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ANNUAL REPORT

1966

©International Monetary Fund. Not for Redistribution

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INTERNATIONAL MONETARY FUND

ANNUAL REPORTOF THE

EXECUTIVE DIRECTORS FOR THE

FISCAL YEAR ENDED APRIL 30, 1966

WASHINGTON, D. C.


CONTENTS

Chap.

Letter of Transmittal

PART I. THE WORLD ECONOMY AND THE FUND

1. GENERAL SURVEYInternational PaymentsReserve CurrenciesThe Fund in 1965

ResourcesTransactionsInternational LiquidityRelations with Primary Producing CountriesCompensatory Financing of Export Fluctuations

2. INTERNATIONAL LIQUIDITY AND RESERVE CREATIONIntroductionNeed for Reserves

Stock of Reserves and Its Rate of GrowthEvolution of Stock of ReservesSignificance of Preceding Data for Future Reserve NeedsDistribution of Reserves

Form of Newly Created ReservesMethod of Use of Deliberately Created Reserves

The Managing Director's Proposals

3. SOME PROBLEMS OF DEVELOPING COUNTRIESStabilization Problems

Major Policy InstrumentsFiscal and Credit PoliciesExchange Rate PoliciesPrice and Income Policies

Some Comments on ImplementationRole of a Central Bank

Instruments of Monetary PolicyRelations with the GovernmentForeign ReservesCommercial Banking by Central Banks

4. THE FUND IN 1965/66MembershipExecutive DirectorsIncrease in Fund ResourcesFund Transactions

Page

xiii

346666777

99

1011121416171818

212123232425262829303131

3333333335

V


CONTENTS

Chap.

Purchases and Stand-By ArrangementsRepurchases

Relations with World BankTechnical CooperationThe IMF Institute

Page

3536373737

5.

6.

7.

8.

PART II. REVIEW OF THE YEAR

WORLD TRADE, PAYMENTS, AND RESERVESWorld Trade

Cyclical Pattern of World TradeDirection of Trade in 1964-65Export Growth and Market Growth

International Private Capital MovementsBalance of Payments Developments

Current Account and "Basic" BalancesOver-All Surpluses and Deficits

Reserve Developments

DEVELOPMENTS IN THE MAIN INDUSTRIAL COUNTRIESProductionCosts and PricesCredit and Interest RatesMoney and Debt Management PoliciesFiscal and Other Economic PoliciesMoney and Securities Markets

DEVELOPMENTS IN COUNTRIES EXPORTING PRIMARY PRODUCTSCommodity Prices

Agricultural ProductsMinerals and Metals

TradeTerms of TradeValue of ExportsImportsTrade Balances

Balance of PaymentsMore Developed CountriesLess Developed Countries

Domestic DevelopmentsMore Developed CountriesLess Developed Countries

BALANCES OF PAYMENTS OF SELECTED COUNTRIESUnited StatesCanadaUnited KingdomGermanyFranceItaly

41414144464751515558

62626365677072

767676787980808282838686888990

9393959799

100102

vi


CONTENTS

Chap.

JapanAustraliaGhanaIndiaKoreaPeruSpain

9. GOLDGold ProductionGold HoldingsGold Markets and Prices

New YorkLondonOther Developments

Changes in National Policies Affecting GoldGold Subsidy Programs

Gold Transactions Service

SUPPLEMENTARY NOTES

A. ACTIVITIES OF THE FUNDPar ValuesArticle VIII CountriesQuotasFund Transactions

Stand-By ArrangementsGeneral Arrangements to BorrowRepurchasesSummary of Transactions, 1948-66Fund Charges

Consultations with MembersRelations with Other International OrganizationsStaffPublicationsAdministrative Finance

B. DATA FOR CHARTS

APPENDICES

No.

I. Executive Directors and Voting PowerII. Changes in Membership of Executive Board

III. Administrative BudgetIV. Comparative Statement of Income and ExpenditureV. Financial Statements

International Monetary FundStaff Retirement Fund

Index

Page

103104105107108108110

112112113115115116118118119119

123123123123124126128128128130131131133133133

135

155158161163164165170175

vii


CONTENTS

LIST OF TABLES AND CHARTS

Table Page

1. World Reserves: Growth, 1951-65 122. Countries' Reserves as Percentage of Imports 133. Growth in Total Value and Unit Value of Exports from Major Areas, 1963-65 414. Growth in Value of Imports into Major Areas, 1963-65 425. Growth in Value of Exports from Major Areas, by Major Areas of Destina-

tion, 1961-65 456. Growth in Value of Exports from Selected Countries and Areas, by Destina-

tion, 1965 457. Industrial Countries: Growth of Each Country's Exports Related to Average

Growth in Its Export Markets, 1964 and 1965 468. Industrial Countries: Changes in the Relations Between Each Country's Ex-

port Unit Value and the Average Unit Value of Other Countries' Exports,1964 and 1965 47

9. Balances on Private Capital Account, Annual Averages, 1961-64 4810. Selected Industrial Countries: Balances on Private Capital Account, 1964 and

1965 4911. United States: Distribution of Direct Investment, 1963-First Quarter 1966 . . 4912. EEC Countries: Balance of Payments Summaries, 1964 and 1965 5213. Other Industrial Countries in Continental Europe: Balance of Payments Sum-

maries, 1964 and 1965 5314. Primary Producing Countries: Balance of Payments Summaries, 1964 and

1965 5615. Over- All Balances of International Payments, 1964 and 1965 5716. Countries' Official Reserves, Including Reserve Positions in the IMF, End of

Calendar Years, 1962-65 5817. Industrial and More Developed Primary Producing Countries: Changes in Re-

serves, by Areas, Semiannually, 1964 and 1965 5918. Countries' Official Reserve Holdings, by Type, End of 1964 and 1965 6019. Gross National Product at Constant Prices, Quarterly, 1963-65 6320. Selected Countries: Changes in Discount Rates, 1965 and First Half 1966 . . 6721. Selected Countries: Commercial Banks' Foreign Currency Liabilities to, and

Claims on, Nonresidents, at End of Period, September 1963-March 1966. 7222. New Foreign Issues by Markets of Issue, 1963-First Quarter 1966 7323. Europe: New Foreign Issues, 1963-First Quarter 1966 7324. European Affiliates of U.S. Companies: Uses and Sources of Funds, 1962-65 7425. United States: New Foreign Issues, 1963-First Quarter 1966 7426. New Foreign Issues by Currency, 1963-First Quarter 1966 7427. Primary Producing Countries: Trade, 1964 and 1965 8128. Primary Producing Countries: Balance of Payments Summaries, 1964 and

1965 84-8529. United States: Balance of Payments Summary, Seasonally Adjusted, 1964-

First Quarter 1966 9430. United States: Deficit in Balance of Payments on Various Bases, 1960-65 . . 9531. Canada: Balance of Payments Summary, 1964 and 1965 9632. United Kingdom: Balance of Payments Summary, 1964-First Quarter 1966. 9833. Federal Republic of Germany: Balance of Payments Summary, 1964-First

Quarter 1966 99

viii


CONTENTS

Table Page

34. Metropolitan France: Balance of Payments Summary, 1964 and 1965 . . . . 10135. Italy: Balance of Payments Summary, 1964 and 1965 10336. Japan: Balance of Payments Summary, 1964 and 1965 10437. Australia: Balance of Payments Summary, 1964-First Quarter 1966 10538. Ghana: Balance of Payments Summary, 1958-65 10639. India: Balance of Payments Summary, 1962-65 10740. Korea: Balance of Payments Summary, 1960-65 10841. Peru: Balance of Payments Summary, 1958-65 10942. Spain: Balance of Payments Summary, 1961-65 11043. Gold: Value of World Production, 1940, 1945, and 1961-65 11244. World Gold Reserves: Sources of Changes, 1963-65 11345. U.S. Gold Transactions, 1963-65 11546. Gold: Prices in Various World Markets, End of April, 1965 and 1966 11847. Initial Par Values Established, Fiscal Year Ended April 30, 1966 12348. Countries That Have Accepted Article VIII 12449. Increases in Quotas, Fiscal Year Ended April 30, 1966 12550. Purchases of Currencies from the Fund, Fiscal Year Ended April 30, 1966 . . 12651. Fund Stand-By Arrangements for Members, Fiscal Year Ended April 30,

1966 12752. Position of Participants in General Arrangements to Borrow 12853. Repurchases of Currencies from the Fund, Fiscal Year Ended April 30, 1966 12854. Drawings and Repurchases by Currency, Fiscal Year Ended April 30, 1966. 13055. Summary of Fund Transactions, Fiscal Years Ended April 30, 1948-66 131

Chart

1. Reserves as Percentage of Imports, 1951-65 152. Trends in Trade Balances of Major Areas, 1962-65 423. Seasonally Adjusted Trade Balances of Selected Industrial Countries, 1961-

First Quarter 1966 434. Seasonally Adjusted Exports and Imports of Industrial Countries, 1961-First

Quarter 1966 445. Selected Areas and Countries: Balances of Payments, 1958-65 546. All Countries in Balance of Payments Deficit, Aggregate Deficit, 1958-First

Quarter 1966 587. Selected Areas and Countries: Industrial Production, Seasonally Adjusted,

1962-April 1966 628. Selected Areas and Countries: Wage Rates, 1962-April 1966 649. Selected Countries: Wage Cost per Unit of Output in Manufacturing, 1962-

First Quarter 1966 6410. Selected Areas and Countries: Wholesale Prices, 1962-May 1966 6411. Selected Areas and Countries: Cost of Living, 1962-May 1966 6512. Selected Areas and Countries: Export Prices, 1962-March 1966 6513. Monetary System Credit to the Private Sector, 1962-April 1966 6514. Money, Seasonally Adjusted, 1962-March 1966 6615. Selected Countries: Long-Term Government Bond Yields, 1962-May 1966. . 6616. Selected Countries: Short-Term Interest Rates, 1962-May 1966 6617. Discount Rates, 1962-June 1966 6718. Term Structure of Interest Rates 68

ix


CONTENTS

Chart Page

19.

?071?,?,73,24.25.

Primary Producing Countries: Prices of Commodities Exported (ExcludingPetroleum), 1962-First Quarter 1966

Selected Primary Products: Average Prices, 1963— First Quarter 1966Primary Producing Countries: Balances of Payments, 1958—65Primary Producing Countries: Basic and Over- All Balances, 1958-65Estimated Supplies and Absorption of Gold, 1951—65Gold: Price in London Market, Monthly Averages, March 1954-April 1966. .Outstanding Balances of Drawings from the Fund and Unused Stand-By Ar-

rangements, on April 30, 1948-66

76778888

114116

129

Data for these charts will be found as follows:

Chart No. Table No. Page Chart No. Table No. Page

123456789101112

565758596061626364656667

136137

138-39138-39140141141142142143143144

13141516171819202122232425

68697071727374757677787980

144145146146147148148149150150150151151

X


INTERNATIONAL MONETARY FUND

Pierre-Paul Schweitzer

Managing Director and Chairman of the Executive Board

Frank A. Southard, Jr.

Deputy Managing Director

Executive Directors

William B. DaleJ. M. StevensErnst vom HofeRene LarreJ. J. AnjariaAhmed Zaki SaadSergio SiglientiGengo SuzukiM. W. O'DonnellS. J. Handfield-JonesPieter LieftinckKurt EklofEnrique Tejera-ParisAndre van CampenhoutMauricio C. BicalhoSemyano KiingiLuis EscobarBeue TannLouis KandeAmon Nikoi

The General CounselThe Economic CounsellorAdministration DepartmentAfrican DepartmentAsian DepartmentCentral Banking ServiceEuropean DepartmentExchange and Trade Relations DepartmentFiscal Affairs DepartmentIMF InstituteLegal DepartmentMiddle Eastern DepartmentResearch and Statistics DepartmentSecretary's DepartmentTreasurer's DepartmentWestern Hemisphere DepartmentOffice in Europe (Paris)

Chief Editor

Alternate Executive Directors

John S. HookerDouglas W. G. WassHorst UngererGerard M. TeyssierArun K. BanerjiAlbert MansourCosta P. CaranicasEiji OzakiA. M. de VilliersPatrick M. ReidH. M. H. A. van der ValkOtto SchelinJorge Gonzalez del ValleHerman BironAlexandre KafkaPaul L. FaberEnrique DomenechC. L. ChowAntoine W. Yameogo[Vacant]

Senior Officers

Joseph GoldJ. J. PolakPhillip Thorson, DirectorHamzah Merghani, DirectorD. S. Savkar, DirectorJ. V. Mladek, DirectorL. A. Whittome, DirectorErnest Sturc, DirectorRichard Goode, DirectorF. A. G. Keesing, DirectorJoseph Gold, DirectorJohn W. Gunter, Acting Director l

J. J. Polak, DirectorRoman L. Home, SecretaryOscar L. Altman, TreasurerJorge Del Canto, DirectorJean-Paul Salle, Director

J. Keith Horsefield1 Anwar Ali, Director (on leave).

XI


LETTER OF TRANSMITTAL

TO THE BOARD OF GOVERNORS

July 11, 1966

My dear Mr. Chairman:

In accordance with Section 10 of the By-Laws of the International MonetaryFund, I have the honor to present to the Board of Governors the Annual Reportof the Executive Directors for the fiscal year ended April 30, 1966.

Chairman of the Board of Governors

International Monetary Fund

Yours sincerely,

/s/

PIERRE-PAUL SCHWEITZER

Chairman of the Executive Board

Xlll


Part I

THE WORLD ECONOMY AND THE FUND


Chapter 1

General SurveyHE year 1965 was characterized by sub-stantial although somewhat uneven growth in

the world economy. For the first time in manyyears the rise in industrial output in the UnitedStates and Canada was markedly higher than inthe other industrial countries, where, in the firsthalf of the year, economic progress was generallyrather slow. However, after mid-year economicactivity accelerated both in the United States andin the European area, and there was an upturnin the economy of Japan late in the year, fol-lowing a year of recessionary conditions. By theend of 1965 it was evident that the forces ofeconomic expansion had gained strength and hadbecome more broadly based.

The experience of the primary producing coun-tries was more mixed. The income of these coun-tries, and especially of the less developed coun-tries, is greatly influenced by their exportearnings. A widespread decline in prices of pri-mary products from 1964 to 1965 caused a mod-erate slowing down in the rise in the value ofexports of the primary producing countries. Inthe second half of 1965, however, commoditymarkets strengthened, and as high and rising lev-els of demand continued to prevail in the indus-trial countries, the export earnings of the primaryproducing countries again began to rise more rap-idly.

Economic expansion in the United States hasreached its sixth year. While this expansion hasbeen fostered by the fiscal and monetary policiesfollowed by the authorities, the increased expen-ditures in connection with the conflict in Viet-Namhave contributed to it and the recent rate of ad-vance is probably in excess of what could be sus-tained over a long period. In Canada, wheredomestic economic expansion has been evensharper than in the United States, the Govern-ment announced on March 29 a comprehensive

program to reduce excessive pressures of de-mand; this program contained various measuresdesigned to bring about some postponement ofprivate investment and to dampen down personalconsumption. In both countries unemploymentfell sharply during 1965, with scarcities of skilledlabor emerging.

In continental Europe, Germany was the maincenter of expansion but showed some signs of amoderate slowdown toward the end of the year.In several other countries, including France andItaly, output was rising only slowly until the sec-ond half of the year. In the United Kingdom thegrowth in output was slower than in 1964, andproduction in Japan barely rose until late in1965. These conditions are in large part attribu-table to two factors. First, most of these countrieshave for several years enjoyed high levels of em-ployment. This means that a further substantialrise in output is largely dependent on gains inproductivity, and at the same time the problem ofmaintaining price stability has become moredifficult and has therefore often been given ahigher priority than before among the objectivesof economic policy. Second, balance of paymentsdeficits—which have tended to vary inverselywith a country's degree of success in reconcilingfull employment with cost and price stability—have in some cases led to policies directly limitingeconomic growth.

On the whole, the pursuit by the major indus-trial countries, within attainable limits, of policiesof economic expansion has not only satisfied ob-jectives of domestic economic policy, at whichthey were primarily aimed, but also contributedtoward maintaining world prosperity.

The further economic expansion achieved bythe United States and Canada during the pastyear has created a situation in which, for the firsttime in the postwar period, virtually all the indus-

3

T


ANNUAL REPORT, 1966

trial countries simultaneously enjoy high levels ofemployment. While this in itself must give causefor great satisfaction, it increases the risk of ex-cess demand pressures and accentuates the prob-lem of maintaining price stability in the industrialcountries. The substantial cost and price stabilitythat has prevailed in the United States over anumber of years has undoubtedly contributed toavoidance of price rises elsewhere in export in-dustries— a sector benefiting from larger thanaverage production gains—and hence to contain-ing price increases over a wider area. Moreover,in continental Europe such rises in prices andcosts as have taken place over the last severalyears, whatever their drawbacks from the point ofview of price stability, have often helped to mod-erate or wipe out surplus positions in internation-al payments. In the new situation of pressure onresources in the United States as well as in otherindustrial countries, it appears to be less likelythat differential price movements among the in-dustrial countries will help in the adjustment ofinternational payments positions. At the sametime, containment of cost and price pressures fordomestic reasons has become a problem commonto all the industrial countries.

International Payments

Developments in international payments during1965 were greatly influenced by the diversechanges in economic activity in the industrialcountries and in the underlying demand pres-sures, as well as by major shifts in the pattern ofinternational capital movements, which upon thewhole tended to reduce changes in official re-serves. Thus, although the rate of expansion inthe United States was higher than in the otherindustrial countries, the impact of this factor onthe U.S. balance of payments on current accountwas more than offset by a reduction in the netoutflow of private capital. The latter was broughtabout by the official programs for limiting theoutflow of capital and a progressive tightening ofmonetary and credit conditions, including a risein interest rates. The over-all deficit was lowerthan in any year since it became a problem.

In Germany, the over-all deficit in the balanceof payments remained moderate because of alarge inflow of capital, even though the currentaccount ran into substantial deficit under the im-pact of boom conditions in the domestic econ-omy. Also, while the relatively slow growth ofoutput in France and Italy, coinciding with strongdemand in other European countries, led to asharp rise in the current account surpluses ofthese two countries, their over-all surpluses roseless because of counterbalancing changes in capi-tal movements. There was an exceptionally largeoutflow of capital from Italy, including astrengthening of the net foreign assets position ofthe commercial banks encouraged by the mone-tary authorities. A growing outflow of short-termfunds from France provided a partial offset to thecontinued substantial inflow of long-term capital.There was also a large outflow of capital fromJapan, accompanied by an improvement in itscurrent account. In contrast to the experience ofmost of the other major industrial countries, theUnited Kingdom's balance of payments, whichhad been severely adverse in 1964, improvedboth on current and capital account, under theinfluence of the strong demand for exports andthe direct measures taken to strengthen the exter-nal position.

Among the primary producing countries, themost interesting development was that, in con-trast to recent years, the more developed of thesecountries a experienced a less favorable over-allbalance of payments than did the less developedcountries in general. The aggregate surplus of theless developed countries still rose moderatelyfrom 1964 to 1965, but the payments position ofthe more developed countries deteriorated sharplyfrom surplus to deficit. The less developed coun-tries as a group were less affected by the reces-sion in prices of primary products than were themore developed exporters of such products.

In the aggregate, payments imbalances weremoderate in 1965, and in particular the two re-serve centers reduced their deficits. Nevertheless,

1 Australia, Finland, Greece, Iceland, Ireland, NewZealand, Portugal, South Africa, Spain, Turkey, andYugoslavia.

4


GENERAL SURVEY

strains on the international monetary system per-sisted. A record amount of gold hoarding oc-curred. The official dollar holdings of a numberof European countries declined, partly by conver-sion through gold purchases from the UnitedStates. At the same time, official dollar reservesof nonindustrial countries increased substantially,so that there was little change in the aggregateofficial dollar holdings of all countries. The in-crease in world reserves during 1965 ($1.33 bil-lion) was only about half the annual average forthe last decade, despite reserve creation of about$1.2 billion as a result of Fund transactions.

The reduction in aggregate imbalances during1965 was brought about in part by the U.S.program to restrain the outflow of capital and bysimilar U.K. measures. The less developed coun-tries have largely been insulated from the effectsof these measures, which have, as a side effect,helped to broaden international capital marketsoutside the two reserve centers, a developmentthat must in itself be welcomed. At the sametime, the measures taken by the two reservecenters to reduce the outflow of capital have hadsome adverse effect on the payments positions ofseveral countries. Many countries have beenaffected by the increases in interest rates thathave taken place in capital markets everywhere.It is difficult to distinguish the effects of these andother causes, but in combination they have madeit much more difficult for many countries to at-tract foreign capital, and have intensified the bal-ance of payments problems of a number of coun-tries dependent on an inflow of private capital toassist their economic growth. While less harmfulthan measures that would attempt to achieve bal-ance of payments adjustment through deflation,restraints on the international transfer of capitalmay lead to a misallocation of resources and areduction in global economic growth. It is to behoped, therefore, that member countries will findit possible to allow capital to move more freelyfrom country to country by appropriate measures,including the reduction or elimination not only ofthe restraints recently introduced by the two re-serve centers but also those which a number ofcountries have been practicing over a long period.

Another factor significantly reducing paymentsimbalances during the last year was the rapid ad-justment of the less developed primary producingcountries to a moderate slowdown in the increasein their foreign exchange receipts on both currentand capital account. This adjustment was broughtabout mainly by limiting the growth of their im-ports to considerably less than the increase intheir exports, in spite of reserve accumulationsduring 1963 and 1964. Indeed, the volume of theimports of the less developed countries was onlymarginally higher in the second half of 1965 thana year earlier. This restraint reflected, in part,greater prudence on the part of certain countriesin managing their affairs, but also the fact thatthe reserves of some countries had declined to apoint regarded as the tolerable minimum. Theslowdown in the rise of the imports of certain lessdeveloped countries has had an undesirable short-run effect on their output.

The flow of long-term financial resources to theless developed countries has, in the aggregate,tended to stagnate in recent years. This is themore disturbing because this flow has failed togrow in a period in which the industrial countrieshave achieved a continued and substantial rise ingross national product. Recently the proportionof the aggregate gross national product of the in-dustrial countries devoted to the net flow of aidand long-term capital to the less developed coun-tries has fallen to less than two thirds of 1 percent. The progress made toward easing the termson which these resources are provided has alsobeen somewhat limited.

An adequate flow of economic aid and privatecapital to the developing countries depends, ofcourse, on the maintenance of a strong interna-tional monetary system that can provide a solidbasis for a growing world economy, which is amatter of the most direct concern to the Fund.Participation, to an appropriate extent, in thesupply of financial resources to the less developedcountries should have a high priority in all coun-tries with a relatively high per capita income andshould, as far as possible, be shielded from anyaction needed from time to time to deal with bal-ance of payments problems.

5


ANNUAL REPORT, 1966

Reserve CurrenciesThe fact that the two reserve centers continued

to have large balance of payments deficits hashad certain unfortunate effects on confidence.Moreover, as experience in 1965 shows, the con-tinuance of these deficits does not any longernecessarily bring about a growth of reservesunder present monetary arrangements. Indeed,during the postwar period, sterling balances haveshown no upward trend and it cannot thereforebe said that the U.K. balance of payments hasadded to international reserves of currencies. (Ofcourse, U.K. drawings on the Fund in 1964 and1965 have for the time being added to othercountries' reserves in the form of reserve posi-tions in the Fund.) In 1965 it became apparentthat deficits in the U.S. balance of payments donot, in present circumstances, necessarily producean increase in world reserves either. At the sametime, the continuing deficits in both reserve cur-rency countries make it more difficult to reachagreement on constructive solutions to ensureadequate reserve growth to satisfy future needs.

