectionism and export subsidies was stressed by manyDirectors. These analyses should cover the practice not only of individualmembers but also, if necessary, of groups of countries and customs unions. Itwas felt that to the extent possible the economic costs of protectionist measurestaken by individual countries or groups of countries since the last Article IVconsultation should be quantified and that the impact of protectionism on domesticadjustment should be examined in relevant cases.

In the course of the discussion, a number of suggestions were made for furtherimproving the analytical coverage in consultation reports of structural aspects,capital flows, openness of capital markets, the size and structure of governmentrevenue and expenditure, barriers to direct investment, the noncentral governmentpublic sector, structural adjustment problems, aid to ailing industries, and labormarkets. A number of Directors also proposed that consultation reports shouldfollow up the main points made in the summing up of the previous consultation.These reports should recall the main recommendations of the Board as containedin the summing up and indicate whether appropriate measures had been taken.

As in the recent discussion of "Coverage and Currentness of Data," Directorsemphasized the crucial role of accurate data in consultation reports.

The marked increase in consultation frequency was welcomed by all Directors,who noted particularly the improved coverage of countries with Fund-supportedprograms. Directors recognized the efforts made in the last 18 months to reduce

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the backlog of overdue consultations, and considered that at the present time theproblem of overdue consultations had been largely solved. Leaving aside casesinvolving security problems, at present only one member country was significantlybehind in the consultation cycle. Directors reiterated their view that consultationsshould not be delayed on account of discussions on the use of Fund resources.A number of Directors believed that the Board should consider the Article IVconsultation before turning to a request for use of Fund resources in those caseswhere the consultation was overdue. This is a very important policy recommen-dation.

Directors emphasized the need to carry out consultations on a timely basis inthe future. In this regard, the system of advance specification of consultationcycles provides a useful framework. To help ensure that consultations arecompleted on time, we shall report to the Board on problems that may arise ona semiannual basis.

Directors broadly endorsed current practices in specifying consultation cycles.The suggestion was made that the criteria for the one-year consultation cycle beexpanded to include members that wish to be kept on that cycle. Directorsrecognized that with such a work load, special efforts would be necessary tomaintain the quality of consultation work. Therefore, the staff would continue tocombine requests for use of Fund resources and periodic reviews with consultationreports. Some Directors supported the practice of selectively shortening, or evenomitting, the papers on recent economic developments, particularly for countrieson which economic information was amply available; but a number of otherDirectors stressed the importance of those papers for members individually andcollectively, and they were opposed to any reduction in the role or importanceof these documents.

Directors encouraged the staff to bring consultations on closely related countriesto the Board simultaneously, in order to avoid duplication of effort on commonfeatures and to better understand the interaction aspect.

Exchange rate monitoring

Directors considered that both the quarterly reports on indicators of realeffective exchange rates and the notices on individual countries provided usefulinformation, although, of course, the developments have to be carefully analyzedbefore reaching any policy-directed conclusions. Most Directors considered thatthe threshold for issuing information notices should continue to be 10 percent.Some questions were raised regarding the benchmark date.

Directors welcomed the staffs intention to continue making improvements inthe information notice system, and attached importance to making the coverageof the system as comprehensive as possible. In view of the importance of price,exchange rate, and direction of trade data for policy formulation, it is incumbenton country authorities, in consultation with the staff, to obtain the necessarydata and to provide it to the Fund.

In sum, the Board felt that surveillance is an essential tool for the stability ofthe international monetary system. It considers that, despite the progress realizedin the Fund's work in this field, the insufficient convergence of economic conditionsthroughout the world requires not necessarily changes in Fund procedures but,rather, strong political support from the membership.

There are still large differences of views on the way the exchange rate systemis working and even larger differences of views on the way it should function.There are also differences of views on the way economic policies interact and,thus, affect the setting of prescriptions by the Fund. In a collective institution,these prescriptions can sometimes be difficult to express and even more difficultto implement.

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We should continue to improve the quality and the persuasiveness of ouranalysis of policy interactions. It is only through the quality of these analysesthat the Fund will enlist support for its recommendations. The Executive Directorscan help the staff and management in this task by maintaining the high standardsof their interventions relating to all surveillance matters.

B. Adoption of Term "SDR" as Standard Usage by Fund

The following new Rule shall be included in the Rules and Regulations of theFund as Rule B-6:

B-6 SDR refers to the special drawing right of the Fund. The term "SDR"(or "SDRs," as appropriate) shall be adopted as standard usage in Funddocuments, correspondence, and publications where a reference to specialdrawing rights is intended, provided that if the text is in a language inwhich a different usage has become established, that usage may beretained.

Decision No. 7481-(83/112)July 26, 1983

C. SDR Interest Rate and Related Matters: Amendment of Rules 1-9, MO,and T-l

Rules 1-9, I-10, and T-l of the Rules and Regulations of the Fund shall beamended to read as set forth below. The amended Rules shall apply with effectfrom August 1, 1983, provided that interest and charges on holdings of SDRs andremuneration accrued during the current financial quarter ending on July 31, 1983shall be paid as of the commencement of the next financial year.

I—CHARGES IN RESPECT OF GENERAL RESOURCES ACCOUNT TRANSACTIONSAND REMUNERATION

1-9 (a) Remuneration shall accrue daily. The amount that has accrued duringeach quarter of the financial year of the Fund shall be paid as of thebeginning of the following quarter,

(b) A member that wishes to receive in its own currency the whole or aspecified portion of the remuneration payable to it shall so notify theFund.

I-10 (a) The rate of remuneration shall be equal to 85 percent of the rate ofinterest on holdings of SDRs under Rule T-l(b), rounded to the twonearest decimal places,

(b) The Fund shall review the rate of remuneration on the occasion ofthe annual review of the rate of interest on holdings of SDRs underRule T-l(d).

T—INTEREST, CHARGES, AND ASSESSMENTS IN RESPECT OF SDRs

T-l (a) Interest and charges in respect of SDRs shall accrue daily at the ratereferred to in (b) below. The amount that has accrued during eachquarter of the financial year of the Fund shall be paid promptly as ofthe beginning of the following quarter. The accounts of participantsshall be credited with the excess of interest due over charges ordebited with the excess of charges over the interest due. The accountsof holders that are not participants shall be credited with the interestdue.

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(b) The rate of interest on holdings of SDKs for each weekly periodcommencing each Monday shall be equal to the combined marketinterest rate as determined by the Fund at the beginning of the periodin the manner described in (c) below.

(c) The combined market interest rate shall be the sum, rounded to thetwo nearest decimal places, of the products that result from multiplyingeach yield or rate listed below, expressed as an equivalent annualbond yield, for the preceding Friday by the value in terms of the SDRon that Friday of the amount of the corresponding currency specifiedin Rule O-l, as determined pursuant to Rule O-2(b). If a yield or rateis not available for a particular Friday, the calculation shall be madeon the basis of the latest available yield or rate.

U.S. dollar Market yield for three-month U.S. Treas-ury bills

Deutsche mark Three-month interbank deposit rate inGermany

French franc Three-month interbank money rate againstprivate paper in France

Japanese yen Discount rate on two-month (private)bills in Japan

Pound sterling Market yield for three-month U.K.Treasury bills

(d) The Fund will review the rate of interest on holdings of SDRs at theconclusion of each financial year.

Decision No. 7480-(83/112) G/SJuly 26, 1983, effective August 7, 1983

D. Rate of Remuneration: Amendment of Rule MO

Rule 1-10 shall read as follows:(a) The rate of remuneration shall be equal to 85 percent of the rate of

interest on holdings of SDRs under Rule T-l (hereafter referred to as the "SDRinterest rate"). The relationship of the rate of remuneration to the SDR interestrate will be referred to as the "remuneration coefficient."

(b) Beginning April 30,1984, the remuneration coefficient during each quartershall be at the level determined under (1), (2), (3), and (4) below, but no higherthan permitted by Article V, Section 9(a):

(1) During the period May 1, 1984 to April 30, 1987, the remunerationcoefficient shall be the higher of (i) or (ii) below:

(i) The remuneration coefficient in effect on January 1, 1984 increasedby 3.33 percentage points in each of the three financial years beginning May 1,1984, May 1, 1985, and May 1, 1986;

(ii) The remuneration coefficient in effect on January 1, 1984, increasedor decreased on the first day of each quarter by 1 percentage point for each Veof 1 percentage point that the SDR interest rate on the day before the beginningof the quarter is below or above the SDR interest rate in effect on April 30, 1984,provided that the remuneration coefficient in any quarter in each of these threefinancial years shall not be more than 2.5 percentage points above the amount ofthe coefficient for that year as determined under (i) above.

(2) Following the adjustment in the remuneration coefficient on May 1,1986, the rate of remuneration shall be reviewed before May 1, 1987. This reviewshall be conducted in the light of all the relevant considerations, including, inparticular, the SDR interest rate and the rate of charge.

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(3) Beginning May 1, 1987, the remuneration coefficient shall be the higherof (i) or (ii) below:

(i) The remuneration coefficient existing at the end of the precedingfinancial year;

(ii) A remuneration coefficient of 95 percent, increased or decreased onthe first day of each quarter by 1 percentage point for each Vfc of 1 percentagepoint that the SDR interest rate on the day before the beginning of a quarter isbelow or above the SDR interest rate on April 30, 1987, provided that theremuneration coefficient in any quarter of a financial year shall not be more than2.5 percentage points above the level at the end of the preceding year.

(4) The rate of remuneration, while less than 100 percent of the SDRinterest rate, shall be rounded to the nearest two decimal places.

(c) The operation of (b) above shall be reviewed on the occasion of thereviews of the rate of charge under Rule 1-6(4) and the SDR interest rate underRule T-l(d).

(d) If the rate of charge on holdings specified in Rule 1-6(4) should exceedthe SDR interest rate, the Executive Board shall review the remunerationcoefficient, and, in particular, will consider whether the remuneration coefficientshould be set, within the range in Article V, Section 9(0), at such a level aswould permit the rate of charge to be set under Rule I-6(4)(a) or (b) at thesame level as the SDR interest rate referred to above and still meet the targetamount of net income for the financial year.

Decision No. 7603-(84/3)January 6, 1984

E. Level of Fund's SDR Holdings

In determining the amounts of SDRs to be transferred in purchases under theoperational budgets, the Fund will be guided by the aim of reducing the Fund'sSDR holdings to a level of approximately SDR 4.0 billion by May 31, 1985. Priorto April 30, 1985, the Fund will review the level of its SDR holdings to determinewhether and to what extent they should be further reduced.

Decision No. 7626-(84/23) SFebruary 13, 1984

F. Policy on Enlarged Access to the Fund's Resources: Extension of Period

1. The Fund may approve a stand-by or extended arrangement that providesfor enlarged access under Decision No. 6783-(81/40)2 on the policy on enlargedaccess until the end of 1984, provided that the Fund may extend this period.

2. The Fund will review Decision No. 6783-(81/40)2 not later than Decem-ber 31, 1984, and annually thereafter as long as the Decision remains in effect,in order to consider the future of the policy on enlarged access in light of allrelevant factors, including the magnitude of members' payments problems anddevelopments in the Fund's liquidity.



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G. Policy on Enlarged Access to the Fund's Resources: Criteria for Amount ofAccess in Individual Cases

Chairman's Summary of Executive Board Discussion

The thoughtful and frank comments of Executive Directors during the discussionwere of great benefit to the staff and management. As has been suggested by anumber of Directors, I will sum up the discussion rather than attempt to reformulatethe proposed criteria in Section V of the staff paper.

A number of Executive Directors noted that the broad thrust of the staff paper,particularly Section II, "Considerations Governing Amount of Access," (seeAttachment) was acceptable to them. I will now try to summarize the discussion;in doing so, I will note the reservations and nuances that have been expressedby several Directors, without referring back to the staff paper in detail. I havenoted, in particular, the following nine points that were emphasized by ExecutiveDirectors:

1. The criteria for the use of the Fund's resources contained in the decisionon the policy on enlarged access remained valid and would continue to be appliedon a case-by-case basis.

2. The access limits of 102 percent or 125 percent of quota set out in para-graph 5(c) of the communique of the Interim Committee 3 were not to be regardedas targets or entitlements.

3. The considerations pertaining to the use of Fund resources under the existingdecision on enlarged access would continue to be applied in determining theamounts of individual access in what several Executive Directors had called thecontinuum going from 0 to 102 or 125 percent of quota. Clearly, the criteria ofthe member's need and the strength of the adjustment program would be majorguiding factors in setting those individual amounts. In response to commentsmade by some Directors, I can state that the staff did not intend to make use ofthe Fund's resources in the range between 102 percent and 125 percent of quotasubject to a finding of "exceptional circumstances," in the sense of what governsaccess beyond the upper limit. In bringing forward requests by members for theuse of the Fund's resources under the enlarged access policy, the staff will tryto explain more fully how it had come to the access limits proposed in each case,in light of the framework that has emerged from the views expressed by theExecutive Board.

4. The Fund should apply its criteria with the necessary flexibility and not ina mechanical way. Rather, the policy should be applied on the basis of experienceand taking into account the analytical studies of the staff and the Board discussionsof the staff papers. Today's staff paper was part of that background material.

5. The Executive Board preferred not to codify the exceptional circumstancesthat might entail utilization of the Fund's resources beyond the upper limit of125 percent. In particular, the Board was opposed to singling out the impairmentof the international monetary system as a criterion, because it might imply specialtreatment for larger countries. Several Directors had noted that, in their view,there might well be a good case for emphasizing the circumstances of smallercountries with no access to financial markets.

6. After a thorough discussion of the concept of the Fund's role as a catalyst,a number of Directors expressed the fear that this concept could lead to withholdingthe support of the Fund for countries with large problems and little or no accessto financial markets. A number of other Directors stressed that in providingassistance to member countries where the process of reaching balance of paymentsviability would be lengthy, the Fund should be guided by the principle of therevolving and temporary character of the use of the Fund's resources. Directorswould have another opportunity to discuss that issue when they considered the 3 See page 144 below.

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paper that the staff was preparing on continuous use of Fund resources for longperiods. A number of Directors stressed the importance of adapting the adjustmentperiod to the circumstances of the country. All Directors agreed that the Fundshould continue to concern itself with the type of cases referred to in thisparagraph, and develop even closer links with the World Bank for this purpose.

7. A number of Directors expressed the view that the problem of small-quota,low-income countries had been dealt with inadequately in the staff paper, andthat the Fund should carry out the injunction of the Interim Committee inparagraph 5(f) of its communique that, "in implementing its policies on accessto its resources, the Fund should be particularly mindful of the very difficultcircumstances of the small-quota, low-income member countries." A number ofDirectors felt that in considering such cases, the Fund should bear in mind thatthe limit of SDR 25 million for a small quota was outdated, and should be thesubject of further consideration.

8. A number of Directors felt that the staff paper was biased against the useof the extended Fund facility. I wish to emphasize that that had not been theintention; on the occasion of the recent discussion in the Executive Board on thereview of past programs under stand-by and extended arrangements, I stated thatthe staff and management had the firm intention of continuing to make use of theextended Fund facility, which had a valuable role to play but, of course, conditionswould have to be adequate.

9. Several Directors called for a review of the Fund's borrowing requirementsfor 1984 and beyond, and for more of an indication of the methods of financingthem. The methods of financing the resources that the Fund might need to borrowin 1984 could not be decided until the scale of the commitments to members andthe size of the present commitment gap were better known. When they came toconsider the liquidity position of the Fund in the first months of 1984, ExecutiveDirectors would be asked to express their views on how the Fund should meetits borrowing needs, in light of the amounts required. Some Directors emphasizedthat if requests for augmentation of existing arrangements on the basis of thenew quotas and the new access limits were to be received, they would have tobe dealt with on a case-by-case basis, in the light of needs and the merits ofparticular cases.

December 2, 1983

Attachment to Chairman's SummarySection II of Staff Paper

II. Considerations Governing Amount of Access

Under the decision on enlarged access, a request for the Fund's resources willbe met only if the Fund is satisfied that the payments imbalance that the memberfaces is large in relation to its quota, that the member's financing need from theFund exceeds the amount available to it in the credit tranches or under theextended Fund facility, and that its problem requires a relatively long period ofadjustment and a period of repurchases longer than three to five years. Thedecision further states that the period of a stand-by arrangement involvingenlarged access will normally exceed one year and may extend to three years,and the period of an extended arrangement will be normally three years. Inpractice the Fund has considered successive one-year stand-by arrangements,formulated within a medium-term strategy of steady progress toward a sustainablebalance of payments position to be consistent with this decision, when the amountof the arrangement is greater than that available in the credit tranches.

The considerations that need to be taken into account in determining theamount of access in individual arrangements and current practice on access have

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been discussed in recent staff papers and may be briefly recapitulated here. Thefirst important consideration is the member's actual or potential need for resourcesfrom the Fund, taking into account other sources of financing and the desirabilityof maintaining a reasonable level of reserves; in no circumstances can access begreater than this need. The second important consideration stems from the needto preserve the revolving character of the resources that the Fund provides, i.e.,the ability of the member to service its indebtedness to the Fund. In determiningthe case for Fund support and the amount involved, the timing and extent of theexpected improvement in the member's balance of payments are relevant factors.It follows that adjustment policies in support of which the Fund's resources areto be used must be designed and implemented in such a manner as to lead to astrengthening of the balance of payments by the time the repurchases begin tofall due and of a sufficient extent to allow the member to make the repurchaseswithout strain. Finally, the amount of the member's outstanding use of Fundcredit and its record in using Fund resources in the past must enter into thejudgment on the appropriate scale of further use of the Fund.

Under the policy on enlarged access, repurchases of borrowed resources beginthree and one-half years after the purchase, whether under a stand-by or extendedarrangement. Repurchases of ordinary resources under a stand-by arrangementmust be made during the regular three to five-year period after the purchase,while repurchases of ordinary resources under an extended arrangement must bemade during a four to ten-year period after the purchase. For stand-by arrange-ments, it should therefore be expected that substantially all adjustment measureswould be implemented at an early stage and there would be significant progressto balance of payments viability by the end of the three years, in order thatrepurchases could be made as scheduled.

To ensure that the program allows repurchases to be made, a balance ofpayments projection well into the repurchase period must show that progresstoward a viable balance of payments position is being achieved. This can beindicated by a diminishing need for exceptional finance in general, and that to beprovided by the Fund in particular, over the period. The policy measures alreadyin place or being introduced must be commensurate with those needed to continuethis progress at the required rate. This subject is discussed in the recent paperreviewing upper credit tranche stand-by arrangements and conditionally.

These basic principles have to be applied in a flexible way because of the greatvariety of the member's circumstances and the uncertainties that attend economicprojections and programming. Access at or close to the annual limit of 102 percentof quota is justified where the member's outstanding use of the Fund's resourcesis not large, where the member has undertaken a comprehensive adjustmentprogram adequate to bring about a rapid turnaround in the balance of payments,and where the Fund is satisfied that on the basis of the member's past recordand its present circumstances, it has the ability and willingness to implement theprogram. The Fund support might appropriately be given in the form of anextended arrangement in some of these cases. Substantial Fund financing mayfrequently be a critical element in restoring confidence of the internationalfinancial community in the policies of the country and thus reviving capital flows.

In these cases where the member has an especially large need for financingfrom the Fund, and where, based on all relevant information, the strength of theadjustment effort is such that the balance of payments improvement will be quick,sufficient, and durable, Fund financing could exceed the 102 percent limit andreach up to the 125 percent limit. Moreover, as reaffirmed by the InterimCommittee, the Fund should have the flexibility in exceptional cases of goingbeyond the latter limit.

The Fund has recognized that even full implementation of a program orprograms may not necessarily guarantee the achievement of the desired balance

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of payments outcome; moreover, even if the outcome were to turn out to be fullyas planned, new problems could arise before repurchases were completed, callingfor a supplementary adjustment effort. The Fund should continue to have theflexibility to provide financial support in these circumstances, even though thismight prolong the period of use of its resources by a member. This policyapproach is implicit in the fact that the cumulative limit allows additional Fundfinancing even when a member has obtained the maximum possible amount ofsupport for a period of three years.

There are also circumstances where it is clear at the outset that the adjustmentperiod will have to be stretched beyond three years. In these cases Fund supportshould normally be in the form of successive shorter-term stand-by arrangements,each arrangement being formulated within the framework of a medium-termstrategy of balance of payments adjustment. In view of the possible associationof the Fund over a number of years, Fund financing in each individual yearshould be in moderate amounts, that is, well below the limit of 102 percent.Moreover, such support must be associated with the prospect of a significantreduction in balance of payments pressures within a reasonable period so thatthe member will be in a position to make the repurchases on schedule and in lessstraitened circumstances than when the corresponding drawings were made.

In a quite different category are situations where the Fund's role is likely tobe primarily that of a catalyst. The weakness of a member's balance of paymentsmay be such that it is questionable whether a sustainable position not requiringexceptional finance can be achieved over the medium term. A principal factorcausing this weakness is often the existing burden of debt service. In some ofthese cases the debt service problem may be due in part to the large outstandinguse of the Fund by the member and further substantial purchases from the Fundwould only aggravate the difficulties. In other cases, a substantial improvementin the balance of payments may call for fundamental economic changes whichcannot be achieved within a medium-term time frame. In all these situations Fundfinancing on a limited scale is justified if the member is taking appropriate stepsto deal with its situation and such support will maintain the confidence of othercreditors. The great bulk of the external financing must normally be provided onappropriate terms from sources other than the Fund. If sufficient external financingcannot be obtained, the Fund cannot be the residual source of finance, and therewould thus be no basis for the Fund to support the adjustment program. Theamount of the financing need that can be met from the Fund must be closelyrelated to the expected rate of improvement in the overall balance of payments,and there should be a clear prospect of the member making net repurchases witha view to restoring its credit tranche position, thus preventing the use of Fundresources acquiring a semipermanent character.

H. Policy on Enlarged Access to the Fund's Resources: Guidelines on AccessLimits

1. Access by members to the Fund's general resources under DecisionNo. 6783-(81/40) 4 on the policy on enlarged access during the period ending onDecember 31, 1984 shall be subject to annual limits of 102 or 125 percent ofquota, three-year limits of 306 or 375 percent of quota, and cumulative limits of408 or 500 percent of quota net of scheduled repurchases, depending on theseriousness of the member's balance of payments needs and the strength of itsadjustment effort. The annual and triennial access limits shall not be regarded astargets. Within these limits, the amounts of access in individual cases will varyaccording to the circumstances of the member in accordance with criteriaestablished by the Executive Board. The Fund may approve stand-by or extended


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arrangements that provide for amounts in excess of these access limits inexceptional circumstances.

2. The guidelines will be reviewed before the end of 1984 at the time of theannual review of the Decision on the policy on enlarged access.


I. Policy on Enlarged Access to the Fund's Resources: Use of Ordinary andBorrowed Resources

The Fund, having reviewed the proportions of ordinary and borrowed resourcesto be used under a stand-by or extended arrangement approved under DecisionNo. 6783-(81/40)5 on the policy on enlarged access, decides that:

1. The proportions after the effective date of this decision will be as follows:(a) Under a stand-by arrangement, purchases will be made with ordinary

and borrowed resources in the ratio of 2 to 1 in the first credit tranche, and 1to 1 in the next three credit tranches. Thereafter, purchases will be made withborrowed resources only.

(b) Under an extended arrangement, purchases will be made with ordinaryand borrowed resources in the ratio of 1 to 1 until the outstanding use of theupper credit tranches and the extended Fund facility equals 140 percent ofquota. Thereafter, purchases will be made with borrowed resources only.2. In accordance with subparagraph 8(d) of Decision No. 6783-(81/40),5 the

proportions in 1 above shall apply to amounts that may be purchased underexisting arrangements after the effective date of this decision on the basis of themember's quota at the time the arrangement for the member was approved.


J. Value Date of Purchases Under Arrangements Involving Enlarged AccessResources

(a) Amendment of Rule G-4(b)

Effective July 3, 1984 Rule G-4(b) shall read as follows:

(b) The value date for a purchase that involves resources borrowed by theFund under the policy on enlarged access, and that is in accordance with thestand-by or extended arrangement, will normally be either the fifteenth or thelast day of the month, or the preceding business day if the day selected is not abusiness day. If the request for the purchase is not received in the Fund in timefor its instructions to be issued for the first of these value dates following thedate of receipt, the purchase will be executed at the next such value date.

Decision No. 7687-(84/70)May 1, 1984, effective July 3, 1984

(b) Amendment of Forms of Stand-By and Extended Arrangements

Paragraph 7 of the form of stand-by and extended arrangements under enlargedaccess policy (attached to Decision No. 6838-(81/70),6 April 29, 1981) shall beamended to read as follows:

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5 Ibid.6 Ibid., pages 48-57.



7. The value date for purchases under this [stand-by] [extended] arrangementinvolving borrowed resources will be determined in accordance with Rule G-4(b)of the Fund's Rules and Regulations. (Member) will consult the Fund on the timingof purchases involving borrowed resources in accordance with Rule G-4(d).