For these and other reasons it is clearly of crucialimportance that the two reserve centers continueto address themselves, by appropriate measures,to the elimination of the deficits in their balancesof payments. A year ago the United Kingdom as-signed first priority in its economic policy to theachievement of balance in its international pay-ments, and it is evident that such priority in itsattention to this problem is still needed. While theimmediate prospects of the U.S. balance of pay-ments are clouded by the uncertainties created bythe conflict in Viet-Nam, it is apparent that theUnited States has now reached a degree of utili-zation of resources that makes it possible for thatcountry to assign a higher priority than in thepast many years to the objective of internationalequilibrium without undue sacrifice of domesticpolicy objectives. At the same time, conflicts be-tween domestic and international policy objec-tives have much lessened in the major sur-plus countries over the past several years. Giventhe present strength of the forces of expansion inthe industrial countries as a group, the con-

tribution which a moderation of domestic demandin the United States could make toward a reduc-tion of its payments imbalances could not be ex-pected at this time to have harmful effects on theworld economy, but rather have beneficial onesfrom the standpoint of international price stability.

The Fund in 1965

Resources

By the end of February of this year the coun-tries holding two thirds of total quotas had con-sented to the quota increases approved by theFund's Board of Governors in March 1965, pro-viding for a general increase of 25 per cent inmember's quotas, together with larger increasesfor 16 countries. These increases became effectivefor the countries that had consented and paidtheir additional subscriptions by that date. Sincethen, many other countries have consented to thequota increases approved for them and have paidtheir additional subscriptions. When all consentsare received and the additional subscriptions arepaid, total quotas in the Fund are expected torise from about $16 billion to about $21 billion.By June 30, 1966, they amounted to nearly $20.2billion.

During the past year the General Arrange-ments to Borrow, which had become effective in1962, were renewed for a period of four yearsfrom October 1966. These arrangements provedof considerable value in supplementing theFund's own resources in connection with the tworecent drawings by the United Kingdom.

Transactions

The Fund's transactions in the financial yearthat ended on April 30 were the largest in itshistory. Total drawings reached $2.8 billion, about$500 million higher than those in 1961/62,the previous record. Drawings by the UnitedKingdom included one of $1.4 billion in May1965 for the support of sterling, following theearlier drawing of $1 billion in December 1964.In the second drawing, the Fund again availed

6


GENERAL SURVEY

itself of the General Arrangements to Borrow,and acquired needed currencies by the sale ofgold. In combination, the two transactions repre-sent the largest support the Fund has ever givento a member country.

Gross drawings by the United States totaled$550 million, but because of the use of U.S. dol-lars in drawings by other countries, mainly theU.K. drawing in May 1965, net drawingsamounted to only $228 million and the U.S. posi-tion with the Fund remained well within the goldtranche. When the United States began to makeuse of the Fund's resources, in 1964, its drawingswere technical, in the sense that they were de-signed to provide currencies that were sold toother countries against dollars and used by thesecountries in turn to make repurchases from theFund. During the past year, drawings for thispurpose continued, and the United States alsomade a drawing, not related to other countries'repurchases, equivalent to $300 million.

All the drawings on the Fund during the pastyear, other than those by the United Kingdomand the United States, were made by primaryproducing countries. Gross drawings by thesecountries were higher than in any financial yearexcept 1961/62, but their net drawings remainedmoderate because of substantial repurchases. Theyear also saw a rise not only in the number ofprimary producing countries making use of theFund but also in the number of stand-by arrange-ments approved. Stand-by arrangements normallyinvolve the formulation of specific programs ofcorrective policies and provide for continuingconsultation between the Fund and the membercountries concerned about the implementationand reassessment of such policies. In this connec-tion, as in its other contacts with member coun-tries, the Fund continues to address itself to theproblem of reconciling balance of payments equi-librium with sustained economic growth.

International Liquidity

A major preoccupation of the Fund during thepast year has been consideration of the problemsof international liquidity. A survey of the year's

progress in this connection, and of the positionreached in regard to it, is contained in Chapter 2of this Report.

Relations with Primary Producing Countries

In its transactions and consultations with pri-mary producing countries, the Fund continues tobe concerned with the level of their external in-debtedness, which often adds a considerableburden to their balance of payments. This prob-lem was discussed in last year's Annual Report.For many years, the World Bank has providedvaluable analyses of the debt servicing problemsarising from the public long-term debt of primaryproducing countries, and during the past year theFund and Bank have cooperated closely in aneffort to improve the documentation on the debtposition of these countries, including privatedebts and any short-term and medium-term obli-gations. In Fund consultations increasing atten-tion is also being given to the assessment of coun-tries' foreign short-term and medium-term debt,and to measures which prevent its accumulationwithout the knowledge of the authorities of thecountry concerned. In this way the Fund hopes toassist its members more effectively within its fieldof operations.

Although there are signs that the primary pro-ducing countries are beginning to adjust their bal-ances of payments more quickly to adverse devel-opments, many of them continue to rely onexpedients such as the use of import and ex-change controls rather than on more fundamentalcorrectives to balance their international transac-tions. In particular, the attainment of the long-term goal of combining adequate and sustainedgrowth with external balance can be severelyfrustrated if currencies are overvalued. These andsome other problems of economic policy facingthe primary producing countries are more fullyconsidered in Chapter 3.

Compensatory Financing of Export Fluctuations

Fluctuations in the export earnings of the pri-mary producing countries continue as a potentialthreat to the development efforts of many of

7


g ANNUAL

these countries. In 1963 the Fund established itsCompensatory Financing facility which, withinthe field of its operations, was designed to assistcountries in meeting this problem. Downwardfluctuations in the export receipts of the primaryproducing countries have been less numerous andmilder than was expected at the time of the crea-tion of the Compensatory Financing arrange-

REPORT, 1966

ments to be the normal pattern. It would, how-ever, be imprudent to assume that this situationwill hold for years to come. The Fund is engagedin a re-examination of its Compensatory Financ-ing facility, giving weight both to the suggestionsmade at last year's Annual Meeting and to theResolution on the subject passed by the UnitedNations Conference on Trade and Development.


Chapter 2

International Liquidity and Reserve CreationIntroduction

URING the year, official international dis-cussion on the problem of deliberate reserve

creation has continued actively in the Fund andelsewhere. In the previous year, there had beena wide-ranging exploration of a variety of possibletechniques of reserve creation. This exploratoryprocess had been undertaken both in the Fundand by a study group of officials of the ten coun-tries participating in the General Arrangementsto Borrow, with the active participation of staffmembers of the Fund and of other internationalorganizations. The Report of the Study Groupon Creation of Reserve Assets, which was pub-lished in August 1965, reviewed and analyzed anumber of methods whereby reserve assets couldbe created by a group of countries and throughthe Fund, respectively, together with someschemes whereby one type of reserve asset couldbe substituted for another.

At the 1965 Annual Meeting of the Fund,many Governors addressed themselves to thequestion of international liquidity and indicatedtheir views on whether action was, or was not,urgent, the form that any action should take, andin particular the nature of the arrangements andthe link with the Fund which they consideredappropriate for such arrangements. The Man-aging Director indicated his intention that the staffwould undertake intensive studies of the mainaspects of international liquidity and that hewould present the results of these studies to theExecutive Directors as a basis for their considera-tion. In the course of the meeting, the Ministersand Governors of the countries who are partici-pants in the General Arrangements to Borrow (the"Group of Ten") issued a communique datedSeptember 28, 1965, in which their Depu-ties were instructed to "determine and report toMinisters what basis of agreement can be reached

on improvements needed in the internationalmonetary system, including arrangements for thefuture creation of reserve assets, as and whenneeded, so as to permit adequate provision forthe reserve needs of the world economy," and toreport to Ministers in the spring of 1966.1

In contrast to the exploratory character of thestudies that went on in 1964/65, the discussionsthis year have aimed at finding the basis foragreement among governments on contingencyplans for deliberate reserve creation when it isdecided that a need for such action exists. TheDeputies of the Group of Ten have been meet-ing in frequent session, with the active participa-tion of representatives of the Managing Directorof the Fund, and of the Bank for InternationalSettlements and the OECD, to negotiate, as faras possible, a basis of agreement on essentialpoints among the Group of Ten, with a view toproceeding to a second stage of a broader con-sideration of the questions that affect the worldeconomy as a whole. Studies prepared by theFund staff on several important issues affectingthe question of international reserve creation haveserved as a basis of discussion for both theExecutive Directors and the Deputies. Duringthis stage, the Executive Directors have concen-trated on a discussion of the main economic issuesinvolved. These discussions in a forum in whichrepresentatives of countries at all stages of de-velopment could express their views have donemuch to clarify the issues, and to foster a con-vergence of views between member countries re-garding the scope of the problems involved andwhich solutions are deserving of more seriousconsideration. Against this background, the Man-aging Director has formulated certain proposalswith respect to reserve creation through the Fundwhich are referred to again below.

1 For the text of the communique, see Summary Pro-ceedings, Annual Meeting, 1965, pages 279-81.

D

9


10 ANNUAL REPORT, 1966

Before proceeding to a description of theseconcrete proposals, certain of the major issues onwhich interest has centered, and which have beencarried forward considerably during the processof last year's discussions, are set forth below.The discussion of the Executive Directors duringthis year has been concentrated mainly on ques-tions in the area of deliberate reserve creation,and these are the matters primarily discussed inthis chapter. Certain other major issues concern-ing the international monetary system in generaland international liquidity in particular have beendealt with in previous Annual Reports, and else-where in this Report.

Need for Reserves

To some extent, the question as to the mostappropriate method of providing a supplementto world reserve growth as and when needed canbe considered separately from the questions ofwhether the present level of reserves, their com-position, and their rate of growth are satisfactory,when the need for supplementation could arise,how large a supplement would then be required,or even how the need for such a supplementwould be assessed. It is evident, nevertheless,that the answers given to these questions arebound to affect the nature of the machinery en-visaged for the creation of additional reserves andthe urgency with which the task of planning suchmachinery is approached. The Fund has, there-fore, been giving much thought to the problemof how to measure the need for reserves. Thebroad criteria by which this need should bejudged have been considered to some extent inthe Annual Reports for 1964 and 1965, but overthe past year attention has concentrated on theproblem of how to distill quantitative estimatesfrom these criteria—a problem that has provedvery difficult.

It is generally agreed that the growth of worldreserves should reflect an international judgmentas to the needs of the world economy, rather thanemerge as a by-product of certain other factssuch as the need for balance of payments assist-

ance on the part of particular countries (e.g.,countries drawing from the Fund), the actual bal-ance of payments deficits of reserve center coun-tries, or the decisions of particular countries withrespect to the composition of their reserves (e.g.,a decision to hold foreign exchange rather thangold in reserves).

It is also agreed that decisions to create supple-mentary international reserves should be based onan appraisal of their probable effects on the in-terests of all countries. In the main, reservechanges of this type will exercise their effectsthrough the impact which they have on the pol-icies of governments. As was indicated in the1964 Annual Report (p. 26), increases in re-serves will tend to encourage more expansionaryinternal financial policies and more liberal policieswith respect to capital exports and aid, and willreduce the probability that countries will devaluetheir currencies. Reserve increases will also tendto put more of the burden of adjustment on coun-tries that are at a given time in surplus and lesson countries that are in deficit. It follows thatreserve increases are likely to be advantageouswhenever, in their absence, countries would feelthat they had insufficient time to correct balanceof payments difficulties, so that there would bewidespread resort to balance of payments restric-tions on imports, on capital exports, and on aid,or a tendency for situations of insufficient demandto predominate over situations of excess demand.

The last-mentioned criterion has perhaps be-come less important since full employment hasbecome a widely accepted policy objective, whichcountries are not likely to disregard over anylong period for balance of payments reasons.Similarly, countries have become increasinglydisinclined to yield to inflationary pressuresemanating from their balance of payments sur-pluses. In these circumstances, any shortage ofinternational liquidity is more likely to manifestitself, at least initially, in the form of intensifica-tion of restrictions on trade and capital move-ments, or in increased pressure on exchange rates,than in that of generalized deflationary symptomsin the world economy. Often, of course, restric-tions are a reflection of the inability of countries


INTERNATIONAL LIQUIDITY AND RESERVE CREATION 11

in deficit to apply in time other corrective pol-icies; and in arriving at an international judgmenton the need for reserve creation a balance wouldhave to be struck between the advantage of re-lieving payments stress and removing restrictions,and the danger of financing deficits on an exces-sive scale.

While criteria such as those described abovemay be generally acceptable, it is difficult toapply them objectively to a quantitative assess-ment of the need for international reserves. Thisis largely because they involve a number of judg-ments on which reasonable men may disagree(for example, as to whether demand is insuffi-cient or excessive, as to whether too much or toolittle time is available for balance of paymentsadjustment, or as to the appropriateness of thedistribution of the burden of adjustment betweensurplus and deficit countries). Moreover, thesituations on which judgment must be passedmay, at least in the short run, affect differentcountries differently. For example, a rise in in-ternational reserves may at a certain time makeit more difficult for some countries to maintainfinancial stability, while the same rise may enableother countries to maintain full employmentwithout resort to restrictions on external transac-tions.

Economic conditions are unlikely to respondquickly to changes in international reserves unlesssuch changes are very large. This suggests thatdeliberate creation of reserves should probablynot aim at offsetting such short-term fluctuationsin world demand as still occur but rather be di-rected toward the trend need for reserves. Thislatter consideration is reflected in the suggestion,contained in a number of proposals for reservecreation, that the main decisions on the amountof reserve creation could be taken for a periodof some three to five years at a time.

Stock of Reserves and Its Rate of Growth

In discussing the need for reserves it is usefulto consider both the stock of reserves and itsrate of growth. Countries appraise their stockof reserves against the need to finance deficits in

their balance of payments over the period re-quired for the restoration of equilibrium. At thesame time, the rate of growth of reserves is im-portant in relation to countries' balance of pay-ments policies. While the achievement of balancein international transactions is widely acceptedas a major objective of economic policy in manycountries, this objective is interpreted in prac-tice as the avoidance of deficits rather than theavoidance of surpluses. Such countries operatetheir economic policies with a safety margin de-signed to bring it about that their balance ofpayments is in moderate surplus over the longrun.

In some cases, countries' reserves have beenso high that they could tolerate reserve losses overextended periods without feeling constrained toadopt defensive or contractionary policies. Ifworld reserves are high in relation to needs, theworld can for a time make do with a low rate ofreserve growth, or even with some decreases inreserves; countries may also be prepared to man-age with reserves that are low in relation to needif the rate of reserve growth is high.

The economic significance both of reservestocks and of reserve growth depends on theirdistribution among countries. If the distributionof the stock is very uneven in relation to need, asit was at the end of World War II, even a rela-tively high level of global reserves may be in-sufficient to serve the world's needs. In general,any improvement in the distribution of reservesis likely to have much the same effect on theworld economy as an increase in total reserves.Thus the reduction over the postwar period in thereserves of the United States, and to some extentin those of certain other countries with initiallyhigh reserves, has increased the ability of the stockof reserves to meet global needs. The effect of anydeliberate increase in global reserves will similarlydepend in part on its initial distribution by coun-try. The greater the proportion of the initialdistribution of reserves that accrues to countriesthat are likely to utilize them quickly, the greaterthe initial impact on the world economy.

The effect of an increase in reserves of a givensize is likely to be greater to the extent that it



has a direct impact on the domestic money supplyor enters directly into the national income stream,and insofar as it is expected to be regular andrecurrent so that it affects countries' expectationsof future reserve growth. It is likely to be lessto the extent that it is associated with an increasein liquid reserve liabilities.

Given the complex relationships discussedabove, it is evident that at most only tentativeconclusions with respect to the future need forreserves can be drawn from the experience of thepast. However, it is difficult to conceive of a wayof arriving at a quantitative assessment of reserveneeds which would not take historical experienceas a starting point. The problem is to select asuitable period. As was shown in InternationalReserves and Liquidity, a study by the staff ofthe International Monetary Fund published in1958, the conditions governing the need for re-serves have changed so radically on several occa-sions since World War I that little guidance canbe derived from an analysis of any period beforeWorld War II. The same applies to the highlydisturbed immediate postwar years and the twoyears most sharply affected by the Korean con-flict. The period studied has therefore been con-fined to 1952-65. There is of course no pastperiod for which the experience can be ex-trapolated uncritically as a guide to the future.

Judging by the general economic conditions inthis period, the state of reserves was then onbalance not unsatisfactory. The period wasmarked by increasing liberalization of trade andpayments, and by a remarkable expansion in in-ternational transactions. Employment was high,growth rapid.

A controversial issue in connection with thisperiod is that of the relationship between domesticinflationary pressures and the supply of interna-tional reserves. Situations of strong pressures oncosts and prices in some industrial countries havecoincided with underutilization of resources andrelative price stability in other areas. In countriesthat have at the same time experienced balanceof payments surpluses and inflationary pressures,the tendency has been to attribute the latter to theformer, and to interpret their coincidence as an

indication that international liquidity is excessive.It must be recognized, however, that demand inthe world may be excessive even when global re-serves are not, and that owing to cost-push factorsprices and costs may rise excessively even whendemand is no more than sufficient to maintainemployment at a level otherwise desirable.

Evolution of Stock of Reserves

World reserves, here defined as the reservesof countries other than the Soviet countries andMainland China, may be estimated at close to$49 billion at the end of 1951, and at about $70billion at the end of 1965 (Table 1). They roseat an annual rate of 2.6 per cent during theperiod, but since world trade increased at anannual rate of about 6 per cent, reserves as a percent of annual imports fell from 67 per cent in1951 to 43 per cent in 1965 (Table 2).

Much of the fall in the proportion of reservesto imports is explained by the decline in U.S.reserves from very high levels at the beginning ofthe period. For all other countries taken together,this proportion is much more stable; it showed notendency to rise or fall over the period, but fluc-

TABLE 1. WORLD RESERVES: GROWTH, 1951-65

Reserves atend of

1951 1965

Per-centage

In- In-crease crease

- 1951- Per65 Annum

GoldReserve positions in IMFCurrencies

Of whichClaims on United

States iClaims on United

Kingdom 2

Other

Billion U.S. dollars33.9 41.9 8.0

1.7 5.4 3.713.7 22.9 9.2

4.2 14.8 10.6

8.2 6.7 -7J»1.3 1.4 0.1

1.58.63.7

9.4

-7.5OS

Total3 49.3 70.2 20.9 2.6

1 Covers short-term liquid liabilities to central banksand governments; foreign official holdings of U.S. Gov-ernment marketable securities; and foreign official hold-ings of U.S. Government long-term nonmarketablesecurities for those countries that are believed to in-clude such holdings in their reserves figures.

2 Covers liabilities to foreign central monetary au-thorities, including inter-central-bank assistance.

3 Excluding Soviet countries and Mainland China.



TABLE 2. COUNTRIES' RESERVES AS PERCENTAGE OF IMPORTS, 1951-651

Reserves as Percentage of

A. Developed CountriesThe Ten

United StatesUnited KingdomOther

BelgiumCanadaFranceGermanyItalyJapanNetherlandsSweden

Other DevelopedAustraliaAustriaDenmarkFinlandGreeceIcelandIrelandNew ZealandNorwayPortugalSouth AfricaSpainSwitzerlandTurkeyYugoslavia

Total Developed CountriesB. Less Developed Countries

Major Oil ExportersIranIraqKuwaitLibyaSaudi ArabiaVenezuela

Countries with Initial HighReserves

CeylonGhanaIndiaPakistanSudanUnited Arab Republic

Other Less DevelopedArgentinaBoliviaBrazilChileColombiaCosta RicaDominican RepublicEcuadorEl SalvadorGuatemalaHondurasJamaicaMexicoNicaraguaPanamaPeruUruguayIsraelJordanLebanonSyrian Arab RepublicBurmaChina, Republic ofKoreaMalaysiaPhilippinesThailandViet-NamEthiopiaMoroccoNigeriaTunisia

Total Less DevelopedCountries

Grand TotalGrand Total (excluding

United States)

1 Gold and foreign exchange holdings

1951

7320422304446141336—222946471612312218583619

17929

—120536

68

608180———50

11867

20910898

198143413535261833163652705140—36256624862

593114

11156196646

133

—

——

6467

39

1952

772112034464416253054422946522315172716662419

1743123

138368

71

6411275———52

9546

20410641

105114443627262040243164655835—35326222

135

—503122

11539397851

115

—

——

6069

40

plus reserve

1953

791982939474021473237523559936017274724665017

2002425

150398

75

6711194

———53

12834

19815479

1221365267324620372629536153373831336319

1912

503935

1194332804993

—

——7274

48

position

1954 1955

80206

3242434628563839453155616512325525723515

2033333

141431075

5584

114——47

13558

25814478

1221524454163016382139335247413926215825

12210614428612844993991

——

6673

48

in

721832243434042524344402646394219285318572216

1832636

124421067

6469

108——51

12669

21613310310911742399

3823202432314253323350204819

1031647402753432897269048

——

6466

44

IMF at

1956

661692138373324643939302445494311204417552716

1702620

107551562

8067

111

——76

9469

1948576

1489444341

5023201432313751272948104319

1021660383561542692288761

——

6162

41

end

1957

621702133333110693719252144684613203719571815

149181297681159

755977

—78

6054

1604259628535227

321230133536375120294114259

771352403731632685107948

—

4757

36

of year,

1958

701543046503619786835422248556317363019552320

162188

121911166

644494—56

66

5649

1903954526437109

34154021323637331340351044

81362448512458543993157969

32

31

4662

44

1959

631262545383334569140372050606120334012553321

1703126

107315

60

523791

676946

5534

137418680474728112731521531443833173745183519

10929404828635348

117167576

439956

5058

44

related to

Imports

1960 1961

601172947383236706943411844215116263414512421

1451676

104432

57

49306630517951

4125

1072948914044421024203412263527391832371727208642384421503946

112198290

507445

4455

43

imports

601172749433750657329382547565715253732471519

1052582

102384

57

50305334589253

342548294364294126103212276

11362241173636191824

10147444816554266

1188

9469

415935

4154

44

1962

55972647384054576336362650547012204136472318

138426795308

54

51425334478753

302463223857303884

26131812144421351633371818229266455818763840

114119658

(LAO*t405629

3951

43

during the

1963

51912344383956594431352252687322243631471619

128415995269

51

7647923451

16178

272435243535243328102113211323402934134044291824

11177415316806324

111169461A**O254328

4350

43

year.

1964 1965

47 4382 6715 1943 4137 3638 3557 6154 4239 6025 2633 3225 2248 4159 4271 6225 2126 1832 2234 3946 3917 920 22

125 11330 2167 4787 8827 246 8

47 43

66 6430 2760 5034 3959 77

149 18472 59

21 2212 2438 2818 2124 2126 3023 2239 4214 2023 3029 6315 2321 2914 1119 4331 2428 2830 3120 1934 3339 3428 14

8 1428 2496 12666 7755 8959 5817 1879 7269 5434 32

109 10314 2199 9747 36Cf\ C1DU jl12 2236 3313 16

40 4246 43

40 39

Figures for1965 are preliminary and include fund staff estimates.



tuated around a constant level in response to theshort-term cyclical movements of world trade.There was also a marked tendency to convergetoward a level of 40-50 per cent for variouscountries and groups of countries (see Chart 1).The reserves of the developing countries as apercentage of annual imports fell from a level ofmore than 60 per cent in the early 1950's to 40per cent recently, but this reflected for the mostpart the drawing down of exceptionally high re-serves by a rather small group of countries. Whencountries whose reserves initially were abnormallyhigh are excluded, the reserve ratio of the devel-oping countries has shown substantially the sameperformance in terms of level and stability as thedeveloped countries, though it may be noted thatthe oil exporting countries have tended to holdrather higher reserves in relationship to theirimports.

Table 2 shows that reserves of developed coun-tries have generally remained within a range of30-60 per cent of imports over long periods.Many have stayed consistently within this range,while some which have moved out of the rangehave tended to move back into it. Aside from theUnited States, the main exceptions to the generaltendency for developed countries' reserves to liewithin the 30-60 per cent range are the UnitedKingdom and the Scandinavian countries, whosereserves have been persistently smaller in relationto imports, and Portugal and Switzerland, whichhave maintained substantially higher proportions.

The average rate of reserve growth over theyears 1952-65 amounted to $1.45 billion perannum between 1952 and 1958 and $1.8 billionper annum between 1958 and 1965. These fig-ures, which suggest a tendency for reserve in-creases to rise as the scale of internationaltransactions grows, were strongly affected by theredistribution of reserves to which reference wasmade earlier. During the 1952-58 period, theUnited States lost on average about $250 milliona year in gold, and during the 1958-65 periodabout $1.0 billion a year. The reserves for allother countries thus increased on average byabout $1.7 billion a year in the earlier period andby $2.8 billion a year in the later period.

Significance of Preceding Data for FutureReserve Needs

In recent years, monetary gold holdings haveincreased by some $600 million a year, or lessthan 1 per cent of the aggregate reserves of allcountries. Reserves have actually increased more—primarily because many countries have, untilrecently, been willing to take a substantial pro-portion of their reserve increases in the form ofdollars. In future, however, it is not expected thataccumulations of foreign exchange will make solarge a contribution to the growth in aggregatereserves, because certain countries will take less oftheir reserve increases in the form of reservecurrencies. Moreover, the United States will wishto raise its holdings of reserve assets in some re-lation to any increase in its liquid liabilities.

Long-run plans for reserves will, therefore,have to make allowance for a cessation of thedecline in U.S. reserves and indeed for an increasein them. A somewhat similar allowance will haveto be made for the fact that some less developedcountries have now exhausted the high reservesthat they accumulated during World War II or inthe early postwar years. It should be noted, onthe other hand, that, in the early 1950's, the ab-sorption of reserves by a number of industrialcountries reflected in part their desire to reconsti-tute a satisfactory level of reserves in relation totrade, and that in recent years some of thesecountries have experienced accumulations of re-serves which have been to some extent unwelcomebecause of their inflationary effects. The cessationof these special factors does not necessarily meanthat the world supply of reserves will have togrow from now on in proportion to world trade inorder to avoid unfavorable international reper-cussions. Although it would appear, from studiesmade in the Fund, that over the past dozen yearsthe upward trend in payments imbalances hasbeen broadly of the same order of magnitude asthat in international trade, considerably morestudy would be required before it could be as-sumed that such a relationship would prevail inthe future.

It is not impossible that improvements to be


INTERNATIONAL LIQUIDITY AND RESERVE CREATION

CHART 1. RESERVES AS PERCENTAGE OF IMPORTS, 1951-651

15

1 Gold and foreign exchange holdings plus reserve position in the Fund at end of year, related to imports duringthe year.

2 Excluding claims on EPU, which were not included in reserves from 1959 onward.3 Ceylon, Ghana, India, Pakistan, the Sudan, and the United Arab Republic.4 Iran, Iraq, Kuwait, Libya, Saudi Arabia, and Venezuela.



made in the international adjustment process maybe such as to permit a reduction in the generallevel of reserves required in relation to trade and,therefore, to permit, for a time, a relatively lowrate of growth in the need for reserves. Discus-sions to this end have been recently taking placewithin the framework of the OECD; and the Funditself, in its relations with member countries, con-tinues to promote such improvements whereverpossible. Appropriate enlargements and exten-sions of bilateral swap arrangements can alsoreduce reserve requirements insofar as these ar-rangements add to confidence in currency stabilityand thus deter speculative movements.

The recent extension in the use of controls andrestraints over capital movements may also tendto reduce deficits and, in a mechanical sense, theneed for reserves. From a broader point of view,however, to substitute restriction of capital exportsfor their offsetting by reserve movements is notnecessarily a gain.

Doubtless some economy in the use of reservesover the period 1952-64 resulted from the in-creased reliance on forms of liquidity other thanreserves in the financing of deficits, in particulargreater use of Fund credit tranches. It is quitepossible that further economies might be achievedin the need for reserves over future years also, if asimilar expansion were to take place—relative totrade—in the amount of resources put at the dis-posal of the Fund for the purpose of providingconditional liquidity. Since the use of liquidity inthis form is associated with the adoption of ac-ceptable balance of payments policies by thedrawing members, any more intensive use of thisform of liquidity would be likely to carry with itas an additional consequence some improvementin the adjustment process, at least as far as thedeficit countries are concerned.

While increases in conditional liquidity in theform of Fund drawing facilities could provide apartial substitute for reserve growth, such expan-sion as has been effected in quotas so far has beenundertaken to fill the need for conditional liquid-ity as such, rather than provide for any substitu-tion of the kind described.

The preceding analysis suggests that the rate of

growth in reserves should be related to the long-term trend in payments imbalances, taking intoaccount the results of any improvement in theadjustment process. If gold accruals are no great-er than in recent years, and on the assumptionsabout the accumulation of reserve currenciesmade above, it would appear that, at an appro-priate time, deliberate reserve creation would haveto play an important role in attaining this rate ofgrowth of reserves, and thus to avoid generalizedand severe balance of payments tensions in theworld economy, with the attendant risks discussedearlier.

Distribution of Reserves

One of the most important issues arising in con-nection with reserve creation, and one on whichthere has been encouraging progress toward aconvergence of views, is that of the distribution bycountries of the newly created reserves. Certainof the possible criteria of distribution have beenexcluded almost from the outset of the discussion.For example, it would have been possible toenvisage deliberate reserve creation as the coun-terpart of additional credit extended to countriesin balance of payments difficulty, which in a sensecould be said to need them most. Yhese creditswould have had to be extended on a conditionalbasis in order to prevent undue relaxation ofpressures to adjust in these countries. This tech-nique of reserve distribution would, however, havebeen difficult to reconcile with the concept ofcreating reserves in amounts determined for aperiod ahead according to the criteria of globalneed.

Another possibility would have been to usepart or all of the newly created reserves to provideresources for additional development financing, itbeing understood that decisions with regard to theamount of reserves to be created should be takenon criteria independent of the need for develop-ment aid. This solution, which was proposed,inter alia, by a group of experts reporting to theBoard of the UNCTAD, has, however, failed tofind general support because of a feeling that re-serve creation should not become a mechanismfor the deliberate transfer of real resources from



one set of countries to another, and that it shouldbe kept materially separate from development aid.

There appears to be rather general agreementthat the initial distribution of newly created re-serves among countries receiving them would haveto be dependent on some measure of the relativeeconomic size of countries, such as Fund quotas.The need for reserve growth is shared by allcountries, whatever their stage of industrializationor development. While the scarcity of resourcesof all kinds in many less developed countriescauses them to maintain a level of reserves lowerthan would otherwise be desirable, the fluctuatingnature of their trade in many cases makes themmore dependent on the use of reserves and otherforms of compensatory financing than are mostindustrial countries. As has been indicated in thepreceding section of this chapter, the proportionof reserves to imports maintained by developingcountries, though it has declined substantiallycompared with the early postwar years, is not nowmarkedly lower than that of industrial countries,whose reserves have also declined in relation totrade. Moreover, in many of the developingcountries, as indeed in the United States also, ithas been influenced by the fact that in the earlypostwar years these reserves stood at a relativelyhigh level. These exceptional reserves have nowalmost universally disappeared and it is to beexpected that most of the less developed countrieswill find it necessary to add to their reserves astheir transactions expand. The expansion of de-veloping countries' reserves in the past three yearslends support to this view.

In the light of such considerations as these, it isgenerally accepted that, if and when it is decidedto proceed to the deliberate creation of reserves,all members of the Fund should have the oppor-tunity to participate in their distribution.

Though all countries share in the need to ex-pand reserves over time, it does not follow that,taking good years with bad, countries would nec-essarily wish to accumulate the precise share inreserve creation that would be assigned to themaccording to any distributive formula based onsome concept of average need. It is probablyinevitable, therefore, that some countries will tend

on the whole to spend a part of reserve additionsthat accrue to them while others will tend to ac-cumulate more than their allocated share.

Form of Newly Created Reserves

In considering the various interrelated aspectsof the process of deliberate reserve creation, at-tention tends naturally to be focused on the formof the reserves to be created, though this is notby any means the most important question atissue. Discussions over the past year have notyielded any fundamentally new ideas in this re-gard. As was indicated in last year's Annual Re-port, the principal choice still lies between thecreation of additional drawing facilities of a quasi-automatic nature in the International MonetaryFund and creation of a reserve in asset form—usually designated as a "reserve unit"—throughan exchange of claims between a reserve-creatinginstitution and the countries to which the newlycreated reserves are initially distributed.

There is a technical difference between the twoforms in the manner in which reserves are trans-ferred. Countries would use reserves in the formof automatic drawing rights in the same way asthey now use existing drawing facilities in theFund, i.e., by purchasing foreign currency fromthe Fund in exchange for their own. By so doing,they would pro tanto use up their automatic draw-ing rights and create an equivalent addition to thedrawing rights of the countries whose currencieswere purchased. Drawing rights are thus effec-tively transferred from the drawing country to thedrawee country; the currencies purchased are useddirectly, or after conversion, for the settlement ofinternational transactions. Reserves created inthe form of reserve units would be utilized by adirect transfer of the units from one country toanother, which would provide in exchange its ownor some other currency, which could then be usedfor the settlement of international transactions.

Beyond this technical difference, drawing rightsand units respectively tend to be associated withsome more substantive differences which are notinherent in the nature of these two forms butrather in the institutional framework in which



these forms are expected to materialize. The mostimportant of these differences are discussed in thefollowing sections.

Method of Use of Deliberately Created Reserves

It is not contemplated under any of the schemesconsidered that newly created reserves should beheld or used except by monetary authorities, whowould transfer them between themselves in ex-change for other means of international paymentor to pay off a liability. In order to ensure thatany holder of these assets will always have thepossibility of transferring them, the acceptabilityof the asset will have to be assured. The assetshould possess attractive features, such as protec-tion from loss arising out of changes in par valuesof currencies and an appropriate rate of interest.There will also, however, be a need for obligationson the part of participants to receive the reservesin exchange either for their own or for some othercurrency. On the other hand, if transfers are tobe kept orderly, potential transferees will have tobe protected in some way against having to holdtoo large a proportion of their reserves in a formwhich cannot be used for direct intervention inforeign exchange markets. In the case of reservepositions in the Fund (either in the form of goldtranche positions, or of loans to the Fund, or un-der any extension of automatic drawing rightsthat might be decided upon as a form of deliberatereserve creation) these safeguards are provided intwo ways. In the first place, countries drawing onthe Fund, thereby transferring their Fund posi-tions to other countries, are required to representthat they have a balance of payments need. In thesecond place, by a practice which has grown up,countries consult with the Managing Director ofthe Fund as regards the particular currencieswhich they will draw—and hence the particularcountries to which they will transfer their reservepositions—and the Managing Director advisesthem in such a way as, so far as possible, to avoidtransfers to countries that are themselves in adifficult balance of payments position, and subjectto this to bring about an equitable distribution ofreserve positions in the Fund.

In the discussions that have taken place regard-ing the creation of new reserve assets, there isbroad agreement that countries should refrainfrom transferring these new reserve assets at timeswhen they are in a strong balance of paymentsposition, merely for the purpose of changing thecomposition of their reserves. There is, however,a difference of view as to the need for guidancein the transfer of assets between countries. Oneview is that guidance such as is given by theFund's policies on currencies to be drawn shouldalso apply to any newly created assets. The otherview is that there should not be any form of guid-ance, however general, as to the countries towhich transfers should be made, and that otherways of protecting the transferee should be found.One of these ways is by setting up quantitativelimits on the amounts of newly created reservesthat the countries would be obliged to hold. An-other is to provide that transfers of newly createdtypes of reserves should be made only in someproportion to transfers of gold or of gold and for-eign exchange. Both of these devices have, tosome extent, a counterpart in the mechanism ofthe Fund. Fund quotas and commitments to ex-tend credit to the Fund up to agreed amountsconstitute quantitative limits on the obligation toaccept transfers of Fund positions; and the repur-chase provisions of the Fund Agreement are basedon the general concept of an equal use of Fundresources and of the country's gold and foreignexchange reserves. These safeguards, however,have not thus far been felt sufficient to dispensewith the need for some degree of guidance in thetransfer of Fund reserve positions.

The Managing Director's Proposals

In order to focus the discussion on reservecreation through the Fund, the Managing Direc-tor, at the instance of several Executive Directors,has put forward for consideration by the Execu-tive Directors a statement on how reserves couldbe created in the Fund or in close association withthe Fund.

The Executive Directors have held preliminarydiscussions on these proposals, in particular to



clarify various aspects of them, but have thus farnot attempted to reach any conclusions as to theirdesirability, either in themselves or in comparisonwith other proposals. The Executive Directors in-tend to continue discussions on these proposals.

The Managing Director's proposals were guidedby certain general considerations which have al-ways been prominent in the Fund's approach toquestions of international liquidity. The first ofthese considerations is the connection betweenconditional liquidity and unconditional liquidity.As the Fund indicated in its 1965 Annual Report(p. 15), "ideally, countries' needs for additionalliquidity could be met by adequate increases inconditional liquidity." There can be no questionabout the value of conditional liquidity in thesense that it makes reserves available to countriesin accordance with need on the basis of the stepsthey take to achieve needed adjustment in theirpayments position. At the same time, for a varietyof reasons, countries wish to have growingamounts of reserves at their disposal in the formof unconditional liquidity. An expanding worldeconomy will most likely require increases in bothof these types of liquidity in an appropriate mix-ture. The Fund already has the task of providingthe bulk of the conditional liquidity needed in theworld, and quinquennial reviews of quotas pro-vide one opportunity to adapt these facilities tothe needs of members.

The second consideration is that reserve crea-tion derives its significance from the fact that itcontributes to the attainment of certain objectivesto which countries attach importance: high em-ployment and growth, internal and external stabil-ity, and freedom of international transactions.Difficult decisions lie ahead as to the amount ofliquidity to be created that may be expected to bemost conducive toward the achievement of theseobjectives. It is clear, however, that the decisionstaken in this respect will not ensure the attainmentof these policy aims unless at the same time coun-tries are convinced of the need to follow policiesto that end.

The task that faces the Fund in this respect isnot a new one for it. The Fund was established

to provide a code of behavior in the field of inter-national financial relations and to be both a forumfor international discussions on these matters andan instrument for consultation with countries ontheir performance in these respects.

Since there is still a considerable divergence ofviews on the most desirable form to be used indeliberate reserve creation, the statement of theManaging Director described two schemes—onebased on the extension of quasi-automatic draw-ing rights of the gold tranche type in the Fund,and the other one on the issuance of reserve unitsby a Fund affiliate, membership in which wouldbe open to all Fund members. The two schemeswere intended to be broadly similar in'their effects,although certain differences between them may benoted. In the longer run the second scheme, op-erating through Fund units, might prove some-what more flexible and for that reason more suitedto meet the need for a reserve asset in whichcountries might ultimately be holding a substantialpart of their total reserves. On the other hand, thefirst of the two schemes, which provides for theexpansion of drawing facilities in the Fund of agold tranche character, could be implementedwithout amendment of the Articles of Agreementand employs techniques which are already welltried in the Fund's own experience. The twoschemes could of course operate concurrently.

The Managing Director's proposals are basedon the principle that reserve creation is the con-cern of all member countries, and provide thatall should participate, with due safeguards, bothin the distribution of newly created reserves andin the decisions which lead to their creation, andthat such creation should take place either throughthe Fund or through an affiliate of the Fund.

Both schemes involve the creation of reservesactually or potentially for all Fund members.Whenever decisions to create reserves are taken,members would be entitled to participate in thedistribution approximately in proportion toquotas, provided that they accepted the corre-sponding additional financial obligations discussedbelow.

Under either scheme the reserves created wouldbe used in the first instance, in effect, to cancel



out pro tanto any outstanding net indebtedness ofthe members concerned resulting from previoususe of conditional facilities in the Fund, thus pro-viding those members for the time being with con-ditional rather than unconditional liquidity.

In order to enhance the reserve character of thedrawing rights to be created, these drawing rightswould be envisaged as "floating," in contrast topresently existing gold tranche drawing facilitiesin the Fund, which have to be entirely used upbefore the country in question can use its condi-tional drawing facilities in the credit tranches.Countries would be able to save the new auto-matic drawing facilities in the same way as theycould save units or other types of reserves to beused, if so desired, after having had resort to theFund's conditional facilities.

Countries would be assured of the usability ofthe reserves but they would be expected to usethem only to meet a payments need. The drawingrights scheme envisages indirect transferability byway of purchase of currencies from the Fund,while the reserve unit scheme assumes directtransferability between countries. In both plans,however, these transfers would be subject to anelement of guidance, in the first plan through thepolicy of the Fund on the Selection of Currenciesto Be Drawn and in the second either throughgeneral rules to be agreed or through guidance tobe applied in particular cases by the Fund af-filiate. Both plans aim at avoiding the necessityfor countries in balance of payments difficultyhaving to accept transfers from other countries,and at bringing about a general proportionalitybetween holdings of the new reserves and otherforms of reserves. In the drawing rights scheme,the repurchase provisions of the Fund Agreementwould apply, but the member would not, as atpresent for gold tranche drawings, be expected torepresent to the Fund that it intends to repurchasewithin a three- to five-year period. In the reserveunit scheme, the reconstitution of holdings ofthe new reserve units after use would be left tothe functioning of the transfer mechanism.

Under both schemes, all members benefitingfrom the distribution of additional reserves wouldhave corresponding obligations to accept transfers

of such reserves, whether directly or through theFund. These obligations would, however, be lim-ited. In the reserve unit scheme, the limits wouldbe set at, say, three times the cumulative amountof reserves issued to each country, or lower incertain circumstances. In the drawing rightsscheme, they would be set by lines of credit in itsown currency which each recipient of reservesunder the scheme would have to provide to theFund. Insofar as a member's line of credit weredrawn upon by the Fund, the member would ac-quire a liquid claim against the Fund which wouldbe a reserve asset of the same general type as agold tranche position.

The amount of the line of credit to be givenby each member could be set equal to the cumu-lative amount of the special reserve facility allo-cated to it. In that event, the maximum reserveposition in the Fund that any member might beobliged to hold as a consequence of this schemewould be equal to twice the amounts allocated toit. The obligation to provide financing, i.e., to re-ceive transfers, in connection with this schemecould be kept somewhat lower because it is en-visaged that the resources to meet normal Funddrawings and drawings on the new facility wouldbe pooled.

Any member's net position vis-a-vis the Fund(or its affiliate) arising from operations undereither scheme would be covered by a gold valuemaintenance guarantee and would carry interest.

In both schemes the creation of additional re-serves would be the subject of international de-cision at intervals of, say, five years, with certainlimited possibilities of variation from year to year.It is suggested that decisions would be taken bythe Executive Directors of the Fund or by the ap-propriate organ of its affiliate, and that reserveswould be created under these decisions when asufficient proportion of members able to provideresources to support the reserve creation hadagreed to do so.

The Executive Directors are aware that alterna-tive provisions could be formulated as to a num-ber of the features described above. Such alterna-tives will be considered in further discussions ofthese proposals.


Chapter 3

Some Problems of Developing Countries

1 HIS chapter, based on the Fund's experiencewith the problems of developing countries,

discusses two aspects of these problems with whichit has been directly concerned. The first section ofthe chapter outlines the considerations which aremost relevant to a program of stabilization, andsome of the measures that have been found ofservice to such a program. The second deals withthe contribution that central banks in developingcountries can make to the maintenance of stabilityand the techniques by which these banks' in-fluence can most successfully be exerted.

Stabilization Problems

The immediate symptom of the need for a sta-bilization program is frequently the appearance ofbalance of payments difficulties. The necessarypolicy response, of course, differs according tothe source and duration of the difficulties. In for-mulating a stabilization program, a judgment hasto be made about the nature of these difficultiesand at the same time consideration has to begiven to the effective policy instruments availableto the authorities.

Where the difficulties are of a moderate char-acter, the measures needed are likely to concernthe aggregate use of resources rather than their al-location within the economy. On the other hand,if excessive demand has persisted for some time,especially as a result of delay in adopting correc-tive action, and has created or aggravated imbal-ances between different sectors of the economy,the measures required to restore external balancemust be more fundamental and wide-ranging. Thespeed of recovery of the balance of payments inthese cases depends largely on the ability of theeconomy to shift resources into desired channels,

on conditions in the world market for thecountry's products, and on the availability oflong-term foreign assistance.

A large number of stand-by arrangements ap-proved by the Fund have been concluded to copewith balance of payments problems of a moderatecharacter. Sometimes the factors leading to suchproblems have been outside the control of the au-thorities. There may be an actual or a prospectivedecline in export prices, a decline in the volumeof exports owing to marketing difficulties abroad,a setback to export production because of politi-cal uncertainties at home or natural calamities, adecline or delay in foreign aid, or relatively heavyforeign debt repayments falling due within a shortperiod. In a considerable number of instances,also, the foreign exchange reserves held by thecountries concerned have been considered to betoo low to absorb pressures on the payments po-sition arising from seasonal variations in exportearnings. Frequently the problems have arisenfrom temporary surges of domestic expendituresstraining the balance of payments. The purposeof several other stand-by arrangements has beento facilitate the elimination of multiple rates orthe liberalization of trade and payments.

In such circumstances, Fund resources havebeen made available to the member in the formof a stand-by arrangement to meet balance ofpayments problems, provided, of course, themember has had a program which was judged tobe capable of ensuring that the disequilibriumshould be temporary. The principal objective ofsuch programs has been the establishment of bal-ance between aggregate supply and demand. Themaintenance of this balance has required actionto control expenditures within the broad sectorsof the economy and sometimes within importantsegments of each sector. In seeking to ensure an

21

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over-all balance, a universal objective has been toeschew methods which lead to or increase re-liance upon restrictions on trade and payments,and the discriminatory application of such restric-tions.

Frequently, however, the problems with whichthe member has been confronted have been moredeep-seated: the pressures on the balance of pay-ments have been associated with distortions re-sulting from persistent inflation. Excessive creditexpansion to finance private investment or con-sumption, or to meet wage demands, has at timesbeen an important factor in generating inflation.However, unduly large fiscal deficits financed bybank credit have been by far the more commoncause. These deficits have arisen for a variety ofreasons. Some are caused by attempts to raise thelevel of consumption in the economy by givingsubsidies on consumer goods. Others arise fromincreasing operating losses of public enterprises,while still others come from attempts to speedup investment expenditures at the same time asconsumption expenditures have been rising. Onoccasion, the simultaneous occurrence of droughtsand other natural disasters, political disturbances,and adverse movements in the terms of tradehas further weakened the country's fiscal positionby reducing revenues and increasing expenditures.