Decision No. 7688-(84/70)May 1, 1984

K. Overdue Payments to the Fund: Performance Criterion Under Stand-By andExtended Arrangements

1. Paragraph 4(d) of the form of the stand-by arrangement in Attachment A toDecision No. 6838-(81/70),7 April 29, 1981, shall be amended to read as follows:

(d) during the entire period of this stand-by arrangement, while (member) hasany overdue financial obligation to the Fund, or if (member)

(i) imposes [or intensifies] restrictions on payments and transfers forcurrent international transactions, or

(ii) introduces [or modifies] multiple currency practices, or(iii) concludes bilateral payments agreements which are inconsistent with

Article VIII, or(iv) imposes [or intensifies] import restrictions for balance of payments

reasons.2. Paragraph 4(d) of the form of the extended arrangement in Attachment B to

Decision No. 6838-(81/70),7 April 29, 1981, shall be amended to read as follows:

(d) throughout the duration of the extended arrangement, while (member) hasany overdue financial obligation to the Fund, or if (member)

(i) imposes [or intensifies] restrictions on payments and transfers forcurrent international transactions, or

(ii) introduces [or modifies] multiple currency practices, or(iii) concludes bilateral payments agreements which are inconsistent with

Article VIII, or(iv) imposes [or intensifies] import restrictions for balance of payments

reasons.3. Other stand-by arrangements involving the use of the Fund's resources in

the upper credit tranches and other extended arrangements granted by the Fundafter the date of this decision shall also include the provision in 1 or 2 above.

4. The provision in 1 or 2 above shall also be included in an existing stand-byor extended arrangement when the Fund and the member reach understandingsregarding the circumstances in which further purchases may be made under thearrangement.

Decision No. 7678-(84/62)April 20, 1984

L. Oil Facility: Subsidy Account—Final Report on Termination

1. Subsidy payments shall be made to the beneficiaries listed in Table 1 ofEBS/83/94, Supplement 3, on the Fund's holdings of each member's currencysubject to charges that were outstanding under the 1975 oil facility and eligiblefor subsidy for the period May 1, 1975 to May 11, 1983 at a rate (approximately0.32 percent) that will fully utilize the remaining resources of the account.

2. These payments shall be made in U.S. dollars as soon as practicable after

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' Ibid.



all charges due at the end of July 1983 in connection with the oil facility havebeen paid.

3. No charge shall be levied for the services rendered by the Fund in theadministration, operation, and termination of the account.

4. After disbursement of subsidy payments under paragraph 2 above, thesubsidy account shall be considered terminated.

Decision No. 7484-(83/117)August 2, 1983

M. Compensatory Financing of Export Fluctuations: Guidelines on Cooperation

The Executive Board approves the guidelines on cooperation under thecompensatory financing facility set out in EBS/83/171, Supplement 1 (9/12/83).

Decision No. 7528-(83/140)September 14, 1983

Attachment to Decision No. 7528-(83/140)EBS/83/171, Supplement 1

Lower tranche

The criterion—namely, that the Fund is satisfied that the member will cooperatewith the Fund in an effort to find, where required, appropriate solutions for itsbalance of payments difficulties—implies a willingness to receive Fund missionsand to discuss, in good faith, the appropriateness of the member's policies andwhether changes in the member's policies are necessary to deal with its balanceof payments difficulties. Where the Fund considers that the existing policies ofthe member in dealing with its balance of payments difficulties are seriouslydeficient or where the country's record of cooperation in the recent past hasbeen unsatisfactory, the Fund will expect the member to take action that gives,prior to submission of the request for the purchase, a reasonable assurance thatpolicies corrective of the member's balance of payments problem will be adopted.

Upper tranche

The additional criterion of the upper tranche—namely, that the Fund is satisfiedthat a member has been cooperating with the Fund in an effort to find, whererequired, appropriate solutions for its balance of payments difficulties—meansthat in the light of the action taken by the member and the balance of paymentspolicies being pursued the Fund is satisfied with the member's record ofcooperation. The existence of a satisfactory balance of payments position (apartfrom the effects of the shortfall) or the existence of and broadly satisfactoryperformance under an arrangement with the Fund, or the adoption of such anarrangement at the time the request for a CFF purchase is made, will be consideredto provide evidence of cooperation. However, the existence or the adoption ofan arrangement is not a prerequisite. If a member's current and prospectivepolicies were such as would, in the Fund's view, meet the criteria of the use ofresources in the credit tranches, the member would be deemed to have beensatisfactorily cooperating with the Fund, even though such use was not contem-plated at the time of the CFF request.

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N. Compensatory Financing of Export Fluctuations: Access Limits

1. In paragraph 3 of Decision No. 6224-(79/135)8 "100 percent" shall bechanged to "83 percent."

4. The new percentages of quota under 1 ... above shall be reviewed notlater than December 31, 1984 and annually thereafter in the light of all relevantfactors, including the magnitude of members' payments problems and develop-ments in the Fund's liquidity.


O. Compensatory Financing of Fluctuations in the Cost of Cereal Imports:Access Limits

2. The following changes shall be made in paragraphs 9 and 14(a) of DecisionNo. 6860-(81/81): 9

(i) "125 percent" shall be changed to "105 percent;" and(ii) "100 percent" shall be changed to "83 percent."

4. The new percentages of quota under . . . 2 ... above shall be reviewed notlater than December 31, 1984 and annually thereafter in the light of all relevantfactors, including the magnitude of members' payments problems and develop-ments in the Fund's liquidity.


P. Buffer Stock Financing Facility: Access Limits

3. In paragraph 2 of Decision No. 2772-(69/47),10 as amended, "50 percent"shall be changed to "45 percent."

4. The new percentages of quota under . . . 3 above shall be reviewed notlater than December 31, 1984 and annually thereafter in the light of all relevantfactors, including the magnitude of members' payments problems and develop-ments in the Fund's liquidity.


Q. Guidelines for Borrowing by the Fund

Quota subscriptions are and should remain the basic source of the Fund'sfinancing. However, borrowing by the Fund provides an important temporarysupplement to its resources. In present circumstances, it facilitates the provisionof balance of payments assistance to its members under the Fund's policies ofsupplementary financing and enlarged access.

The confidence of present and potential creditors in the Fund will depend notonly on the prudence and soundness of its financial policies but also on the

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9 Ibid., pages 65-70.10 Ibid., pages 70-71.



effective performance of its various responsibilities, including, in particular, itssuccess in promoting adjustment.

Against this background the Executive Board approves the following guidelineson borrowing by the Fund.

1. Fund borrowing shall remain subject to a process of continuous monitoringby the Executive Board in the light of the above considerations. For this purpose,the Executive Board will regularly review the Fund's liquidity and financialposition, taking into account all relevant factors of a quantitative and qualitativenature.

2. Subject to paragraph 4 below, the Fund will not allow the total of outstandingborrowing plus unused credit lines to exceed the range of 50-60 percent of thetotal of Fund quotas. If the total of outstanding borrowing plus unused creditlines reaches the level of 50 percent of quotas, the Executive Board shall assessthe various technical factors that determine, at that time, the availability ofbalances of unused lines of credit. While this assessment is being made, the totalof outstanding borrowing plus unused credit lines may rise, if necessary, beyond50 percent, but shall not exceed 60 percent of total quotas.

3. The total of outstanding borrowing plus unused credit lines under para-graph 2 above shall include, in respect of the GAB and borrowing arrangementsassociated with the GAB, either outstanding borrowing by the Fund under thesearrangements, or two thirds of the total of credit lines under these arrangements,whichever is the greater.

4. In the case of major developments, the Executive Board shall promptlyreview, and may adjust, the guidelines. In any event, the guidelines shall bereviewed when the Board of Governors has completed the Ninth General Reviewof Quotas, or when there is a significant change in the GAB or associatedarrangements, and may be adjusted as a result of such reviews.

5. The percentage limits specified in paragraph 2 above, or any other limitsthat may be adopted as a result of a review pursuant to paragraph 4 above, arenot to be understood, at any time, as targets for borrowing by the Fund.

Decision No. 7589-(83/181)December 23, 1983

R. General Arrangements to Borrow: Transferability of Claims

Pursuant to Paragraph 13 of the revised General Arrangements to Borrow(GAB) which became effective on December 26, 1983,11 the Fund consents inadvance to the transfer of outstanding claims to repayment under the GAB onthe terms and conditions set out below:

1. All or part of any claim under the GAB may be transferred at any timeto a participant in the GAB.

2. As from the value date of the transfer, the transferred claim shall be heldby the transferee on the same terms and conditions as claims originating underits credit arrangement, except that the transferee shall acquire the right torequest early repayment of the transferred claim on balance of paymentsgrounds pursuant to Paragraph ll(e) of the GAB only if, at the time of thetransfer, (i) the transferee is a member, or the institution of a member, whosebalance of payments and reserve position is considered sufficiently strong forits currency to be usable in net sales in the Fund's operational budget; or (ii)the transferee is the Swiss National Bank, and the balance of payments andreserve position of the Swiss Confederation is, in the opinion of the Fund,sufficiently strong to justify such acquisition.

11 See Decision No. 7337-(83/37),Selected Decisions of the Inter-national Monetary Fund and Se-lected Documents, Tenth Issue(Washington, 1983), pages 131-45.

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3. The price for the claim transferred shall be as agreed between the transfereeand the transferor.

4. The transferor of a claim shall inform the Fund promptly of the claim thatis being transferred, the name of the transferee, the amount of the claim thatis being transferred, the agreed price for the transfer of the claim, and thevalue date of the transfer.

5. The transfer shall be registered by the Fund if it is in accordance withthe terms and conditions of this decision. The transfer shall be effective as ofthe value date agreed between the transferee and the transferor.

6. If all or part of a claim is tranferred during a quarterly period as describedin Paragraph 9(b) of the GAB, the Fund shall pay interest to the transferee onthe amount of the claim transferred for the whole of that period.

7. If requested, the Fund shall assist in seeking to arrange transfers.

Decision No. 7628-(84/25)February 75, 1984, effective April 10, 1984

S. Borrowing Agreement with Saudi Arabia in Association with the GeneralArrangements to Borrow: Transferability of Claims

Pursuant to Paragraph 9 of the Borrowing Agreement with Saudi Arabia underwhich Saudi Arabia has agreed to provide supplementary resources in associationwith the GAB, and which became effective on December 26, 1983 (the Agree-ment),12 the Fund consents in advance to the transfer of outstanding claims torepayment under the Agreement on the terms and conditions set out below:

1. All or part of any claim may be transferred at any time to any member ofthe Fund, the central bank or other agency of any member, or any official entitythat has been prescribed as a holder of SDKs pursuant to Article XVII, Sec-tion 3 of the Articles of Agreement.

2. On the value date of the transfer, all the rights and obligations of SaudiArabia provided in the Agreement with respect to the claim that is the subjectof the transfer shall vest in the transferee, except that

(a) the transferee shall acquire the right to request early repayment onbalance of payments grounds provided in Paragraph 6(d) of the Agreement onlyif, at the time of the transfer, (i) the transferee is a member, or the agency of amember, whose balance of payments and reserve position is considered sufficientlystrong for its currency to be usable in net sales in the Fund's operational budget,or (ii) the transferee is the Swiss National Bank, and the balance of paymentsand reserve position of the Swiss Confederation is, in the opinion of the Fund,sufficiently strong to justify such acquisition;

(b) if the transferee is a member or the agency of a member, references inthe Agreement to payment in Saudi riyals shall be deemed to be references topayment in the member's currency, and if the transferee is not a member or theagency of a member such references shall not apply; and

(c) the right to repayment on withdrawal provided in Paragraph 10 of theAgreement shall apply only if the transferee is a member or the agency of amember, and that member withdraws from the Fund.

3. The price for the claim transferred shall be as agreed between the transferorand the transferee.

4. The transferor shall inform the Fund promptly of the claim that is beingtransferred, the name of the transferee, the amount of the claim that is beingtransferred, the agreed price for transfer of the claim, and the value date of thetransfer.

5. The transfer shall be registered by the Fund if it is in accordance with the

12 See Decision No. 7403-(83/73),Selected Decisions of the Inter-national Monetary Fund and Se-lected Documents, Supplement toTenth Issue (Washington, 1984),pages 20-25.

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APPENDIX II (concluded). PRINCIPAL POLICY DECISIONS

terms and conditions of this decision. The transfer shall be effective as of thevalue date agreed between the transferor and the transferee.

6. If all or part of a claim is transferred during the quarterly period ending ona date specified in Paragraph 5(b) of the Agreement, the Fund shall pay interestto the transferee on the amount of the claim transferred for the whole of thatperiod.

7. If requested by the holder of a claim under the Agreement, the Fund shallassist in seeking to arrange a transfer pursuant to this Decision.

Decision No. 7629-(84/25)February 15, 1984, effective April 10, 1984

T. Treatment of Reserve Trancheof Currencies: Review

-Attribution of Reduction in Fund's Holdings

The Executive Board has reviewed Decisions Nos. 6830-(81/65), 13 adoptedApril 22, 1981, effective from May 1, 1981 and 6831-(81/65), 14 adopted April 22,1981, effective from May 1, 1981, as amended by Decision No. 7059-(82/23), 14

adopted February 22, 1982. It has concluded that the decisions shall remain ineffect without any change.

Decision No. 7704-(84/78)May 14, 1984

13 Selected Decisions of the In-ternational Monetary Fund andSelected Documents, Tenth Issue(Washington, 1983), pages 58 and299.

14 Ibid., page 108.

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Appendix IIIPress Communiquesof the Interim Committeeand the Development Committee

Interim Committee of the Board of Governorson the International Monetary System

PRESS COMMUNIQUES

Twenty-First Meeting, Washington, September 25, 1983

1. The Interim Committee of the Board of Governors of the InternationalMonetary Fund held its twenty-first meeting in Washington, B.C., on Septem-ber 25, 1983, under the chairmanship of Mr. Willy De Clercq, Vice Prime Minister,Minister of Finance, and Minister of Foreign Trade of Belgium. Mr. Jacques deLarosiere, Managing Director of the International Monetary Fund, participatedin the meeting. The meeting was also attended by observers from a number ofinternational and regional organizations and from Switzerland.

2. In its discussion of the world economic outlook the Committee noted withsatisfaction that economic recovery had begun in the United States and Canadaand appeared to be getting under way in a number of other industrial countries.The Committee also noted with satisfaction the abatement of inflation andconsidered that it had been an important factor in supporting the renewed growthof demand.

In present circumstances, therefore, the aim of policy should be to strengthenthe recovery through policies that consolidated the progress made toward a morestable economic and financial environment. A crucial element of this strategywas the need to reassert adequate control over fiscal and monetary policies. Itwas the view of the Committee that excessive monetary growth should be avoidedand that structural budget deficits remained too high in a number of countries.Bringing structural fiscal deficits under control would contribute to a more stableand sustainable path of real growth, as would the continuation of determinedefforts to reduce market rigidities and structural imbalances.

The Committee discussed the difficult situation facing developing countries,noting that external financial difficulties had required significant restraint overdomestic demand. Particular concern was expressed at the prospect that economicgrowth in these countries in 1983 was once again expected to be lower than therate of population increase—a downward revision from the figures considered bythe Committee at its meeting in February.

The Committee noted that a considerable reduction had already taken place inthe current account deficits of non-oil developing countries. Nonetheless, manyof these countries still faced an acute debt service problem and further progresswould have to be made before their external position could be considered viable.Attention therefore had to be given to encouraging the continued pursuit ofrealistic adjustment policies and to ensuring adequate flows both of official

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APPENDIX III (continued). COMMUNIQUES

development assistance and of private bank credit. In this latter connection,coordinated financial arrangements would be required, involving mutually sup-portive credits from private banks, multilateral organizations, and official lenders.

3. The Committee expressed deep concern about the increasing tendenciestoward protectionism. It called on all members to resist, and as soon as possibleto rescind, protectionist measures, and stressed the need for the adoption ofpolicies aimed at promoting an open multilateral trade and payments system,which is in the interest of both developed and developing members. In thisconnection, it called particular attention to the need for all countries, especiallyheavily indebted developing countries, to have adequate market access, in orderto facilitate service of their external debt and at the same time support a reasonablevolume of imports.

The Committee was pleased to note that the Fund had intensified its collaborationwith the GATT and had placed increased emphasis on the subject of protectionismin the exercise of its surveillance responsibilities. More generally, the Committeereiterated its view that the surveillance activities of the Fund should be maintainedand strengthened.

4. The Committee stressed the great importance, in current circumstances, ofthe Fund's role in providing balance of payments assistance to the members thatengage in adjustment programs—a role that the Fund can perform effectivelyonly if it has sufficient financial resources. In this connection, the Committeenoted with concern the increasing strain on the liquidity position of the Fund andthe prospect of a reduction in the availability of Fund assistance if additionalresources are not assured at an early date. In the light of these developments,the Committee strongly endorsed the Managing Director's efforts to arrangeadditional borrowing from official sources to cover the growing gap between theamounts of borrowed resources that the Fund had committed and those availableto it under existing credit lines, and expressed the hope that this borrowing canbe successfully concluded without delay.

Given the continued serious balance of payments problems of many members,providing the Fund with adequate resources is a key element in ensuring furtherprogress toward adjustment and hence soundly based growth. The Committeeemphasized, therefore, the critical importance of bringing into effect before theend of this year, in accordance with the timetable prescribed by the Board ofGovernors, the quota increases under the Eighth General Review and the revisedand enlarged General Arrangements to Borrow that were approved last March.Reaffirming its view that subscriptions under members' quotas should be theprimary source of Fund financing, and recalling that the new quotas could notbecome effective until increases had been accepted by members having at least70 percent of total quotas, the Committee expressed concern at the fact thatmembers accounting for only 29.2 percent of total quotas had consented so far.The Committee called on all members that had not yet communicated theirconsent to complete the steps necessary for this purpose as a matter of urgency.

5. The Committee considered the subject of the access to the Fund's resourcesafter the quota increase under the Eighth General Review becomes effective,taking note of the temporary and revolving nature of the Fund's balance ofpayments support. The conclusions reached by the Committee are set forth inthe following paragraphs. A few members of the Committee stated that they didnot agree with all the conclusions on the access limits.

(a) While noting that adjustment appeared to be under way, the Committeerecognized that the needs of many members for the type of temporary balanceof payments financing that the Fund provides are and may remain large in relationto their quotas. It concluded, therefore, that the policy on enlarged access, whichis of a temporary character, should continue for 1984, in accordance with (b),(c), and (d) below.

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(b) The access limits and the enlarged access policy will be reviewed yearlyto consider the future of the policy, including its termination, its gradual phase-down, or its extension, in light of all relevant factors, including the magnitude ofmembers' payments problems and developments in the Fund's liquidity position.

(c) Access to the Fund's resources under the policy during the period ofextension specified in (a) will be subject to annual limits of 102 or 125 percent ofquota, three-year limits of 306 or 375 percent of quota, and cumulative limits of408 or 500 percent of quota, depending on the seriousness of the balance ofpayments needs and the strength of the adjustment effort. These limits would beexamined periodically in conjunction with the reviews of the enlarged accesspolicy itself. As at present, the Executive Board should retain the flexibility toapprove stand-by or extended arrangements for amounts above the access limitsin exceptional circumstances.

(d) As at present, the annual and triennial access limits should not beregarded as targets; within these limits, the amount of access in individual casesshould vary with the circumstances of the member, in accordance with criteriaestablished for this purpose by the Executive Board.

(e) On the question of access to the Fund's resources under the specialfacilities after the Eighth General Review becomes effective, some of the membersof the Committee would prefer the retention of the present limits. Other memberswould prefer a lesser amount ranging from 68 to 85 percent. Accordingly, theCommittee asked the Executive Board to consider the matter and to reach aconclusion at the earliest possible date. These limits should be reviewed at thetime of each review of the enlarged access policy.

(f) In implementing its policies on access to its resources, the Fund shouldbe particularly mindful of the very difficult circumstances of the small-quota,low-income member countries.

(g) The Committee requested the Executive Board to take, as soon aspossible, the necessary action in order to implement the conclusions reached inthe Committee.

6. The Committee considered again the question of allocation of SDKs in thecurrent, i.e., the fourth, basic period which began on January 1, 1982. Mostmembers of the Committee were of the view that the recent trends in the stateof international liquidity and the conditions of the world economy strengthenedthe case for an allocation during the current period, while other members wereof the view that the case had not yet been made. The Committee agreed thatdiscussions of the issue, which could lead to a proposal by the Managing Directorcommanding broad support among members of the Fund, should be pursued asa matter of priority.

7. The Committee agreed to hold its next meeting in Washington, D.C., in thespring of 1984.

Annex: Interim Committee Attendance, September 25, 1983

ChairmanWilly De Clercq, Vice Prime Minister, Minister of Finance, and Minister of Foreign

Trade for Belgium

Managing DirectorJ. de Larosiere

Members or AlternatesMohammad Abal-Khail, Minister of Finance and National Economy of Saudi ArabiaHassan Al-Najafi, Governor of the Central Bank of IraqRachid Bouraoui, Governor of the Banque Centrale d' AlgeriaB.T. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe

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Pierre Werner, President of the Government of Luxembourg (Alternate for Willy DeClercq, Vice Prime Minister, Minister of Finance, and Minister of Foreign Trade forBelgium)

Jacques Delors, Minister of Economy, Finance and Budget of FranceErnane Galveas, Minister of Finance of BrazilGiovanni Goria, Minister of the Treasury of ItalyPaul J. Keating, Treasurer of the Commonwealth of AustraliaMarc Lalonde, Minister of Finance of CanadaNigel Lawson, Chancellor of the Exchequer of the United KingdomLU Peijian, Governor of the People's Bank of ChinaManmohan Singh, Governor of the Reserve Bank of India (Alternate for Pranab Kumar

Mukherjee, Minister of Finance of India)J6hannes Nordal, Governor of the Central Bank of IcelandNukul Prachuabmoh, Governor of the Bank of ThailandDonald T. Regan, Secretary of the Treasury of the United StatesH.O. Ruding, Minister of Finance of the NetherlandsSAMBWA Pida Nbagui, Governor of the Banque du ZaireJesus Silva-Herzog, Secretary of Finance and Public Credit of MexicoGerhard Stoltenberg, Federal Minister of Finance of GermanyHaruo Mayekawa, Governor of the Bank of Japan (Alternate for Noboru Takeshita,

Minister of Finance of Japan)Jorge Wehbe, Minister of Economy of Argentina

ObserversA.W. Clausen, President, IBRDGamani Corea, Secretary General, UNCTADArthur Dunkel, Director-General, GATTSalah Hamed, Chairman, Intergovernmental Group of Twenty-FourGhulam Ishaq Khan, Chairman, Development CommitteeEmile van Lennep, Secretary-General, OECDF. Leutwiler, Chairman of the Governing Board, Swiss National BankFrangois-Xavier Ortoli, Vice-President for Economic and Financial Affairs, CECJean Ripert, Director General for Development and International Economic Cooperation,

UNM.V. Samii, Head, International Money and Finance Unit, OPECGiinther Schleiminger, General Manager, BIS

Twenty-Second Meeting, Washington, April 12, 1984

1. The Interim Committee of the Board of Governors of the InternationalMonetary Fund held its twenty-second meeting in Washington, D.C., on April 12,1984, under the chairmanship of Mr. Willy De Clercq, Vice Prime Minister,Minister of Finance, and Minister of Foreign Trade of Belgium. Mr. Jacques deLarosiere, Managing Director of the International Monetary Fund, participatedin the meeting. The meeting was also attended by observers from a number ofinternational and regional organizations and from Switzerland.

2. The Committee discussed the policies required in present circumstances toimprove the economic prospects of all members.

The Committee welcomed the recovery of economic activity that is currentlyunder way in industrial countries at a pace faster than was foreseen. It noted,however, that the effects of this recovery on employment had so far been limitedoutside the United States and Canada. The reductions in inflation rates whichhad been substantial in many countries were welcomed. The Committee expressedgreat concern, however, at the possible consequences of recent increases of keyinterest rates rising from an already high level.

In reviewing economic conditions in the developing countries, the Committeecommented favorably on the fact that the rate of growth appears to be pickingup in these countries on average, but regarded the continuing low level of thatrate, especially in per capita terms, as a danger and a challenge to policy. It wasa matter of regret that, in general, little improvement in inflation rates had yettaken place.

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During the course of the last year, the volume of international trade increasedsignificantly, and some improvement in the terms of trade of the non-oil developingcountries also took place. These changes were welcomed, although they havenot compensated for the deterioration in trade conditions suffered by thesecountries in recent years.

Balance of payments developments and associated exchange rate movementswere examined in the context of the linkages between fiscal deficits, levels ofpublic expenditure, current account positions, interest rates, monetary policies,and the distribution of savings in the global economy.