In some countries the pace and nature of eco-nomic development efforts have generated seriouspressures on the balance of payments. Attemptsto bring about large and rapid transfers of re-sources between productive sectors and occupa-tional groups have on occasion been associatedwith considerable increases in prices. In othercountries the balance of payments difficultieshave been, at least in part, directly attributable toa concentration on investment in industries with ahigh import content but with little export poten-tial in the near future, while agriculture and thetraditional export sector have received inadequateattention. In the face of stagnant, or an inade-quate rise in, exchange earnings and a low levelof reserves, these countries have found it difficultto satisfy the import requirements of even well-established industries.

When severe balance of payments pressureshave persisted for a number of years, the econ-omy has been left with very meager foreign ex-change reserves and often a large volume of com-mercial arrears or other short-term foreignliabilities. At the same time, the structure ofprices and costs has suffered serious distortions asa result of continuing inflation, overvaluation ofthe currency, restrictions on imports, and the pol-icies of the authorities to isolate certain pricesfrom the general upward movement through sub-sidies and direct price controls.

The objective of the programs that have beensupported by the Fund in inflationary situationshas been not only to control inflation and to ar-rest the decline in foreign reserves and the build-up of debt service obligations, but also to facili-tate the channeling of resources in such a manneras will sustain the improvement in the paymentsposition and lay the foundation for sound growth.An essential step has been to examine whetherthe exchange rate needs to be adjusted to correctdisparities between domestic and foreign prices,and to determine the policies to be pursued whichwould be consistent with financial stability andany rate adjustment.

While the maintenance or eventual restorationof internal and external stability has been the ob-jective of the programs, they have not always en-visaged an unchanged price level or the establish-ment of a balance of payments equilibrium duringthe period of the stand-by arrangement. Someprograms have been based on an upward adjust-ment in general prices resulting from exchangerate depreciation and other measures aimed atcorrecting price distortions. Because most domes-tic prices tend to be inflexible downward, relativeprice adjustments have usually entailed a generalrise in the price level. Once the necessary adjust-ments have been carried through, however, theobjective must be to maintain relative price sta-bility, and by so doing to encourage domesticsavings.

As to the balance of payments, programs havegenerally assumed that there would be an imme-diate lessening of pressures on imports and otherpayments as aggregate demand was controlled


SOME PROBLEMS OF DEVELOPING COUNTRIES 23

and as inventories built up during the inflationaryphase were dishoarded. Moreover, because of anexpected revival of confidence in the currency,the programs have envisaged a return of domesticcapital that had sought refuge abroad and an in-creased flow of public and private foreign capital.In some programs, on the other hand, where thenecessary foreign financing was made available, alarge increase in imports has been planned, toslow down inflation. It has been recognized that adurable improvement in the balance of paymentsto which these factors would contribute dependslargely on an adequate increase in export andother foreign exchange earnings. Policies designedto achieve this end can succeed only if an envi-ronment of reasonable price stability is restoredand maintained.

MAJOR POLICY INSTRUMENTS

Fiscal and Credit Policies

When devising a program to achieve financialstability, the chief emphasis has necessarily to beplaced on controlling the expansion of aggregatedemand, as it is not possible in the short run tomake substantial adjustments in the level of sup-ply. Since excess demand conditions are caused inmany countries by fiscal deficits financed undulyby central bank credit, a principal task has beento bring the public sector's deficit under controlwithin limits compatible with the over-all objec-tive of maintaining or restoring economic stabili-ty. To this end, fiscal operations have been re-viewed to assess the possibilities of augmentingbudgetary resources, of reducing the growth ofcurrent expenditures, and of strengthening thefinancial position of the public enterprises. Gen-erally, it has been necessary to place emphasis onmeasures which would achieve prompt results.

Measures designed to increase tax revenuehave therefore been introduced for the most partin areas where this could be done quickly andwhere the taxes were most easily collected. Mostcommonly, the taxes introduced or raised havebeen those on foreign trade. Elsewhere they havebeen indirect taxes, particularly on commodities

considered to be less essential. Direct taxationhas been used less frequently, largely because ithas been difficult to get quick and effective re-sults. Nevertheless, a number of programs haveincluded plans for a widening of the tax base, astricter enforcement of existing income taxes, thecollection of tax arrears, and a general improve-ment in the machinery of tax collection. Thesereforms are considered important because im-provement, even if slow, is essential for thelonger-run growth of the economy.

Measures to restrain the growth of governmentexpenditures have been important features ofmany programs. Some have set specific limits tocurrent or capital expenditures, or both. Particu-lar emphasis has been placed on reducing thegrowth of the current expenditures of the nationalgovernment. In countries where the spendingplans of state and local governments are an im-portant component of the public finances, atten-tion has been directed to these also. Some pro-grams have included minimum targets for thegeneration of savings in the public sector (i.e.,surpluses of revenues over current expenditures)such as would suffice, in combination with theexternal financial assistance prospectively availa-ble and with the amount which the governmentcould safely borrow from domestic sources, tofinance the planned public investment expendi-tures.

In several countries the most effective measuretaken to improve the budgetary position has beento strengthen the cash flows of state-owned enter-prises, by adjusting the prices of their goods orservices or reducing their costs, thus lesseningtheir dependence on budgetary support. Some ofthese programs have substantially increased thecharges of public utilities and have improvedefficiency by better management control and workrules, and by discontinuing certain uneconomicoperations.

To improve the fiscal situation the authoritiesneed up-to-date information. For this purpose, ithas usually been impossible to depend on budget-ary data because of the time lag in the reportingof transactions in the government sector and itsagencies. A further difficulty is that comprehen-



sive fiscal data may not be obtainable even with atime lag, owing to the activities of autonomousagencies and the exclusion from the budget ofsome accounts even within the fiscal sector asnarrowly defined. Fortunately, however, the cashflows associated with these transactions arereflected in the government's position vis-a-vis thebanking system, and monetary accounts are avail-able in almost all countries on a comprehensivebasis and with only a short time lag. It has there-fore been found operationally useful to establishtests of fiscal performance by reference to move-ments in the net position of the public sector'sbank accounts.

This procedure also provides a basis for morecomprehensive financial programing. The needsof the other sectors for credit—given certain as-sumptions regarding output, prices, and inven-tories—are dovetailed with the results expectedto be achieved by the public sector. If the sum ofthe resulting claims on the banking system is con-sidered to be inconsistent with the maintenanceor restoration of a reasonable degree of stability,additional measures to restrain the over-all de-mand for credit have to be adopted.

For this purpose, quantitative monetary limita-tions have usually appeared to be the most practi-cable. Control of demand has been exercisedmainly through the establishment of ceilings onthe expansion of the domestic assets of the cen-tral bank during the period of the program. Ifbudget deficits have been the primary element inexcessive monetary expansion, a separate ceilingmay be placed on the extension of credit to thegovernment. These measures have been supple-mented where appropriate by provisions relatingto other types of central bank assets and by theimposition or maintenance of legal reserve ratiorequirements on deposit money banks. It is gen-erally desirable to support these quantitativemeasures by appropriate changes in interest rates,even though the capital markets in many coun-tries are not sufficiently developed to permit anyextensive use of open market operations, andeven though high rates of inflation increase thedifficulty of achieving an effective interest ratepolicy.

Exchange Rate Policies

In countries where there has been prolongedinflation, action on the exchange rate has been amajor policy instrument. The adjustment of therate has often been associated with the removalor a substantial liberalization of restrictions ontrade and payments. Where a multiple rate sys-tem has existed, unification of the rates at a real-istic level has similarly facilitated the strengthen-ing of the balance of payments position whileavoiding resort to restrictive devices.

Rate adjustments have often been accompaniedby changes in export or import taxes. The impo-sition or raising of export taxes on certain pri-mary commodities, the supply of which is inelas-tic in the short run, has been designed to absorbpart of the windfall profits brought about by therate adjustment while leaving the producers ade-quate incentives to exploit the possibilities of ex-pansion. This type of tax has been particularlyuseful in countries where the existing tax'systemis unable to respond promptly to the increasedincomes of producers in the agricultural and min-ing sectors. Again, a liberalization of quantitativerestrictions, or the removal of penalty rates ap-plying to certain imports as a result of theunification of multiple rates, has been facilitatedby an increase in import duties or the impositionof import surcharges. On the other hand, somecountries have instituted temporary import subsi-dies on certain items of general consumption, inorder to minimize the impact of the devaluationon the cost of living. The distorting effects ofsuch subsidies on the production and consump-tion of the commodities concerned, and theburden on the budget, have, however, made thesefar less common.

In many instances, the immediate political andadministrative difficulties of adjusting a highly re-strictive or complex exchange system have beenconsidered so great that only a partial or selectiveadjustment of the exchange system has initiallybeen made. Such adjustments have taken variousforms. When the exchange rate has been deval-ued only partially, subsidies have been given toprovide added incentives to some exports, and



purchases of imports and other payments havebeen limited by maintaining restrictions. Else-where the existing rate of exchange has beenmaintained for certain transactions, and the ratefor other transactions has been devalued, eitherdirectly or indirectly, through exchange taxes andsubsidies; or a parallel exchange market, with afree or devalued rate, has been established. Alter-natively, a complex multiple rate system has beensimplified to a few rates through the eliminationof the more appreciated rates. Several countrieshave been able later to make the further adjust-ments necessary to establish a single realistic rateof exchange.

The achievement of this objective has not al-ways involved the immediate establishment of afixed rate, and a number of programs have in-cluded a fluctuating exchange rate as a temporarydevice. The movements in prices and wages fol-lowing upon the adoption of measures designedto eliminate distortions in the economy have beendifficult to estimate. It has, therefore, not beenpossible to determine an appropriate level for theexchange rate in advance. These difficulties havebeen even greater where a combination of restric-tions and multiple rates has existed, since this hasmade it virtually impossible to ascertain what ex-change rate has actually been in effect. Moreover,there has been uncertainty as to the effectivenessof the immediate measures to bring inflationunder control. A fluctuating rate established inthese conditions has carried with it the under-standing that the rate would be allowed to movein accordance with market forces, and that theauthorities should intervene only to maintain or-derly market conditions.

Exchange rate flexibility through periodic ad-justments has also been an essential part of pro-grams which have been concerned not with theimmediate restoration of stability but rather witha deceleration of domestic inflation. Without anadjustment of the rate, domestic price increasesare likely to affect exports adversely and shift de-mand into imports. Some countries, with assist-ance from the Fund, have therefore included cri-teria to enable governments to ascertain thatofficial support has not made the exchange rate

diverge significantly from the basic market trends.For this purpose, the minimum level at which thenet foreign exchange position of the central bankor the banking system is to be maintained duringthe period of the program has been specified, thussetting limits within which the authorities wouldintervene in the market to smooth out fluctua-tions. On this basis it has been understood thatthe exchange rate should be adjusted from timeto time to follow the basic trend in the market. Insome programs, movements in the exchange ratehave been more directly linked to movements in adomestic price index, with the understanding thatperiodically the exchange rate is to be adjusted tothe increase in prices.

Price and Income Policies

Specific provisions have been included in someprograms to adjust prices to realistic levels, main-ly in public enterprises. Also there has been pro-vision for the immediate elimination or the grad-ual removal of price controls where these werehampering production and distorting the alloca-tion of resources.

Wage policies have been of particular concernin some programs because the adequacy of theexchange rate adjustment and the effectiveness ofmonetary and fiscal measures designed to combatinflation are directly dependent upon wage move-ments. However, the ability of the authorities toinfluence the movement in the general level ofwages differs widely, depending upon the institu-tional framework and the nature of the coopera-tion between the government and the laborunions. Consequently, there have been ratherconsiderable variations in the form of wage poli-cies. In some instances where the stabilizationmeasures included a devaluation and a wide-spread upward adjustment of relative prices, theprogram has provided for an initial increase ofwages for the public sector to be followed by aperiod without change. As to the private sector,in countries where the government exercises aneffective wage policy through a role as arbitrator,the wage policy to be followed has been indicat-ed. Even where the authorities have little direct



role with respect to wage negotiations, the pro-grams have frequently included a wage policy tobe implemented by moral suasion. Where therehas been doubt as to the effectiveness of the meas-ures to restrain cost increases, the temporary ac-ceptance of a flexible exchange rate policy hasbeen part of the program.

SOME COMMENTS ON IMPLEMENTATION

The programs adopted to tide over temporaryor minor difficulties in the balance of payments orto support changes in the exchange or restrictivesystems have, in general, served their limited pur-pose. Action in these instances has been mainlyconcerned with over-all financial programing tomaintain internal stability while the correctivemeasures were taking effect. Where action wastaken promptly, there has been little disturbanceto domestic cost-price relations, and countrieshave generally succeeded in stabilizing theireconomies and in improving the prospects forlong-term growth. An important indirect advan-tage has been the experience gained by the au-thorities of the countries in formulating and ad-ministering over-all financial controls, and, wherelonger-run development policies have existed, inimplementing such policies within the frameworkof these controls.

Where the problem has been one of prolongedand severe inflation, the experience with the pro-grams has been varied. In some countries thegovernments have been able to implement themfully with good results; in others, the results havefallen short of expectations because the programshave not been carried out with sufficient determi-nation or have failed to foresee economic or po-litical difficulties.

Sound leadership and public support are pre-requisites for successful stabilization efforts. Thepersistence of inflation over a prolonged periodderives, to a large extent, from a failure to re-solve by other means the conflicting claims ofdifferent social groups, each aiming at a largershare of the national income. In such a situation,not only do the distortions of the price-cost struc-ture deepen with the passage of time but also the

antagonisms become more intransigent, magnify-ing the difficulty of implementing a stabilizationprogram. Thus the success of programs in thissituation depends largely on the broad acceptanceof the objectives by the main social, political, andeconomic forces in the nation.

Equally important, in very difficult situations,is the continuity of action over a period of years.A program may be carried through for one year,but evolving political and social pressures or un-expected economic difficulties may lead to aneventual slackening of the efforts or a reversal ofpolicies. These considerations underscore the ob-stacles which the authorities face when they feelforced to adopt a gradual attack on inflation whichis planned to extend over several years.

The implementation of major policy changeswith the necessary vigor and speed also calls forefficient and stable administrative machinery. Themost complex administrative problems havearisen in the fiscal field in fulfilling the revenuetargets and controlling expenditure commitments.Difficulties have also been experienced in collect-ing the share of the Treasury in the profits of thepublic enterprises or obtaining repayment ofbudgetary loans. Further, when budget receiptshave not materialized as planned, many govern-ments have not been able to bring about a corre-sponding reduction in expenditures.

Perhaps the most important area in which ac-tion has been less than initially proposed orplanned concerns the adjustment of the exchangerate. Usually the maintenance of the external val-ue of the currency has been a major political is-sue, either as a matter of national prestige or as asymbol of an illusory monetary stability. More-over, many governments have tended to underes-timate the economic benefits of an appropriateexchange rate policy. Some of the immediateeffects of a devaluation, such as an increase in thecost of living, with its repercussions on personalincomes, have tended to weigh heavily on theirjudgment compared with the longer-run gainsarising from appropriate incentives to guide theallocation of resources.

In situations where domestic prices were seri-ously out of line with foreign prices, action taken



in the exchange rate field has sometimes provedto be inadequate. Exports did not receive thestimulus needed to sustain an adequate level ofactivity; restrictions on imports remained severe,thus perpetuating distortions; and expectationsabout a further change in the rate affected themovement of capital adversely. In an inflationarysituation it is no doubt difficult to determine theextent of the necessary adjustment. Moreover, theincrease in prices and costs as a result of a deval-uation and other measures must be allowed forin determining the extent of devaluation itself.Some countries have not realized how large anadjustment was needed, and the effect of a deval-uation has been largely offset by the secondaryprice increases usually connected with a changein the exchange rate. Moreover, where credit pol-icy has not been sufficiently restrictive, or wherethe wage line has not been held, the advantagegained by the exchange rate change has been dis-sipated.

Experience has also shown that in a number ofcountries inadequate action in restraining thegrowth of consumption has been an importantfactor in the failure to realize more satisfactoryresults from stabilization efforts. Public sectorcurrent expenditure in many developing countrieshas been high relative to revenue, owing inter aliato the provision of extensive social and welfarefacilities, subsidies to essential consumer goods orpublic utilities, or the employment of redundantpersonnel. The retrenchment of consumption hasoften proved to be difficult, particularly whensome of the expenditures have tended to increasewith the growth of population and urbanization.

Major weaknesses have also developed in someprograms in the area of incomes policy—particu-larly in reconciling the claims of various groupsto enlarge their relative shares of the nationalproduct. Despite the best intentions of the au-thorities, the broad acceptance of a coherent in-comes policy has frequently not been achieved,particularly if there was an initial wage-price spi-ral due to promised increases in wages beyondthe capacity of the economy to sustain.

Other problems which stabilization programshave sometimes failed to overcome have stemmed

from the misdirection of investments in the publicsector, either to noneconomic ends or into fieldsin which the country is at a substantial disadvan-tage. Sometimes, too, expectations about long-term development assistance from foreign sourceshave not been fulfilled, whether because ofdomestic difficulties in formulating a plan or inproviding the necessary internal resources, or be-cause in the event the aid has been less or re-ceived later than anticipated. In a number of in-stances, lack of long-term assistance has led toexcessive use of short-term financing, which inthe end has added to balance of paymentsdifficulties. Control over suppliers' and othershort-term and medium-term foreign credits hasoften proved weak in both debtor and creditorcountries.

The Fund has been fully aware of the difficul-ties that member countries encounter in stabiliz-ing their economies after a prolonged period ofinflation but has concluded that the Fund's pur-poses would be better served by supportingmembers' efforts, even though success in over-coming the difficulties was not always certain, inorder to encourage progress toward stability. Byproviding its resources in the form of stand-byarrangements, the Fund has enabled countries toinitiate the process of correcting maladjustmentsand attaining sound and sustained growth. Anumber of countries have succeeded in this withina reasonable period, particularly when there hasbeen an adequate exchange rate adjustment and asubstantial improvement in the internal financialsituation. Past experience indicates that, wherebottlenecks in important sectors of the economyexist, stabilization measures should be accom-panied by an investment policy designed to re-move these bottlenecks in order to foster a quickexpansion of output, which could also contributeto a strengthening of the balance of payments.The implementation of such an investment policyrequires the timely provision of long-term re-sources from abroad in suitable form. The Fundhas been prepared to provide its own resources inthe expectation that countries enabled to adoptappropriate stabilization policies would be moresuccessful in attracting such long-term resources.



Role of a Central Bank

Since its inception, the Fund has been inti-mately associated with the establishment, reor-ganization, and operation of central banks in de-veloping countries. As early as 1946, theGovernment of Ecuador requested the Fund toprovide an expert mission to advise on monetaryand banking reforms. Since then, the Fund hasreceived many requests for technical assistance inthe establishment or reorganization of centralbanks in developing countries. These requests be-came particularly numerous following theachievement of independence by a number ofAfrican countries. By 1964, the prospect that thisphase of the Fund's work would become activeled to the establishment of a Central BankingService, to provide advice on problems arising inconnection with the establishment of new centralbanks, and through which experts could be madeavailable to assist newer central banking institu-tions in various specialized fields. The experiencethat the Fund has gained suggests certain obser-vations on the proper role of a central bank in adeveloping economy, the instruments of monetarypolicy that it may use to fulfill this role, and theconstitutional provisions that are most likely tomake its policies effective.

The first and simplest observation to be madeis that each country is unique, and that it wouldbe impossible to establish a "standardized" cen-tral bank in any country with a standard set oflegal provisions. Similarly, while the constitutionsof existing central banks are usually examinedcarefully when the laws for new banks are beingdrafted, it has never been found possible for anycountry to adopt, without amendment, institution-al arrangements that have proved appropriate inanother country.

It is generally accepted that monetary policyought to play a part in fostering economicgrowth. In the search for rapid development, it issometimes thought that expansionary credit poli-cies can markedly accelerate the pace of develop-ment. In the developed countries, the expansionof output that can be obtained by resort to aneasy credit policy is rather limited; in the less de-

veloped countries, the corresponding limits areeven narrower. In general, the developing coun-tries have relatively low incomes and consequent-ly a limited capacity for savings. They have also arelatively undiversified and inelastic productivesystem that responds only slowly to demandscreated by an active credit policy. In these cir-cumstances, the monetary authorities are con-stantly reminded of the line between inflation andloss of international reserves on the one side anda slow rate of growth on the other, particularly ineconomies where a considerable part of consump-tion is provided through imports, and where in-creases in consumption tend to be promptlyreflected in the balance of payments position.

Within these circumscribed limits, monetarypolicy is highly important in these countries.While the low levels of income make it impossi-ble for savings to be high, the fraction of thecommunity's saving that takes the form of in-creases in money balances is usually larger in apoor than in a wealthy country. The readiness ofthe public to increase its holdings of moneymakes resources available to the monetary sys-tem, on the basis of which credit can be extendedto the government, the business sector, and otherborrowers. As long as the growth in the volumeand the composition of the stock of money creat-ed by the monetary system are compatible withthe desires of the community to hold larger mon-ey balances, the financial and economic condi-tions in the country will remain stable. If, how-ever, the monetary system extends credit moregenerously to public or private borrowers and thegrowth of money exceeds this limit, their pur-chases of goods and services will be stimulated.This in turn will encourage a rise in output ifcapacity is available; but if domestic demand isalready commensurate with the economy's supplycapabilities, a further increase will lead only to arise in prices or a disproportionate increase in im-ports. It may also be noted that a readier availa-bility of credit and a higher degree of internalliquidity may tend to discourage borrowingabroad and encourage the outflow of funds. Therole of the central bank may be viewed againstthis background as ensuring that the rate of



monetary expansion is neither too low nor toohigh for the maintenance of internal and externalstability.

Such an increase in money will be associatedwith an increase in the assets of the monetarysystem on which the financing of developmentmay be based. However, there are some pressingclaims on credit so created if development is tobe soundly based. A growing economy requireslarger international reserves, and a part of the in-creasing central bank credit will be absorbed inthis way, for, even if the government holds thecountry's international reserves, the central bankis usually called on to finance these holdings. Thefinancing of these reserves—together with theprovision of working capital in the form of inven-tories of raw materials, work in progress, andstocks for sale—is likely to absorb much of theadditional bank credit that can safely be createdby the banking system in a developing country.

Provided that these limits are observed, mone-tary policy implemented by a central bank canmake an important contribution to the long-rundevelopment of an economy. While most aspectsof monetary policy may be considered as being ofa relatively short-term nature, the flexible pursuitof policies designed to maintain monetary stabili-ty over successive short-term periods can contrib-ute to a general economic atmosphere that is con-ducive to progress. If this atmosphere ismaintained, a central bank can provide leadershipin the development, and improvement in theoperations, of other financial institutions.

In developing countries that have a fairly ex-tensive banking system, one of the prime respon-sibilities of the central bank can be to convincethe other banks of its willingness to cooperatewith them and of the essentiality of their cooper-ating with it. If this extensive banking system isindigenous to the country, one of the main rolesof the central bank may be to provide guidancefor its improvement. If the system consists essen-tially of a group of branches of foreign bankspredominantly interested in the financing of for-eign trade, the central bank may seek to encour-age them to direct their attention more towarddomestic investment opportunities, or may con-

sider it desirable to foster the growth of otherfinancial institutions, such as development banks.In other developing countries, where the bankingsystems are only in an early stage of develop-ment, one of the main problems facing a centralbank may be to foster the growth of an efficientprivate banking system as well as other financialinstitutions.

Instruments of Monetary Policy

There are a number of monetary policy instru-ments that a central bank may use to meet theproblems outlined above. Many of these instru-ments may be adapted both to foster monetarystability and to encourage the flow of credit tothe financing of specific desirable investments. Ingeneral, it may be suggested that the first of theseobjectives should usually have precedence, butthe directional effects and possibilities of individ-ual policy decisions should not be disregarded.

In many developing countries, the desire of thecommunity to borrow is heavy and may be ratherinsensitive to changes in interest rates, unlessthese are pushed to heights that might be regard-ed as exorbitant. If the country is undergoing aninflation, the rate of interest, if it is to be effec-tive, may have to be higher still. Interest ratesmay therefore exert a weaker influence in someof these economies, and greater weight must begiven to more direct action on credit than insome of the more developed countries. Neverthe-less, the general level of interest rates and thedifferentials between rates for different uses ofcredit still exert an influence, of which advantageshould be taken when framing policies. In partic-ular, while the effect of interest rates on domesticborrowing and lending desires may be relativelyweak, they may exert a stronger influence on theinflow and uses made of foreign capital.

In countries where the banks are accustomedto borrow from the central bank, the total volumeof bank assets may be influenced by directly con-trolling the total amount of central bank redis-counts. (Open market operations, such as areused in some industrial countries, are not practi-



cable in most primary producing countries in theabsence of an adequate securities market.) Givena strong demand for credit, the central bank caninfluence the banks by quantitative controls overits credit to them, and this type of rediscount pol-icy may be one of the most effective instrumentsfor implementing monetary policy.

Rediscount policy may also be used toinfluence the flow of credit toward desirable uses.If the central bank gives favorable treatment, orlimits its rediscounts, to the refinancing of certaintypes of bank loan, the banks will be encouragedto lend for these purposes. Rediscounting policiesthat distinguish between different types of trans-action may thus encourage those types of ac-tivity that the authorities wish to foster. Inorder to serve a useful purpose, however, theymust be carefully devised and efficiently adminis-tered.

Many less developed countries have also re-sorted to methods of monetary control which donot involve changes in bank assets. The most di-rect method is the imposition by the monetaryauthority of ceilings on the credit which commer-cial banks may grant to the public. Such ceilingsmay be imposed either in absolute amounts or bythe use of formulas such as limits on increasesover the amounts recorded for past periods. Themethod of ceilings is undoubtedly effective andwell suited for selective controls, but its wide ap-plication is open to two risks: arbitrariness in se-lection where the authorities have free discretion,or rigidity where the ceilings are tied firmly topast performance.

In many countries the technique of variable re-serve requirements has proved the most effective.Changes in the required ratio may be used as aninstrument of monetary policy, since increases inthe required reserves will act as a restraint onbank lending and decreases will serve to encour-age the expansion of bank credit. However, insome countries the liquidity ratios remain ratherstable and in some their main purpose appears tobe to channel credit toward certain users—suchas government, public enterprises, and agricultur-al producers—by recognizing their debt instru-ments as liquid assets.

When a monetary system has been allowed toget out of control, firm measures are required torestore financial stability. The reduction of a gov-ernment's deficit may take time, and, in the inter-im, even the declining deficit will continue to pro-vide expansionary pressures. A marked reductionin central bank credit to the banks may imposesevere strains on individual institutions whose ac-counts are already under pressure as a result ofthe stabilization program. Under these circum-stances, a general raising of reserve requirementsmay be the most effective means of putting con-tractionary pressure on the monetary system. Al-ternatively, high marginal reserve requirements,i.e., high minimum reserve ratios applied againstincreases in deposits, as distinct from the absolutelevel of such deposits, may be an appropriatemethod of applying effective pressure without im-posing a strain on the system. These instruments—ceilings on credit and variable reserve ratios—have proved to be particularly effective in dealingwith crisis or near-crisis situations. They may,however, also be applicable after an effectivemonetary stabilization program has been carriedthrough. Such a program may result in a restora-tion of confidence, resulting in a return of capitalfrom abroad and an inflow of new foreign invest-ment, which will rebuild reserves. If these flowsare large they may have an expansionary impacton the economy.

Relations with the Government

One of the thorniest problems that have arisenin practically every discussion of the statutes fornew central banks, or of the revision of existinglaws, has been that of the relation between a cen-tral bank and its government. It is generallyagreed that, as the government has a responsi-bility for encouraging the development of itscountry's resources and for seeking the highestattainable level of employment and rising real in-comes, it must also be accountable for monetarypolicy. At the same time, there is broad agree-ment that a central bank should possess asufficient degree of independence to enable it towin and maintain public confidence in the na-



tion's monetary system and to give objective ad-vice to the government. This problem has been amatter of concern in the older industrializedcountries as well as in the newly independentcountries, and provisions defining the relationsbetween central banks and their governmentsdiffer widely. The Fund's experience suggests thatthis is one of the aspects of central banking legis-lation where great weight must be given to na-tional needs and traditions. It is important, how-ever, that close consultations between the centralbank and the government be ensured, so that thebank may be able to make its views known ongeneral economic policy questions well beforeany decisions are made. It is easier to preventaction being taken that would impair a country'smonetary position than it is to reverse such ac-tion.

Foreign Reserves

The mobilization and management of acountry's international reserves is a traditionalduty of the central bank. In part, the allocation ofthis duty to the central bank arises from the tra-dition calling for a gold reserve to guarantee theconvertibility of the national currency. Hence, toensure public confidence in the note issue it issometimes required that the central bank main-tain a high proportion of its assets in gold andforeign exchange. This provision has often beenincluded at the request of the bank itself, toshield it from pressures for excessive monetaryexpansion. It is not, however, clear that it is inthe best interests of a developing country to im-mobilize an important part of its foreign reserves.For one thing, this reduces the reserves availablefor meeting balance of payments difficulties.Moreover, by limiting the monetary liabilities ofthe central bank, a statutory reserve requirementintroduces an absolute ceiling to the money sup-ply which may hamper rather than strengthen thecentral bank's efforts to deal with emergency situ-ations. Generally, the authorities should leave acertain degree of flexibility to the central bank todetermine the appropriate level of its foreign as-sets as one element, even though a very impor-

tant element, in the spectrum of monetary policyobjectives.

Commercial Banking by Central Banks

The desirability of a central bank performingcommercial banking functions is a subject aboutwhich there has been much argument. Whilemany long-established central banks originated ascommercial banks, they have practically allstriven voluntarily to divest themselves of theircommercial banking activities, and by the end ofthe 1930's it was widely accepted that this was aproper attitude for a central bank. Yet many ofthe central banks established since World War IIhave commercial banking departments.

It has been contended that commercial bankingoperations give a central bank opportunities tocorrect gaps and distortions in the credit system.For example, there is often a shortage of bankingfacilities, especially in the more remote and lesspopulated regions of developing countries. Com-mercial banks often concentrate on short-termfinancial operations in the main centers, to theneglect of the credit needs of other areas. Thecentral bank may seek to alleviate these problemsby engaging in commercial banking. In addition,it is sometimes maintained that commercial bank-ing operations enable the central bank to obtainfirst-hand knowledge of economic conditions.

Yet it should be recognized that commercialoperations by a central bank may retard the de-velopment of a sound banking system and makethe implementation of monetary policy moredifficult. Commercial banks can grow only if busi-nesses and individuals are willing to hold depositswith them. In a community with relatively fewbanks, the largest or most respected of them islikely to be the most attractive to depositors. Aslong as the central bank accepts deposits fromnonfinancial institutions, therefore, it may serveto discourage the growth of deposits in otherbanks. Much more important is that the conductof commercial business by the central bank islikely to antagonize existing banks, despite anyassurances that a central bank may give that itscommercial banking department will not compete



"unfairly." The existence of such a departmentmay lead to a conflict of interest between the cen-tral bank's responsibilities for supervising themonetary system and its desire to engage inprofitable lending operations. Moreover, if a cen-tral bank ventures into less attractive fields inorder to overcome an apparent shortage of creditin these areas, it may find itself with a relativelyilliquid portfolio that will hamper its flexibility.

This problem has been encountered in a numberof countries in recent years, and there have beenseveral instances—most recently in Brazil—where, in recognition of these considerations, thecommercial banking and central banking func-tions have been assigned to separate institutions.Where these functions continue to be combined,it appears desirable that the arguments for sepa-rating them should be given further consideration.


Chapter 4

The Fund in 1965/66HIS chapter reviews briefly the main features

of the Fund's work in the past fiscal year.Further details, and statistical tables, are givenin Supplementary Note A on pages 123-34.

During the past year, the Fund completed20 years of work. On December 27, 1945, theArticles of Agreement were brought into forceby the signature of representatives of 29 countries,whose quotas amounted to the requisite 65 percent of those annexed to the Articles. The in-augural meeting of the Governors convened atSavannah, Georgia, on March 9, 1946, and thefirst meeting of the Executive Directors in Wash-ington on May 6, 1946.

Membership

Two countries became members of the Fundduring the year 1965/66: Malawi, on July 19,1965, with a quota of $11.25 million, andZambia, on September 23, 1965, with a quota of$50 million. Indonesia withdrew from the Fundon August 17, 1965. On April 30, 1966, thenumber of members was 103 and the aggregateof their quotas, as a result of the general increasein quotas and special increases for certainmembers, described below and enumerated inTable 49 (p. 125), was $19.4 billion.

The Board of Governors approved terms andconditions for the admission to membership ofSingapore, with a quota of $30 million. Applica-tions for membership have also been receivedfrom Malta and from British Guiana, which, onits attainment of independence on May 26, 1966,became known as Guyana.

Executive Directors

A list of the Executive Directors and AlternateExecutive Directors and their voting power on

April 30, 1966 is given in Appendix I, andchanges in membership of the Executive Boardduring 1965/66 are shown in Appendix II.

Increases in Fund Resources

The general 25 per cent increase in quotas forall members and special increases for 16members recommended in the Executive Direc-tors' Report of February 26, 1965, entitled "In-creases in Quotas of Members—Fourth Quin-quennial Review," was approved by the Board ofGovernors in Resolutions Nos. 20-6 and 20-7adopted on March 31, 1965.1 With effect fromFebruary 23, 1966, the Fund determined thatmembers having not less than two thirds of thetotal quotas in effect on February 26, 1965 hadconsented to increases in their quotas, in accord-ance with these Resolutions. Consequently, theincreases in the quotas of those members that hadconsented and had paid their additional subscrip-tions on or before February 23, 1966 becameeffective on that date. The increases of membersthat have consented since that date became effec-tive upon payment by the member concerned of25 per cent of the amount of the increase in goldand the remainder in the member's own currency.The Executive Directors extended the period forconsents by members under these Resolutions toJuly 31, 1966.

By April 30, 1966, 78 members, having 73.2per cent of the total quotas on February 28,1965, had consented to increases in their quotasunder these Resolutions. Among these, 17 electedto have their increases in five annual installments.Several other members are awaiting the comple-tion of legislative or other governmental actionbefore giving consent. Three members have indi-cated that they do not intend to take up the in-

!See Annual Report, 1965, pages 31-34 and 124-32.

33

T



crease, and the consent of one has been with-drawn.

Before the increase in quota to which a mem-ber consents becomes effective, the additionalgold and currency subscriptions must be paid.By April 30, 1966, such payments had been madeby 67 members, including 9 that had electedto have their increases in installments. Whenall the expected increases in quotas have takeneffect, the total of quotas will be $20.9 billion. Alist of changes effected in Fund quotas during thefiscal year, including increases for certainmembers under the Compensatory Financing De-cision,2 is given in Table 49, page 125.

The Executive Directors decided on March 9,1966 that the Fourth Quinquennial Review ofQuotas, undertaken in 1964 as required by Arti-cle III, Section 2, of the Fund Agreement, hadbeen completed.

The Executive Directors' Report of February 26,1965 provided that a member consenting to aquota increase under the First Resolution mightrequest a drawing for an amount not exceeding25 per cent of the increase in its quota. Fordrawings within the gold tranche, the establishedgold tranche policy and procedure would be ap-plied. For drawings beyond the gold tranche, thisfacility would be available where the memberrepresented that it would encounter undue pay-ments difficulties by the payment of its gold sub-scription. This representation must be made with-in six months after the date of the member'sconsent to the increase in its quota, or after Feb-ruary 23, 1966, whichever is the later. ByApril 30, 1966, 18 members had availed them-selves of this facility; total purchases amountedto $217.8 million (Table 50, p. 126).

The Report also described two arrangementsadopted by the Fund to mitigate the secondaryimpact of the additional gold subscriptions, i.e.,the gold purchases which might be made bymembers in connection with their subscriptionsfrom those members whose currencies are used asreserve currencies.

Under the first arrangement the Fund maysuggest that certain drawings up to the equivalentof $150 million be made in currencies which theFund would then replenish by the sale of goldunder Article VII, Section 2(ii), of the FundAgreement up to the amount of the drawings. Inaccordance with this arrangement, the Fundhas sold gold totaling the equivalent of$147 million to Germany for replenishment ofthe Fund's holdings of deutsche mark by anequivalent amount in connection with the pur-chases of deutsche mark equivalent to $122.5million by the United Kingdom, $9.5 millionby Pakistan, $7.5 million by the United ArabRepublic, and $7.5 million by Yugoslavia; and ithas sold gold equivalent to $937,500 to Belgiumfor replenishment of the Fund's holdings of Bel-gian francs by an equivalent amount in connec-tion with the purchase of Belgian francs equiva-lent to $937,500 by Burundi.

The other arrangement was adopted to providea further alleviation of the impact of gold pur-chases made from the reserve currency membersin connection with quota increases under the twoResolutions. Under this arrangement, the Fundmay make general deposits of gold totaling notmore than the equivalent of $350 million with itsdepositories in the United States and the UnitedKingdom, viz., approximately $250 million in theUnited States and $100 million in the UnitedKingdom. By April 30, 1966 the Fund had madegeneral deposits of gold equivalent to $181 mil-lion in the United States and $39.7 million in theUnited Kingdom.

The Executive Directors, on October 15, 1965,approved a four-year renewal of the Fund's Gen-eral Arrangements to Borrow, which enables theFund to supplement its resources by borrowingup to $6 billion in the currencies of 10 ofits industrialized members (Belgium, Canada,France, Germany, Italy, Japan, the Netherlands,Sweden, the United Kingdom, and the UnitedStates).3 These arrangements first went into effecton October 24, 1962, for a four-year term. Therehas been no change since the last Annual Report

2 Selected Decisions of the Executive Directors andSelected Documents (third issue, Washington, January1965, hereafter cited as Selected Decisions), pages 40-43.

3 Executive Board Decision 1289-(62/l), adoptedJanuary 5, 1962 (Selected Decisions, pp. 56-66).


THE FUND IN 1965/66 35

in the sums borrowed under the General Arrange-ments; these are set out in Table 52, page 128.The renewal will date from October 1966 andwill be reviewed in the light of further experienceprior to October 1968.

Fund Transactions

Purchases and Stand-By ArrangementsThe past fiscal year was the most active in the

Fund's history. Financial assistance was extendedto more members than in any previous year. Salesof currency reached a new record, totaling theequivalent of $2,817.3 million (Table 50) andthe stand-by arrangements agreed during the yearamounted to the equivalent of $575.4 million(Table 51, p. 127). The Fund extended financialassistance, either through direct purchasetransactions or in the form of stand-by arrange-ments, to the United Kingdom, the United States,and 35 nonindustrial countries. The UnitedKingdom and the United States accounted forover 73 per cent of total purchases. All the stand-by arrangements agreed during the year werewith nonindustrial countries. Of the members re-ceiving financial assistance, 14 were in the West-ern Hemisphere, 10 in Africa, 7 in Asia and theMiddle East, 5 in Europe, and 1 in Oceania.

The largest purchase during the fiscal year wasmade by the United Kingdom late in May 1965;it comprised 11 currencies, totaling the equivalentof $1,400 million. In connection with thisdrawing, the Fund purchased 10 members' cur-rencies with gold for a total equivalent to $400million, borrowed the equivalent of $525 millionin 8 currencies under the provisions of the Gener-al Arrangements to Borrow, and provided theequivalent of $475 million from its own hold-ings.4 Switzerland, in response to a call from theFund under Switzerland's agreement with theFund,5 made available to the United KingdomSwiss francs equivalent to $40 million. As notedabove, the United Kingdom also drew the equiva-lent of $122.5 million from the Fund in connec-tion with the increase in its quota.

4 See Annual Report, 1965, Tables 50 and 51, page108.

5 See Annual Report, 1964, pages 138-40.

The second largest purchase, made by theUnited States late in July 1965, consisted of 5currencies, totaling the equivalent of $300 mil-lion. This was thQ first drawing by the UnitedStates of currencies which were not intended tofacilitate repurchases by other members of theFund. Since February 1964 the Fund's holdingsof U.S. dollars have been above 75 per cent ofthe U.S. quota, which (as explained in earlier Re-ports 6) has precluded the Fund from acceptingU.S. dollars in repurchases from members. Fromtime to time, therefore, the United States has pur-chased other currencies from the Fund and madethem available for U.S. dollars at par to memberswho keep their international reserves mainly inU.S. dollars and who have had to make repur-chases from the Fund. During the year endedApril 30, 1966, the United States purchasedCanadian dollars equivalent to $250 million forthis purpose. Altogether the United States haspurchased currencies from the Fund for this pur-pose equivalent to $850 million. By April 30,1966, 24 members had availed themselves of thefacility offered, and had purchased currenciestotaling the equivalent of $847 million. The useof these currencies by these members in repur-chases had the effect of restoring the Fund's hold-ings of the currencies sold to the United Statesfor this purpose. Meanwhile, other members havecontinued to purchase U.S. dollars from theFund, and these purchases, together with othermovements of U.S. dollars, reduced the UnitedStates' outstanding balance of drawings to $564million on April 30, 1966.

Purchases by Ireland and New Zealand consti-tuted the first use by these members of the Fund'sresources. The Fund agreed to a drawing by Ire-land equivalent to $22.5 million in January 1966,to support the country's reserve position in a pe-riod of balance of payments difficulties. New Zea-land purchased currencies equivalent to $62 mil-lion in November 1965 to help to finance acurrent account deficit in its balance of paymentsand to provide support for the Government's pol-icy of import liberalization.

6 See Annual Report, 1964, page 11.



The purchase of the equivalent of $11.25 mil-lion by the Sudan in June 1965 was made underthe Fund's Decision on Compensatory Financing.The Sudan was the third member to draw underthis decision; the other two purchases were madeby Brazil for the equivalent of $60 million inJune 1963 and the United Arab Republic for theequivalent of $16 million in October 1963.

For members in need of financial assistancefrom the Fund, the stand-by arrangement hascontinued to be a valuable instrument. During theyear, currencies amounting to $327 million werepurchased by 16 members under stand-by ar-rangements. Details of the arrangements in forceduring the year are given in Table 51, page 127.These arrangements were all for a period of oneyear, except that for Turkey, which was for 11months. Stand-by arrangements were approvedfor the first time for Panama and Rwanda.

Repurchases

During 1965/66 total repurchases amounted tothe equivalent of $406 million (Table 53, p. 128).Of the 29 members that made repurchases, 12were in the Western Hemisphere, 7 in Africa, 8in Asia and the Middle East, and 2 in Europe.Most repurchases were made on dates when re-payments became due in accordance with sched-ules to which members had committed them-selves, either at the time of their purchases fromthe Fund or later. In a number of instances therepurchase was preceded or immediately followedby a purchase from the Fund of a correspondingamount. Improvements in the monetary reservesposition of several members enabled them tomake repurchases before the expiration of the pe-riod for which their drawings had been madeavailable.

On the other hand, 9 members experiencedbalance of payments difficulties and were unableto meet their repurchase commitments to theFund when they fell due. For 7 of thesemembers, the Executive Board agreed to new re-purchase schedules permitting repurchases notlater than 5 years from the date of purchase. Thecommitments of 6 members were related to pur-

chases made under stand-by arrangements with un-dertakings to repurchase within 3 years from thedate of purchase, and that of one member relatedto a repurchase commitment under an agreedschedule. Two members were permitted to post-pone payment of their repurchase obligations in-curred under Article V, Section 7 (ft), of the Ar-ticles of Agreement as at April 30, 1965, tocoincide with scheduled repurchases. In addition,for one member that had not repurchased within3 years of the date of purchase, the Fund agreed,in compliance with Executive Board DecisionNo. 102-(52/11),7 to a repurchase scheduleproviding for repurchase within the subsequent2 years.

The currencies to be used in the discharge ofrepurchase obligations arising under Article V,Section 7(£), are determined on the basis of pro-visions contained in the Articles of Agreement.For other repurchases, and for purchases, thecurrencies to be used are selected in accordancewith the statement on Currencies to Be Drawnand to Be Used in Repurchases approved by theExecutive Directors on July 20, 1962.8 Relativelysmall drawings and drawings for payment of thegold subscription of quota increases are normallyexecuted in the currency in which the drawingcountry customarily holds most of its reserves.

Purchases and repurchases during the fiscal yearare classified by currency in Table 54 (p. 130), inwhich the drawings by the United Kingdom andthe United States are shown separately. TheFund's holdings of pounds sterling on April 30,1966 were equivalent to 176.2 per cent of theU.K. quota; and those of U.S. dollars to 85.9 percent of the U.S. quota. The Fund's holdings ofdeutsche mark, expressed as a percentage of themember's quota, became the lowest Fund holdingof any currency, falling to 3 per cent on April 30,1966. During the year there was a net use equiv-alent to $20 million of Australian dollars, $94million of Belgian francs, $112 million of Cana-dian dollars, $25 million of Danish kroner, $140

7 Adopted February 13, 1952 (Selected Decisions,pp. 21-24).

8 Executive Board Decision No. 1371-(62/36);Selected Decisions, pages 33-39.


THE FUND IN 1965/66 37

million of French francs, $64.5 million ofdeutsche mark, $333 million of Italian lire, $15million of Japanese yen, $4.5 million of Mexicanpesos, $81 million of Netherlands guilders, $29million of Spanish pesetas, and $37 million ofSwedish kroner.

Relations with World Bank

The Fund and the World Bank, which have aspecial relationship, have been seeking during theyear to increase the extent of their cooperation.In one area, that relating to the coordination ofaid, representatives of the Fund participated in ageneral meeting held under the auspices of theBank during the Annual Meetings of the Boardsof Governors in September and in meetings ofconsultative groups and consortia which havebeen convened to consider aid coordination forindividual countries. Staff contacts, already closeand continuous, are being extended to mis-sions as well as at headquarters, to avoid the pos-sibility of duplication of work within theinstitutions and on the part of the member gov-ernments in their dealings with the Fund and theBank, and to ensure that member countries arereceiving advice which is broadly based and con-sistent.

During the past year, also, the Fund and Bankhave cooperated closely in an effort, with whichthe OECD has also been associated, to improvethe documentation on the debt position of theprimary producing countries, including privatedebts and any short-term and medium-term obli-gations.