For the industrial world, the Committee felt that prudent monetary and fiscalpolicies needed to be set in a medium-term framework so as to preserve andimprove upon the better price performance of the recent past, while providingscope and incentive for the recovery of capital investment and continuing strengthof total demand. In a number of countries a reduction of fiscal deficits in relationto GNP would be helpful in this respect, and this was regarded as a matter ofurgency. It was recognized that in most of the industrial countries substantialstructural adaptations were needed to improve the conditions of supply, includingdiscipline in government spending and fewer rigidities in labor and capital markets.

The Committee felt that the immediate policy challenge to developing countrieswas to maintain and strengthen, where necessary, the adjustment efforts that inmany of them are already bearing fruit, as manifested by the reduction of thecurrent account deficits of the non-oil developing countries in 1982-83. It wasalso noted, however, that a significant part of this reduction was due to acompression of imports. The Committee recognized that adjustment programs,if they are not to lead to continued import compression, which would limit thegrowth potential of debtor countries and could lead to social and politicalinstability, require more open trade and capital markets as well as continuedfinancial cooperation from governments and the international banking community.The Committee also recognized that low-income developing countries dependheavily on grants and concessional loans to support economic adjustment, andthese should, along with improved economic policies, be playing a larger role.In this regard, the Committee noted, in particular, the plight of sub-SaharanAfrica whose problems have been exacerbated by natural disasters and requireconcerted action on the part of the international community.

The Committee stressed that the economies of the developed and developingcountries were closely linked and that the policies of each group vitally influencedthe economies of the other.

The Committee expressed its profound concern over the growth of protectionistpractices, recognizing that they inhibit the expansion of trade, the adjustmentefforts of both developed and developing countries, the control of inflation, andthe improvement of living standards worldwide. It was also noted that protectionistpressures in major industrial countries were of particular concern in this regard,in view of the large weight of these countries in world trade. The Committeewelcomed the increased attention given to the problem of protectionism in theFund's surveillance activities, which can help to support the efforts of the GATTand other competent institutions to promote an open trading system. Theimprovement of trade opportunities, particularly for the heavily indebted coun-tries, will help to lay the foundation for a more broad-based economic recoveryand strengthen the international financial system. The Committee urged membersto take action that would contribute to global trade liberalization, and to examinewithin their respective governments how they could move toward enunciation ofa clear, practical policy commitment that would effectively halt the present trendand pave the way for a rollback in protectionism. The Committee expressed theview that in this way a concrete meaning could be given to the recent antipro-tectionist pledges made by governments in several international forums, thereby

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instilling confidence in the shared objective of promoting an open multilateraltrading system.

3. The Committee, while recognizing the progress made in the cooperativeefforts to deal with the problems of international indebtedness, drew attention tothe serious difficulties that continue to beset many member countries. In thisrespect, the Committee stressed that the debt problems of many developingcountries remained serious. High interest rates continue to strain debt-servicingcapacity, jeopardizing adjustment efforts. The Committee agreed that a satisfac-tory resolution of these difficulties would continue to require close cooperationamong all parties concerned. Above all, many member countries would need todirect their efforts toward achieving a viable external position. Their successwould depend upon the pursuit by all member countries of policies that wouldcontribute to an environment of sustained noninflationary economic growth andwould help to promote an open trading system and the efficient movement ofcapital, keeping in view the special needs of developing countries. In thisconnection, the Committee stressed the vital role that the Fund has played, andshould continue to play, in these endeavors.

4. The Committee welcomed the considerable strengthening of the Fund'sliquidity as a result of the implementation of the quota increases under the EighthGeneral Review and the augmentation of the GAB, including the full participationby the Swiss National Bank and the conclusion of a borrowing arrangement withSaudi Arabia in association with the GAB. It noted with satisfaction that furtherborrowing agreements for SDR 6 billion in support of the Fund's policy onenlarged access were in the process of being concluded by the Fund.

5. The Committee also reiterated the concerns it had expressed last Septemberabout the special needs of small-quota, low-income countries as regards accessto the Fund's resources.

6. The Committee considered again the question of an allocation of SDRs inthe current, i.e., the fourth, basic period against the background of the state ofinternational liquidity and the conditions of the world economy.

Most members of the Committee were convinced that there was increasedevidence for an SDR allocation, pointing out that, in their view, an allocation inpresent circumstances would be in full conformity with the requirements of theFund's Articles, and would strengthen the world economy and the internationalmonetary system. Some other members of the Committee, however, continuedto feel that a global liquidity shortage had not been demonstrated.

No conclusion was reached at this meeting, but it was agreed that the ExecutiveBoard should continue, before the next meeting of the Interim Committee, itsurgent examination of the issues involved, and that the Managing Director shouldpresent a further report at the next meeting of the Committee on the outcome ofthe Executive Board's discussions.

7. The Committee agreed to hold its next meeting in Washington, D.C., onSeptember 22, 1984.

Annex: Interim Committee Attendance, April 12, 1984

ChairmanWilly De Clercq, Vice Prime Minister, Minister of Finance, and Minister of Foreign

Trade for Belgium

Managing DirectorJ. de Larosi&re

Members or AlternatesHamad Al-Sayari, Acting Governor, Saudi Arabian Monetary Agency (Alternate for

Mohammad Abal-Khail, Minister of Finance and National Economy, Saudi Arabia)

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Hassan Al-Najafi, Governor, Central Bank of IraqRachid Bouraoui, Governor, Banque Centrale d'AlgerieB.T. Chidzero, Minister of Finance, Economic Planning and Development, ZimbabweHolger Bauer, State Secretary, Ministry of Finance, Austria (Alternate for Willy De

Clercq, Vice Prime Minister, Minister of Finance, and Minister of Foreign Trade forBelgium)

Michel Camdessus, Director of the Treasury, Ministry of Economy, Finance and Budget,France

Ernane Galveas, Minister of Finance, BrazilGiovanni Goria, Minister of the Treasury, ItalyBernardo Grinspun, Minister of Economy, ArgentinaC. J. Hurford, Minister for Housing and Construction and Minister assisting the Treasurer,

Australia (Alternate for Paul J. Keating, Treasurer, Australia)Marc Lalonde, Minister of Finance, CanadaNigel Lawson, Chancellor of the Exchequer, United KingdomBenito Raul Losada, President, Banco Central de VenezuelaQIU Qing (Mrs.), Vice President, People's Bank of China (Alternate for LU Peijian,

President, People's Bank of China)Pranab Kumar Mukherjee, Minister of Finance, IndiaRadius Prawiro, Minister of Finance, IndonesiaKjell Storvik, Under Secretary, Ministry of Finance, Norway (Alternate for Rolf

Presthus, Minister of Finance, Norway)Donald T. Regan, Secretary of the Treasury, United StatesH.O. Ruding, Minister of Finance of the NetherlandsSAMBWA Pida Nbagui, Governor, Banque du ZaireGerhard Stoltenberg, Federal Minister of Finance, GermanyHaruo Mayekawa, Governor, Bank of Japan (Alternate for Noboru Takeshita, Minister

of Finance, Japan)

ObserversA.W. Clausen, President, IBRDAli K. Hussain, International Money and Finance Analyst, Economics and Finance

Department, OPECGhulam Ishaq Khan, Chairman, Development CommitteeAlexandre Lamfalussy, Assistant General Manager, BISEmile van Lennep, Secretary-General, OECDF. Leutwiler, Chairman of the Governing Board, Swiss National BankM.G. Mathur, Deputy Director-General, GATTFrangois-Xavier Ortoli, Vice-President for Economic and Financial Affairs, CECJan Pronk, Deputy Secretary General, UNCTADJean Ripert, Director-General, Development and International Economic Cooperation,

UN

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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

Twenty-Second Meeting, Washington, September 26, 1983

1. The Development Committee held its twenty-second meeting in Washington,D.C., on September 26, 1983, under the chairmanship of His Excellency GhulamIshaq Khan, Minister of Finance, Commerce and Economic Coordination ofPakistan. Mr. A.W. Clausen, President of the World Bank, Mr. J. de Larosiere,Managing Director of the International Monetary Fund, and Mr. Hans E. Kastoft,Executive Secretary, participated in the meeting. Representatives from a numberof international and regional organizations and Switzerland also attended themeeting.

2. The Committee's discussions took place against the background providedby the World Development Report, 1983 of the World Bank and the WorldEconomic Outlook of the IMF. A report by the President of the World Bankhighlights some specific development issues. The Committee took note of thediscussion in the Interim Committee on the global economic situation and agreedthat though economic recovery had begun in the United States and appeared tobe getting under way in a number of other industrialized countries, the situationfacing developing countries remained difficult and that external financial difficultieshad required significant restraint on domestic demand in these countries. Particularconcern was expressed at the prospect that economic growth in the developingcountries in general in 1983 was once again expected to be lower than the rateof population increase.

3. The challenge in the period ahead is how recovery can be sustained,strengthened, and extended in a noninflationary environment. The recovery inthe industrialized countries is a necessary but not a sufficient condition forrestoring growth momentum in the developing world. In that context, the subjectof capital flows to the developing countries, both nonconcessional and conces-sional, and both public and private, was discussed. In particular, members agreedon the need, in accordance with past policy and practice, to take early action ona selective capital increase for the World Bank following and in line with theEighth General Review of Quotas in the Fund. A range of $3 billion to $20 billionwas discussed. Most members agreed to a selective capital increase of about $8billion and requested that Executive Directors work out the specifics with theaim of submission to the Board of Governors by the end of this calendar year.

4. The Committee also welcomed the intention of the World Bank managementto prepare proposals concerning the future role of the Bank and the implicationsfor longer-term capital requirements, including the need for a general capitalincrease. These subjects will be considered by the Bank's Executive Board inthe months ahead. The Committee invited the Executive Board to report on thesediscussions to the Development Committee meeting in September 1984.

5. The needs of low-income developing countries, dependent on officialdevelopment assistance (ODA) were discussed, including the status of the nego-tiations of IDA 7. No progress was made in the recent negotiations on IDA 7which were held on September 24, 1983. This was regrettable since the urgencyof concluding IDA 7 negotiations by the end of this year was unanimouslyaccepted. Ministers recognized that the size of IDA 7 should be agreed at arealistic level which recognizes the needs of an expanded IDA recipient community

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faced with an extremely serious economic predicament and the budgetaryconstraints of donor countries.

6. The difficult economic circumstances and prospects of sub-Saharan Africawere considered, based on a review of recent World Bank reports. It was notedthat a number of countries in this region had adjustment programs under way.Considering the severe decline in the income per capita experienced by thesecountries, and in order to help sustain and extend the process of domesticeconomic policy reform, Ministers agreed on the priority attached to an increaseof the share these countries receive in external assistance on concessional terms.The Committee urged the World Bank to continue to give particular attention tothe problems of sub-Saharan Africa.

7. The Committee agreed on the importance of encouraging direct privateinvestment, especially in the poorer countries, and noted the intention of theBank management to propose expanding the investment program of the Inter-national Finance Corporation (IFC) during fiscal years 1984-1988 with a capitalincrease of $750 million. This would expand capital flows from the World BankGroup to the private sector in the developing countries. The proposal will beconsidered by the Executive Directors in the next several months.

8. The Committee reviewed a progress report on energy development and therole of the World Bank in helping mobilize additional funds for this purpose. TheCommittee took note of the growing fieed for these additional funds by developingcountries for energy development.

9. The Committee also considered brief progress reports from the Bank andthe Fund on the subject of trade and promotion of development, first taken upat its last meeting in April 1983. The Committee agreed to discuss this subjectfurther at its next meeting. In the meantime the Committee urged all tradingnations to reduce their reliance on protectionism.

10. The draft of the Annual Report on the work of the Committee during theyear July 1982 to June 1983 was approved by the Committee for submission tothe Boards of Governors.

11. An oral progress report from the Chairman of the Task Force on Conces-sional Flows set up in 1982 by the Committee to study problems affecting thevolume, quality, and effective use of concessional flows was also received.

12. The Committee agreed to meet again in the spring of 1984.

Twenty-Third Meeting, Washington, April 13, 1984

1. The twenty-third meeting of the Development Committee was held inWashington, D.C., on April 13, 1984 under the chairmanship of His ExcellencyGhulam Ishaq Khan, Minister of Finance, Commerce and Economic Coordinationof Pakistan. Mr. A.W. Clausen, President of the World Bank, Mr. J. de Larosiere,Managing Director of the International Monetary Fund, and Mr. Hans E. Kastoft,Executive Secretary, participated in the meeting. Representatives from a numberof international and regional organizations and Switzerland also attended.

2. The Committee discussed the status of IDA and the linkages between tradeand development against the background of the world economic outlook asprojected in the Fund document and the report by the President of the WorldBank. It was noted that while the world economic situation is more promisingthan a year ago, the achievement of sustained growth and its extension todeveloping countries require improved policy performance by both the developedand developing countries, an increase of private and official capital flows, andimproved trade prospects.

3. Ministers recalled that at their last meeting most members had agreed on aSelective Capital Increase (SCI) for the World Bank of about $8 billion. In theprocess of negotiating the SCI, agreement was reached on the relative contributions

150



of major donors to IDA 7. The Committee noted the agreement reached amongmost of the major shareholders on share ranking in the IBRD which had facilitatedthe agreement on the IDA 7 replenishment. While concern was expressed bymembers that action on IDA 7 and the SCI had not yet been taken, they wereencouraged by the willingness of major shareholders to work toward resolvingas quickly as possible the outstanding issues. Ministers urged that shareholdersexert maximum effort to obtain the necessary approvals so that the implementingresolutions for the Seventh Replenishment and the Selective Capital Increasecould be considered by the Executive Boards and approved by the Governors intime to permit the legislative action needed if IDA 7 is to become effective onJuly 1, 1984.

4. All donors but one expressed concern at the implications of a $9 billionreplenishment, an amount well below the $12 billion level supported by most.All members except one pointed to the inadequacy of the $9 billion replenishment,which represents a sharp decline in real terms in relation to IDA 6. Most membersasked for accelerated action by IDA management and donors to mobilize up to$3 billion in a Supplementary Funding Arrangement to be available by July 1,1984. All donors were urged to participate in this fund on the basis of fair burdensharing.

5. The Committee looks forward at its next meeting to suggestions from WorldBank management concerning the future role of the Bank and the implicationsfor longer-term capital requirements, keeping in mind the need for a generalcapital increase. The Committee welcomed progress in the preparation of anexpanded investment program for the International Finance Corporation (IFC)through a management proposal of a $750 million capital increase and called forearly action by the IFC Executive Board.

6. In reviewing the world economic outlook, the Committee took note of thedifficulties developing countries continued to experience despite recovery inmany industrialized countries. The Committee welcomed the recovery of economicactivity that is currently under way in industrial countries at a pace faster thanwas foreseen. It noted, however, that the effects of this recovery on employmenthad so far been limited outside the United States and Canada. The reductions ininflation rates which had been substantial in many countries were welcomed. TheCommittee expressed great concern, however, at the possible consequences ofrecent increases of key interest rates rising from an already high level. In reviewingeconomic conditions in the developing countries, the Committee commentedfavorably on the fact that the rate of growth appears to be picking up in thesecountries on average, but regarded the continuing low level of that rate, especiallyin per capita terms, as a danger and a challenge to policy. It was a matter ofregret that, in general, little improvement in inflation rates had yet taken place.

7. The Committee paid special attention to the critical situation faced by thesub-Saharan African countries. The Committee expressed concern at the grimprospects for the region, reflected in a continued decline in per capita incomesfor many African countries, a weakening in external payments positions, depressedcommodity prices, a burdensome debt situation, and, against rapidly risingpopulation growth, a crisis in food production, bordering on famine. Thesenegative features had been exacerbated by continuing severe drought conditionswhich had now extended to southern Africa, creating human and economicproblems of major proportions. It was agreed that increased concessionalassistance was urgently needed from both bilateral and multilateral sources toaddress the immediate problem of food availability and its distribution and tosupport domestic policies aimed at improving sub-Saharan Africa's long-termdevelopment prospects.

8. The Development Committee reiterated its earlier view that Africa shouldcontinue to receive high priority in the allocation of IDA resources. It was noted,

151



however, that with a replenishment level of $9 billion, it would be difficult toprovide adequate IDA resources to sub-Saharan Africa, taking into account theneeds of other low-income countries. The Committee welcomed an undertakingby the Bank/IDA management to prepare a program for Africa for the September1984 meeting of the Development Committee to guide the Bank and the inter-national community in helping sub-Saharan Africa deal with its severe human,social, and economic problems.

9. The Committee held an extensive discussion on the linkages between trade,finance, and development, on the basis of background papers prepared by theBank and Fund staffs. While the Committee noted with satisfaction that exportshad begun to revive, it expressed serious concern regarding the continuing risein protectionism which is making more difficult the orderly implementation ofthe adjustment process in all countries, developing and developed. Moreover,for some heavily indebted developing countries relying on the openness ofmarkets, protectionism has aggravated their serious balance of payments prob-lems, making it more difficult for them to service their debt in an orderly fashion.The increase in trade barriers is also retarding the much needed structuraladjustment in both developed and developing countries. The Committee empha-sized that expanded trade opportunities, including more remunerative prices forprimary commodities, would provide a critical impetus to the extension of worldeconomic recovery and contribute to restoring the long-term growth and devel-opment prospects of developing countries. Trade liberalization and improveddomestic economic policies in all countries, together with enlarged flows ofexternal finance to developing countries, are mutually reinforcing actions whichwould help accelerate growth momentum of developing countries.

10. The Committee invited all governments to step up their efforts to seekeffective solutions to the current problems in international trade relations, bearingin mind the special needs of the developing countries. The Committee welcomedthe indications of a growing interest among governments in launching a newround of multilateral trade negotiations under the aegis of the GATT, whichshould continue to play the central role in efforts to bring about a more opentrading system. These negotiations should consider dismantling nontariff barriersand other measures affecting the trade of developing countries. The Committeeconsidered that it could usefully supplement these efforts by playing a moreactive part in strengthening governments' resistance to protectionist pressuresand encouraging trade liberalization. Accordingly, it invited members to discussin future meetings progress reached on improvements in trade opportunities,particularly for the developing countries. It also invited the Director-General ofthe GATT, at the Committee's future meetings, to present his appraisal of progressin measures to strengthen the multilateral trading system and to liberalize tradeaffecting developing countries. The Committee urged the Bank and the Fund tocontinue their efforts to encourage an expanding and open world trading system.The Committee considered that, by keeping under review the linkages betweentrade and the promotion of development, it could provide continuing support tothe work of the GATT and the UNCTAD, and thereby help ensure the coherenceand consistency of actions in the international financial and trade fields.

11. The Committee expressed its satisfaction with the progress achieved sofar by the international community in addressing the debt problem of developingcountries. The Committee requested that the Fund and the Bank continue toexamine the debt problem of developing countries.

12. The Committee also took note of a study on investment incentives andperformance requirements undertaken by the World Bank on the recommendationof the Task Force on Private Foreign Investment. The study will facilitate abetter understanding of the impact and choice of policies pertaining to internationaldirect private investment.

152


APPENDIX III (concluded). COMMUNIQUES

13. The Committee appointed Mr. Fritz Fischer to succeed the presentExecutive Secretary, Mr. Kastoft, with effect from July 1, 1984, and placed onrecord its appreciation of the services rendered by him.

14. The Committee agreed to meet again on September 23,1984 in Washington,D.C.

153


Appendix IVExecutive Directors and Voting Poweron April 30, 1984

DirectorAlternate

APPOINTED

Richard D. ErbMary K. Bush

Nigel WicksT.A. Clark

Gerhard LaskeGuenter Grosche

Bruno de MauldeXavier Blandin

Teruo HiraoTadaie Yamashita

Yusuf A. Nimatallah

CastingVotes of

United States

United Kingdom

Germany, Fed. Rep. of

France

Japan

Saudi Arabia

Votesby

Country

179,433

62,190

54,287

45,078

42,483

32,274

TotalVotes '

179,433

62,190

54,287

45,078

42,483

32,274

Percentof FundTotal2

19.32

6.70

5.84

4.85

4.57

3.47Jobarah E. Suraisry

ELECTED

Miguel A. Senior (Venezuela)Jose L. Feito (Spain)

J.J. Polak (Netherlands)Tom de Vries (Netherlands)

Jacques de Groote (Belgium)Heinrich G. Schneider (Austria)

Costa RicaEl SalvadorGuatemalaHondurasMexicoNicaraguaSpainVenezuela

CyprusIsraelNetherlandsRomaniaYugoslavia

AustriaBelgiumHungaryLuxembourgTurkey

1,0911,1401,330

92811,905

93213,11013,965

9474,716

22,8985,4846,380

8,00621,0545,5571,0204,541

44,401 4.78

40,425 4.35

40,178 4.33

154


APPENDIX IV (continued). EXECUTIVE DIRECTORS AND VOTING POWER

DirectorAlternate

CastingVotes of

Votesby

CountryTotal

Votes *

Percentof FundTotal 2

ELECTED (continued)

Robert K. Joyce (Canada)Luke Leonard (Ireland)

Giovanni Lovato (Italy)Costa P. Caranicas (Greece)

Mohamed Finaish (Libya)Tariq Alhaimus (Iraq)

A.R.G. Prowse (Australia)Kerry G. Morrell (New Zealand)

John Tvedt (Norway)Arne Linda (Sweden)

R.N. Malhotra (India)A.S. Jayawardena

(Sri Lanka)

Alexandre Kafka (Brazil)Cesar Robalino (Ecuador)

J.E. Ismael (Indonesia)Jaafar Ahmad (Malaysia)

Antigua and BarbudaBahamasBarbadosBelizeCanadaDominicaGrenadaIrelandJamaicaSt. LuciaSt. Vincent

GreeceItalyMaltaPortugal

BahrainIraqJordanKuwaitLebanonLibyaMaldivesOmanPakistanQatarSomaliaSyrian Arab RepublicUnited Arab EmiratesYemen Arab RepublicYemen, People's

Democratic Republic of

AustraliaKoreaNew ZealandPapua New GuineaPhilippinesSeychellesSolomon IslandsVanuatuWestern Samoa

DenmarkFinlandIcelandNorwaySweden

BangladeshBhutanIndiaSri Lanka

BrazilColombiaDominican RepublicEcuadorGuyanaHaitiPanamaSurinameTrinidad and Tobago

BurmaFijiIndonesiaLao People's Dem. Rep.MalaysiaNepalSingaporeThailandViet Nam

300914591345

29,660290310

3,6841,705

325290

4,24929,341

7014,016

7395,290

9896,6031,0375,407

270881

5,7131,399

6921,6412,276

683

1,022

16,4424,8784,866

9094,654

280300340310

7,3605,999

8467,240

10,893

3,125275

22,3272,481

14,8634,1921,3711,757

742691

1,272743

1,951

1,620615

10,347543

5,756623

1,1744,1162,018

155

38,414

38,307

34,642

32,979

32,338

28,208

27,582

26,812

4.14

4.12

3.73

3.55

3.48

3.04

2.97

2.89


APPENDIX IV (concluded). EXECUTIVE DIRECTORS AND VOTING POWER

DirectorAlternate

ELECTED (concluded)

N'Faly Sangare (Guinea)E.I.M. Mtei (Tanzania)

ZHANG Zicun(CHANG Tse Chun) (China)

WANG Enshao (China)

Alvaro Donoso (Chile)Mario Teijeiro (Argentina)

Ghassem Salehkhou(Islamic Republic of Iran)

Omar Kabbaj (Morocco)

Abderrahmane Alfidja (Niger)wa Bilenga Tshishimbi (Zaire)

VotesCasting byVotes of Country

BotswanaBurundiEthiopiaGambia, TheGuineaKenyaLesothoLiberiaMalawiNigeriaSierra LeoneSudanSwazilandTanzaniaUgandaZambiaZimbabwe

China

ArgentinaBoliviaChileParaguayPeruUruguay

AfghanistanAlgeriaGhanaIran, Islamic Republic ojMoroccoTunisia

BeninCameroonCape VerdeCentral African RepublicChadComorosCongoDjiboutiEquatorial GuineaGabonGuinea-BissauIvory CoastMadagascarMaliMauritaniaMauritiusNigerRwandaSao Tome and PrincipeSenegalTogoUpper VoltaZaire

471677956421829

1,670401963622

8,745829

1,947497

1,3201,2462,9532,160

24,159

11,3801,1574,655

7343,5591,888

1,1176,4812,295

F 6,8503,3161,632

5631,177

295: 554

556295623330434981325

1,905914758589786587688290

1,101634566

3,160

PercentTotal of Fund

Votes l Total 2

26,707 2.88

24,159 2.60

23,373 2.52

21,691 2.34

18,111 1.95914,0723 98.412

1 Voting power varies on certain matters pertaining to the General Department with use of theFund's resources in that Department.

2 Percentages of total votes in the General Department and the SDR Department (928,863). Thesum of the individual percentages may differ from the percentages of the totals because of rounding.

3 This total does not include the votes of Egypt, Democratic Kampuchea, and South Africa, whichdid not participate in the 1982 Regular Election of Executive Directors. The combined votes of thosemembers total 14,791—1.59 percent of those in the General Department and SDR Department.

156


Appendix VChanges in Membership ofExecutive Board

Changes in membership of the Executive Board between May 1, 1983 andApril 30, 1984 were as follows:

John Anson (United Kingdom) resigned as Executive Director for the UnitedKingdom, effective May 1, 1983.

Nigel Wicks (United Kingdom) was appointed Executive Director for theUnited Kingdom, effective May 2, 1983.

Christopher T. Taylor (United Kingdom), formerly Alternate Executive Direc-tor to John Anson (United Kingdom), was appointed Alternate Executive Directorto Nigel Wicks (United Kingdom), effective May 2, 1983.

A. Hasnan Habib (Indonesia) resigned as Executive Director for Burma, Fiji,Indonesia, the Lao People's Democratic Republic, Malaysia, Nepal, Singapore,Thailand, and Viet Nam, effective June 30, 1983.

J.E. Ismael (Indonesia) was elected Executive Director by Burma, Fiji,Indonesia, the Lao People's Democratic Republic, Malaysia, Nepal, Singapore,Thailand, and Viet Nam, effective July 1, 1983.

Jaafar Ahmad (Malaysia), formerly Alternate Executive Director to A. HasnanHabib (Indonesia), was appointed Alternate Executive Director to J.E. Ismael(Indonesia), effective July 1, 1983.

Anne Le Lorier (France) resigned as Alternate Executive Director to Brunode Maulde (France), effective August 31, 1983.

Xavier Blandin (France) was appointed Alternate Executive Director to Brunode Maulde (France), effective September 1, 1983.

Charles H. Dallara (United States) resigned as Alternate Executive Directorto Richard D. Erb (United States), effective September 19, 1983.

Michael Casey (Ireland) resigned as Alternate Executive Director to RobertK. Joyce (Canada), effective September 30, 1983.

Christopher T. Taylor (United Kingdom) resigned as Alternate ExecutiveDirector to Nigel Wicks (United Kingdom), effective September 30, 1983.

T.A. Clark (United Kingdom) was appointed Alternate Executive Director toNigel Wicks (United Kingdom), effective October 1, 1983.

Luke Leonard (Ireland) was appointed Alternate Executive Director to RobertK. Joyce (Canada), effective October 1, 1983.

Mary K. Bush (United States) was appointed Alternate Executive Director toRichard D. Erb (United States), effective December 13, 1983.

Costa P. Caranicas (Greece) resigned as Alternate Executive Director toGiovanni Lovato (Italy), effective April 30, 1984.

157


APPENDIX V (continued). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

The following served at certain times during 1983/84 as Temporary AlternateExecutive Directors to the Executive Directors indicated:

Temporary AlternateExecutive Director

Samir Ramez Abiad (Lebanon)AH Asghar Agah (Iran, Islamic Republic of)Eric Michael Ainley (United Kingdom)E.A. Ajayi (Nigeria)Hassan Alaoui-Abdallaoui (Morocco)Jose Roberto Novaes de Almeida (Brazil)Ignazio Angeloni (Italy)Hernando Arias Garcia (Panama)Luca Barbone (Italy)Chandi J. Batliwalla (India)Romeo Lopez Bernardo (Philippines)Janet Bulloch (United Kingdom)Mohamed Camara (Guinea)Mohamed Bahaa Chatah (Lebanon)Luc E.J.M. Coene (Belgium)Thomas A. Connors (United States)Silvio E. Conrado (Nicaragua)Ramiro J.J. Costa (Argentina)Jaime Delgadillo (Bolivia)Mama Kanny Diallo (Senegal)Lubin Kobla Doe (Togo)Samir Fouad El-Khouri (Lebanon)Miriam Eran (Israel)Gazi Ercel (Turkey)Christian Flamant (France)Ingimundur Fridriksson (Iceland)Giorgio Gomel (Italy)Vinjamuri Govindarajan (India)Avner Halevi (Israel)Detlev Hammann (Germany, Federal Republic of)Kai Aaen Hansen (Denmark)Nadeem Ul Haque (Pakistan)Sabir Mohamed Hassan (Sudan)Christopher Mark Dobell Hull (United Kingdom)Liviu lonescu (Romania)Joseph Mills Jones (Liberia)Antti Kalervo Juusela (Finland)Hirotaka Kobayashi (Japan)Peter Kohnert (Germany, Federal Republic of)Alimata Kone (Ivory Coast)Michael J. Kooymans (Australia)

Executive Director for whomTemporary Alternate Served

Mohamed Finaish (Libya)Ghassem Salehkhou (Iran, Islamic Republic of)Yusuf A. Nimatallah (Saudi Arabia)NTaly Sangare (Guinea)Ghassem Salehkhou (Iran, Islamic Republic of)Alexandra Kafka (Brazil)Giovanni Lovato (Italy)Alexandra Kafka (Brazil)Giovanni Lovato (Italy)R.N. Malhotra (India)A.R.G. Prowse (Australia)Nigel Wicks (United Kingdom)NTaly Sangare (Guinea)Mohamed Finaish (Libya)Jacques de Groote (Belgium)Richard D. Erb (United States)Miguel A. Senior (Venezuela)Alvaro Donoso (Chile)Alvaro Donoso (Chile)Abderrahmane Alfidja (Niger)Abderrahmane Alfidja (Niger)Yusuf A. Nimatallah (Saudi Arabia)J.J. Polak (Netherlands)Jacques de Groote (Belgium)Bruno de Maulde (France)John Tvedt (Norway)Giovanni Lovato (Italy)R.N. Malhotra (India)J.J. Polak (Netherlands)Gerhard Laske (Germany, Federal Republic of)John Tvedt (Norway)Mohamed Finaish (Libya)NTaly Sangare (Guinea)Nigel Wicks (United Kingdom)J.J. Polak (Netherlands)NTaly Sangare (Guinea)John Tvedt (Norway)Teruo Hirao (Japan)Gerhard Laske (Germany, Federal Republic of)Abderrahmane Alfidja (Niger)A.R.G. Prowse (Australia)

158


APPENDIX V (concluded). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

Temporary AlternateExecutive Director

Hak-Sung Lee (Korea)Pisit Leeatham (Thailand)

Pierre Claver Maganga-Moussavou (Gabon)Wolfgang Moerke (Germany, Federal Republic of)James A.K. Munthali (Malawi)V.K.S. Nair (India)Georges Nguyen (France)Jean-Christian Obame (Gabon)Kieke Okma (Netherlands)Yoshio Okubo (Japan)John Kobina Orleans-Lindsay (Ghana)Ishwari Raj Panday (Nepal)

J0rgen Gier Pedersen (Denmark)Patrick D. Peroz (France)Pal P6terfalvy (Hungary)George W.K. Pickering (Canada)Eduardo Portas (Mexico)Mohammed Zia Masoom Qureshi (Pakistan)Tawfik Ramtoolah (Mauritius)Mukhlis Rasyid (Indonesia)Janardana Reddy (Fiji)Cristian Alfonso Salinas Cerda (Chile)A.A. Scholten (Netherlands)Johannes Schuijer (Netherlands)SHAO Zhengkang (China)Douglas I.S. Shaw (Canada)Sakorn Sornyanyontr (Thailand)Hideaki Suzuki (Japan)Donald Charles Templeman (United States)Norbert Toe (Upper Volta)Martin Toro (Venezuela)WANG Chang Yao (China)Mario Alejandro Weitz (Argentina)John Calvin Williams (United States)AH Yasseri (Iran, Islamic Republic of)

Executive Director for whomTemporary Alternate Served

A.R.G. Prowse (Australia)A. Hasnan Habib (Indonesia)J.E. Ismael (Indonesia)Abderrahmane Alfidja (Niger)Gerhard Laske (Germany, Federal Republic of)N'Faly Sangare (Guinea)R.N. Malhotra (India)Bruno de Maulde (France)Abderrahmane Alfidja (Niger)JJ. Polak (Netherlands)Teruo Hirao (Japan)Abderrahmane Alfidja (Niger)A. Hasnan Habib (Indonesia)J.E. Ismael (Indonesia)John Tvedt (Norway)Bruno de Maulde (France)Jacques de Groote (Belgium)Robert K. Joyce (Canada)Miguel A. Senior (Venezuela)Mohamed Finaish (Libya)Abderrahmane Alfidja (Niger)J.E. Ismael (Indonesia)J.E. Ismael (Indonesia)Alvaro Donoso (Chile)J.J. Polak (Netherlands)J.J. Polak (Netherlands)ZHANG Zicun (China)Robert K. Joyce (Canada)J.E. Ismael (Indonesia)Teruo Hirao (Japan)Richard D. Erb (United States)Abderrahmane Alfidja (Niger)Miguel A. Senior (Venezuela)ZHANG Zicun (China)Alvaro Donoso (Chile)Richard D. Erb (United States)Ghassem Salehkhou (Iran, Islamic Republic of)

159


Appendix VIAdministrative Budget

Administrative Budget as Approved by the Executive Board for the Financial Year Ending April 30, 1985Compared with Actual Expenses for the Financial Years Ended April 30, 1983 and 1984(Values expressed in SDRs)1

II. TRAVEL EXPENSESBusiness travelOther travel ...

TotalIII. OTHER ADMINISTRATIVE EXPENSES

CommunicationsBuilding occupancyBooks and printingSupplies and equipmentData processing servicesMiscellaneous

Total ...TOTAL2

1 The administrative budget is expressed in terms of U.S. dollarsand converted to SDR equivalents.

2 Net administrative expenses for the financial year endedApril 30, 1983 totaled SDR 165,315,827 after a deduction of theamount reimbursed to the General Resources Account by assess-ments levied on the net cumulative allocations of participants in the

SDR Department (SDR 2,500,002). For the year ended April 30,1984, net administrative expenses amounted to SDR 188,940,478after a deduction of SDR 3,000,024 reimbursed to the GeneralResources Account by assessments levied on the net cumulativeallocations of participants in the SDR Department.

160

I. PERSONNEL EXPENSESSalariesOther personnel expenses

Total

Object of Expense

Financial YearEnded

April 30, 1983

ActualExpenses

Financial YearEnded

April 30, 1984

RevisedBudget

ActualExpenses

Financial YearEnding

April 30, 1985

Budget

68,585,22553,622,416

122,207,641

12,354,8309,395,024

21,749,854

4,205,1785,888,0311,604,6834,423,9954,529,9003,206,547

23,858,334167,815,829

79,442,28154,652,835

134,095,116

13,016,99110,284,097

23,301,088

6,468,0768,955,0211,763,0474,255,47510,110,1375,233,047

36,784,803194,181,007

78,993,60253,554,860

132,548,462

12,986,92510,153,155

23,140,080

6,384,8358,621,4761,657,0644,253,20210,103,4245,231,959

36,251,960191,940,502

86,968,93756,972,064

143,941,001

13,817,49511,140,056

24,957,551

5,823,42814,209,5481,773,8035,182,75617,804,9654,747,672

49,542,172218,440,724


Appendix VII

Comparative Statement of Income and Expense(Values expressed in SDRs)

Financial Year Ended April 301982 1983 1984

OPERATIONAL INCOMEPeriodic charges

Received in SDRs ..Amounts receivable

Total

Interest on holdings of SDRs

Other operational chargesReceived in SDRs

Deduct: Operational expenseRemuneration

Paid in SDRsPaid in members' currenciesAmounts payable ,

Total

Interest on borrowingPaid in SDRsPaid in members' currenciesAmounts payable

Total

Less: net income from temporaryinvestments held in theBorrowed Resources SuspenseAccounts

OtherTotal Operational Expense ..

NET OPERATIONAL INCOME

EXPENSE 'Administrative budget expenseFixed property expenseNet valuation adjustment loss (gain)Cumulative effect on prior years (to

April 30, 1982) of changing the methodof accounting for compensated absencesand accumulated termination grants

TOTAL EXPENSE 2

NET INCOME

Total Operational Income

1 After deduction of SDR 2,100,000 for financial year 1982, SDR 2,500,002 for financial year 1983,and SDR 3,000,024 for financial year 1984, reimbursed to the General Resources Account byassessments levied on the net cumulative allocations of participants in the SDR Department.

2 Excludes operational expense which has been deducted from operational income.

161

869,324,008222,730,922

1,092,054,930

657,244,835

39,568,0081,788,867,773

860,614,34248,018,458

908,632,800

115,176,553338,784,355220,549,600674,510,508

39,651,08911,448

1,543,503,667245,364,106

142,396,230 '11,438,200(505,392)

153,329,03892,035,068

1,282,417,980262,993,780

1,545,411,760

444,258,572

55,627,0792,045,297,411

962,550,26418,571,289

981,121,553

156,910,948417,316,875260,668,454834,896,277

27,513,391

1,788,504,439256,792,972

165,315,827 '15,480,167(427,641)

11,029,770191,398,12365,394,849

1,909,632,764454,168,294

2,363,801,058

371,630,647

56,564,8422,791,996,547

610,796,7857,770,453

667,752,3111,286,319,549

129,059,065792,541,653435,258,494

1,356,859,212

117,014,82111,216

2,526,175,156265,821,391

188,940,478 '3,869,486(47,973)

192,761,99173,059,400


Appendix VIIIFinancial Statements of the General Department,SDR Department, Subsidy Account, SupplementaryFinancing Facility Subsidy Account, Trust Fund,and Staff Retirement Plan

REPORT OF THE EXTERNAL AUDIT COMMITTEE

Washington, D.C.June 29, 1984

AUTHORITY AND SCOPE OF THE AUDIT

In accordance with Section 20(b) of the By-Laws of the International MonetaryFund we have audited the financial statements of the Fund for the year endedApril 30, 1984, covering the

—General Department (including the General Resources Account, BorrowedResources Suspense Accounts, and Special Disbursement Account),

—SDR Department, and—Accounts Administered by the Fund which consist of the

Subsidy Account,Supplementary Financing Facility Subsidy Account, andTrust Fund.

The audit was conducted in accordance with international auditing guidelinesand, accordingly, included reviews of accounting and control systems, tests ofaccounting records, evaluation of the extent and results of work performed bythe Internal Auditor, and other audit procedures.

AUDIT OPINION

In our opinion, the financial statements of the General Department (includingthe related supplemental schedules one through four), the SDR Department, andthe Accounts Administered by the Fund have been prepared in accordance withgenerally accepted accounting principles applied on a basis consistent with thatof the preceding year, and give a true and fair view of the respective financialpositions and the allocations and holdings of SDRs as at April 30, 1984, and ofthe financial results of operations and transactions during that year.

EXTERNAL AUDIT COMMITTEE:

/s/ Walter Scholz, Chairman (Germany)/s/ M. Ijadur Rahman (Bangladesh)/s/ Abdelmalek Ouenniche (Morocco)

162


APPENDIX VIII (continued)


GENERAL DEPARTMENTBALANCE SHEET

as at April 30, 1984

(In thousands of SDRs)

(Note 1)

ASSETS

CURRENCIES AND SECURITIES (Notes 2 and 5).

SDR HOLDINGS (Note 3)

GOLD HOLDINGS (Note 4)

BORROWED RESOURCES HELD IN SUSPENSE

CHARGES RECEIVABLE AND ACCRUED (Note 5)

ACCRUED INTEREST ON SDR HOLDINGS

OTHER ASSETS

TOTAL ASSETS

QUOTAS, RESERVES, AND LIABILITIES

QUOTASSubscriptions of Members

RESERVES (Note 6)

LIABILITIESBorrowing (Note 7)Remuneration Payable (Note 5)Accrued Interest Payable (Note 7)Other Liabilities and Deferred Credits (Note 5) .

TOTAL QUOTAS, RESERVES, AND LIABILITIES .

The accompanying notes and Schedules 1-4 are an integral part of the financial statements.

/s/ W. O. HABERMEIERTreasurer

/s/ J. DE LAROSIEREManaging Director

163

1984

93,574,681

6,436,730

3,620,396

601,642

786,931

224,704

20,873

105,265,957

89,236,300

1,073,774

13,791,229667,752435,25861,644

105,265,957

1983

64,064,554

4,334,909

3,620,396

1,780,609

505,334

—

13,231

74,319,033

61,059,800

1,000,715

10,952,479981,121268,86856,050

74,319,033




164


GENERAL DEPARTMENTSTATEMENT OF INCOME AND EXPENSE

for the year ended April 30, 1984

(In thousands of SDRs)(Note 1)

OPERATIONAL INCOMEPeriodic charges (Note 5)Interest on SDR holdingsService chargesOther

OPERATIONAL EXPENSERemuneration (Note 5)Interest on borrowing, net of income from temporary investments held in Borrowed

Resources Suspense Accounts (SDR 117,015 in 1984 and SDR 27,513 in 1983)Other

NET OPERATIONAL INCOME

ADMINISTRATIVE EXPENSE (Note 9)PersonnelTravelOther, netFixed property (Note 1)Cumulative effect (to April 30, 1982) of changing the method of accounting

for compensated absences and accumulated termination grants (Note 9) .TOTAL ADMINISTRATIVE EXPENSE

NET INCOME

1984

2,363,801371,63150,8205,744

2,791,996

1,286,320

1,239,84511

2,526,176265,820

132,54923,14033,2033,869

192,76173,059

1983

1,545,412444,25851,2914,336

2,045,297

981,121

807,383

1,788,504256,793

122,20821,75020,93015,480

11,030191,39865,395




GENERAL DEPARTMENTSTATEMENT OF CHANGES IN RESERVES

for the year ended April 30, 1984

(In thousands of SDRs)(Note 1)

SPECIAL RESERVE (Note 6)Balance at beginning of the yearNet income for the yearBalance at end of the year

GENERAL RESERVE (Note 6)Balance at beginning and end of the year.

TOTAL RESERVES


165

1984

635,13573,059708,194

365,580

1,073,774

1983

569,74065,395635,135

365,580

1,000,715




GENERAL DEPARTMENTNOTES TO THE FINANCIAL STATEMENTS

General Department

Under the Articles of Agreement, the General Department consistsof the General Resources Account, the Special Disbursement Ac-count, and the Investment Account. The Investment Account hadnot been activated at April 30, 1984. The General Department alsoincludes Borrowed Resources Suspense Accounts, the establishmentof which was authorized by the Executive Board in May 1981.

General Resources Account

Assets held in the General Resources Account comprise (i)currencies of the Fund's member countries (including securities),(ii) SDR holdings, and (iii) gold.

Each member is required to pay to the Fund the amount of itsinitial quota and subsequent increases partly in the member's owncurrency and the remainder in the form of reserve assets, exceptthat for the increases proposed in 1978, members were permittedto pay the entire increase in their own currencies. A member'squota cannot be increased until it consents to the increase and paysthe subscription in full. In March 1983, the Board of Governors ofthe Fund authorized an increase in quotas from their then currentlevels to approximately SDR 90 billion. Twenty-five percent of thequota increases were to be paid in SDRs or in the currencies ofother members prescribed by the Fund, subject to their concurrence.Members had until March 15, 1984 to consent to the proposedincrease. 142 members having 98 percent of quotas on March 31,1983 consented to the proposed quota increases and have completedincreased quota payments amounting to SDR 28.18 billion.

The Fund makes its resources available to its members by sellingSDRs or currencies to members in exchange for their own currencyin accordance with Fund policies on the use of its resources. Useof the Fund's resources by a member is dependent on the memberhaving a balance of payments need.

When members make a purchase, they undertake to repurchase,within the period specified by the Fund, the Fund's holdings of theircurrencies against the payment to the Fund of SDRs or the currenciesof other members specified by the Fund. The Fund's policies onthe use of its resources, which indicate the time period for whichpurchases may be outstanding, are intended to assure that use ofits resources is temporary and will be reversed within time periodsspecified by the Fund.

The composition of the Fund's holdings of members' currencieschanges as a result of the Fund's operations and transactions,including purchase and repurchase transactions in currencies asnoted above. The currency holdings reflect both the counterpart ofpurchases by those members that have a need to use the Fund'sresources, and also the currencies of those members whose balanceof payments and reserve positions are determined by the Fund ona quarterly basis to be sufficiently strong for their currencies to beused in all the Fund's operations and transactions in accordancewith the policies of the Fund.

A member has a reserve tranche position in the Fund to theextent that the Fund's holdings of its currency, excluding holdingswhich reflect the member's use of Fund credit, are less than themember's quota. A member's reserve tranche position is regardedas a part of the member's external reserves and a member maypurchase up to the amount of its full reserve tranche at any time.Reserve tranche purchases are not regarded as a use of Fund credit.

Members may make use of Fund credit under various policiesand the amount of such use is related to a member's quota in theFund. Under the credit tranche policy, the Fund's credit is atpresent made available to members in a range consisting of fourtranches or segments each equal to 25 percent of a member's quota.

A first credit tranche purchase is defined as one that raises theFund's holdings of a member's currency in the credit tranche from0 to 25 percent of quota. Subsequent purchases are made in threesuccessive tranches, each equal to 25 percent of quota, to a levelof no more than 100 percent of quota. Purchases in these threetranches are referred to as upper credit tranche purchases. Thedistinction between first and upper credit tranches also reflects thehigher conditionality that accompanies the use of Fund credit in theupper tranches.

Members experiencing balance of payments difficulties may enterinto stand-by arrangements with the Fund under which the Fundcommits itself to provide resources to be made available overperiods of up to three years from the date of the arrangements.Purchases under these arrangements in the upper credit tranchesdepend upon the member's meeting the performance criteria includedin the arrangements.

In addition to purchases under the Fund's credit tranche policies,members may use the Fund's resources under decisions on:

• Compensatory financing—to assist members, particularly pri-mary exporters, encountering payments difficulties produced bytemporary export shortfalls attributable to circumstances beyondtheir control and in addition, at their option, to assist membersencountering payments difficulties produced by an excess in thecost of their cereal imports.

• Buffer stock financing—to assist members in connection withthe financing of international buffer stocks of primary products.

• Extended Fund facility—to provide, through extended arrange-ments of up to three years, medium-term assistance to members tomake structural adjustments in their economies. Purchases underthese arrangements depend upon the member's meeting the per-formance criteria included in the arrangements.

• Supplementary financing facility and the policy on enlargedaccess—to make resources available under stand-by and extendedarrangements, in addition to those available in the credit tranchesor under the extended Fund facility, to members facing seriouspayments imbalances that are large in relation to their quotas. Thesepolicies are temporary and may be utilized only in conjunction withthe use of resources in the upper credit tranches.

Members were also able to use the oil facility until May 1976 forbalance of payments problems caused by increases in the cost ofpetroleum and petroleum products.

Members that purchase resources from the Fund undertake torepurchase the Fund's holdings of their currencies against thepayment to the Fund of SDRs or the currencies of other membersspecified by the Fund. Reserve tranche purchases made afterApril 1, 1978 are not subject to repurchase. Under the Fund'srepurchase policies, purchases in the credit tranches, under thecompensatory financing facility and under the buffer stock facility,are to be repurchased in quarterly installments beginning threeyears, and ending not later than five years, after the date of purchase;repurchases of purchases financed with borrowed resources underthe supplementary financing facility or the enlarged access policyare to be made in semiannual installments beginning three and one-half years, and ending not later than seven years, after the date ofpurchase; and repurchases under the extended Fund facility (otherthan purchases financed with borrowed resources under the supple-mentary financing facility or policy on enlarged access) are to bemade in semiannual installments beginning four years, and endingnot later than ten years, after the date of purchase. However, amember is entitled to repurchase at any time holdings of its currencyon which the Fund levies charges, and is expected to makerepurchases prior to the periods mentioned above as and when itsbalance of payments and reserve position improves.

166



Borrowed Resources Suspense Accounts

Borrowed Resources Suspense Accounts have been establishedin order to hold, transfer, convert, and invest (i) currencies borrowedby the Fund before they are transferred to the General ResourcesAccount for use in transactions or operations; and (ii) currenciesreceived by the Fund in repurchases financed with borrowedresources before repayments to lenders can be made. Members arenot obligated to maintain the SDR value of their currencies held bythe Fund in the Borrowed Resources Suspense Accounts, and asfar as practicable, the currencies are invested in SDR-denominatedobligations.

At April 30, 1984 borrowed resources held in suspense amountedto SDR 601.64 million (SDR 1,780.61 million at April 30, 1983) andincluded accrued income of SDR 5.01 million (SDR 3.37 million atApril 30, 1983).

Special Disbursement Account

The Special Disbursement Account was activated on June 30,1981. The Fund administers a Trust Fund, established in 1976 toprovide balance of payments assistance on concessional terms tocertain members. This Trust Fund is at present being wound up andresources received by the Trust Fund after April 30, 1981 aretransferred to the Special Disbursement Account, of which up toSDR 750 million is to be placed to the Supplementary FinancingFacility Subsidy Account. At April 30, 1984 SDR 174.92 million(SDR 48.80 million at April 30, 1983) had been received into theSpecial Disbursement Account from the Trust Fund and placed tothe Supplementary Financing Facility Subsidy Account. There wereno resources held in the Special Disbursement Account at April 30,1984 and 1983.