Technical Cooperation

During the year the Fund has continued toserve its members by assigning staff officers to anumber of countries for periods ranging from afew weeks to more than one year. As in previousyears many of these assignments were in responseto members' requests for technical advice on avariety of problems. Missions of several personsand individual staff officers have advised member

countries on the formulation and implementationof monetary, exchange, and fiscal policies, thepreparation of central banking legislation, the or-ganization of central banks, and the developmentof financial statistics. Fund representatives arealso sent to member countries to assist in imple-menting programs related to stand-by arrange-ments approved by the Fund for the membersconcerned. In the fiscal year 1965/66 staffofficers were made available on longer-term as-signments to 16 members.

In another area of service to member coun-tries, the Fund has continued to expand its pro-grams of technical assistance under which expertsfrom outside the staff are engaged by the Fund toserve as advisors or executive officers in thecountries requesting assistance. In the last yearthe Central Banking Service has provided 22 ex-perts for assignment to the central banks of 15members, many of them filling senior executiveposts, including those of Governor and GeneralManager. Similarly, the Fiscal Affairs Depart-ment has provided 5 experts to 5 members toadvise on fiscal policies, tax administration, andbudgetary problems. In addition the Fund hascontinued to provide 6 experts to the DemocraticRepublic of Congo.

The success of these technical assistance pro-grams is dependent largely on the availability ofsuitable experts for employment by the Fund.The older and more experienced central banksand Treasuries have helped generously by releas-ing highly qualified and often quite senior officersfor assignment by the Fund. This is much appre-ciated. In a few instances it has been possible forthe Fund to use experts for more than one assign-ment. Within the limits of availability the Fundwill endeavor to meet the requirements of all itsmembers. Nevertheless, it is evident that the needfor trained personnel will continue to be greaterthan the supply.

The IMF Institute

During its second year of existence, the IMFInstitute, which was established in May 1964 to



centralize and expand the Fund's training activi-ties, developed its programs considerably.

In 1965, the Institute organized two courses onFinancial Analysis and Policy: the first one,which began on March 15 for a 20-week period,was conducted in English and was attended by 20officials from central banks and Finance Minis-tries of member countries. The second course,which occupied 10 weeks beginning on Octo-ber 15, was given in French to 18 participants,most of whom came from French-speaking Afri-can countries. These courses drew extensively onthe experience gained by the Fund in its contactswith member countries. During September andOctober 1965, the Institute also held a 6-weekcourse in English on balance of payments method-ology.

In January and February 1966, the Instituteorganized a special course on the Fund's policiesand activities, conducted in English, to which anumber of selected governments were invited tosend one high-level official each. Twelve countriesaccepted the invitation. During the first half of1966, the Institute provided its first courses inbalance of payments methodology in French andin Spanish. The latter course was held in San Sal-vador, at the request of the Central AmericanMonetary Council. The regular course in Englishon Financial Analysis and Policy was repeatedduring 20 weeks beginning March 14, 1966.Twenty-seven participants, broadly representativeof all areas of the world, attended this course.

During the first two years of its existence, theIMF Institute, while organizing a variety ofcourses, was also seeking the best ways to de-scribe to selected officials from member countriesthe Fund's organization and activities, as well as

the basic principles of economic analysis and pol-icy formation which underlie the Fund's work.Considerable progress has been made in this di-rection.

The major task of the IMF Institute has beento prepare and present, in English and in French,the regular courses on Financial Analysis andPolicy. These courses have been, and will con-tinue to be, the backbone of the Institute's activi-ties. It is intended to extend in the future theduration of these courses, especially the one inFrench. The Institute has also organized, in coop-eration with the Fund's Balance of Payments Di-vision, special courses in English, French, andSpanish on balance of payments methodology. Itis planned to extend the duration of these coursesfrom 6 to 8 weeks. Plans are under way to organ-ize, for the first time, a course on public finance,which will be given in the spring of 1967 with thehelp of the Fund's Fiscal Affairs Department.

During March and April 1966, the Institutemoved into new offices and acquired expandedliving quarters for its participants. This additionalspace will make it possible not only to increasethe length of the courses, when necessary, but alsoto receive more than one group of participants ata time.

As now scheduled, the program for 1966-67will comprise four courses. There will be twocourses on Financial Analysis and Policy, the firstto be conducted in French from September 6 toDecember 21, 1966, and the second in Englishfrom March 6 to July 21, 1967. A course, inEnglish, will be given on balance of paymentsmethodology from January 4 to February 24,1967. The course on public finance will be con-ducted in English from May 15 to July 7, 1967.


Part II

REVIEW OF THE YEAR


Chapter 5

World Trade, Payments, and Reserves

World Trade

Cyclical Pattern of World Trade

THE growth of international trade, which hadbeen very rapid in 1963 and early 1964,

slackened during 1964 and continued to lose mo-mentum in the early months of 1965. In thesecond half of 1965, however, trade expandedwith renewed vigor, sparked by the upswing ofdemand in most of the countries in the EuropeanEconomic Community (EEC) and by the con-tinued growth of the U.S., Canadian, and Germanmarkets.

This cyclical pattern is clearly indicated in Ta-ble 3. From the first half of 1964 to the first halfof 1965, the value of world exports grew by 7 percent. This was the lowest growth rate (betweencorresponding half years) since the first halves of1962 and 1963 (when it was 6 per cent), andonly half the peak rate of growth achieved be-tween the first halves of 1963 and 1964. But thedownward trend that began in the second half of1964 appeared to be reversed in 1965: world ex-ports in the second half of 1965 were about 9 percent higher than in the corresponding period of1964.

The cycle can be observed in the data for eachcountry group included in Table 3 (industrialcountries and two groups of primary producingcountries), even though, in any one period, therates of growth of exports from each area werequite disparate. The export growth of the moredeveloped primary producing countries was sub-ject to much wider fluctuations than was that ofeither the industrial or the less developed coun-tries. From the first half of 1963 to the first halfof 1964, exports of the more developed primaryproducing countries increased by 20 per cent;their exports in the first half of 1965, however,showed no increase over the first half of 1964.

Table 3 also shows percentage changes in ex-port unit values; the growth in exports in con-stant prices is approximately indicated by thefigures in part A in the table less the corre-sponding figures in part B. It can be seen that,for both groups of primary producing countries

TABLE 3. GROWTH IN TOTAL VALUE AND IN UNITVALUE OF EXPORTS FROM MAJOR AREAS, 1963-65(In percentage changes from same period of preceding year)

1963 1964 1965

Secondhalf

Firsthalf

Secondhalf

Firsthalf

Secondhalf

World *Industrial countries2

Primary producingcountries

More developed 3

Less developed 4

World iIndustrial countriesPrimary producing

countriesMore developed 5

Less developedExcluding

petroleumexporters

1213

177

31

94

5

A.1415

2011

B.31

83

5

Total export value1012

68

Export22

12

3

79

05

unit value12

—41

1

911

76

11

0<

6

Sources: International Monetary Fund, International FinancialStatistics, and United Nations, Monthly Bulletin of Statistics,April 1966.

1 Excludes Soviet countries, Mainland China, Cuba, and In-donesia.2Canada, EEC, EFTA (except Portugal), Japan, and UnitedStates.3 Other developed countries in Western Europe (Finland, Greece,Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia),Australia, New Zealand, and South Africa.4 All other countries except the Soviet countries, Mainland China,Cuba, and Indonesia.5 Excludes the trade of Iceland, Turkey, and Yugoslavia, forwhich no data were available. These three countries accountedfor 12 per cent of the exports of the more developed primary pro-ducing countries in the base year 1958.

6 Insufficient data.

(especially the more developed countries), thedecline in growth of export values from the yearended June 1964 to the year ended June 1965 isassociated with a parallel weakening in prices, sothat their export growth fluctuated less in volumethan in value. Even in terms of volume, however,the exports of the more developed primary pro-

41



ducing countries grew only half as fast in the yearended June 1965 as they had a year earlier.Changes in the terms of trade are discussed inChapter 7.

In the industrial countries, the growth in unitvalue of exports was quite different, showingsome acceleration in the year ended June 1965.The fluctuation in growth of industrial countries'exports is, if anything, more marked in terms ofvolume than in terms of value.

Table 4 shows the growth in imports of thesame groups of countries over the same period asTable 3. The import data suggest that the slowingdown and acceleration of the growth of tradeduring 1964-65 were strongly influenced by de-

TABLE 4. GROWTH IN VALUE OF IMPORTS INTOMAJOR AREAS, 1963-65

(In percentage changes from same period of preceding year)

World iIndustrial countries3

Primary producingcountries

More developedcountries *

Less developedcountries 4

1963

Secondhalf

1013

15

2

1964

Firsthalf

1416

17

8

Secondhalf

1010

16

10

1965

Firsthalf

76

17

6

Secondhalf

912

12

2

Sources: See Table 3.1 Excludes Soviet countries, Mainland China, Cuba, and

Indonesia.2Canada, EEC, EFTA (except Portugal), Japan, and UnitedStates.3 Other developed countries in Western Europe (Finland, Greece,Iceland, Ireland, Portugal, Spain, Turkey, and Yugoslavia), Aus-tralia, New Zealand, and South Africa.4 All other countries except the Soviet countries, MainlandChina, Cuba, and Indonesia.

mand in the industrial countries. The imports ofthe latter countries were only 6 per cent higher inthe first half of 1965 than in the correspondingperiod of 1964, and in general the growth of theirimports fluctuated more widely than that of theirexports. The more developed primary producingcountries maintained a very high rate of importgrowth through the first half of 1965, in spite ofthe leveling out of their export earnings in theyear ended June 1965. During this period the im-ports of the less developed countries were alsogrowing strongly, in response to the boom in theirexport earnings in 1963-64. Both these develop-ments helped to sustain the export growth of theindustrial countries. From the second half of1964 to the second half of 1965, the growth of

industrial countries' imports accelerated sharply.Their exports grew more slowly, however, as theless developed primary producing countries (andto a lesser extent the more developed ones) ad-justed their import expansion to the decelerationin their export earnings during the previous year.

Chart 2 shows changes in the trade balances of

CHART 2. TRENDS IN TRADE BALANCES OFMAJOR AREAS, 1962-65 *

(Change from same period of preceding year,in billions of U.S. dollars)2

1 Based on customs data. Exports f.o.b. minus importsc.i.f.

2 Plus (or minus) sign indicates a decrease (or in-crease) in trade deficit or an increase (or decrease) intrade surplus.

3 The totals may represent a combination of at leastthree factors: (a) changes in the balance of the tradeof Soviet countries and Mainland China with the restof the world; (b) changes in expenditures on insuranceand freight (an increase in such expenditure wouldappear as a minus change in the chart); (c) changes in"errors and omissions."

the major areas. In the two half-yearly periodsended June 1964, the industrial countries experi-enced a rapid expansion of demand, which, coin-ciding with buoyant prices for primary products,was reflected in a deterioration in their collectivetrade balance; this deterioration was matchedprincipally by an improvement in the trade bal-ance of the less developed primary producingcountries. The slowdown in economic activity in


WORLD TRADE, PAYMENTS, AND RESERVES 43

the industrial countries during the second half of1964 and the first half of 1965, in combinationwith a weakening of primary product prices,caused the industrial countries' balance of tradewith the rest of the world to improve markedly.These gains were matched mainly by lossesamong the more developed primary producingcountries. While the trade balance of the less de-veloped countries also deteriorated in the secondhalf of 1964 (compared with the precedingyear), there was little further weakening in thefollowing period; seemingly, the less developedcountries, as a group, were adjusting to events inindustrial countries by early in 1965. Later in theyear the trade balance of the less developed coun-tries improved greatly; the prior trend of im-provement in the industrial countries was re-versed; and the balance of the more developedprimary producing countries' trade again deterio-rated, although by a smaller amount than in thetwo previous periods.

Among the industrial countries, trends in ex-ports, imports, and trade balances were ratherdisparate. As can be seen in Chart 3, Japan andthe countries in the EEC other than Germany ac-counted for most of the improvement in the tradebalance of the industrial countries in the yearended June 1965. The trade balances of Ger-many and of the United Kingdom deterioratedduring this period. The small decline in the indus-trial countries' trade balance in the second half of1965, compared with the second half of 1964,seems to be accounted for by Germany, the Unit-ed States, and Canada. The balances of Japanand of the EEC countries excluding Germanycontinued to improve, although there is evidenceof a downturn in the balances of most EEC coun-tries from the first to the second half of 1965.

The trends in exports and imports underlyingChart 3 are presented in Chart 4. In this chartthe acceleration of industrial countries' importgrowth suggested by Table 4 can be illustrated inmore detail. The seasonally adjusted series arenot corrected for the U.S. dockworkers' strike,which distorted trade from the fourth quarter of1964 through the early months of 1965. Theacceleration in import growth in the course of

1965 appears primarily in the series for the UnitedStates and for EEC countries other than Ger-many. The rapid growth of Germany's imports,which helped to sustain the growth of tradethroughout 1964 and early 1965, was maintainedvirtually throughout 1965 (although the decline

CHART 3. SEASONALLY ADJUSTED TRADE BALANCES OFSELECTED INDUSTRIAL COUNTRIES, 1961-FiRST

QUARTER 1966 *

1 Based on customs data. For United States andCanada, both exports and imports are f.o.b. For allother countries, exports are f.o.b. and imports are c.i.f.

2 Exports exclude military shipments. Imports refer togeneral imports.

3 U.S. dockers' strike.

ill growth of imports in the early months of1966 may indicate a change in trend). The im-ports of the countries in the European FreeTrade Association (EFTA), excluding the Unit-ed Kingdom, also grew at a virtually constant ratethroughout 1964-65. The imports of Japan andthe United Kingdom showed little increase during1965.

(Monthly averages in millions of u.s. dollars)



Direction of Trade in 1964-65

Annual trends in the growth of trade amongmajor areas are indicated in Tables 5 and 6. Al-most all the series show a slowing down in thegrowth of trade from 1964 to 1965, and in mostcases the peak growth achieved since 1962 was in1964.

8 per cent. The value of exports of the more de-veloped primary producing countries to the in-dustrial countries fell slightly, while trade in theopposite direction increased by about 15 percent. Trade between the less developed primaryproducing countries and the industrial countriesgrew at about the same rate in each direction in1965; this rate was somewhat less than that at

CHART 4. SEASONALLY ADJUSTED EXPORTS AND IMPORTS OF INDUSTRIAL COUNTRIES, 1961-FmsT QUARTER 1966x

ifiased on customs data. For United States and Canada, both exports and imports are f.o.b. For all other countries,exports are f.o.b. and imports are c.i.f.

2 Exports exclude military shipments. Imports refer to general imports.3 U.S. dockers' strike.

In 1965 the value of trade among industrialcountries increased by about 11 per cent. Bycomparison, the trade of the industrial countrieswith the world as a whole increased by about 10per cent, and the growth of world trade was only

which world trade in general increased, and muchless than the rate of growth of the industrialcountries' trade among themselves. Exports ofboth groups of primary producing countries tothe Soviet countries and Mainland China grew

(Monthly averages in millions of u.s. dollars)



very rapidly in 1965, whereas industrial coun-tries' exports to this area increased very littleover the 1964 total (which was 30 per centgreater than that in 1963). The acceleration of

TABLE 5. GROWTH IN VALUE OF EXPORTS FROM MAJORAREAS, BY MAJOR AREAS OF DESTINATION, 1962-65

(In percentage changes from preceding year)

Primary ProducingCountries

ExportsFrom

Industrialcountries 2

Year

19621963196419658

Indus-trial

Coun-tries

8101311

Morede-

veloped

6131615

Lessde-

veloped

2597

SovietCoun-tries,etc.1

55

302

World

59

1310

Primary producing countriesMore

developed

Lessdeveloped

World «

1962196319641965s

196219631964s

1965s

196219631964s

1965s

41012

—16

1096

710129

315207

11169

10

6141514

53

1391585

—1597

—43215224

—61723

36

2410

4111335896

59

128

Sources: International Monetary Fund and International Bankfor Reconstruction and Development, Direction of Trade; Inter-national Monetary Fund, International Financial Statistics, andstaff estimates.

1 Soviet countries, Mainland China, and Cuba.2 Excluding military exports from the United States.3 Preliminary estimates.4 Excluding Soviet countries, Mainland China, and Cuba.

the less developed primary producing countries'trade with the Soviet countries and MainlandChina, ovet the period 1962-65, seems especiallynoteworthy.

Table 6 presents further details of the growthof the trade among selected industrial countriesand between these countries and other majorareas. Exports of the more developed primaryproducing countries to most of the industrialcountries or areas selected declined somewhatfrom 1964 to 1965, and the increases in suchexports to the United States and "other EFTA"countries were small, relative to the growth ofthese countries' imports from all sources. On theother hand, the growth of the exports of each ofthe selected industrial countries to these more de-veloped countries was more rapid than that oftheir exports to the world as a whole.

The growth of trade between the industrialcountries and the less developed countries wasmuch less even. With the United States, Canada,and the United Kingdom, trade grew rather slow-ly or not at all. But between the less developedcountries and the EEC, EFTA (excluding theUnited Kingdom), and Japan, exports in each di-rection grew at least as fast as world-trade gener-ally. The U.S. and Canadian shares of world ex-

TABLE 6. GROWTH IN VALUE OF EXPORTS FROM SELECTED COUNTRIES AND AREAS, BY DESTINATION, 1965(In percentage changes from 1964)

Exports to

Industrial Countries

Exports From

Industrial countriesUnited States2-8

CanadaJapanUnited KingdomOther EFTA

countriesEEC countries

Total s

Primary producing countries4

More developedLess developed

World, excludingSoviet countries, etc.1'4

UnitedStates

133521

152020

65

14

Canada

15

297

292916

—31

14

Japan

1—5——12

—16—13—3

—49

2

UnitedKingdom

1—2

4

—342

—4—1

0

OtherEFTACoun-tries

112286

151010

410

10

EECCoun-tries

212332

81310

—18

9

primary PrrtHiifinoCountries

Total

69

317

91211

—16

9

Moredeveloped

107

3210

142015

710

14

Lessdeveloped

00

225

11107

95

7

SovietCoun-

tries, etc.1

—59—32

1419

8212

2223

10

World

35

277

101310

36

8

Sources: See Table 5.1 Soviet countries, Mainland China, and Cuba.2 Excludes military exports.3 The recorded value of U.S. exports in 1965 to individual countries includes trade in certain nonmilitary items which, for securityreasons, had not been reported in U.S. sources prior to January 1965. Staff estimates of this trade, for each country or area in thetable, except the "World," have been deducted from the 1965 export figures before computation of the growth rates. For the world market,comparable data, including all nonmilitary exports, were available (this growth rate, together with the estimated rates, implies nomarked change in nonmilitary special categories, as defined in 1964).

4 Preliminary estimates.



ports to the less developed countries fellmarkedly, while the corresponding shares of theEEC, EFTA (excluding the United Kingdom),and Japan rose. Conversely, apart from industrialmarkets in North America, the less developedcountries broadly maintained their share of worldexports to industrial countries.

pares unfavorably with 1964 (when the U.S.share increased by about 2 per cent) and with1963 and 1962. France did not appreciably in-crease its export share in 1965 as a whole, inspite of the relative ease in domestic demand pre-vailing there; however, from the second half of1964 to the corresponding period of 1965,

Export Growth and Market Growth

Table 7 compares the growth of each industrialcountry's exports in each of the last two yearswith the average growth in the market for its ex-ports. The latter is equivalent to the growth ofexports that each industrial country would haveachieved if it had maintained its share of all in-dustrial countries' exports to each of 23 marketareas. The difference between a country's "mar-ket growth" and its actual export growth approxi-mates the percentage change in its average exportshare.

From 1964 to 1965, Japan, Italy, and Belgium-Luxembourg increased their shares of foreignmarkets, and the United Kingdom, Canada, theUnited States, Sweden, and the Netherlands failedto maintain their shares. Japan and Italy had alsoincreased their shares in 1964, but by not somuch as in 1965. The United Kingdom's sharefell less in 1965 than it did in 1964, and betweenthe second halves of the two years its share wasalmost maintained. The reduction in the UnitedKingdom's share in 1965 was distributed ratherevenly among the major market areas (in con-trast to rather more concentrated losses in1963-64), although U.K. exports to the EECcountries, Australia, New Zealand, and SouthAfrica continued to be particularly weak. Thegrowth of exports from the United States in 1965(3 per cent) was much the lowest of any indus-trial country, but the growth of the market forU.S. exports was also relatively low. Thus the de-cline in its export share was less than that whichmight be inferred from a comparison of its actualexport growth with the export growth of all in-dustrial countries (Table 6). Even so, the growthof exports from the United States in 1965 relativeto the growth in the market for its exports com-

TABLE 7. INDUSTRIAL COUNTRIES: GROWTH OF EACHCOUNTRY'S EXPORTS RELATED TO AVERAGE GROWTH

IN ITS EXPORT MARKETS, 1964 AND 1965 *(In percentage changes from preceding year or same period of

preceding year)

1964 1965

1965SecondHalf

Countries which

JapanItalyBelgium-

Luxembourg

Marketgrowth

Export Market Exportgrowth growth growth

increased their averaje shares1964 to 1965

1414

15

23 1317 12

15 12

Countries which broadly maintainedmarkets from 1964

2720

15

Market Exportgrowth growth

of markets from

11 2012 17

13 17

their average shares ofto 1965

AustriaDenmarkFranceGermanyNorwaySwitzerland

101411131612

91111112010

121111101112

111012111212

121011111113

11

16121313

Countries which failed to maintain their average shares of marketsfrom 1964 to 1965

NetherlandsSwedenUnited States 2

CanadaUnited Kingdom

1515121912

171514194

1210

6-831013

108357

139

8-10 «1412

10748

11

Source: Based on data in International Monetary Fund andInternational Bank for Reconstruction and Development, Directionof Trade. Some of the export data for the United Kingdom aretaken from the Board of Trade, Overseas Trade Accounts of theUnited Kingdom.

1 For the purpose of this analysis the world has been dividedinto 23 markets, consisting of 14 industrial countries, 8 groups ofprimary producing countries, and the Soviet countries and Main-land China. The rate of growth in the market confronting eachexporting country is taken to be the growth in each marketweighted according to the share of the country's exports takenby each market in the preceding year. Except for the Sovietcountries and Mainland China, the growth in each market is takento be the growth in exports of all industrial countries to thatmarket area. For each exporting country, the growth of themarket in the Soviet countries and Mainland China is equated withthat country's actual export growth to that market.2 Nonmilitary exports.

3 The growth of the market for U.S. exports in 1964-65 is espe-cially difficult to estimate as a result of a reclassification of certainU.S. exports from "special categories" to exports allocated bycountry of destination.

France's share increased by 5 per cent. AlthoughGermany maintained its export share on the aver-age for all markets, its share of the markets inmost of the industrial countries fell.