1. Accounting Practices

Unit of Account

The accounts of the General Department are expressed in termsof the SDR, the currency value of which is determined daily by theFund, at present, by summing the values in U.S. dollars, based onmarket exchange rates, of a basket of five specified currencies, asfollows:

Currencies

U.S. dollarDeutsche markFrench francJapanese yenPound sterling

Amount

0.540.460.74

340.071

Members' currencies are valued in terms of the SDR on the basisof the representative rate of exchange determined in accordancewith the Rules of the Fund. Gold with depositories is valued on thebasis that one SDR is equivalent to 0.888671 gram of fine gold.

Basis of Accounting

The Fund maintains its books of accounts on an accrual basisand, accordingly, recognizes income as it is earned and recordsexpenses as they are incurred. It is the practice of the Fund tomake all calculations on the basis of the exact number of days inthe accounting period.

The established policy of the Fund is to charge as an expense ofeach accounting period the total costs incurred for fixed property,furniture, and equipment. For the year ended April 30, 1984, thecost of property, furniture, and equipment charged as an expenseamounted to SDR 7.05 million (SDR 20.60 million in 1983).

April 30,1983

61,06023,590

(20,592)

7

64,065

April 30,1984

89,23631,742

(27,415)

12

93,575

NetChange

28,1768,152

(6,823)

5

29,510

2. Currencies and Securities

Each member has the option to substitute nonnegotiable andnoninterest-bearing securities for the amount of its currency heldby the Fund in the General Resources Account that is in excess of1A of 1 percent of the member's quota. These securities, which arepart of the Fund's currency holdings, are encashable by the Fundon demand.

Changes in the Fund's holdings of members' currencies andsecurities for the year ended April 30, 1984 were as follows:

In millions of SDRs

Members' quotasMembers' use of Fund creditMembers' reserve tranche

positionsAdministrative currency

balances

Currencies and securities

Each member is obligated to maintain the value of the Fund'sholdings of its currency in terms of the SDR except for holdingswhich may be held in Borrowed Resources Suspense Accounts, theSpecial Disbursement Account, and the Investment Account. When-ever the Fund revalues its holdings of a member's currency, anaccount receivable or an account payable is established for theamount of currency payable by or to the member in order to maintainthe value of the Fund's holdings of the currency in terms of theSDR. The balances of the accounts receivable or payable arereflected in the Fund's total currency holdings. At April 30, 1984accounts receivable to maintain SDR values of currency holdingsamounted to SDR 12,542.42 million and accounts payable amountedto SDR 728.95 million. At June 25, 1984 the amounts receivablewere SDR 1,716.25 million and amounts payable were SDR 523.26million.

The Fund's holdings of members' currencies at April 30, 1984 areshown in Schedule 1.

3. SDR Holdings

SDRs are reserve assets created by the Fund and allocated tomembers participating in the SDR Department. Although SDRs arenot allocated to the Fund, the Fund may acquire, hold, and disposeof them through the General Resources Account. SDRs held by theFund are received from its members in the settlement of theirfinancial obligations to the Fund (quota payments, repurchases, andcharges) and may be used by the Fund in transactions and operationsbetween the Fund and its members (sold to members in purchasesor transferred to members in the settlement of remuneration andinterest on Fund borrowing). The Fund earns interest on its SDRholdings.

4. Gold Holdings

At April 30, 1984 the Fund held 3,217,341 kilograms of gold atdesignated depositories.

5. Fund Operations

For the year ended April 30, 1984, members' purchases amountedto SDR 11,518 million, of which SDR 1,354 million were reservetranche purchases. Over the same period, repurchases by memberstotaled SDR 2,015 million, including repurchases of SDR 3 millionrelating to purchases made prior to the Second Amendment andattributed to the reserve tranche. The members' purchases subjectto repurchase are shown in Schedule 2.

167



April 30,19834,721

6,837

307

3,31727

6,0392,342

23,590

Pur-chases

1,468

1,180

102

2,295

1,0834,036

10,164

Repur- April 30,chases 1984

992

713

34

4427

202

2,012

5,197

7,304

375

5,568

6,9206,378

31,742

Changes in the outstanding use of Fund credit under variousfacilities for the year ended April 30, 1984, were as follows:

In millions of SDKs

Regular facilitiesCompensatory

financingBuffer stock

financingExtended Fund

facilityOil facilitySupplementary

financing facilityEnlarged access

Total

Periodic Charges and Remuneration

The Fund levies charges, which are payable periodically, on itsholdings of a member's currency that derive from the member's useof Fund credit. A service charge is levied by the Fund on eachpurchase involving use of Fund resources other than reserve tranchepurchases.

The Fund pays remuneration on a member's remunerated reservetranche position. A remunerated reserve tranche position is theamount by which the Fund's holdings of a member's currency(excluding holdings that derive from use of the Fund's credit) isbelow the "norm." The "norm" is an amount equal to 75 percentof the member's quota on April 1, 1978 plus the total of subsequentincreases in the member's quota. For members that joined the Fundafter April 1, 1978, the "norm" is determined by adding theproportion of the member's quota equal to the average of the"norm" of all other members on the date the member joined theFund and the total of subsequent quota increases in the member'squota.

At April 30, 1984, the total holdings on which the Fund leviedcharges amounted to SDR 31,742 million (SDR 23,590 million in1983) and total creditor positions on which the Fund paid remuner-ation amounted to SDR 21,200 million (SDR 14,997 million in 1983).

One member, Democratic Kampuchea, has not fulfilled its financialobligations to the General Department, either to repurchase a partof the Fund's holdings of the member's currency, or to pay chargeson currency balances held by the Fund. At April 30,1984, purchasesby Democratic Kampuchea to be repurchased amounted toSDR 18.74 million and unpaid charges receivable from DemocraticKampuchea amounted to SDR 6.38 million, and these unpaid chargesare included in the balance sheet as charges receivable and as adeferred credit. On December 19,1978 the Executive Board decidedthat Democratic Kampuchea may not make use of the generalresources of the Fund until such time as Democratic Kampucheais fulfilling its obligations under the Articles of Agreement.

6. Reserves

The Fund determines annually what part of its net income shallbe placed to the General Reserve or to the Special Reserve, andwhat part, if any, shall be distributed. The Articles of Agreementdo not limit the use that the Fund may make of the General Reserve,and permit the Fund to use the Special Reserve for any purpose forwhich it may use the General Reserve, except distribution. Anyadministrative deficit for any financial year must be written off firstagainst the Special Reserve. Net income for the year endedApril 30, 1984 was placed to the Special Reserve.

7. Borrowing

Outstanding borrowing by the Fund was as follows:

April 30,1983

18

6,0374,120

11110,952

In millionsBorrow-

ing

1,0832,855

—3,938

of SDRsRepay-ment

18

20599

1111,099

April 30,1984

—

6,9156,876

__

13,791

Oil facilitySupplementary

financing facilityEnlarged accessGeneral Arrange-

ments to Borrow

Scheduled repayments of outstanding borrowing by the Fund areshown in Schedule 3.

Oil Facility

In 1974 and 1975, the Fund entered into borrowing agreementswith various members and Switzerland, or institutions within theirterritories, under which these lenders agreed to provide the Fundwith specified currencies to finance purchases of currencies fromthe Fund by other members under the oil facility. The outstandingborrowings were under the 1975 borrowing agreements and carriedan interest rate of 11A percent. Calls made by the Fund under theseagreements were repayable in installments beginning not later thanthree and one-half years, and to be completed not later than sevenyears, after the dates of the calls. The last repayment of borrowingunder the oil facility was made in 1983.


The supplementary financing facility became operational in May1979. The Fund has entered into borrowing agreements with 14members, or institutions within their territories, and with the SwissNational Bank under which the lenders have agreed to makeresources available to the Fund, at call, up to SDR 7,784 millionuntil February 1984 to finance purchases by members under thisfacility. Borrowing by the Fund under these agreements is to berepaid in installments between three and one-half to seven yearsafter the date of borrowing. Interest paid by the Fund on amountsborrowed under the borrowing agreements is based on the averageyield on U.S. Government securities with a constant maturity offive years.

Enlarged Access

The policy on enlarged access became operational in May 1981.The Fund has entered into borrowing agreements with variousmembers, or institutions within their territories, the Bank forInternational Settlements, and the Swiss National Bank under whichthe lenders have agreed to make resources available to the Fund,up to SDR 15,305 million, to finance purchases by members underthe policy. The maturities of borrowing by the Fund under theseagreements vary from six months to seven years. Interest paid bythe Fund on amounts borrowed under these agreements is at variablerates of interest which are established periodically, and are relatedto market interest rates, based on weighted average yields ofdomestic instruments denominated in the five currencies in the SDRvaluation basket.

General Arrangements to Borrow (GAB)

Under the General Arrangements to Borrow the Fund may borrowup to specified amounts from adherents when supplementary re-sources are needed to forestall or to cope with an impairment ofthe international monetary system. The GAB first became effectivefrom October 24, 1962 and has been renewed until October 23,1985.

In February 1983, the Fund approved an enlargement of the GABto SDR 17 billion including provision for the adherence of the SwissNational Bank as a participant, and for associated arrangementswith nonparticipants (SDR 1.5 billion). It also approved amendmentsthat would allow the Fund to borrow under the GAB in certain

168



circumstances in order to finance purchases by nonparticipants.These changes, including one associated agreement with the SaudiArabian Monetary Authority (SDR 1.5 billion), became effective onDecember 26, 1983 when all ten participants had notified the Fundof their concurrence in the amendments and in the increased creditlimits. The Swiss National Bank adhered to these arrangements inApril 1984.

Borrowing Guidelines

The Fund has established guidelines for borrowing, which providethat the Fund will not allow the total of outstanding borrowing, plusunused credit lines, to exceed the range of 50 to 60 percent of thetotal of Fund quotas. Since all GAB lines of credit are unlikely tobe called upon at the same time, the total of outstanding borrowingshall include either outstanding borrowing by the Fund under theGAB, or two thirds of the total credit lines under the GAB andassociated agreements, whichever is the greater. The borrowingguidelines are subject to review by the Executive Board. Followingthe increase in quotas, total outstanding borrowing and unusedcredit lines, calculated in accordance with these guidelines, atApril 30, 1984 were equal to 38.6 percent of quotas (33.1 percent ofquotas at April 30, 1983).

8. Commitments Under Stand-By and Extended Arrangements

At April 30, 1984, thirty-five arrangements were in effect andundrawn balances under these arrangements amounted toSDR 9,269.48 million. These arrangements are listed in Schedule 4.

9. Administrative Expenses

The Fund incurs administrative expenses primarily for salaries,travel, and other administrative needs, which are expended inaccordance with an administrative budget approved by the ExecutiveBoard. Expenses for building are authorized outside of the annual

administrative budget. The Fund is reimbursed for expenses incurredin administering the SDR Department.

The Fund has certain commercial deposits and receivables relatingto its administrative activities. These deposits and receivables arenot subject to the maintenance of value obligations.

The Fund pays various allowances to or on behalf of ExecutiveDirectors and staff including the employer's contribution to theStaff Retirement Plan. All contributions to the Plan and all otherassets, liabilities, and income of the Plan are held separately outsideof the General Department and can be used or incurred only for thebenefit of the participants in the Plan and their beneficiaries. Theemployer contributes that part of the costs and expenses of the Plannot provided by the contributions of the participants. In addition,experience gains and losses of the Plan, as determined by the actuaryengaged by the Pension Committee, are amortized over a period of15 years. The unamortized experience losses at April 30, 1984amounted to SDR 60.3 million (calculated at the SDR value of theU.S. dollar on that date). Payments over the next 15 years toamortize the actuarial experience losses are estimated to be ap-proximately SDR 78.5 million (at the April 30, 1984 SDR/US$ rate),of which SDR 7.7 million was paid on May 1, 1984.

Contributions by the employer to the Staff Retirement Fund forthe year ended April 30, 1984 amounted to SDR 27.5 million,including SDR 6.9 million for the amortization of actuarial experiencelosses (SDR 7.5 million in 1983) and SDR 4.5 million to fund costof living supplements to beneficiaries (SDR 6.8 million in 1983).

The Fund staff is entitled to accumulate annual leave, up to amaximum of 60 days, which may be commuted into a cash paymentupon termination of employment. In addition, upon the completionof five years' service, each member of the staff is entitled to atermination grant, subject to maximum amounts based on years ofservice after July 1979. Prior to the year ended April 30, 1983, theFund accounted for these amounts of accumulated leave and earnedtermination grants only as they were paid. Since the year endedApril 30, 1983, the Fund has elected to account for these amountsas an expense as they are earned.

169



Schedule 1INTERNATIONAL MONETARY FUND

GENERAL DEPARTMENTQUOTAS, FUND'S HOLDINGS OF CURRENCIES, MEMBERS' USE

OF FUND RESOURCES, AND RESERVE TRANCHE POSITIONSas at April 30, 1984


Fund's Holdingsof Currencies1












Quotas86,700

623,1005,000

1,113,0001,619,200

775,60066,40048,900

287,50034,100

2,080,4009,500

31,3002,500

90,700

22,1001,461,300

137,00042,70092,700

2,941,0004,500

30,40030,600

440,500

2,390,900394,200

4,50037,30084,100

69,700711,000

8,0004,000

112,100

150,700463,400

89,00018,40070,600

36,500574,900

4,482,80073,10017,100

5,403,700204,500399,900

6,000108,000

57,9007,500

49,20044,10067,800

Total81,8%

450,7395,000

2,233,6261,503,557

378,95055,51927,242

677,55471,639

1,599,41411,20729,281

1,931170,248

10,7884,361,089

212,81336,05485,509

2,397,5203,550

54,88034,243

1,019,502

2,209,169394,205

4,25034,333

264,204

69,270509,441

6,76515,235

343,602

342,829512,716201,87531,509

165,114

42,216451,941

3,190,99766,98846,191

2,594,345515,804313,730

11,427260,981

69,4109,350

122,947130,206207,793

Percentof quota

94.572.3

100.0200.792.9

48.983.655.7

235.7210.1

76.9118.093.677.2

187.7

48.8298.4155.384.492.2

81.578.9

180.5111.9231.4

92.4100.094.492.0

314.2

99.471.784.6

380.9306.5

227.5110.6226.8171.2233.9

115.778.671.291.6

270.1

48.0252.278.5

190.4241.6

119.9124.7249.9295.3306.5

Use ofFund

Resources

———1,120,610—

——412,445

39,691

.3,600

——79,527

2,899,72082,6872,750

—

—24,5687,100

579,000

———180,082

4,236——11,237

231,500

203,52549,311

112,87313,10094,500

13,500——912

29,113

311,300

5,425152,975

11,5001,850

73,74586,150

139,991

ReserveTranchePositions

4,806172,363

2—115,649

396,65610,88221,66122,3952,152

480,9921,8962,024

5704

11,319

—6,8779,4187,1%

543,516951111

3,464—

181,734—251

2,982—

4,675201,563

1,2372

—

11,425~

——

7,789122,961

1,292,5217,028

39

2,809,3821

86,172——

2

70—

170



Schedule 1(continued)




JamaicaJapanJordanKampuchea, DemocraticKenya






OmanPakistanPanamaPapua New GuineaParaguay

PeruPhilippinesPortugalQatarRomaniaRwandaSt. LuciaSt. VincentSao Tome" and PrincipeSaudi Arabia


Quotas530,70059,600

2,207,7001,009,700

660,000

504,000343,400446,600

2,909,100165,500

145,5004,223,300

73,90025,000

142,000

462,800635,30029,30078,70015,100

71,300515,70077,00066,40037,200

550,6002,000

50,80045,10033,900

53,6001,165,500

306,60037,300

2,264,800

461,60068,20033,700

849,500699,000

63,100546,300102,20065,90048,400

330,900440,400376,600114,900523,400

43,8007,5004,0004,000

3,202,400

85,1003,000

57,90092,4005,000

Total1,166,280

77,0845,820,3091,362,380

589,236

504,008229,246446,605

1,942,922754,989

728,5422,820,559

66,68137,494

512,110

1,750,546294,51441,67559,87013,855

275,353272,20264,795

194,553133,506

706,3541,998

91,04916,31270,137

221,0502,605,2021,285,414

39,4741,446,694

433,14381,49958,740

849,4%287,151

32,6281,774,937

311,336105,58416,158

945,3191,271,876

771,34277,710

1,586,18634,16210,0505,1504,001

1,183,291

286,6513,001

139,52223,8817,884

Percentof quota

219.8129.3263.6134.989.3

100.066.8

100.066.8

456.2

500.766.890.2

150.0360.6

378.346.4

142.276.191.8

386.252.884.1

293.0358.9

128.399.9

179.236.2

206.9

412.4223.5419.2105.863.9

93.8119.5174.3100.041.1

51.7324.9304.6160.233.4

285.7288.8204.867.6

303.1

78.0134.0128.7100.037.0

336.8100.0241.025.8

157.7

Use ofFund

Resources674,50021,500

4,099,500425,100

——

———

589,488

582,976——12,500

380,347

1,287,741—12,375——

204,041——

128,15198,492

315,078—

48,925—

36,225

167,4631,504,685

978,8137,868

—

13,29033,600

——

1,317,180209,13545,000

—

635,617832,745424,400

—1,062,781

—2,5501,500

——

202,494—

81,622—

3,360


38,9254,025

486,91172,42570,765

—114,155—966,184

2

1,402,7617,225

710,267

340,791—

18,8311,248

243,49812,208

—2,189

159,3323

8,68028,820

—

1365,036

185,693

818,112

28,472—8,560

5411,850

30,47988,554

145,324

32,249

21,2271,326

29,66337,194

—9,643

2

350—

2,019,111

946—5

68,526478

171



Schedule 1(concluded)







Yemen Arab RepublicYemen, People's Democratic Republic ofYugoslaviaZaireZambia

ZimbabweTotals

Quotas44,200

915,7001,286,000

223,100169,700

49,30024,700

1,064,300139,100107,000

386,60038,400

170,100138,200429,100

99,600202,600

6,194,00017,918,300

31,600

163,8009,000

1,371,500176,800

6,000

43,30077,200

613,000291,000270,300

191,00089,236,300

Total150,329

1,590,739964,493564,883776,228

49,30132,980

823,585139,103148,342

1,218,71976,75648,844

108,0721,898,891

447,95389,273

4,177,3098,251,597

24,067

381,1607,427

860,580205,195

13,270

47,09892,576

2,535,510843,904948,538

461,66993,574,681

Percentof quota

340.1173.775.0

253.2457.4

100.0133.577.4

100.0138.6

315.2199.928.778.2

442.5

449.844.167.446.176.2

232.782.562.7

116.1221.2

108.8119.9413.6290.0350.9

241.7

Use ofFund

Resources106,117745,000

—347,733606,524

—9,975

—41,325

860,90838,554

——

1,502,060

351,864—

———

226,800——

28,3957,268

9,75015,375

1,922,503552,900678,243

270,69431,741,553


—69,966321,509

5,951—

—1,698240,721

—

28,792206

121,25630,12932,275

3,522113,329

2,016,7119,676,933

7,535

9,4501,575

510,9305

—

5,953

——

7

2727,415,316

1 Includes nonnegotiable, noninterest-bearing notes, which members are entitled to issue in substitution for currency.2 Less than SDR 500.

172



INTERNATIONAL MONETARY FUNDGENERAL DEPARTMENT

MEMBERS' PURCHASES SUBJECT TO REPURCHASEBY YEAR OF SCHEDULED REPURCHASE ]

as at April 30, 1984(In thousands of SDRs)

Schedule 2

Financial YearsEnding April 30

19851986198719881989

19901991199219931994

Totals

CreditTranches

1,443,9781,890,3132,900,0663,263,0801,921,689

1,082,602494,945

———

12,996,673

CompensatoryFinancing

1,005,7161,467,3672,597,8151,935,752

297,256

——

—7,303,906

BufferStock

—26,932

155,430161,88931,094

————

375,345

ExtendedFacility

279,487717,363

1,309,4651,990,4702,107,881

1,746,3501,343,146

760,382546,598303,904

11,105,046

Total2

2,735,4324,101,9756,962,7767,351,1914,357,920

2,828,9521,838,091

760,382546,598303,904

31,787,221 2

'A member is entitled to repurchase at any time holdings of its currency subject to charges and is expected to make repurchases as andwhen its balance of payments and reserve position improves.

^he total of members' purchases subject to repurchase exceeds the outstanding use of Fund credit by SDR 45.67 million because certainpurchases made prior to the Second Amendment of the Articles of Agreement effective on April 1, 1978 which do not represent the extensionof Fund credit must be repurchased in accordance with the repurchase terms then in effect.

173




SCHEDULED REPAYMENTS OF FUND BORROWINGas at April 30, 1984(In thousands of SDRs)

Periods of Repayment l

Financial YearsEnding April 30

1985

1986

1987

1988

1989

1990

1991Totals

SupplementaryFinancingFacility

675,504

1,200,856

1,657,732

1,585,795

1,152,145

519,015

123,7886,914,835

EnlargedAccess

Resources

1,141,3942

347,0002

890,000

1,425,000

1,425,000

1,113,000

535,0006,876,394

Total

1,816,898

1,547,856

2,547,732

3,010,795

2,577,145

1,632,015

658,78813,791,229

!Dates of repayment are the dates provided in the borrowing agreements between the Fund and lenders, including maximum periods ofrenewals which are at the Fund's option. The borrowing agreements also permit earlier repayments in certain circumstances,

includes short-term borrowing with original maturities not exceeding three years.

174

Schedule 3




STATUS OF STAND-BY ARRANGEMENTSAND EXTENDED ARRANGEMENTS

as at April 30, 1984(In thousands of SDRs)

Schedule 4

MemberSTAND-BY ARRANGEMENTS

BarbadosChileEcuadorGambia, TheGhana

GuatemalaHaitiHungaryKenyaKorea

LiberiaMadagascarMaliMauritiusMorocco

NigerPanamaPeruPortugalSenegal

Sierra LeoneSolomon IslandsSri LankaTurkeyUganda

UruguayWestern SamoaYugoslaviaZaireZimbabwe

EXTENDED ARRANGEMENTS

BrazilDominican RepublicIndiaMalawiMexico

Date of Arrangement

October 1, 1982January 10, 1983July 25, 1983April 23, 1984August 3, 1983

August 31, 1983November 7, 1983January 13, 1984March 21, 1983July 8, 1983

September 14, 1983April 10, 1984December 9, 1983May 18, 1983September 16, 1983

October 5, 1983June 24, 1983April 26, 1984October 7, 1983September 19, 1983

February 3, 1984June 22, 1983September 14, 1983April 4, 1984September 16, 1983

April 22, 1983June 27, 1983April 18, 1983December 27, 1983March 23, 1983

March 1, 1983January 21, 1983November 9, 1981September 19, 1983January 1, 1983

Expiration

May 31, 1984January 9, 1985July 24, 1984July 22, 1985August 2, 1984

December 31, 1984September 30, 1985January 12, 1985September 20, 1984March 31, 1985

September 13, 1984March 31, 1985May 31, 1985August 17, 1984March 15, 1985

December 4, 1984December 31, 1984July 31, 1985February 28, 1985September 18, 1984

February 2, 1985June 21, 1984July 31, 1984April 3, 1985September 15, 1984

April 21, 1985June 26, 1984April 17, 1985March 26, 1985September 22, 1984

February 28, 1986January 20, 1986November 8, 1984September 18, 1986December 31, 1985

Totals

TotalAmountAgreed1

31,875500,000157,50012,830

238,500

114,75060,000

425,000175,950575,775

55,00033,00040,50049,500

300,000

18,000150,000250,000445,00063,000

50,2002,400

100,000225,00095,000

378,0003,375

370,000228,000300,000

5,448,155

4,239,375371,250

5,000,000100,000

3,410,62513,121,25018,569,405

UndrawnBalance1

3,900216,00039,37510,20047,700

57,37539,000

297,50046,150

319,775

13,00030,00024,50016,500

170,000

8,40075,000

250,000278,600

15,750

31,2001,440

50,000168,75030,000

226,800—

370,000150,000125,000

3,111,915

2,618,500247,500

1,100,00085,000

2,106,5656,157,5659,269,480

!Details may not add to totals due to rounding.

175



INTERNATIONAL MONETARY FUNDSDR DEPARTMENT

STATEMENT OF ALLOCATIONS AND HOLDINGSas at April 30, 1984

(In thousands of SDKs)

ALLOCATIONSNet cumulative allocations of SDKs to participants .Charges due but not paid (Note)

HOLDINGSParticipants

With holdings above allocationsAllocationsNet receipt of SDKs

With holdings below allocationsAllocationsNet use of SDKs

Total holdings by participants .General Resources AccountPrescribed holders

The accompanying note is an integral part of the financial statements.


/s/ J. DE LAROSIEREManaging Director

176

1984

21,433,330

1,038

21,434,368

1983

21,433,330

25,580

21,458,910

8,424,789

2,114,823

10,539,612

13,008,541

8,587,585

4,420,956

14,960,568

6,436,730

37,070

21,434,368

5,519,349

3,345,988

8,865,337

15,913,982

7,671,777

8,242,205

17,107,542

4,334,909

16,459

21,458,910




STATEMENT OF RECEIPT AND USE OF SDRsfor the year ended April 30, 1984


|Total holdings at beginning/of financial yearReceipt of SDRs

Transfers among participants and prescribed holdersTransactions w$h designationTransactions Jay agreement.Operations

LoansSettlement of financial obligations.

Net interest on SDRsTransfer from participants to General Resources Account

Repu/chases.Ch

_ lota paymentsMerest on SDKsAssessment on SDR allocation

Transfers from General Resources Account to participants and prescribed holders'PurchasesRepayments of Fund borrowingInterest on Fund borrowingRefunds and adjustments

, In exchange for currencies of other membersAcquisitions to pay charges

Remuneration

Use of SDKsTransfers among participants and prescribed holders

Transactions with designationTransactions by agreemenOperations

Loans ..Settlement of financial obligations.

Transfers from participants to General Resources AccountRepurchases...ChargesQuota paymentsAssessment on SDR allocation

Transfers from General Resources Account to participants and prescribed holdersPurchasesRepayments of Fund borrowingInterest on Fund borrowingRefunds and adjustmentsIn exchange for currencies of other members

Acquisitions to pay chargesRemuneration

Charges in the SDR DepartmentNet Charges dueCharges not paid when dueSettlement of unpaid charges

Total usesTotal holdings at end of financial year

The accompanying note is an integral part of the financial statements.

177

17,107,542

2,401,9883,086,240

623,934548,110186,062

3,875,794787,429201,65925,807

329,7391,573,34713,640,109

4,334,909

391,7062,159,2316,194,759146,9262,974

8,895,596

16,459

88,919

5,00017,3551,783

113,051

21,458,910

2,401,9883,175,159

628,934565,465187,845

391,7062,159,2316,194,759146,9262,974

3,875,794787,429201,65925,807

329,7391,573,34722,648,762

21,448,750

2,713,4411,281,428

121,322275,090272,517

565,8801,496,619

83,368444,2582,494

2,418,57628,279223,76420,099

162,463860,614

10,970,212

2,401,9893,162,409

551,150563,552

391,7062,159,2306,194,759

2,974

334,772-12,70937,251

15,787,08314,960,568

3,875,794787,429201,65925,807

329,7391,573,347

6,793,7756,436,730

2,401,98912,750 3,175,159

77,784 628,9341,912 565,464

391,7062,159,2306,194,759

2,974

3,875,794787,429201,65925,807

329,7391,573,347

334,772- 12,70937,251

02,446 22,673,30437,070 21,434,368

2,713,4411,281,428

121,322275,090

565,8801,496,619

83,3682,494

2,418,57628,279223,76420,099

162,463860,614

716,775-25,58015,420

10,960,05221,458,910

participants

GeneralResourcesAcfcount

PrescribedHoldedrs

Total

1984 1983




NOTE TO THE FINANCIAL STATEMENTS

SDR Department

All transactions and operations involving SDKs are conductedthrough the SDR Department. SDRs do not constitute claims byholders against the Fund to provide currency, except in connectionwith the termination of participation or liquidation. SDRs areallocated by the Fund to members that are participants in the SDRDepartment in proportion to their quotas in the Fund. Threeallocations were made in 1970, 1971, and 1972, totaling SDR 9.3billion. Three further allocations were made, in 1979, 1980, and1981, totaling SDR 12.1 billion. The Fund is empowered to prescribecertain official entities as holders of SDRs: to date, 14 institutionshave been prescribed as holders. These prescribed holders do notreceive allocations and cannot use or receive SDRs in designation.

Uses of SDRs

Participants and prescribed holders can use and receive SDRs intransactions and operations by agreement among themselves. Par-ticipants can also use SDRs in operations involving the GeneralResources Account, such as the payment of charges and repurchases.In addition, the Fund ensures, by designating participants to providefreely usable currency in exchange for SDRs, that a participant canuse its SDRs to obtain such currency if it has need because of itsbalance of payments or its reserve position or development in itsreserves. A participant is not obliged to provide currency for SDRsbeyond the point at which its holdings of SDRs in excess of its netcumulative allocation are equal to twice its net cumulative allocation.A participant may, however, provide currency in excess of theobligatory limit or any agreed higher limit.

Interest, Charges, and Assessment

Interest is paid to each holder on its holdings of SDRs and chargesare levied at the same rate on each participant's net cumulativeallocation plus any negative balance of the participants or unpaid

charges. The SDR interest rate is determined by reference to acombined market interest rate, which is a weighted average of yieldsor rates on short-term instruments in the capital markets of France,the Federal Republic of Germany, Japan, the United Kingdom, andthe United States. Effective August 1, 1983,'the SDR interest rateis determined on a weekly basis rather than on a quarterly basisand interest on SDR holdings is paid and charges ̂ on net cumulativeallocations are collected on a quarterly basis. Interest and chargesaccrued between May 1, 1983 and July 31, 1983, before the decisionbecame effective, are payable on May 1, 1984. Interest and chargesare settled by crediting and debiting individual holdings accountson the first day of the subsequent quarter. The Fund is required topay interest to each holder, whether or not sufficient SfeRs arereceived in payment of charges. As of April 30, 1984 the amount ofunpaid charges amounted to SDR 1,037,692, which represents\theamount of net charges in the SDR Department by Viet Nam for fhefinancial quarter ended January 31, 1984 that remained unpaid as JApril 30, 1984.

The combined market interest rate used to determine the SDR ]

interest rate is calculated each Friday, using the yields or rates ofthat day. The SDR interest rate, which is set equal to the combinedmarket interest rate, enters into effect on the following Monday andapplies until the end of the following Sunday.

The expenses of conducting the business of the SDR Departmentare paid by the Fund from the General Resources Account, whichis reimbursed in SDRs at the end of each financial year. For thispurpose, the Fund levies an assessment, at the same rate for allparticipants, on their net cumulative allocation.

Suspension of Right to Use SDRs

On December 19, 1978 the Executive Board suspended the rightof Democratic Kampuchea to use SDRs acquired after the date ofthe suspension because the Fund found that Democratic Kampucheahad failed to meet certain obligations in the SDR Department.

178




SUBSIDY ACCOUNTSTATEMENT OF FINANCIAL POSITION

as at April 30, 1984


(Note 1)

Balance at beginning of period .Contributions received (Note 1)Interest earned on investments .

Valuation gain.

Less: Subsidy payments (Notes 2 and 3)Balance at end of period (Note 3)

The accompanying notes are an integral part of the financial statement.


/s/ J. DE LAROSIJ&REManaging Director

179

May 1, 1983 toApril 30, 1984

CumulativeAugust 1, 1975

to April 30, 1984

13,555 —

330330

341

67114,22614,226

160,29324,032

184,3252,439

186,764186,764186,764

— —




SUBSIDY ACCOUNTNOTES TO THE FINANCIAL STATEMENT

Purpose

The Subsidy Account, which is administered by the Fund, wasestablished to assist the most seriously affected members to meetthe interest cost of using resources made available through theFund's oil facility for 1975. The assets of the Subsidy Account areseparate from the assets of all other accounts of or administered bythe Fund and are not used to discharge liabilities or to meet lossesincurred in the administration of other accounts.


Unit of Account

The accounts of the Subsidy Account are expressed in terms ofthe SDR, the currency value of which is determined daily by theFund, at present, by summing the values in U.S. dollars, based onmarket exchange rates, of a basket of five specified currencies, asfollows:

CurrenciesU.S. dollarDeutsche markFrench francJapanese yenPound sterling

Amount0.540.460.74

340.071

Basis of Accounting

The accounts are maintained on an accrual basis and, accordingly,income is recognized as it is earned. It is the practice of the Fundto make all calculations on the basis of the exact number of daysin the accounting period.

Contributions

Contributions to the Subsidy Account are made in currencieswhich are valued in terms of SDKs on the basis of exchange ratesagainst the SDR at the time of receipt.

2. Subsidy Payments

The rate of subsidy for the financial years ended April 30, 1976through 1982 and for the period from May 1, 1982 to May 11, 1983—the latter being the date by which the last outstanding balances frompurchases under the 1975 oil facility were scheduled to be fullyrepurchased—was set by the Fund at 5 percent per annum of theaverage daily balances in each year of the Fund's holdings ofrecipient members' currencies subject to the schedule of chargesapplicable to the 1975 oil facility. Subsidy payments are made inU.S. dollars at the SDR/US$ rate determined for the date of payment.Subsidy payments for the period from May 1, 1982 to May 11, 1983amounted to SDR 2.5 million and were made on June 15, 1983.

3. Termination

The balances remaining in the Subsidy Account, after completionof repurchases under the oil facility and payment of subsidies at arate of 5 percent, were used for payment of an additional subsidyat a rate of 0.334 percent on the Fund's holdings during the periodMay 1975 to May 1983 of currencies of members eligible to receivethe subsidy. The final payment, which fully utilized the remainingresources of the Subsidy Account, amounted to SDR 11.7 millionand was made after all charges due at the end of July 1983 inconnection with the oil facility were paid. The Subsidy Accountwas terminated with the final payment on August 15, 1983.

180




SUPPLEMENTARY FINANCING FACILITYSUBSIDY ACCOUNT

BALANCE SHEETas at April 30, 1984


(Note 1)

ASSETSCurrencies.Interest-earning deposits (Note 2)Accrued income

Total

RESOURCES AND LIABILITIESResources—Account balanceBorrowing (Note 3)

Total

The accompanying notes are an integral part of the financial statements.


181

/s/ J. DE LAROSI£REManaging Director

1984

1298,372

2,250

100,634

96,034

4,600

100,634

1983

7331,498

1,10432,675

28,075

4,600

32,675



INTERNATIONAL MONETARY FUNDSUPPLEMENTARY FINANCING FACILITY

SUBSIDY ACCOUNTSTATEMENT OF CHANGES IN RESOURCES

for the year ended April 30, 1984(In thousands of SDRs)

(Note 1)

Balance at beginning of yearTransfers from Special Disbursement AccountContributions (Note 1)Investment incomeExchange valuation gain (loss).

Balance before subsidy paymentsSubsidy payments (Note 4)

Balance at end of year


182

198428,075

126,116

5,880

4,347

79164,497

68,463

96,034

198329,183

33,808

6,862

2,548

(56)72,345

44,270

28,075



INTERNATIONAL MONETARY FUNDSUPPLEMENTARY FINANCING FACILITY

SUBSIDY ACCOUNTNOTES TO THE FINANCIAL STATEMENTS

Purpose

The Supplementary Financing Facility Subsidy Account, whichis administered by the Fund, was established in December 1980 toassist low-income developing members to meet the cost of usingresources made available through the Fund's supplementary financ-ing facility and under the policy on exceptional use. The assets ofthe Supplementary Financing Facility Subsidy Account are separatefrom the assets of all other accounts of or administered by the Fundand are not used to discharge liabilities or to meet losses incurredin the administration of other accounts. The Supplementary Fi-nancing Facility Subsidy Account became operational in May 1981and the first subsidy payments were made in December of that year.The resources of the Account arise from contributions and loansfrom members, interest income earned on investments, and transfersof amounts received in interest and loan repayments from the TrustFund through the Special Disbursement Account.


Unit of Account

The accounts of the Supplementary Financing Facility SubsidyAccount are expressed in terms of the SDR, the currency value ofwhich is determined by the Fund, at present, by summing the valuesin U.S. dollars, based on market exchange rates, of a basket of fivespecified currencies, as follows:

CurrenciesU.S. dollarDeutsche markFrench francJapanese yenPound sterling

Amount0.540.460.74

340.071

Basis of Accounting

The accounts are maintained on an accrual basis and, accordingly,income is recognized as it is earned and expenses are recorded as

they are incurred. It is the practice of the Fund to make allcalculations on the basis of the exact number of days in theaccounting period.

Contributions

Contributions to the Supplementary Financing Facility SubsidyAccount are made in currencies which are valued in terms of SDRson the basis of exchange rates against the SDR at the time of receipt.Cumulative contributions to the Supplementary Financing FacilitySubsidy Account at April 30, 1984 amounted to SDR 47.01 million.

2. Interest-Earning Deposits

To avoid exchange risks, the assets of the Account, pending theirdisbursement, are held in the form of interest-earning SDR-denominated time deposits.

3. Borrowing

Certain members have made loans to the Fund in its capacity astrustee of the Supplementary Financing Facility Subsidy Account.These loans, which are without interest, are to be repaid onDecember 31, 1984.

4. Subsidy Payments

The amount of the subsidy is calculated as a percentage perannum of the average daily balances in each year of the Fund'sholdings of recipient members' currencies subject to the scheduleof charges applicable to the supplementary financing facility andthe policy on exceptional use. The rate of subsidy to be paid isdetermined by the Fund in the light of the resources available andthe subsidy may not exceed the equivalent of 3 percent per annumof the currency holdings to which the supplementary financingfacility and exceptional use charges apply, nor reduce the effectivecharge on such holdings below the rate of charge which would havebeen applicable had they been acquired under the Fund's policieson the regular use of its resources.

183



ASSETS

Loans (Note 2).Accrued interest on loansInvestments, at cost (and approximate market value)Accrued interest on investments

Total

TRUST RESOURCES AND LIABILITIESTrust resourcesLiabilities—

Undistributed profits from sale of gold (Note 3)Borrowing (Note 4)Accrued interest on borrowing

Total



184

INTERNATIONAL MONETARY FUNDTRUST FUND

BALANCE SHEETas at April 30, 1984(In thousands of SDKs)

(Note 1)

19842,861,916

4,764

3,824

1342,870,638

19832,972,886

4,894

3,724

1112,981,615

/S/ J. DE LAROSlfeREManaging Director

2,864,491

3,8112,332

42,870,638

2,975,589

3,6902,332

42,981,615




STATEMENT OF INCOME AND EXPENSEfor the year ended April 30, 1984


(Note 1)

Income:Interest income on loansInvestment incomeExchange valuation gain (loss)

Less—Interest expense on borrowing (Note 4).Net income

1984

14,678367(15)

15,030

1215,018

1983

14,927447

515,379

1215,367


185




STATEMENT OF CHANGES IN TRUST RESOURCESfor the year ended April 30, 1984


(Note 1)

Balance, beginning of yearNet income for the year

Balance before transfers to the Special Disbursement AccountTransfers to the Special Disbursement Account (Note 5)

Balance, end of year


186

1984

2,975,589J5,Q18

2,990,607

126.116

2,864,491

1983

2,994,03015,367

3,009,39733,808

2,975,589




NOTES TO THE FINANCIAL STATEMENTS

Purpose

The Trust Fund, which is administered by the Fund as Trustee,was established in 1976 to provide balance of payments assistanceon concessional terms to eligible members that qualify for assistance.The resources of the Trust Fund are separate from the assets of allother accounts of or administered by the Fund and are not used todischarge liabilities or to meet losses incurred in the administrationof other accounts.


Unit of Account

The accounts of the Trust Fund are expressed in terms of theSDR, the currency value of which is determined daily by the Fund,at present, by summing the values in U.S. dollars, based on marketexchange rates, of a basket of five specified currencies, as follows:

Currencies

U.S. dollarDeutsche markFrench francJapanese yenPound sterling

Amount

0.540.460.74

340.071

Basis of Accounting

The accounts are maintained on an accrual basis and, accordingly,income is recognized as it is earned and expenses are recorded asthey are incurred. The expenses of conducting the business of theTrust Fund that are paid from the General Department of the Fundare reimbursed by the Trust Fund on the basis of an estimate ofthese expenses. Following the termination of the Trust Fund onApril 30, 1981, residual administrative costs have been absorbed bythe Fund's General Department. It is the practice of the Fund tomake all calculations on the basis of the exact number of days inthe accounting period.

Valuation Adjustments

Valuation adjustments arising from changes in the SDR rate ofcurrencies held by the Trust Fund are charged to net income at theend of the year.

2. Loans

Loans were made from the Trust Fund to those eligible membersthat qualified for assistance in accordance with the provisions ofthe Trust Fund Instrument. The final loan disbursements were madeon March 31, 1981. Each loan disbursement is repayable in ten

semiannual installments which shall begin not later than the end ofthe first six months of the sixth year, and be completed at the endof the tenth year after the date of disbursement, except that mostof the final loan disbursements made to members on March 31, 1981that amounted to about 0.4 percent of quotas are to be repaid in asingle installment not later than ten years after the date of thatdisbursement. Interest on the outstanding loan balances is chargedat the rate of !/2 of 1 percent per annum.

3. Direct Distribution of Profits

The Fund decided that the Trustee make, through the Trust Fund,the direct distribution of part of the profits from the sale of gold forthe benefit of developing members. The share of each developingmember in this direct distribution of profits was calculated on thebasis of its share in total Fund quotas as at August 31, 1975 and onthe basis of the actual profits realized in the gold auctions.

The direct distribution of profits has been completed, except thatan amount of US$3,990,776, representing the share of DemocraticKampuchea, will continue to be held in the Trust Fund until relationswith that member have been restored.

4. Borrowing

One beneficiary of the direct distribution of profits from the TrustFund has lent a part of its entitlements to the Trust Fund. Theamounts borrowed by the Trust Fund are repayable in five equalannual installments beginning not later than the end of the sixthyear after the date of borrowing. Interest on the amounts outstandingis paid at the same rate as interest is charged on Trust Fund loans,provided that the rate shall not be less than l/z of 1 percent perannum.

5. Termination and Transfer of Resources

The Fund, as Trustee, decided that upon the completion of thefinal loan disbursements, the Trust Fund shall be terminated as ofApril 30, 1981. After that date, the activities of the Trust Fund havebeen confined to the completion of any unfinished business of theTrust Fund and the winding up of its affairs.

The resources of the Trust Fund held on the termination date orsubsequently received by the Trustee will be employed first tosatisfy current administrative expenses, second to pay interest andprincipal as it falls due on loan obligations, and third to maketransfers to the Special Disbursement Account, the first SDR 750million of which will flow through to the Supplementary FinancingFacility Subsidy Account. At April 30, 1984 SDR 174.92 million hadbeen transferred through the Special Disbursement Account to theSupplementary Financing Facility Subsidy Account.

187



REPORT OF THE EXTERNAL AUDIT COMMITTEESTAFF RETIREMENT PLAN

Washington, D.C.June 29, 1984

AUTHORITY AND SCOPE OF THE AUDIT

In accordance with Section 20(b) of the By-Laws of the International MonetaryFund, we have audited the financial statements of the Staff Retirement Plan forthe year ended April 30, 1984, which consist of statements of

—Accumulated plan benefits and net assets available for benefits,—Changes in accumulated plan benefits, and—Changes in net assets available for benefits.

The audit was conducted in accordance with international auditing guidelinesand, accordingly, included reviews of accounting and control systems, tests ofaccounting records, evaluation of the extent and results of work performed bythe Internal Auditor, and other audit procedures.

AUDIT OPINION

In our opinion, the financial statements have been prepared in accordance withgenerally accepted accounting principles, applied on a basis consistent with thatof the preceding year, and give a true and fair view of the financial position ofthe Staff Retirement Plan as at April 30, 1984 and of the financial results ofoperations and transactions during that year.

EXTERNAL AUDIT COMMITTEE:

/s/ Walter Scholz, Chairman (Germany)/s/ M. Ijadur Rahman (Bangladesh)/s/ Abdelmalek Ouenniche (Morocco)

188



INTERNATIONAL MONETARY FUNDSTAFF RETIREMENT PLAN

STATEMENT OF ACCUMULATED PLAN BENEFITSAND NET ASSETS AVAILABLE FOR BENEFITS

as at April 30, 1984(In thousands of U.S. dollars)

(Note 1)

Accumulated Plan benefits (Note 1):Actuarial present value of accumulated Plan benefits

Vested benefitsRetired participants Other participants

Nonvested benefitsTotal actuarial present value of accumulated Plan benefits

1984

120,700104,50043,200

268,400

1983

111,00089,50038,200

238,700

Net assets available for benefits:investments, at current value (Note 1)

Portfolio managed within the United States.Portfolio managed outside the United States

Receivables:ContributionsAccrued interest and dividends (Note 1)Other

Cash at banksTotal assets

Liabilities:Accounts payable

Net assets available for benefitsExcess of net assets available for benefits over actuarial present value of accumulated Plan benefits

344,92169,812414,733

1113,6721,2515,695

32420,460

919419,541151,141

316,75548,377365,132

5963,610

4,20613

369,351

804368,547129,847



/S/ J. DE LAROSlfeREManaging Director

189




STATEMENT OF CHANGES IN ACCUMULATED PLAN BENEFITSfor the year ended April 30, 1984

(In thousands of U.S. dollars)

(Note 1)

190

Actuarial present value of accumulated Plan benefits at beginning of year

Increase (decrease) during the year attributable to:Benefits accumulatedIncrease for interest due to decrease in discount periodBenefits paid

Net increase

Actuarial present value of accumulated Plan benefits at end of year (Note 1)

1984

238,700

17,74823,300(11,348)

29,700

268,400

1983

211,700

17,25820,600(10,858)

27,000

238,700





STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITSfor the year ended April 30, 1984

(In thousands of U.S. dollars)

(Note 1)


Investment income (Note 1):Net appreciation in current value of investments (Note 3)InteresDividends.

Contributions (Note 2):International Monetary FundParticipantsParticipants restored to serviceNet transfers from (to) retirement plans of other international organizations

Total additionsBenefits:

PensionsWithdrawal benefitsCommutation benefitsDeath benefits

Total paymentsNet additions

Net assets available for benefits at:Beginning of yearEnd of year—April 30, 1984

191

1984

79814,5449,53924,881

28,8608,357

74170

37,46162,342

10,038784172354

11,34850,994

368,547419,541

1983

80,46012,5617,726

100,747

30,5157,378

28(197)

37,724138,471

8,917925751265

10,858127,613

240,934368,547




STAFF RETIREMENT PLANNOTES TO THE FINANCIAL STATEMENTS

Description of Plan

General

The Staff Retirement Plan (Plan) is a defined benefit pension plancovering nearly all staff members of the International MonetaryFund (employer). All assets and income of the Plan are the propertyof the employer and are held and administered by it separately fromall its other property and assets and are to be used solely for thebenefit of participants and retired participants or their beneficiaries.The account is valued in U.S. dollars.

Benefits

Participants are entitled to an annual pension beginning at normalretirement age (65). The amount of the pension is based on numberof years of service and highest average gross remuneration. Partic-ipants who have reached the age of 55 may retire with a reducedpension (or with an unreduced pension if the sum of their age andyears of service equals 90 or more). The Plan also provides fordisability retirement and death benefits to a surviving spouse andminor children. Upon termination before age 55 a participant withat least three years of eligible service may elect to receive either awithdrawal benefit (accumulated contributions of the participantplus an amount equal to a percentage of such accumulated contri-butions, the percentage being based on number of months of eligibleservice) or a deferred pension to commence after the participanthas reached the age of 55. A participant entitled to receive a normal,early retirement, or deferred pension may elect to commute up toone third of his or her pension, and receive a lump sum amount inlieu of the amount of pension commuted. A participant entitled toreceive a disability pension may elect to commute one third of theearly retirement pension that would otherwise have been applicable.

Contributions

As a condition of employment, regular staff members are requiredto participate in the Plan and to contribute 7 percent of their grossremuneration to the Plan. Certain other categories of staff membersmay elect to participate in the Plan. The employer meets theadministrative costs of the Plan, such as actuarial, management,and custodial fees, and is to contribute any additional amounts notprovided by the contributions of participants to pay costs andexpenses of the Plan not otherwise covered. In 1984, these admin-istrative costs were approximately $2.4 million ($1.1 million in 1983).


Valuation of Investments

Investments in securities listed in stock exchanges are valued atthe last reported sales price on the last business day of the accountingperiod. Over-the-counter securities are valued at their bid price onthe last business day of the year. Purchases and sales made by U.S.investment managers are recorded on the settlement date basis, andtransactions made by the non-U.S. investment manager are recordedon the trade date basis.

Accumulated Benefits—Vested and Nonvested

The actuarial value of vested benefits is shown for two categories.For retired participants, the amount shown equals the present valueof the benefits expected to be paid over the future lifetime of thepensioner, and, if applicable, the surviving spouse of the pensioner.For other participants, the amount shown equals the present valueof the deferred pension earned to the valuation date for a participant,or, if greater, the value of the withdrawal benefit for that participant,summed over all participants. For the purpose of determining theactuarial value of the vested benefits at the end of the Plan year, it

is assumed that the Plan will continue to exist but that participantswill not earn pension benefits beyond the date of the calculation.