The marked differences in export performanceof the industrial countries were associated withthe widely divergent trends in domestic demand(summarized in Chapter 6). In some countries



these trends were reflected in marked changes inprice competitiveness. Table 8 shows percentagechanges in the ratio of each industrial country'sindex of export unit values to the average unitvalue of other industrial countries' exports. Thecountries whose share of exports increased substan-tially—Japan, Italy, and Belgium-Luxembourg— all improved their competitive positionby this criterion between the first three quartersof 1964 and the corresponding period of 1965.Of the countries for which a decline in price com-petitiveness is recorded in Table 8, the United

TABLE 8. INDUSTRIAL COUNTRIES: CHANGES IN THERELATION BETWEEN EACH COUNTRY'S EXPORT UNIT

VALUE AND THE AVERAGE UNIT VALUE OF OTHERCOUNTRIES' EXPORTS, 1964 AND 1965(In percentage changes from preceding year J)

Relativeimprovement

Little change3

Relativedeterioration

1964

Japan — 2.5Canada —0.5

United States —0.5Germany — 0.5Italy —0.5

AustriaUnited Kingdom

Belgium-Luxembourg 0.5

Denmark 1.5Sweden 1.5Netherlands 1.5France 2.0Switzerland 2.0Norway 2.5

1965*

Japan — 3.0Belgium-

Luxembourg — 3.0Italy —2.5Denmark —1.5France —1.5

AustriaCanadaNorwayUnited Kingdom

Germany 0.5Switzerland 0.5Netherlands 0.5Sweden 1.0United States 2.0

Source: Based on unit value indices published in United Na-tions, Monthly Bulletin of Statistics.

1 Percentage change in the ratio of each country's index ofunit value of total exports (in dollars) to the combined index forindustrial countries. Figures greater than 0.5 rounded to thenearest Vi per cent.

2 January-September.3 Less than Vi per cent.

States had by far the most substantial de-terioration — about 2 per cent; moreover, asimilar result is obtained if unit value ratios arecalculated on the basis of manufactured exportsalone. (Calculations for 1961-62, 1962-63, and1963-64 show moderate improvements in U.S.price competitiveness, whether manufactured ex-ports or total exports are used.) The relative ex-port unit value of the United Kingdom appearedto remain unchanged in 1965, as it did in 1964.In relation to manufactured exports alone, U.K.price competitiveness deteriorated somewhat ineach of these years.

International Private Capital Movements

The pattern of international capital move-ments, and of international financing on interna-tional security markets, altered greatly during1965. The capital outflow from the United Stateswas sharply diminished during the year, largely asa result of the U.S. voluntary balance of pay-ments program. One of the most interesting de-velopments was a decrease in the second half of1965 in the transfers of direct investment fundsto Europe, concurrently with an actual increasein investment by U.S. businesses, made possibleby increased financing from European capitalmarkets. Part of this finance took the form ofsecurity flotations in Europe, accounting for apart of the increase in international issues whichis discussed in Chapter 6. The net export of pri-vate capital on short-term as well as long-termaccount from the main industrial countries to theless developed primary producing countries ap-pears to have been lower in 1965 than in 1964,but, taking into account also errors and omissions(which are believed to include important amountsof unrecorded capital transfers), the net balanceof payments position of the latter countries oncapital account improved slightly.

The broad pattern of international capitalmovements in recent years is indicated in Table9. These transfers have been, and continue to be,the source of a number of difficulties for thesmooth working of the international adjustmentprocess.

Historically, most private long-term capitalmovements have taken the form of a flow offunds from a more highly developed country, pre-sumably with a lower current marginal efficiencyof investment, to a less highly developed, capital-scarce country, with a presumably greater currentmarginal efficiency of investment. In recent years,the United States, and to a lesser extent the Unit-ed Kingdom, have been the most important netsources of long-term investment funds. However,the less developed primary producing countrieshave not been the most important recipients ofthese resources. As a group their net receipts oflong-term capital have been matched in rough



orders of magnitude by the receipts of the indus-trial European countries (other than the UnitedKingdom), by those of Canada and Japan, andby those of the more developed primary produc-ing countries. That is, the capital-scarce nationsseem to have received only a little more than onefourth of the flow of long-term funds in recentyears. The flows between the major industrialcountries have not only been large, but in someimportant cases they have been disequilibrating,in the sense that they provided additional sourcesof reserve accumulation for countries with largebalance of payments surpluses.

TABLE 9. BALANCES ON PRIVATE CAPITAL ACCOUNT,ANNUAL AVERAGES, 1961-64 x

(In millions of U.S. dollars)

Long- Short- ErrorsTerm Term and

Capital Capital2 Omissions Total

Industrial countriesMain capital exporters

United StatesUnited Kingdom

TotalOther European

countriesCanada and Japan

Total

—3,670—200

—3,870

940790

—2,140

—740—180—920

41560095

—95020

—930

1,12020

210

—5,360—360

—5,720

2,4751,410

—1,835

Primary producing countriesMore developedLess developed

Total

Discrepancy

7651,1451,910

—230

204060

155

125—385—260

—50

910800

1,710

—125

1 Includes reinvested earnings where data are available.2 Includes liquid liabilities to foreign private creditors (in-cluding commercial banks).

The pattern of private long-term capital move-ments in 1965 was similar to that of recent years.But, largely as a result of the reactions of U.S.banks and other financial institutions to theguidelines for their foreign lending activities an-nounced in March, the direction of U.S. netshort-term capital flows changed to an inflow forthe year as a whole (Table 29, p. 94). Thishad a counterpart in marked changes in flows ofcapital in a number of other countries.

In 1965, there was a large increase in theoutflow of capital from Italy, Japan's net capitalaccount changed from an inflow to an outflow,and the inflow into France and the Netherlandswas much reduced (Table 10). On the otherhand, inflows into Germany and Canada in-

creased markedly. On balance, the flow to conti-nental Europe was drastically reduced.

In large part, these changes resulted from thereversal of the direction of short-term capitalmovements between the United States and Eu-rope during the first three quarters of 1965, andof changes in the volume of U.S. direct invest-ment financing. Although total U.S. direct invest-ment was larger in 1965 as a whole than it was in1964 (Table 11), transfers in the second half ofthe year were lower than they had been in thesame period of the previous year. Transfers ofdirect investment funds to Europe slowed down,but there was a sharp rise in investments inCanada, prompted by the buoyant state of theCanadian economy. Canadian direct investmentabroad changed very little from 1964 to 1965 (seeTable 31, p. 96).

After allowing for the liquidation by the U.K.Exchange Equalization Account of about $500million of U.S. corporate securities, and for thesale of $203 million of securities by domesticaffiliates of foreign subsidiaries of U.S. firms,1

portfolio transactions in U.S. and foreign securi-ties resulted in an outflow of capital in 1965 fromthe United States. Part of this outflow representedthe switching by nonresidents out of U.S. domes-tic securities into higher-yielding U.S. securitiesissued on foreign markets. The decline in long-term bank lending abroad accounted for a moreimportant element of improvement in the U.S.capital account. Altogether the outflow of U.S.long-term capital other than direct investmentand net portfolio security transactions declined bymore than $1 billion. While the voluntary balanceof payments program was a powerful influenceleading to this improvement, the restraints ondomestic credit expansion also made a positivecontribution.

1 The U.S. balance of payments data record the saleof securities by such affiliates as sales by U.S. firms.To the extent that the proceeds of these issues weretransferred to the subsidiaries (approximately $80 millionin 1965) they are recorded as direct investment; to theextent that they are held for subsequent transfer to thesubsidiaries (approximately $120 million in 1965) theyare recorded as short-term capital outflows. However,when these latter amounts are eventually transferred theywill constitute an addition to the outflow on directinvestment account.



TABLE 10. SELECTED INDUSTRIAL COUNTRIES: BALANCES ON PRIVATE CAPITAL ACCOUNT, 1964 AND 1965


Main capital exporting countriesUnited StatesUnited Kingdom

Selected industrial Europeancountries 2

BelgiumFranceGermanyItalyNetherlands

Canada and JapanCanadaJapan

Total

1964

-6,001-5,599

-402

1,408224549559

-367443

1,147689458

-3,446

1965

-3,596-3,845

249

352118169

1,212-1,212

65

5031,186-683

-2,729

1964

Fourthquarter

-3,396-2,517

-879

11172

200380

758

165322

-157

-2,492

1965

Firstquarter

-748-763

15

-308-46

96-86

-260-12

427296131

-629

Secondquarter

-1,046-849-197

39710423

469-311

112

147335

-188

-502

Thirdquarter

-190-252

42

42666

594-636-44

-186202

-388

-370

Fourthquarter

-1,612-2,001

389

25734

-16235-5

9

115353

-238

-1,240

Sources: International Monetary Fund, Balance of Payments Yearbooks, and data supplied by national authorities.1 Private long-term and short-term monetary and nonmonetary sector capital, and errors and omissions.2 Includes some foreign private investment in domestic government securities.

The reversal of the direction of U.S. net short-

term capital flows was primarily the product of

two influences. In the second and third quarters

of the year, the repatriation of short-term assets

was the predominant factor. A large part of this

flow evidently reflected the repatriation of Euro-

dollar assets held with Canadian banks and re-

lent by them to non-Canadian debtors. During

the year, there were also marked changes in pri-

vate foreign holdings of short-term dollar assets.

In the last quarter of 1964 there had been a largeincrease in these holdings, mainly as a counter-

part to the withdrawal of sterling balances from

London. In the first half of 1965, these dollar

TABLE 11. UNITED STATES: DISTRIBUTION OF DIRECT INVESTMENT, 1963-FmsT QUARTER 1966


Western Europe

Canada

Other WesternHemisphere

Japan

Australia, NewZealand, andSouth Africa

Other 2

Total

1963

924

365

236

68

108

275

1,976

1964

1,368

239

268

78

136

327

2,416

1965

1,432 i

895

260

21

171

592

3,371

1964

Fourthquarter

390

202

102

14

44

163

915

1965

Firstquarter

545

241

73

16

63

210

1,148

Secondquarter

413

146

90

-8

80

215

936

Thirdquarter

127

185

-21

8

22

98

419

Fourthquarter

347

323

118

5

6

69

868

1966

Firstquarter

230

210

45

7

45

29

566

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.1 Including $80 million borrowed in Europe by U.S. companies and transferred to their European subsidiaries.2 Africa, Asia, and Eastern Europe.



holdings rose only marginally. In the thirdquarter of 1965, they rose markedly. This in-crease reflected the rise in Canadian and U.K.assets offsetting the increases in their Euro-dollarliabilities, particularly to Italy. In the last quarter,outflows from the United States, some of whichwere associated with the return of short-termfunds to London, exceeded inflows. For the yearas a whole, foreign private and commercialbanks' holdings of short-term dollar claims on theUnited States increased by a little more than$400 million, compared with a rise of $1.8 billionin 1964. The deceleration of the upward trend ofthese short-term capital movements may probablybe explained in part by the marked reduction inthe U.S. short-term capital outflow noted above.Because the placement of foreign funds in theUnited States is influenced by foreign borrow-ings of dollars, the relative decline in the latterseems partly to have offset the effect of the rise inthe covered U.S. short-term interest rate relativeto interest rates in other markets (U.K. interestrates even declined).

The other major capital exporter, the UnitedKingdom, also changed its stance during 1965.The outflow of U.K. funds reached a peak duringthe sterling crisis late in 1964. Thereafter, short-term capital returned on a small scale in the firstquarter of 1965 and, after an outflow in the sec-ond quarter, the inflow was resumed in the sec-ond half of the year. Private U.K. long-term in-vestment was cut back after the second quarter of1965, largely as a result of government restric-tions imposed during the year, although there wassome bunching of oil company investments in thethird quarter.

Partly as a consequence of the measures takenby the Government and the Bundesbank to re-strain inflation, the high level of demand on theGerman capital market could not be accommo-dated by the banking system. At the same time,there was a large increase in the flow of inter-national capital to Germany, particularly in thelatter half of 1965. So far as long-term capitalwas concerned, however, this was mainly due toprivate direct investments. The net capital inflow

in 1965 was near to $1.2 billion, of which nearly50 per cent was errors and omissions, trade creditbeing a major element; in the third quarter of theyear these transfers even reached an annual rateof $2.4 billion.

On the other hand, there was a reduction inthe inflow of long-term private capital to Franceand an outflow of short-term funds from France,resulting, as noted above, in a substantially re-duced inflow on private capital account. In 1964there had been a net inflow of $500 million.

The Italian balance on private capital accountchanged more than that of any other Europeancountry. Italy looks forward to a fairly steadyinflow of long-term capital in the long run. Yet,in the third quarter of 1965, net private capitalexports exceeded an annual rate of $2.5 billion.Medium-term export credits were an importantpart of the outflow during the year, but.it wasdominated by an accumulation of short-term as-sets (chiefly in the Euro-dollar market) by Ital-ian banks. This latter movement was encouragedby the Italian authorities for reasons outlined inChapter 6.

A part of the repatriation of U.S. short-termcapital represented a running-off of credits pre-viously extended to Japan. In part, this was asso-ciated with the less rapid expansion of the Japa-nese economy and the consequent slowing downof the rise in imports into Japan. At the sametime, Japan provided increased short-term financ-ing to purchasers of its exports.

For the less developed primary producingcountries as a whole, foreign long-term privatecapital receipts, according to the statistics ofthese countries, were much the same as in 1964and above their 1962 and 1963 levels. The netloss was offset by an apparent reduction inthe net outflow of short-term capital from thesecountries. The comparisons of annual receipts aredominated by changes in the flow of capital fromthe United States; in 1965 this flow (on short-term as well as long-term account) was approxi-mately $500 million smaller than in 1964, butalmost $700 million greater than in 1963. Theaggregate flow from European countries was ap-proximately the same as in 1964.



Balance of Payments Developments

Current Account and "Basic" Balances

For most countries the changes from 1964 to1965 in the net position on current account(defined here as the balance on account of goodsand services and private transfer payments) were,as is usual, explained by changes in trade bal-ances. The most notable developments were asfollows:

(1) A sharp decline (of $1.6 billion) in thecurrent surplus of the United States, to $6.0 bil-lion, a level which was still much higher than inmost previous years except 1964. The large fallin the trade surplus was mitigated somewhat byan improvement on services account, as a sharprise in income received on investments more thanoffset higher payments on account of travel andother services.

(2) A return to current balance in the UnitedKingdom, from a deficit of $0.7 billion in 1964.In each of the three years prior to 1964, therehad been surpluses on current account. For eachquarter of 1965, the current balance was morefavorable than in the corresponding quarter of1964, and there was also a substantial improve-ment from the first half to the second half of theyear.

(3) A rise of about $0.9 billion in the currentsurplus of the EEC countries, with increased sur-pluses occurring in each country except Germany.The $1.6 billion deterioration in the current ac-count position of Germany was matched by theincrease in Italy's surplus alone.

(4) A change of $1.4 billion, from a currentaccount deficit to a record surplus of $1.0 billion,in Japan. Most of the 1965 surplus was earned inthe second half of the year, which is seasonallymore favorable than the first half.

(5) A rise of about $0.7 billion in the currentaccount deficit of Canada; the deterioration con-tinued through most of the year.

(6) A rise of about $1.3 billion in the currentaccount deficit of the primary producing countriesas a group, owing to a deterioration of the posi-tion of the more developed primary producers.

The less developed countries as a group seem tohave recorded a slight improvement. Althoughseasonally makes interpretation of the figures forthe primary producing countries difficult, therewas little indication of an easing of their collec-tive position as the year progressed.

The major factors underlying the changes incurrent account positions as shown in Chart 5were associated with the developments in tradediscussed above, and thus to a considerable de-gree with the variation from country to country inthe degree of economic expansion and pressure ofdomestic demand. Among the major countries,the largest improvements on current account oc-curred in the two countries, Italy and Japan,which experienced the most pronounced slack intheir domestic economies. The improvement inthe current account position of France was alsoassociated with mildly recessionary tendencies inits domestic economy. In contrast, the UnitedStates and Canada, in which expansionary forceswere particularly strong, each experienced a con-siderable worsening of its current account, andthere was a similar development in Germany. Thereduction in the current deficit of the UnitedKingdom was associated in part with the tempo-rary surcharge on imports.

The EEC countries as a group again exhibitedconsiderable strength. From the first to the sec-ond half of 1964, there was a sharp rise in thearea's current surplus, and this improvement wasapproximately maintained in both halves of 1965(Table 12). The influence of seasonal factors inthe figures cannot be assessed precisely but theyare more favorable in the second half than in thefirst half of the year, suggesting that, on a season-ally adjusted basis, the current surplus reached itspeak in the first half of 1965. The improved posi-tion of the EEC countries other than Germany isto a considerable extent the counterpart of theGerman deficit, but collectively the EEC coun-tries were in a position of strength throughout1965.

Changes in flows of government capital and aidand private long-term capital were generallymuch less spectacular than those in current trans-actions. This can be seen from Chart 5, which



TABLE 12. EEC COUNTRIES: BALANCE OF PAYMENTS SUMMARIES, 1964 AND 1965 1


Belgium-Luxembourg

France 6

Germany

Italy

Netherlands

Grand Total6

Year

First halfSecond half

Total


Total


Total


Total


Total


Total


Total


Total


Total

First halfSecond halfTotal


Total


Total

19641964

19651965

19641964

19651965

19641964

19651965

19641964

19651965

19641964

19651965

19641964

19651965

Goods,Services,

andPrivate

Transfers(1)

—469246

16040

200

5693

149

341310651

86530

895

—204—489—693

—4071,061

654

8171,4882,305

—378199

—179

—8712639

901,4751,565

1,0271,4752,502

OfficialTransfers

andCapital 2

(2)

8—26—18

—104—52

—156

—77—67

—144

—68—313—381

—690—582

—1,272

—602—392—994

—8061

—19

—7125

—20

—25

—30

—32

—859—619

—1,478

—811—747

—1,558

Other Non-monetary

Long-TermCapital

(3)

34134168

7856

134

250277527

216145361

—39191152

219259478

220182402

2—62—60

3118121

16—13

3

468902

1,370

531385916

Extraor-dinaryTrans-

actions 3

(4)

-

—

—

—179—179

83240

4—92—88

—

112

112

93342

5—270—265

BasicBalance(Cols.

1+2+3minusCol. 4)

(5)

—4200196

13444

178

229303532

489321810

128—393—265

—591—530

—1,121

—2671,3041,037

8121,4382,250

—396311

—85

—102110

8

—3101,7251,415

7421,3832,125

Other Non-monetary

Short-TermCapital andErrors andOmissions

(6)

22—616

—322

—30

27—24

3

134962

501—66435

67488

762

57—320—263

—299—355—654

9745

142

-35—172—207

704—371

333

321—388

—67

NetCommercial

BankShort-Term Net

Assets 4 Reserves 4-5

(7) (8)

23840

122

14

48—29

19

—110—144—254

1̂50463

13

—525478

—47

—344—98

—442

—272—362—634

208—20188

123146269

—536354

—182

—772120

—652

—20—232

—114—48

—162

—428—387—815

—532—176—708

—187—36

—223

43856

494

554—886—332

—241—721—962

90-337—247

13—85—72

9—1,878—1,869

—436—974

—1,410

Source: Based on data reported to the International Monetary Fund. For 1965, data for some countries are provisional and are notentirely comparable with 1964.

1No sign indicates credit; minus sign indicates debit.2 Excluding capital movements considered as reserve movements: see footnote 5.3 Included in column 2; mainly advance debt repayments, but include also repayments on post-EPU debts.5 Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in short-term liabilities of the cen-

tral monetary sector, and in IMF position. Repayments on post-EPU claims are included with official transfers and capital.6 Excluding transactions with overseas franc area, on which data are not available. The net balance of the transactions excluded isequivalent to "Transactions of the Overseas Franc Area settled through Metropolitan France," which represented credits of $124 millionin the first half of 1964, $137 million in the second half of 1964, $140 million in the first half of 1965, and $129 million in the secondhalf of 1965.

compares the so-called basic balances (i.e., bal-ances on account of current transactions, govern-ment aid, and government and private long-termcapital transactions, excluding advance repaymentof government debt) with balances on currentaccount for major countries and areas. Thefigures suggest that little progress toward a morebalanced pattern of international transactions inthese categories was achieved in 1965. In particu-

lar, there was a substantial increase in the basicdeficit of the United States and a further increasein the basic surplus of the EEC countries as agroup. For the latter, the net outflow on accountof government capital, long-term capital, andgovernment aid (about $300 million in 1965) re-mained relatively small—outflows of governmentcapital and aid being largely offset by inflows ofprivate long-term capital. Canada turned from a

—252

—2



basic surplus in 1964 to a deficit in 1965; whileJapan turned from a basic deficit to a surplus.There was a quite sharp reduction in the basicdeficit of the United Kingdom, partly the result ofreduced capital outflows. However, despite a con-siderable improvement in Switzerland, the aggre-gate basic balances for the remaining EFTAcountries (other than Portugal) moved furtherinto deficit (see Table 13).

whole, fluctuations in flows of short-term capitalare usually much more moderate, and changes inthe basic balances for the primary producingcountries from 1964 to 1965 are of considerableinterest. The hope that the measures of restrainton capital outflows introduced by both the UnitedStates and the United Kingdom would not seri-ously affect the capital receipts of the less devel-oped countries was realized in practice. Table 14

TABLE 13. OTHER INDUSTRIAL COUNTRIES IN CONTINENTAL EUROPE: BALANCE OF PAYMENTS SUMMARIES,1964 AND 1965 i


Austria

Denmark

Norway

Sweden

Switzerland

Total

Year

19641965

19641965

19641965

1964419655

19641965

196419655

Goods,Services,

andPrivate

Transfers

-1-53

-1899-1777

-67-88

20-2588

-4111-130

-6488-7066

OfficialTransfers

andCapital 2

35-12

145

15-1

-12-24

3524

87-8

Other Non-monetary

Long-TermCapital

37-28

181135

157184

2674

-80 5

-83 5

321282

BasicBalance

71-93

6-37

10595

34-2088

-4566-1899

-2400-4322

Other Non-monetary

Short-TermCapital andErrors andOmissions

949

10951

-3730

158221

769 5

-40 5

1,008311

NetCommercial

BankShort-Term

Assets 3

245

52-73

-17-39

7-11

44-78

NetReserves 3>4

-82-1

-167759

-51-86

-1999-2

-313«2296

-8122199

Source: Based on data reported to the International Monetary Fund. For 1965, the data for some countries are pro-visional and are not entirely comparable with those for 1964.

1 No sign indicates credit; minus sign indicates debit.2 Excluding capital movements considered as reserve movements; see footnote 4.3 Increase ( — ) .4 Reserve movements generally cover changes in official holdings of gold and foreign exchange assets, in short-term

liabilities of the central monetary sector, and in IMF position. Repayments on post-EPU claims and debts are includedwith official transfers and capital.

5 Covers only issues and redemptions of foreign bonds in Switzerland and long-term bank credits. Other privatelong-term capital is included indistinguishably in errors and omissions.

6 Including changes in net commercial bank short-term assets.

The "basic" balances, as here defined, are inthe nature of things only a very rough measure ofthe underlying trends in countries' balances ofpayments. This is particularly true in a year like1965, in which shifts in movements of short-termcapital not only were very large but may alsohave reflected, in part, a trend factor and, in anycase, do not appear to have included any appre-ciable element of volatile or speculative move-ments of funds likely to be reversed.

For the primary producing countries as a

shows that, for these countries, receipts of gov-ernment capital and aid on the one hand and ofprivate long-term capital on the other were notsignificantly different in 1965 from the previousyear. As a result, the basic balance of the lessdeveloped countries as a group improved in linewith the current balance. However, for the moredeveloped primary producing countries as agroup an enlarged long-term capital inflow failedto match the marked deterioration in the currentbalance.