The amount of nonvested benefits represents the total of thewithdrawal benefits for all participants with less than three years ofeligible service.

Other

Dividend and interest income from investments are recorded asearned.

2. Funding

The employer makes normal contributions to the Plan equal to14 percent of gross remuneration. Whenever the cost of living fora financial year increases, pensions shall be augmented by a pensionsupplement, which shall be the lesser of the increase in the cost ofliving for the financial year or 2 percent. If the increase in the costof living for a year exceeds 2 percent, pensions shall be augmentedby an additional supplement to be paid from contributions from theemployer equal to the difference between 2 percent and the increasein the cost of living. The employer has the right for good cause toreduce the additional supplement to not less than 1 percent.

3. Investments

The net appreciation in the current value of investments for theperiods April 30, 1984 and 1983 is as follows (in U.S. dollars):

1984

Portfolio managed within the UnitedStates

Portfolio managed outside theUnited States

—Net market appreciation—Net exchange valuation loss

Total appreciation

(11,522,052) 70,817,228

11,698,045(2,055,401)

9,642,644

798,358 80,459,872

12,493,251(172,841)

12,320,410

The net exchange loss was calculated by converting the bookvalue of securities in currencies other than U.S. dollars to U.S.dollars at the exchange rates in effect at both the beginning and theend of the accounting period (or at the time a security was purchasedor sold if this occurs during the accounting period) and subtractingone from the other to determine the exchange loss.

At April 30, 1984, 9.69 percent of the net assets available forbenefits was held in the Grantham, Mayo, Van Otterloo ManagedMarket Trust, which has underlying investments in approximately300 equity issues. There were no other investments which repre-sented 5 percent or more of the net assets available for benefits.

4. Actuarial Valuation

The most recent valuation of the Plan by the actuary engaged bythe Pension Committee was made as at April 30, 1983. Actuarialassumptions used in the valuation were (a) life expectancy ofparticipants as based on the 1960 United Nations Service Tables,(b) certain percentages of staff, differing by sex, would retire ateach age between 55 and 65, and (c) an assumed average rate ofreturn on investments of 6 percent per annum. The purpose of theannual valuation is to determine, on the basis of the actuarialassumptions used, the level of additional employer contributionsnecessary to fund experience losses and cost of living increasesbeyond the first 2 percent. It is further assumed that the Plan willcontinue to exist and that participants will continue to earn pension

192

1983


APPENDIX VIII (concluded)

benefits beyond the date of the valuation until the date of withdrawal,disability, death, or retirement. This valuation therefore differs fromthat in which the actuarial value of vested benefits is determined(Note 1).

Experience gains and losses of the Plan, as determined by the

193

actuary, are amortized over a period of 15 years. The most recentvaluation (at April 30, 1983) showed an experience loss of $5.4million for the year then ended. Unamortized experience lossesamounted to $63.1 million at April 30, 1984, of which $8.0 millionwas paid by the employer on May 1, 1984.


Index

Letters are used as follows: c for chart, n for footnote, and t for table.

ABU DHABISupplementary financing facility: lending for,

116t; repayment by Fund, 116tAFGHANISTAN

Exchange rate, 102tPurchases from Fund, l i l tQuota, 106tSDKs, 118t

AFRICABalances of payments, 14, 23tCommercial bank borrowing, 25, 53Economic policies, 14, 47-48Exchange rates, 44, 47-48International reserves, 58Official development assistance, 14, 53Official multilateral borrowing, 25, 92Output, lOt, liePrices, 13t, 47-48Trade, 14, 23, 24

ALGERIACommercial bank borrowing, 25Exchange rate, 102tQuota, 106tSDKs, 118t

ANTIGUA AND BARBUDAArticle VIII obligations, acceptance of, 91Exchange rate, 102tPurchases from Fund, l i l tQuota, 106tSDKs, 118t

ARGENTINACommercial bank borrowing, 23Economic policies, 47, 48Exchange rate, 47, 48, 102tInternational reserves, 58Prices, 12, 47, 48Purchases from Fund, 76, l i l tQuota, 106tSDKs, 118tStand-by arrangement with Fund, 76, 109t

ARTICLES OF AGREEMENTArticle IV, 50, 54; consultations with mem-

bers, 52, 74, 90Article VIII, members accepting obligations

of, 91, 122tArticle XIV, 91

ASIABalances of payments, 12, 23t, 24, 58Economic policies, 12International bond placements, 68International reserves, 58, 67, 70Output, lOt, 11Prices, 12, 13tTrade, 23, 24

AUSTRALIACapital flows, 42Economic policies, 42Employment, 8Exchange rate, 42, 102tOil facility subsidy account, contribution to,

89n

Output, 5Prices, 42Quota, 106tRepurchases from Fund, 80, 113tSDKs, 118tSupplementary financing facility subsidy ac-

count, contribution to, 90tWages, 42

AUSTRIAExchange rate, 42, 102tOil facility subsidy account, contribution to,

89nQuota, 106tSDKs, 118tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tSupplementary financing facility subsidy ac-

count, contribution to, 90t

BAHAMASExchange rate, 102tQuota, 106tSDKs, 118t

BAHRAINExchange rate, 102tQuota, 106tSDKs, 118t

BANGLADESHCompensatory financing facility, use of, 79Exchange rate, 102tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1BANK FOR INTERNATIONAL SETTLEMENTS (BIS)

Borrowing agreement with Fund, 82Fund relations with, 72, 94General Arrangements to Borrow, lending to,

72Prescribed holder of SDRs, 86Supplementary financing facility subsidy ac-

count investments, 90.BARBADOS

Exchange rate, 102tPurchases from Fund, l i l tQuota, 106tSDRs, 118tStand-by arrangement with Fund, 109tTechnical assistance by Fund, 92

BELGIUMBalance of payments, 22Borrowing agreements with Fund, 82Economic policies, 17, 22Employment, 8European Monetary System, 105t(n)Exchange rate, 17, 102t

General Arrangements to Borrow, lending to,72, 81t

Oil facility subsidy account, contribution to,89n

Quota, 106tSDRs, 118tStand-by arrangement with Fund, 110t(n)Supplementary financing facility, lending for,


count, lending to, 90tTrade, 22

BELIZEArticle VIII obligations, acceptance of, 91Exchange rate, 102tPurchases from Fund, l i l tQuota, 106tSDRs, 118t

BENINExchange rate, 102tPurchases from Fund, l i l tQuota, 106tSDRs, 118t

BHUTANExchange rate, 102tQuota, 106tSDRs, 118t

BOARD OF GOVERNORSEighth General Review of Quotas, resolution

authorizing, 74Interim Committee on the International Mon-

etary System (Interim Committee): com-muniqu£s, 142

Joint Ministerial Committee of the Bank andthe Fund on the Transfer of Real Resourcesto Developing Countries (DevelopmentCommittee): communique's, 149

Role in SDR allocations, 71See also DEVELOPMENT COMMITTEE and

INTERIM COMMITTEEBOLIVIA

Exchange rate, 102tPrices, 12Purchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1BORROWING BY FUND

Bank for International Settlements, 71, 82Belgium, 71, 82Enlarged access to Fund resources, 77t, 80,

82, 84-85Extended arrangements, financing of, 77General Arrangements to Borrow, 72, 77t,

80, 81, 84-85Guidelines for, 81, 138Interest on, 117tJapan, 71, 82Oil facility, 77t, 84-85

195


INDEX

Repayment of, 117tSaudi Arabia, 71, 82Stand-by arrangements, financing of, 76Supplementary financing facility, 77, 82, 85

BOTSWANAExchange rate, 102tQuota, 106tSDRs, 118t

BRAZILBuffer stock financing facility, use of, 79Commercial bank borrowing, 23Debt reschedulings, 29Exchange rate, 44, 102tExtended arrangement with Fund, 77, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, contribution to,

89nPrices, 12Purchases from Fund, 79, 112tQuota, 106tSDRs, 118t

BUDGET OF FUND, 160BUFFER STOCK FINANCING FACILITY

Access limits, 79, 138Charges, 116tEnlarged access to Fund resources, use by

members, 72Establishment, 79Purchases from Fund, 74t, 75, 77t, 79, 112tPurpose, 79Repurchases from Fund, 80, 113t

BURMAExchange rate, 102tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118t

BURUNDIExchange rate, 102tQuota, 106tRepurchases from Fund, 113tSDRs, 118t

CAMEROONExchange rate, 102tOil facility subsidy account, beneficiary, 89tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118t

CANADABalance of payments, 20c, 22, 23tEconomic policies, 4, 5t, 30, 37, 39cEmployment, 1, 8Exchange rate, 17, 18c, 22, 102tGeneral Arrangements to Borrow, lending to,

81tInterest rates, 3, 30, 38c, 41cOil facility subsidy account, contribution to,

89nOutput, 1, 4, 5, 6c, 7t, 8, 37Prices, 7t, 8, 21c, 37, 38cQuota, 106tSDRs, 87, 118tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tTrade, 7

CAPE VERDEExchange rate, 102tQuota, 106tSDRs, 118t

CAPITAL MARKETSAccess of developing countries to, 2, 22, 23,

25, 32, 56, 58, 65, 67, 68, 70Balance of payments adjustment, financing

of, 56, 65, 66Developments: 1973-81, 65-66; 1982-83,

67-69

Exchange rate effects on, 45International bond markets, 68International liquidity, role in providing, 56,

65Operation of, 52Segmentation of, 68

CENTRAL AFRICAN REPUBLICCompensatory financing facility, use of, 80Exchange rate, 102tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, liltQuota, 106tRepurchases from Fund, 80, 113tSDRS, 118tStand-by arrangement with Fund, 109t

CENTRALLY PLANNED ECONOMIES, 47CHAD

Exchange rate, 102tPurchases from Fund, liltQuota, 106tSDRs, 118t

CHILEEconomic policies, 48Employment, 48Exchange rate, 44, 48, 102tPrices, 48Purchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118tStand-by arrangement with Fund, 109tWages, 48

CHINABalance of payments, 23Economic policies, 23Exchange rate, 102tInternational reserves, 58Output, 11Quota, 106tRepurchases from Fund, 80, 113tSDRs, 87, 118tTechnical assistance by Fund, 92

COLOMBIAExchange rate, 102tInternational reserves, 58Purchases from Fund, liltQuota, 106tSDRs, 86, 118t

COMMERCIAL BANK LENDING TO DEVELOPINGCOUNTRIES

Amount of debt outstanding, 25Balance of payments adjustment, role in, 56,

65, 66, 67Continuing need for, 32Debt reschedulings, 1-2, 15, 26, 28-29, 67,

91Fund's role in promoting, 54Government spending, financing of, 66Grace periods, 91Increases in, 66Interest rate spreads, 91Investment, financing of, 66Latin America, 23Maturity structure, 25, 26, 91Reduction in, 1, 11, 15, 17, 23, 24, 25, 26, 46,

67-68Role in supporting Fund adjustment pro-

grams, 53COMOROS

Exchange rate, 102tQuota, 106tSDRs, 118t

COMPENSATORY FINANCING FACILITYAccess limits, 79, 138Cereal import costs, Executive Board deci-

sion on, 78Charges, 116t

Conditionality of purchases under, 79Cooperation, guidelines on, 137Enlarged access to Fund resources, use by

members, 72Executive Board review of, 78Purchases from Fund, 74t, 75, 76c, 77t, 79,

112tPurpose, 78Repurchases from Fund, 80, 113t

CONDITIONALITY, 71, 72, 79, 92CONGO

Exchange rate, 102tPurchases from Fund, liltQuota, 106tSDKs, 118t

CONSULTATIONS WITH FUND MEMBERS, 90COSTA RICA

Exchange rate, 102tExtended arrangement with Fund, 115tPurchases from Fund, liltQuota, 106tRepurchases from Fund, 113tSDRs, 118tStand-by arrangement with Fund, 109t

CREDIT TRANCHESCharges, 116tConditionality of purchases under, 79Purchases from Fu- 1, 67, 74t, 75, 76, 77t,Repurchases from . und, 79-80

CYPRUSExchange rate, 102tQuota, 106tRepurchases from Fund, 113tSDRs, 118t

DENMARKBalance of payments, 22Economic policies, 17, 22Employment, 8European Monetary System, 105t(n)Exchange rate, 17, 102tOil facility subsidy account, contribution to,

89nQuota, 106tSDRs, 118tSupplementary financing facility subsidy ac-

count, contribution to, 90tTrade, 22

DEVELOPING COUNTRIESBalances of payments, 1, 9, 11, 12, 14, 23t,

25, 31, 32, 43, 46, 52, 56, 65, 67, 70, 71Commercial bank borrowing, 26, 31, 66, 68,

70Commercial bank deposits, 68tEconomic policies, 9, 12, 13, 14, 31-32, 34,

46, 48, 50, 53, 65, 66Employment, 32Exchange rates, 32, 43, 45, 46, 48, 49, 50, 53,

55-56Interest rates, 32International bond placements, 68International reserves, 9, 28, 33, 6 It, 63, 65,

69, 70, 71Official development assistance, need for, 2Output, 9-12, 32, 66Prices, 9, 12, 13, 31Trade, 1, 9, 11-12, 13, 15t, 16t, 25, 31, 32,

33, 46, 53, 91Non-Oil Developing Countries

Balances of payments, 1, 2, 14, 22, 23t, 24,26, 28, 29, 34, 43, 45, 46, 66

Commercial bank borrowing, 25, 28t, 43,66, 67, 68t

Commercial bank deposits, 68t, 69Debt restructuring agreements, 91Economic policies, 2, 24, 34, 45, 46Exchange rates, 24, 34, 43, 44-45, 46Fund credit, use of, 28Incomes, 45

196


INDEX

Interest rates, 34International reserves, 56, 58, 59t, 60, 66,

67, 69, 70Official multilateral borrowing, 28t, 66Output, 2, lOt, 11,45Prices, 11, 12, 13t, 34, 45SDKs, 87, 88Trade, 2, 11, 12, 14, 15, 16t, 22-24, 25, 66Net Oil Exporters

Balances of payments, 23t, 46Commercial bank borrowing, 67Economic policies, 46-47Exchange rates, 44, 46-47Output, lOtPrices, 13tTrade, 16t, 46

Net Oil ImportersBalances of payments, 23tOutput, lOtPrices, 13tTrade, 14, 16tLow-Income Countries

Balances of payments, 22, 23tCommercial bank borrowing, 53Economic policies, 14Exchange rates, 44Official development assistance, 32, 53Output, lOt, 11Prices, 13tSupplementary financing facility sub-

sidity account, beneficiaries of, 90Trade, 16t

Major Exporters of ManufacturesBalances of payments, 23tExchange rates, 44Output, lOtPrices, 13tTrade, 11, 16t

Other Net Oil ImportersBalances of payments, 23tExchange rates, 44Output, lOtPrices, 13tTrade, 16t

Oil Exporting CountriesBalances of payments, 13-15, 22, 23t, 46,

58,66Commercial bank borrowing, 68tCommercial bank deposits, 66, 68t, 69Economic policies, 46-47, 48Exchange rates, 43c, 44, 46-47, 48International reserves, 56, 58-59, 60, 69,

70tOutput, 10-11Prices, 12, 13t, 44, 48SDKs, 87, 88Trade, 12, 14, 15, 16t, 22-23, 24, 46

DEVELOPMENT COMMITTEECommunique's, 142

DJIBOUTIExchange rate, 102tPurchases from Fund, liltQuota, 106tSDKs, 118t

DOMINICAExchange rate, 102tExtended arrangment with Fund, 77, 115tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118t ,Supplementary financing facility subsidy ac-

count, beneficiary, 91 1

DOMINICAN REPUBLICBuffer stock financing facility, use of, 79Exchange rate, 102tExtended arrangment with Fund, 77, 115tPurchases from Fund, 79, lilt

Quota, 106tRepurchases from Fund, 113tSDKs, 118t

ECUADORExchange rate, 102tOfficial multilateral debt restructuring, 93Purchases from Fund, l i l tQuota, 106tSDRs, 118tStand-by arrangement with Fund, 109t

EGYPTExchange rate, 45, 102tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, liltQuota, 106tRepurchases from Fund, 113tSDRs, 118tTechnical assistance by Fund, 92

EL SALVADORExchange rate, 102tPurchases from Fund, liltQuota, 106tSDRs, 118tStand-by arrangement with Fund, 109t

ENLARGED ACCESS TO FUND RESOURCESAccess limits, 72, 78, 131, 134Borrowed resources suspense accounts, 82-

83Borrowing by Fund for, 82Charges, 84, 116tCompensatory financing facility, 72Conditionality requirements, 72Establishment, 78Executive Board decision to extend, 78Extended Fund facility, financing of, 77Extension of, 72, 130Ordinary and borrowed resources, use of,

135Purchases from Fund, 76, l i l tPurpose, 78Value date of purchases under arrangements

involving, 135EQUATORIAL GUINEA

Exchange rate, 102tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118t

ETHIOPIAExchange rate, 102tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118tTechnical assistance by Fund, 93

EUROPEBalances of payments of European develop-

ing countries, 23tEconomic policies, 31Employment, 8Exchange rates, 16, 17, 34; European devel-

oping countries, 45International bond placements, 68International reserves of European develop-

ing countries, 58Output, 6c, 7t, 8; European developing coun-

tries, lOt, liePrices, 7t, 34; European developing countries,

13tTrade of European developing countries, 24Wages, 8

EUROPEAN MONETARY SYSTEM (EMS)Economic policies, 42European currency units (EC Us), 59t(n), 60,

61, 63; role as reserve currency, 61, 62t,65

European Monetary Cooperation Fund, 59t(n),60,63

Exchange rates, 34, 37, 42, 56, 105t(n); re-alignment, 2, 17, 19, 22, 58

Gold holdings, 59t(n), 60Operation of, 42Participants, 105t(n)

EXCHANGE MARKETSOfficial intervention, 35, 65Operation of, 35, 37, 51

EXCHANGE RATESArrangements, 37, 42, 43, 49-50, 55-56, 57t,

69, 102tBalance of payments effect on, 35, 46, 47Capital flows' effect on, 45Domestic economies' effect on, 34, 47Effect on balance of payments, 45, 49, 53Effect on interest rates, 51-52Effect on international trade, 45European Monetary System, 102tFiscal policy's effect on, 51-52Flexibility, 53, 55, 56, 69Interest rate effects on, 51-52List as of June 29, 1984, 102tMonetary policy's effect on, 52Pattern of, 34Restrictions, 53Trade effects on, 35Underlying economic conditions' effect on,

35, 37, 40, 42, 43, 51Variability, 35, 40, 42, 50, 51See also SURVEILLANCE OVER EXCHANGE RATE

POLICIES and individual countries

EXECUTIVE BOARDArticle IV consultations, review of, 74Attribution of reductions in Fund's currency

holdings, review of, 75-76Capital markets, discussion of, 54Cereal import costs, forthcoming review of,

78-79Changes in membership, 157Compensatory financing facility, review of,

78Enlarged access to Fund resources, review

of, 78Extended Fund facility, review of, 76External debt-servicing problems, discussion

of, 54Guidelines for Fund borrowing, review of, 81Liquidity position of Fund, review of, 80List of Executive Directors and voting power,

154Possible further SDR allocations, review of,

71Rate of remuneration, forthcoming review of,

83Role in SDR allocations, 71SDR holdings by Fund, forthcoming review

of, 81Surveillance over exchange rate policies, re-

view of, 51, 54, 55, 74World economic outlook exercise, review of,

54,90See also EXECUTIVE BOARD DECISIONS

EXECUTIVE BOARD DECISIONSAdoption of term "SDR," 85n, 128Borrowing agreement with Saudi Arabia in

association with GAB, transferability ofclaims, 140

Borrowing by Fund, guidelines for, 138Buffer stock financing facility, access limits,

138Compensatory financing facility: access lim-

its, 138; guidelines on cooperation, 137Compensatory financing of fluctuations in

cereal import costs, access limits, 138Differential between rate of remuneration and

SDR interest rate, narrowing of, 83Enlarged access to Fund resources, 72, 78,

130, 131, 134, 135

197


INDEX

Fund's currency holdings, attribution of re-ductions in, 75-76

Fund's SDR holdings, reduction of, 87, 130General Arrangements to Borrow, enlarge-

ment and revision, 81; transferability ofclaims, 139

Oil facility subsidy account, final report ontermination, 136

Overdue payments to Fund: performance cri-terion under stand-by and extended ar-rangements, 136

Rate of remuneration, 129Rules relating to determination and payment

of charges on SDRs and of remuneration,amendment of, 86

SDR interest rate and related matters, 128Surveillance over exchange rate policies, 124Treatment of reserve tranche: attribution of

reduction in Fund's currency holdings, re-view of, 141

EXTENDED FUND FACILITYArrangements under, 115tBorrowed resources, use of, 77, 78Charges, 116tCommitments under, 77Enlarged access to Fund resources, use by

members, 72Establishment, 76Executive Board review of, 76Ordinary resources, use of, 77, 78Overdue payments to Fund, performance cri-

terion, 136Purchases from Fund, 74t, 75, 76-77, l i l tPurpose, 76Repurchases from Fund, 80, 113t

EXTERNAL RELATIONS OF FUND, 94, 95

FIJIExchange rate, 102tQuota, 106tSDRs, 118t

FINANCES OF FUNDAdministered accounts, 73tBorrowed resources suspense accounts, 83Financial statements, 162See also GENERAL RESOURCES ACCOUNT

TRANSACTIONSFINLAND

Economic policies, 42-43Exchange rate, 42-43, 102tOil facility subsidy account, contribution to,

89nOutput, 5Prices, 43Quota, 106tRepurchases from Fund, 11 3tSDRs, 118tSupplementary financing facility subsidy ac-

count, contribution to, 90tFRANCE

Balance of payments, 7, 20c, 22, 23tEconomic policies, 5t, 22, 39c, 42European Monetary System, 105t(n)Exchange rate, 16, 17, 18c, 35, 36c, 42, 49,

56, 64, 102tGeneral Arrangements to Borrow, lending to,

81tInterest rates, 38c, 41c, 42, 64, 84tInternational reserves, 58Oil facility subsidy account, contribution to,

89nOutput, 6c, 7, 37Prices, 7, 8, 21c, 38cQuota, 106tRole of franc as reserve currency, 61 1, 62t,

63SDRs, 118tSupplementary financing facility subsidy ac-

count, contribution to, 90tUse of franc as currency peg, 50c

GABONExchange rate, 102tExtended arrangement with Fund, 115tPurchases from Fund, liltQuota, 106tRepurchases from Fund, 113tSDRs, 118t

GAMBIA, THEExchange rate, 102tExtended arrangement with Fund, 78Purchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDRs, 118tStand-by arrangement with Fund, 76, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1GENERAL AGREEMENT ON TARIFFS AND TRADE

(GATT)Fund relations with, 53, 94

GENERAL ARRANGEMENTS TO BORROW (GAB)Associated borrowing agreements, 81-82Enlargement, 71, 72, 80, 81Guidlines for Fund borrowing, 81Lenders, 81tParticipants, 81Purpose, 81Repayments by Fund, 85, 88Revisions, 81-82Saudi Arabia, associated borrowing agree-

ment with, 71, 72, 80, 81-82, 140Switzerland: association with, 81; participa-

tion in, 71, 80, 81Transferability of claims, 139See also BORROWING BY FUND

GENERAL RESOURCES ACCOUNT TRANSACTIONSAssessments, 117tBorrowing by Fund, 117tCharges, 83, 86, 88, 116t, 117t; rate of,

83-84Interest payments received on, 117tPurchases from Fund, 60, 72, 73t, 75-79,

86-87, HOt, lilt , 117tQuota payments, 117tRemuneration, 87-88, 117t; rate of, 72-73,

83, 84t, 85-86, 129Repurchases from Fund, 75, 77t, 79-80, 87,

HOt, 113t, 117tSDRs: receipt of, 118t; transfers of, 1 17t, 1 18t

GERMANY, FEDERAL REPUBLIC OFBalance of payments, 19, 20c, 23t, 30Economic policies, 3, 5t, 17, 30, 37, 39c, 51European Monetary System, 105t(n)Exchange rate, 17, 18c, 35, 36c, 42, 103tGeneral Arrangements to Borrow, 8 It, 88Interest rates, 7, 17, 38c, 41c, 42, 84tOil facility subsidy account, contribution to,

89nOutput, 5, 6c, 7tPrices, 7, 21c, 30, 38c, 42Quota, 106tRepayment by Fund, 88Role of deutsche mark as reserve currency,

61t, 62t, 63SDRs, 86, 87, 119tSupplementary financing facility, lending for,

Trade, 17, 19GHANA

Compensatory financing facility, use of, 79Exchange rate, 44, 103tPurchases from Fund, 79, l i l tQuota, 106tRepurchases from Fund, 11 3tSDRs, 119tStand-by arrangement with Fund, 109t

GOLDHoldings by Fund, 77t, 80nMarket price, 60, 63, 69-70

Official holdings, 56, 58, 59t, 60, 63Sales by Fund: in auctions, 77t, 88; in distri-

butions, 77t; requirements for approval,80n

GREECEExchange rate, 103tOil facility subsidy account, contribution to,

89nQuota, 106tSDKs, 119t

GRENADAExchange rate, 103tExtended arrangement with Fund, 77, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, liltQuota, 106tSDKs, 119t

GUATEMALAExchange rate, 103tPurchases from Fund, liltQuota, 106tSDKs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility: lending for,

116t; repayment by Fund, 116tGUINEA

Exchange rate, 103tPurchases from Fund, l i l tQuota, 106tSDKS, 121tStand-by arrangement with Fund, 109t

GUINEA-BISSAUExchange rate, 103tPurchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDKs, 119t

GUYANAExchange rate, 103tExtended arrangement with Fund, 115tPurchases from Fund, liltQuota, 106tRepurchases from Fund, 113tSDRs, 119tSupplementary financing facility subsidy ac-

count, beneficiary, 91t

HAITIExchange rate, 103tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, liltQuota, 106tSDRs, 119tStand-by arrangement with Fund, 109t

HONDURASExchange rate, 103tExtended arrangement with Fund, 115tPurchases from Fund, l i l tQuota, 106tSDRs, 119tStand-by arrangement with Fund, 109t

HUNGARYExchange rate, 103tPurchases from Fund, 76, liltQuota, 106tSDRs, 119tStand-by arrangement with Fund, 76, 109t

ICELANDArticle VIII obligations, acceptance of, 91Exchange rate, 103tQuota, 106tSDRs, 119t

INCOME AND EXPENSES OF FUND, 85, 161INDIA

Balance of payments, 23Exchange rate, 56, 103t

198


INDEX

Extended arrangement with Fund, 23, 77, 78,80, 115t

Oil facility subsidy account, beneficiary, 89tOutput, 11Purchases from Fund, l i l tQuota, 106tRepurchases from Fund, 113tSDKs, 119tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1INDONESIA

Balance of payments, 47Commercial bank borrowing, 25Compensatory financing facility, use of, 79Exchange rate, 47, 103tPurchases from Fund, 79, l i l tQuota, 106tSDKs, 119t

INDUSTRIAL COUNTRIESBalances of payments, 14, 17, 19, 22, 23t,

69-70Commercial bank borrowing, 65, 67, 68Commercial bank deposits, 68-69Economic policies, 2-9, 29-31, 32, 37, 39c,

40, 48, 52, 65, 66, 69-70Employment, 8, 9, 31Exchange rates, 16-17, 34-35, 37, 40, 48, 49,

51,52Interest rates, 1, 3, 4, 7, 11, 12, 14, 24-25,

26, 29, 31, 37, 38c, 40, 51, 52, 66International bond placements, 68International reserves, 56, 58, 59t, 60, 61t,

63, 69, 70tOutput, 1, 2, 6c, 7-8, 9, 11, 32, 37, 40, 66Prices, 1, 2, 3, 7, 8, 9, 17, 29, 30, 31, 35, 37,

38c, 40, 66SDKs, 87, 88Trade, 2, 12, 15t, 16t, 19, 24, 25, 32Wages, 9

INTERIM COMMITTEECommuniques, 142Enlarged access to Fund resources, guidelines

for, 78Further SDR allocations, consideration of,

73-74Protectionism, discussion of, 33Surveillance over exchange rate policies, re-

view of, 54World economic outlook exercise, review of,

54INTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENTSee WORLD BANK

INTERNATIONAL ORGANIZATIONSFund relations with, 72, 93

INTERNATIONAL RESERVESAdequacy, 69-71, 74Demand for, 69, 70Expansion, 56Foreign exchange, 56, 58, 59t, 60, 69-70;

currency composition, 61, 62t, 63, 64, 65;official holdings, 32, 61, 64, 65

Fund-related assets, 56, 58, 59-60, 71, 77tGold, 60, 63Growth rate, 69, 70Holdings by members, 59tOfficial holdings, 26, 56, 69, 70Real value of, 49

INTERNATIONAL TRADEExchange rate effects on, 45, 49, 53Growth rate, 69Protectionism, 2, 9, 11, 29, 31, 32-33, 46, 53,

55Terms of trade, 1, 2, 9, 11, 12, 14, 16t, 23,

24, 31, 66Value, 15tVariability of flows, 69Volume, 14, 15t

IRAN, ISLAMIC REPUBLIC OFExchange rate, 103t

Oil facility subsidy account, contribution to,89n

Quota, 75, 106t, 108t(n)SDRs, 119t

IRAQExchange rate, 103tPurchases from Fund, l i l tQuota, 106tSDRs, 119t

IRELANDBalance of payments, 22Economic policies, 22Employment, 8European Monetary System, 105t(n)Exchange rate, 17, 42, 103tPrices, 8Quota, 106tSDRs, 119tTrade, 22

ISRAELExchange rate, 45, 103tPrices, 12Purchases from Fund, liltQuota, 106tRepurchases from Fund, 113tSDRs, 119t

ITALYBalance of payments, 7, 20c, 22, 23t, 30Economic policies, 5t, 22, 30, 39c, 42European Monetary System, 105t(n)Exchange rate, 16, 17, 18c, 42, 103tGeneral Arrangements to Borrow, lending to,

81tInterest rates, 38c, 41c, 42International reserves, 58Oil facility subsidy account, contribution to,

89nOutput, 5, 6c, 7Prices, 7t, 21c, 38c, 42Quota, 106tSDRs, 86, 87, 119t

IVORY COASTBuffer stock financing facility, use of, 79Exchange rate, 103tExtended arrangement with Fund, 77, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, l i l tQuota, 106tSDRs, 119tSupplementary financing facility subsidy ac-


JAMAICAExchange rate, 103tExtended arrangement with Fund, 77, 115tPurchases from Fund, liltQuota, 107tRepurchases from Fund, 113tSDRs, 119tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1JAPAN

Balance of payments, 17, 19, 20c, 23t, 30Borrowing agreements with Fund, 82Economic policies, 3c, 4, 5t, 30, 37, 39c, 51Exchange rate, 16, 17, 18c, 35, 36c, 64, 103tGeneral Arrangements to Borrow, lending to,

72, 81t, 88Interest rates, 17, 38c, 41c, 64, 84tOil facility subsidy account, contribution to,

89nOutput, 4, 6c, 7t, 37Prices, 7t, 21c, 30, 38cQuota, 107tRepayment by Fund, 88Role of yen as reserve currency, 61t, 62t, 63SDRs, 86, 119tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tTrade, 7, 17

JOINT MINISTERIAL COMMITTEE OF THE BANKAND THE FUND ON THE TRANSFER OF REALRESOURCES TO DEVELOPING COUNTRIES

See DEVELOPMENT COMMITTEEJORDAN

Exchange rate, 103tPurchases from Fund, liltQuota, 107tSDRs, 119t

KAMPUCHEA, DEMOCRATICExchange rate, 103tQuota, 74, 107t, 108t(n)SDRs, 119t

KENYACompensatory financing facility, use of, 79Exchange rate, 103tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, l i l tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1KIRIBATI

Membership in Fund, application for, 74KOREA

Compensatory financing facility, use of, 79Exchange rate, 103tPurchases from Fund, 76, 79, l i l tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 76, 109t

KUWAITExchange rate, 103tQuota, 107tSDRs, 119tSupplementary financing facility, lending for,

116t; repayment by Fund, 116t

LAO PEOPLE'S DEMOCRATIC REPUBLICExchange rate, 103tPurchases from Fund, l i l tQuota, 107tRepurchases from Fund, 113tSDRs, 119t

LATIN AMERICABalances of payments, 14, 23Commercial bank borrowing, 14, 25, 26, 28,

67Debt reschedulings, 29Economic policies, 14, 23, 48Exchange rates, 44-45, 48Interest rates, 48International reserves, 58, 67Output, lOt, liePrices, 12, 13t, 48Trade, 14, 19, 23, 24c

LEBANONExchange rate, 103tQuota, 107tSDRs, 119t

LESOTHOExchange rate, 103tQuota, 107tSDRs, 119t

LIBERIAExchange rate, 103tExtended arrangement with Fund, 78Official multilateral debt restructuring, 93Purchases from Fund, l i l tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 76, 109tSupplementary financing facility subsidy ac-


199


INDEX

LIBYAN ARAB JAMAHIRIYAExchange rate, 103tQuota, 107tSDKs, 119t

LIQUIDITY POSITION OF FUND, 80-81LUXEMBOURG

Exchange rate, 17, 103tEuropean Monetary System, 105t(n)Oil facility subsidy account, contribution to,

89nPurchases from Fund, l i l tQuota, 107tSDKs, 119tSupplementary financing facility subsidy ac-

count, lending for, 90t

MADAGASCARExchange rate, 103tOfficial multilateral debt restructuring, 93Purchases from Fund, liltQuota, 107tRepurchases from Fund, 113tSDKs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1MALAWI

Compensatory financing facility, use of, 79Exchange rate, 103tExtended arrangement with Fund, 77, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, liltQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1MALAYSIA

Exchange rate, 103tQuota, 107tRepurchases from Fund, 113tSDRs, 119t

MALDIVESExchange rate, 103tPurchases from Fund, 112tQuota, 107tSDRs, 119t

MALIExchange rate, 103tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 109t

MALTAExchange rate, 103tQuota, 107tSDRs, 119t

MAURITANIAExchange rate, 103tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1MAURITIUS

Exchange rate, 103tExtended arrangement with Fund, 78Purchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-


MEMBERSHIP IN FUNDKiribati's application for, 74Mozambique's application for, 74Saint Christopher and Nevis 's application for,

74MEXICO

Balance of payments, 47Commercial bank borrowing, 23, 67Debt reschedulings, 29Economic policies, 48Exchange rate, 44, 47, 48, 103tExtended arrangement with Fund, 77, 116tInternational reserves, 58Official multilateral debt restructuring, 92Prices, 12Purchases from Fund, 112tQuota, 107tSDRs, 119t

MIDDLE EASTBalances of payments, 23t, 58Exchange rates, 45

- International reserves, 58Output, lOt, 11Prices, 12, 13tTrade, 24c

MOROCCOCompensatory financing facility, use of, 79Exchange rate, 103tExtended arrangement with Fund, 115tOfficial multilateral debt restructurings, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy

account, beneficiary, 91 1MOZAMBIQUE

Membership in Fund, application for, 74

NEPALExchange rate, 103tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119tTechnical assistance by Fund, 92

NETHERLANDSEmployment, 8European Monetary System, 105t(n)Exchange rate, 17, 103tGeneral Arrangements to Borrow, lending to,

81tOil facility subsidy account, contribution to,

89nPrices, 8Purchases from Fund, 112tQuota, 106tRole of guilder as reserve currency, 61t, 62t,

63SDRs, 119tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tSupplementary financing facility subsidy

account, contribution to, 90tNEW ZEALAND

Exchange rate, 103tOil facility subsidy account, contribution to,

89nPrices, 8Quota, 107tSDRs, 119t

NICARAGUAExchange rate, 103tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 119t

NIGERExchange rate, 103tPurchases from Fund, 112tQuota, 107tSDRs, 119tStand-by arrangement with Fund, 109t

NIGERIACommercial bank borrowing, 25Exchange rate, 103tPurchases from Fund, 112tQuota, 107tSDRs, 119tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tNON-OIL DEVELOPING COUNTRIES

See DEVELOPING COUNTRIESNORWAY

Economic policies, 42-43Exchange rate, 42-43, 103tOil facility subsidy account, contribution to,

89nOutput, 5Prices, 8, 43Quota, 107tSDRs, 119tSupplementary financing facility subsidy ac-

count, contribution to, 90t

OFFICIAL MULTILATERAL LENDING TODEVELOPING COUNTRIES

Balance of payments adjustment, role in, 56Debt reschedulings, 26, 65, 67, 91-92Fund's role in promoting, 54

OIL EXPORTING COUNTRIESSee DEVELOPING COUNTRIES

OIL FACILITYCharges, rate of, 84Purchases from Fund, 74t, 76c, 84Repayments by Fund, 85Repurchases from Fund, 80, 113tSubsidy account, 88, 89, 136

OMANExchange rate, 104tQuota, 107tSDRs, 119t

ORGANIZATION OF PETROLEUM EXPORTINGCOUNTRIES (OPEC), 22

PAKISTANExchange rate, 104tExtended arrangement with Fund, 77, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tSDRs, 119tSupplementary financing facility subsidy ac-

count, beneficiary, 91tTechnical assistance by Fund, 93

PANAMAExchange rate, 104tPurchases from Fund, 112tQuota, 107tSDRs, 119tStand-by arrangement with Fund, 109t

PAPUA NEW GUINEAExchange rate, 104tOil facility subsidy account, beneficiary, 89tQuota, 107tSDRs, 119t

PARAGUAYExchange rate, 104tQuota, 107tSDRs, 119t

PERUExchange rate, 104tExtended arrangement with Fund, 77, 115tOfficial multilateral debt restructuring, 93

200


INDEX

Purchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDKs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1PHILIPPINES

Exchange rate, 104tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1PORTUGAL

Compensatory financing facility, use of, 79Economic policies, 48Exchange rate, 48, 104tPrices, 48Purchases from Fund, 9, 112tQuota, 107tSDRs, 120tStand-by arrangement with Fund, 76, 109t

PUBLICATIONS OF FUND, 52, 54, 92, 94, 95,123t

QATARExchange rate, 104tQuota, 107t 'SDRs, 120t

QUOTAS OF FUND MEMBERSEighth General Review, 60, 72, 74, 80, 81,

85, 108tIncreases, 60, 71, 72, 74, 75, 80, 81, 85List of increases, 1983 and 1984, 106tPayment in SDRs, 75, 87, 117tSaint Christopher and Nevis, quota estab-

lished, 74Seventh General Review, 74

RESERVE TRANCHEAttribution of reduction in Fund's currency

holdings, 141Positions of members, 75, 77tPurchases from Fund, 75, 77t

ROMANIAExchange rate, 104tOfficial multilateral debt restructuring, 93Purchases from Fund, 76, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 76, 109t

RWANDAExchange rate, 104tQuota, 107tSDRs, 120t

SAINT CHRISTOPHER AND NEVISMembership in Fund, application for, 74Quota, 74

ST. LUCIAExchange rate, 104tPurchases from Fund, 112tQuota, 107tSDRs, 120t

ST. VINCENT AND THE GRENADINESExchange rate, 104tQuota, 107tSDRs, 120t

SAo TOM£ AND PRINCIPEExchange rate, 104tPurchases from Fund, 112t

Quota, 107tSDRs, 120t

SAUDI ARABIAExchange rate, 104tGeneral Arrangements to Borrow, associated

borrowing agreement with, 80, 81-82; lend-ing in association with, 71, 72, 140

International reserves, 60Oil facility subsidy account, contribution to,

89nQuota, 107tSDRs, 120Supplementary financing facility, lending for,


count, contribution to, 90tSDRs

Allocations, 71, 73, 11 8tAssessments, use in payment of, 117t, 118tAssets denominated in, 82, 88, 90Borrowing by members, 75Charges, 73, 86, 117t, 118tExecutive Board decision on usage of term

"SDR," 85n, 128Holdings: by Fund, 77t, 80, 87, 117t, 130; by

General Resources Account, 87; by mem-bers, 59-60, 86-87, 88, 117t, 118t

Interest rate on, 73, 83, 84t, 85-86, 117t, 128Prescribed holders, 86Purchases from Fund, l i l t , 117tQuota increases, use in payment of, 60, 75,

80-81,85,86,87, 117tReconstitution, 117tRemuneration paid to Fund members, 117tRepayment of lenders by Fund, use in, 88Replenishment of currencies, use in, 117tRepurchases from Fund, 87, 117tReserve asset, role as, 73Role in international economy, 71Transactions and operations, 86-87; summary

of, 118tTransfers: among participants and prescribed

holders, 117t; by agreement, 86, 117t, 118t;to and from General Resources Account,87, 1 18t; with designation, 86-87, 1 17t, 1 18t

Uses, 49, 50c, 55, 56, 87, 88Valuation basket, 88

SDR DEPARTMENTParticipants, 118tPrescribed holders, 118tPrescribed operations, 117tTransfers: among participants and prescribed

holders, 87; by agreement, 117t; with des-ignation, 117t

SENEGALExchange rate, 104tExtended arrangement with Fund, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 76, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91tSEYCHELLES

Exchange rate, 104tPurchases from Fund, 112tQuota, 107tSDRs, 120t

SIERRA LEONEExchange rate, 104tExtended arrangement with Fund, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120t

Stand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1SINGAPORE

Exchange rate, 104tQuota, 75, 107, 108t(n)SDRs, 120t

SOLOMON ISLANDSExchange rate, 104tPurchases from Fund, 112tQuota, 107tSDRs, 120tStand-by arrangement with Fund, 76, 109t

SOMALIAExchange rate, 104tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109t

SOUTH AFRICAExchange rate, 56, 104tOil facility subsidy account, contribution to,

89nQuota, 107tRepurchases from Fund, 80, 113tSDRs, 120tStand-by arrangement with Fund, 109t

SPAINBalance of payments, 22Economic policies, 22Employment, 8Exchange rate, 17, 56, 104tOil facility subsidy account, contribution to,

89nQuota, 107tSDRs, 120tTrade, 22

SPECIAL DRAWING RIGHTSSee SDRs

SPECIAL DRAWING RIGHTS DEPARTMENTSee SDR DEPARTMENT

SRI LANKAExchange rate, 104tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1STAFF OF FUND, 54, 95STAND-BY ARRANGEMENTS FOR FUND

MEMBERSBalance of payments adjustment, role in, 71Borrowed resources, use of, 76, 78Commitments under, 76Enlarged access to Fund resources, use by

members, 72In financial year 1983/84, 109tOrdinary resources, use of, 76, 78Overdue payments to Fund, performance cri-

terion, 136Repurchases from Fund, 80Summary of, HOt

SUDANExchange rate, 104tExtended arrangement with Fund, 115tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-


201


INDEX

SUPPLEMENTARY FINANCING FACILITYBorrowing by Fund for, 82, 116tCharges, 84, 116tEstablishment, 77Financing, 77Purchases from Fund, 76, 77, 78, 84, liltPurpose, 77Repayments by Fund to lenders, 82Repurchases from Fund, 80, 113tSubsidy account, 88, 89, 90, 91tSubstitution for enlarged access resources,

use in, 77-78Switzerland, lending for, 82

SURINAMEExchange rate, 104tQuota, 107tPurchases from Fund, 112tSDRs, 120t

SURVEILLANCE OVER EXCHANGE RATEPOLICIES

Article IV: obligations of members, 50; con-sultations' role in, 54-55, 90

Developing countries, 52-53Executive Board decision on, 124Executive Board review of, 51, 74Implementation by Fund, 51-52Industrial countries, 51-52Role of Fund Managing Director in, 54Three principles of, 50World economic outlook exercise's role in,

54SWAZILAND


SWEDENBalance of payments, 22Economic policies, 22, 42-43Exchange rate, 17, 42-43, 104tGeneral Arrangements to Borrow, lending to,

81tOil facility subsidy account, contribution to,

89nPrices, 43Quota, 107tSDRs, 120tSupplementary financing facility subsidy ac-

count, contribution to, 90tTrade, 22

SWITZERLANDFund, lending to, 77tGeneral Arrangements to Borrow: association

with, 81; lending to, 81t; participation in,71, 80, 81

Oil facility subsidy account, lending to, 89Role of franc as reserve currency, 61 1, 62t,

63SDRs, prescribed holder of, 86, 121tSupplementary financing facility, lending for,

82, 116t; repayment by Fund, 116tSupplementary financing facility subsidy ac-

count, contribution to, 90tSYRIAN ARAB REPUBLIC


TANZANIACompensatory financing facility, use of, 80Exchange rate, 104tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 80, 113tSDRs, 120tSupplementary financing facility subsidy ac-


TECHNICAL ASSISTANCE BY FUND, 74, 92-93,94-95

THAILANDBuffer stock financing facility, use of, 79Exchange rate, 104tPurchases from Fund, 79, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109t

TOGOExchange rate, 104tPurchases from Fund, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1TRINIDAD AND TOBAGO

Exchange rate, 104tQuota, 107tSDRs, 120t

TRUST FUNDRepayment by members, 88Termination, 88

TUNISIAExchange rate, 104tQuota, 107tSDRs, 120t

TURKEYExchange rate, 104tPurchases from Fund, 76, 112tQuota, 107tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 76, 109t

UGANDAExchange rate, 104tPurchases from Fund, 112tQuota, 108tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109t

UNITED ARAB EMIRATESExchange rate, 104tQuota, 75, 108tSDRs, 120t

UNITED KINGDOMBalance of payments, 17, 20c, 22, 23tEconomic policies, 3, 4, 5t, 30, 39c, 51Employment, 8Exchange rate, 16, 17, 18c, 35, 36c, 56, 64,

104tGeneral Arrangements to Borrow, lending to,

81tInterest rates, 7, 38c, 41c, 64, 84tOil facility subsidy account, contribution to,

89nOutput, 1, 5, 6c, 7tPrices, 7,8, 21c, 30-31, 38cQuota, 108tRole of pound sterling as reserve currency,

61t, 62t, 63SDRs, 86, 87, 120tUse of pound sterling as currency peg, 50c

UNITED STATESBalance of payments, 15, 16, 17, 19, 20c, 23t,

35,65Commercial bank deposits, 69Commercial bank lending, 69Economic policies, 3, 4, 5, 16, 30, 35, 37,

39c, 40, 51Employment, 8Exchange rate, 11, 15-16, 17, 18c, 35, 36c,

40, 42, 44, 48, 49, 55, 56, 61, 63, 64, 65,88, 104t

General Arrangements to Borrow, borrowingfrom, 81; lending to, 81t

Interest rates, 1, 3, 5, 16-17, 30, 34, 38c, 40,41c, 61,64, 84t

International reserves, 58, 60Output, 1,4, 5, 6c, 7t, 8Prices, 3c, 5, 7t, 8, 19, 21c, 37, 38cQuota, 108tRole of dollar as reserve currency, 61, 62t,

63,65SDRs, 87, 120tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tTrade, 7, 19, 52Use of dollar as currency peg, 50c

UPPER VOLTAExchange rate, 104tQuota, 108tSDRs, 120t

URUGUAYEconomic policies, 47, 48Exchange rate, 47, 48, 104tPrices, 47, 48Purchases from Fund, 112tQuota, 108tSDRs, 120tStand-by arrangement with Fund, 109t

VANUATUExchange rate, 104tQuota, 108tSDRs, 120t

VENEZUELABalance of payments, 47Commercial bank borrowing, 25Exchange rate, 47, 104tOil facility subsidy account, contribution to,

89nQuota, 108tSDRs, 120tSupplementary financing facility, lending for,

116t; repayment by Fund, 116tVIET NAM

Exchange rate, 104tPurchases from Fund, 112tQuota, 108tRepurchases from Fund, 113tSDRs, 120t

WESTERN SAMOACompensatory financing facility, use of, 79Exchange rate, 104tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, 112tQuota, 108tRepurchases from Fund, 113tSDRs, 120tStand-by arrangement with Fund, 109t

WORLD BANKFund relations with, 53, 72, 93, 94International Development Association, eli-

gibility for assistance from, 90SDRs: prescribed holder of, 86; use as unit

of account, 88n

YEMEN ARAB REPUBLICExchange rate, 105tQuota, 108tSDRs, 120t

YEMEN, PEOPLE'S DEMOCRATIC REPUBLIC OFExchange rate, 105tOil facility subsidy account, beneficiary, 89tPurchases from Fund, 112tQuota, 108tRepurchases from Fund, 113tSDRs, 120t

202


INDEX

YUGOSLAVIACommercial bank borrowing, 67Exchange rate, 44, 105tOil facility subsidy account, contribution to,

89nPurchases from Fund, 76, 112tQuota, 108tRepurchases from Fund, 1 14tSDRs, 120tStand-by arrangement with Fund, 109t

ZAIRECompensatory financing facility, use of, 79Exchange rate, 105t

Extended arrangement with Fund, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89tPurchases from Fund, 79, 112tQuota, 108tRepurchases from Fund, 114tSDRs, 120tStand-by arrangement with Fund, 109t

ZAMBIACompensatory financing facility, use of, 79Exchange rate, 105tExtended arrangement with Fund, 115tOfficial multilateral debt restructuring, 93Oil facility subsidy account, beneficiary, 89t

Purchases from Fund, 79, 112tQuota, 108tRepurchases from Fund, 1 14tSDKs, 120tStand-by arrangement with Fund, 109tSupplementary financing facility subsidy ac-

count, beneficiary, 91 1ZIMBABWE

Buffer stock financing, use of, 79Exchange rate, 105tPurchases from Fund, 79, 112tQuota, 108tSDKs, 121tStand-by arrangement with Fund, 109t

203