CHART 5. SELECTED AREAS AND COUNTRIES: BALANCES OF PAYMENTS, 1958-65

1 Basic balance includes errors and omissions and small amounts of nonmonetary sector short-term capital.

(In billions of u.s. dollars)



Over-All Surpluses and Deficits

A characteristic of balance of payments devel-opments in 1965 was that changes in the move-ments of short-term capital were generally in anequilibrating direction, thereby tending to mini-mize changes in official reserves. As a result,there was a tendency for over-all imbalances ininternational transactions to be reduced from1964 to 1965, in spite of some rise in imbalanceson account of current and long-term capitaltransactions.

Table 15 provides estimates of over-all sur-pluses or deficits for all countries for which bal-ance of payments statistics are available, basedon a broadly symmetrical definition. A surplus ordeficit is defined as the balance of all transactionsother than "official settlements" (here interpretedas covering changes in official gold and foreignexchange assets, in net IMF positions, and, whereavailable, in liabilities to foreign monetary au-thorities and advance repayments of foreign debtby governments). The over-all deficit or surplusis thus equal to the basic balance plus unrecordedtransactions and all movements of short-termcapital, excluding those that constitute officialsettlements. Table 15 is based on quarterly move-ments in central reserve assets. For the reservecurrency countries, changes in monetary liabilitiesare also taken into account, but for most othercountries these data are available only on an an-nual basis. As a result, the over-all balancesshown in Tables 12, 13, and 14, which are basedon the more complete annual data, may differslightly from those shown in Table 15.

For the United States the deficit shown in Ta-ble 15 was virtually unchanged at $1.5 billion,but when allowance is made for certain specialtransactions discussed in Chapter 8, there appearsto have been a reduction in its over-all deficit.

As measured in Table 15, the U.K. deficit wasreduced in 1965 by some $1.5 billion, to $0.4billion; net short-term capital inflows were a gooddeal larger than in 1964 and reinforced the im-provement in the U.K. basic balance. For theEEC countries as a group, changes in short-termcapital movements more than offset the rise in

their basic surplus; the over-all surplus of thearea, as defined in Table 15, fell by a few hundredmillion dollars to $1.5 billion.

The transactions of the EEC countries individ-ually, and of the EEC area as a whole, are sum-marized in Table 12.

The collective over-all surplus of the EFTAcountries other than the United Kingdom andPortugal was reduced from $0.6 billion to $0.2billion. However, the changes in Switzerland's re-serves during 1965 used in Table 15 reflect theaddition of some $400 million as a result of year-end operations by Swiss banks. A similar move-ment in 1964 added some $150 million and onein 1963 some $300 million to reserves. In theabsence of these seasonal movements, the com-bined over-all balance in 1965 for the EFTAcountries other than the United Kingdom wouldhave been close to zero, compared with a surplusclose to $1 billion in 1964 (see Table 13).

Canada and Japan experienced small over-allsurpluses; in both these countries, changes inshort-term capital movements were in an equili-brating direction. In Canada, a large inflow ofshort-term capital in 1965, compared with asmall outflow in 1964, offset most of the substan-tial deterioration in the "basic" balance, so thatthe over-all balance remained in surplus, althoughat a lower level. In Japan, most of the sharpimprovement in the basic balance was offset by achange from a substantial inflow to a substantialoutflow of short-term capital, so that the im-provement in the over-all position was relativelymodest.

The primary producing countries collectivelyalso experienced a reduction in their over-allsurplus in 1965. Here net short-term capital out-flows and negative errors and omissions produceda lower aggregate over-all surplus than the basicsurplus.

Table 14, which summarizes the preliminarybalance of payments reports by these countries,supplemented by some staff estimates, suggeststhat the net outflow of short-term capital (includ-ing errors and omissions) was a little lower in1965 than in 1964. The more developed primaryproducing countries again experienced an inflow



in this respect, while there was once more anoutflow from the less developed countries, al-though both inflow and outflow were smaller thanin the previous year.

The comparison of annual figures for over-allsurpluses and deficits to some extent masks someinteresting developments during both 1964 and1965. At the beginning of 1964, the over-all posi-tions both of the United States and of the EEC

countries was quite sharply reduced. However,in the second half of 1965, an appreciabledeficit for the United States reappeared (espe-cially in the fourth quarter) and the surplus ofthe EEC countries again tended to rise. The over-all deficit of the United Kingdom, which in each ofthe first three quarters of 1965 had remaineddisturbingly high, was replaced by a surplus in thefourth quarter. These movements within the year

TABLE 14. PRIMARY PRODUCING COUNTRIES: BALANCE OF PAYMENTS SUMMARIES, 1964 AND 19651


A.

B.

C.

More developedprimary producers

19641965

Less developedprimary producers

19641965

Latin America19641965

Asia19641965

Middle East19641965

Africa19641965

Total19641965

Exportsf.o.b.(1)

11,92512,316

23,63625,195

9,98710,380

5,8646307

4,0604,508

3,7254,100

35,56137,511

Importsf.o.b. 2

(2)

—14,139—16,204

—23,150—24,290

—5,397—5,629

—8,004—8,369

—3,475—3,683

-3374—3,609

—37,289—40,494

TradeBalance 3

(Cols.1 -j- 2)

(3)

—2,214—3,888

486905

1,5901,751

—2,140—2,162

585825

451491

—1,728—2,983

Servicesand

Goods,Services,

andPrivate

Transfer Central PrivatePrivate Payments Government Long-

TransferPayments

(4)

9731,246

—4,419—4,716

— 2381—2,180

—43—40

—1,009

—1,086—1385

—3,446—3,470

(Cols.3-1-4)(5)

-1,241-2,642

—3,933—3,811

— 691-429

—2,183—2,202

—424-386

—635—794

—5,174—6,453

Capitaland Aid

(6)

286351

3,7544,004

567818

2,3322348

479418

376520

4,0404,355

TermCapital

(7)

1,0351,387

1,5951,476

809420

328189

163410

295457

2,6302,863

BasicBalance(Cols. 5through

7)(8)

80—904

1,4161,669

655809

477235

218442

36183

1,496765

OtherShort-Term

Capital(including

CommercialBanks) andNet Errors

and Omissions(9)

426219

—936-258

—268140

—420—208

—198—94

—50—96

—510—39

Total4

(Cols.8 + 9)(10)

506—685

4801,411

417949

5727

20348

—1487

986726

Source: Based on data reported to the International Monetary Fund. For 1965 data for many countries are provisional and in someinstances involve estimates by the Fund staff. Table 28, pages 84-85, shows individual country details.

1 No sign indicates credit; minus sign indicates debit.2 For a number of countries, c.i.f.3 As recorded in the official balances of payments of countries for which such data are available. The figures may differ somewhatfrom recorded exports and imports based on customs returns (which are the primary sources for the figures in Tables 3-8 and Table 27)because of various coverage, timing, and valuation adjustments made in conformity with balance of payments concepts.4 Represents net official reserve movements, including changes in reserve position in the Fund. No sign indicates over-all surplus;minus sign indicates over-all deficit.

countries collectively were close to balance. In thesecond half of the year, however, the U.S. deficitrose sharply, the EEC surplus strengthened, and alarge net outflow of short-term capital greatlyincreased the U.K. deficit. Early in 1965, actioninitiated by the two reserve currency countriesbegan to take effect. In the first half of the yearthe United States had a small over-all surplusand the United Kingdom a considerably reduceddeficit, while the over-all surplus for the EEC

were in part influenced by seasonal and randomfactors.

The quarterly movements in payments imbal-ances are illustrated in Chart 6, which shows forthe period 1958 through the first quarter of 1966the aggregate over-all deficit of all countries indeficit, and similar data for the industrial andprimary producing countries separately. It is ap-parent that payments imbalances were generally

—1,211



TABLE 15. OVER-ALL BALANCES OF INTERNATIONAL PAYMENTS, 1964 AND 19651


Industrial CountriesUnited StatesUnited KingdomEEC countries

BelgiumFranceGermanyItalyNetherlands

AustriaDenmarkNorwaySwedenSwitzerlandCanadaJapan

Total, industrial countriesPrimary Producing Countries

AustraliaFinlandGreeceIcelandIrelandNew ZealandPortugalSouth AfricaSpainTurkeyYugoslavia

Subtotal, more developedLatin American republics

ArgentinaBrazilMexicoVenezuelaOther

Middle EastOther AsiaOther Africa

Subtotal, less developedTotal, primary producingcountries

Excess of Surpluses1. Due to increase in world monetary

gold2. Due to identifiable asymmetries3

3. Due to errors and omissionsMemorandum Items

United States and CanadaIndustrial countries in continental

Europe

Firsthalf

-141-260-93-4376207

-579-93-8441454

-12224

-171-659

1333321

2610322

-23117

-47-23344141-5

-733439

146102121

-40324

6689

640-70

-561

-117

-111

19644

Secondhalf

-1,323-1,603

1,98024244724

92734097

13119

151248313132145

-6642

-139

14-81

90-40266

1030

261163

-671517755

-53-51

-149-47-84

177322

110-822944

-1,010

2,626

Year

-1,464-1,863

1,887238823231348247

8917533

205126337

-39-514

6775

-11104022

112-63383

-377

605304

-7278

111949351

-28-87240

845331

750-152-2674

-1,127

2,5155

Firsthalf

80-375

33772

428-429

277-11-34

-1383576

-114-67

5-195

-263-83-17

3-46

46-21

-201-69

27

-642142

-10133

-93-10122365

-111111507

-135-330

-35—

-2954,5

13

162

19655

Secondhalf*

-1,60317

1,15440

370-24691

77277755

-68278212127276

-94-7

-147

10-146

7678

-4710

-13-140

40213719847-424

-1918336

602

462738

285-234765

-1,391

1,5233

Year2

-1,523-3581,491

772798

-453968

66-7

-61908

16414513281

-357-90-31

10-36

-10055

-123-116

12-6

-782544727331-46-1414634672

1471,109

327408

250-23181 5

-1,378

1,6855

1 Adjusted for advance debt repayments. Over-all balances are measured here by changes in official gold and foreignexchange assets, in net IMF positions, in liabilities resulting from "swap" transactions with the United States, and, wheredata are available, in other liabilities to foreign monetary authorities. For explanation of differences between data in thistable and in the three preceding tables see text. No sign indicates surplus; minus sign indicates deficit.

2 Preliminary.3 Covers omissions from the table of one side of certain transactions, e.g., centra-entries necessary when Swiss franc

proceeds of Roosa Bonds held by the Swiss Government are utilized by the United States in purchases of U.S. dollarsfrom the Swiss National Bank, because both the bonds and the franc liabilities are included "above-the-line" in the Swissfigures.

4 Affected by changes in U.K. liabilities resulting from central bank non-dollar swap assistance to the United King-dom unmatched by changes in claims of those countries that do not include the swap sterling in their reserves.

5 Affected by the sale of some $500 million of U.S. corporate securities by the U.K. Government, which is treatedentirely "above-the-line" in the U.K. figures but partly "below-the-line" in the U.S. figures as an increase in liquidliabilities.



CHART 6. ALL COUNTRIES IN BALANCE OF PAYMENTSDEFICIT, AGGREGATE DEFICIT, 1958-FmsT QUARTER 1966

quite low during 1965 compared with other years

in the period examined.

Reserve Developments

A particularly striking development in interna-

tional transactions during 1965 was the unusual

pattern of changes in reserves. The increase in

world reserves was only about half the annual

average for the preceding decade, as a result of

the interplay of a number of factors working in

opposite directions. The major cause was that

large withdrawals of dollar balances by one group

of countries more than offset accumulations by

others.

Tables 16 and 17 give details of reserves at the

end of each year from 1962 to 1965 and of

changes in reserves during 1964 and 1965 by half

TABLE 16. COUNTRIES' OFFICIAL RESERVES, INCLUDING RESERVE POSITIONS IN THE IMF, END OF CALENDAR YEARS,1962-65 i

(In billions of U.S. dollars)

1962 1963 1964 1965

HoldersIndustrial countries

United StatesUnited KingdomOther 2

Primary producing countriesMore developed 3

Less developedTotal

CompositionGoldIMF positions — gold tranche

— lending under GAB 4

Claims on United States 5

Claims on United Kingdom 6

Identifiable asymmetries 7

Other 8

48.9317.22

3.3128.4014.135.348.79

63.06

39.273.80

—12.556.22

—1.22

50.5516.84

3.1530.5615.966.779.79

66.51

40.233.94

—13.926.53

—1.89

52.3016.67

2.3233.3116.606.719.89

68.90

40.893.750.41

14.947.05

-0.081.94

53.1415.45

3.00034.6917.095.95

11.11170.23

41.9444.4550.93

14.8226.755

-0.6221.966

Sources: International Monetary Fund, International Financial Statistics, and staff estimates.1 Excluding Soviet countries and Mainland China.2 Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland.3 Other Western Europe, Australia, New Zealand, and South Africa. Includes also Luxembourg, unpublished gold

reserves of Greece, and an estimate of gold to be distributed by the Tripartite Commission for the Restitution ofMonetary Gold.

4 Sums borrowed by Fund under General Arrangements to Borrow.5 Covers short-term liquid liabilities to central banks and governments; foreign official holdings of U.S. Government

marketable securities; and foreign official holdings of U.S. Government long-term nonmarketable securities for thosecountries that are believed to include such holdings in their reserves figures.

6 Covers liabilities to foreign central monetary authorities, including inter-central-bank assistance.7 Covers assets arising from Swiss assistance to the United Kingdom, held by the Swiss Confederation ($0.08 billion

in December 1964 and $0.12 billion in December 1965), and sales by the United Kingdom of U.S. corporate securities($0.5 billion in December 1965).

8 Including claims on countries other than the United Kingdom and the United States (including Euro-dollar claims),currency deposits with the Bank for International Settlements, and net errors and omissions.

(In millions of u.s. dollars)



years. The changes in world reserves during 1965were as follows:

United StatesUnited KingdomOther Group of Ten countriesOther industrial

SubtotalMore developed primary producing

countries

SubtotalLess developed primary producing

countries (preliminary)

Total

Amount inmillion

U. S. dollars

-1,222+688

+ 1,222+ 152

+840

-7355

+ 105

+ 1,225

+ 1,330

The main sources of the increases in reservesduring the year were (1) reserve creationthrough Fund transactions, reflected in in-creases in Fund reserve positions of $1,220 mil-lion and Fund net gold sales of $310 million, (2)

an increase in world monetary gold holdings of$250 million, and (3) a rather large reserve ac-cumulation in the less developed primary produc-ing countries, mainly in the form of foreign ex-change. The U.S. balance of payments deficit didnot, as has been usual, contribute to an increasein world reserves because on balance it was notfinanced by an increase in foreign dollar holdings.

The industrial and more developed primaryproducing countries collectively achieved only avery small accumulation of reserves, so that thetotal increase in world reserves exceeded onlyslightly that of the less developed countries. Forthe latter countries, the increase in reserves ex-ceeded somewhat their aggregate over-all surplus(Table 15), the difference representing their netuse of Fund resources.

The use of Fund resources by the United King-dom in 1965, amounting to about $1,390 million,net of Fund sales of sterling, substantially exceed-

TABLE 17. INDUSTRIAL AND MORE DEVELOPED PRIMARY PRODUCING COUNTRIES: CHANGES IN RESERVES, BY AREAS,SEMIANNUALLY, 1964 AND 1965 *


Group of Ten

1964First half

Foreign exchangeGoldReserve position

in IMFTotal

Second halfForeign exchangeGoldReserve position

in IMFTotal

1965First half

Foreign exchangeGoldReserve position

in IMFTotal

Second halfForeign exchangeGoldReserve position

in IMFTotal

UnitedStates(1)

—3027

—249—252

250—152

-1781

114—1,163

139—910

231—242

—304—315

UnitedKingdom

(2)

92—45

249

—86—303

—491—880

38690

476

17339

212

EuropeanEconomic

Com-munity

(3)

—330340

6171

831550

5131,894

—1,7561,291

653188

47320

379746

Other 2

(4)

—256115

40—101

197116

233546

—30599

22317

18563

22270

Total(5)

—524437

—146—233

1,192211

2381,641

—1,561317

1,015—229

636180

97913

OtherEurope

(6)

159—146

3649

587201

53841

—888351

59—478

104335

439

Australia,New

Zealand,and

SouthAfrica

(7)

227—12

215

—162—25

—187

—248—195

25—418

—17751

—21—147

Total(8)

—138279

—11031

1,617387

2912,295

—2,697473

1,099—1,125

563566

761,205

Total(excl.

UnitedStates and

UnitedKingdom)

(9)

—200297

137234

1,453842

7993,094

—3,1971,546

960—691

159769

3801,308

EstimatedChangein Col. 9

inAbsence

of SpecialAssistanceto UnitedKingdom

(10)

—200297

137234

1,200600

2502,050

—2,9501,150

160—1,640

159769

3801,308

Source: International Monetary Fund, International Financial Statistics.1 The sum of the half-yearly figures may differ slightly from annual figures that can be derived from Tables 16 and 18, because the area

totals shown in the latter include some unpublished data.2 Canada, Japan, and Sweden.



ed the U.K. over-all deficit in 1965, and enabledthe United Kingdom to strengthen its reserves by$689 million. During the year the U.K. Govern-ment sold about $500 million of securities in theUnited States, but the proceeds were not added toreserves until 1966. In February 1966, a total of$885 million from such sales, including some in1966, was so added.

During 1965 there were some quite markedchanges in countries' reserve holdings, by type(Table 18). With the exception only of the Unit-ed States, every industrial country added somegold to its reserves. These increases in gold hold-ings were almost invariably associated with re-

ductions in foreign exchange holdings. For sever-al countries, this change in the pattern of reserveholdings was the result of a conscious policy ofbuying gold out of foreign currency holdings,while for others it was the result of electing tosettle normal balance of payments deficits in for-eign exchange or of accepting gold in settlementof surpluses. Special gold sales by the Fund, to-taling $400 million in connection with the U.K.drawing in May 1965, also contributed signifi-cantly to the increase in gold holdings of someof the industrial countries.

The reserve currency countries each experi-enced a decline in the ratio of gold to total

TABLE 18. COUNTRIES' OFFICIAL RESERVE HOLDINGS, BY TYPE, END OF 1964 AND 19651

(Value in millions of U.S. dollars)

Industrial countriesUnited StatesUnited Kingdom

EEC countriesBelgiumFranceGermanyItalyNetherlands

AustriaDenmarkNorwaySwedenSwitzerland

CanadaJapan

Total

More developed primaryproducing countries

AustraliaIrelandPortugalSouth AfricaSpainOther2

Total

Less developed primaryproducing countries

BrazilMexicoVenezuelaOther Latin America

IsraelSaudi ArabiaOther Middle East

IndiaOther Asia

Other AfricaTotal

Grand Total

Gold

15,4712,136

13,2221,4513,7294,2482,1071,688

6009231

1892,725

1,026304

35,795

22619

523574616342

2,300

92169401473

5678

641

247383

1002,790

40,885

Foreignexchange

432179

6,604540

1,3762,7211,571

396

645521331688398

1,6581,495

12,950

1,621416416

89791742

4,075

276369393647

477493470

2512,354

1,0956,825

23,850

1964

IMFposition

769—

2,144201619913146265

72332588

198220

3,549

100111538

10765

336

—453829

131420

55

57270

4,155

Total

16,6722,315

21,9702,1925,7247,8823,8242,349

1,317646387965

3,123

2,8822,019

52,295

1,947446954701

1,5141,1496,710

368583832

1,149

546585

1,131

4982,792

1,2529,885

68,890

Gold asper centof total

9392

606665545572

46148

2087

361568

124

5582413034

25294841

101357

5014

828

59

Gold

14,0652,265

14,8341,5584,7064,4102,4041,756

7009731

2023,042

1,151328

36,715

23121

576425810352

2,415

63158401433

5673

661

281389

1352,805

41,935

Foreignexchange

781739

4,897437753

1,9431,462

302

539431420627206

1,5231,569

11,730

1,209378418115458607

3,185

625321379910

575627528

3182,422

1,2157,995

22,910

1965

IMFposition

604

—3,176

309884

1,076549358

725825

143

353255

4,688

135111538

14135

375

553823

131836

57

74314

5,377

Total

15,4503,004

22,9072,3046,3437,4294,41552,4166

1,311586476972

3,248

3,0272,152

53,135

1,575410

1,009578

1,409994

5,975

688534818

1,366

644718

1,225

5992,868

1,42411,115

70,225

Gold asper centof total

9175

656874595473

53177

2194

381569

155

5774573540

9304932

91054

4714

925

60

Source: International Monetary Fund, International Financial Statistics.1 Excluding the Soviet countries and Mainland China. Totals may not add because of rounding and because some area totals include

unpublished data.2 Finland, Greece, Iceland, New Zealand, Turkey, and Yugoslavia.



official reserve holdings. However, the foreign ex-change holdings of the United States and theUnited Kingdom at the end of 1965 were swelledby mutual holdings of each other's currency as aresult of inter-central-bank assistance to the Unit-ed Kingdom. In the EEC countries as a group,gold holdings as a proportion of total official re-serves rose from 60 to 65 per cent (64 per cent ifthe special IMF gold sales are excluded). Theaverage, which covers figures ranging from 54per cent to 74 per cent (Table 18), increasedlargely as a result of a marked addition toFrance's gold holdings. Among the remaining in-dustrial countries, the relative changes in goldholdings were not especially significant, althoughfor Switzerland the gold ratio rose from 87 per

cent to 94 per cent, owing mainly to larger thanusual year-end operations in December 1965.

Among the more developed primary producingcountries, South Africa reduced its gold reserves,and accruals of gold by most of the remainingcountries, with the exception of Spain, were rela-tively marginal. In many of these countries, theratio of gold to total reserves rose more becausesizable balance of payments deficits were settledout of foreign exchange holdings than because ofa conscious policy of gold accumulation. The lessdeveloped countries as a group secured barelyany increase in their gold holdings. However,these countries' foreign exchange holdings rose by17 per cent, so that there was a fall in the pro-portion of their official reserves held in gold.


Chapter 6

Developments in the Main Industrial Countries

N the international financial markets there werefewer strains in 1965 than had been experi-

enced in the preceding year. There were no prob-lems comparable to those that found expressionin the strong pressure on the lira and on sterlingduring 1964. In large part, the international fi-nancial scene was dominated by a more rapidexpansion of activity in the United States thanhad appeared to be likely, and by the effects ofthe measures taken in several countries to lessenthe balance of payments disequilibria or inflation-ary pressures which had been evident in 1963 and1964. Several countries that at the end of 1964were concerned with fighting inflationary pressureswere able during the past year to curtail theexcess demand and relax their policies of restraint.On the other hand, certain countries that h£d en-joyed relative stability during 1964 developedsymptoms which suggested that strong pressuresof demand began to face supply inelasticities.

The money stock and the volume of bankcredit expanded in all the main industrial coun-tries during 1965, at rates similar to those pre-vailing over the last few years. The demand forcredit, however, appears to have risen fairly rapid-ly, concurrently with the rising pressures on avail-able capacity in the more industrialized parts ofthe world, and there was apparently a tendencytoward more restraining monetary policies in mostof these countries.

The capital markets in the industrial countrieswere generally very active during 1965 and thefirst part of 1966. Continued prosperity in Europeand expanded activity in North America fosteredthe need for finance, while high incomes en-couraged a keen demand for securities. Even so,interest rates rose sharply in several countries. Thevolume of international security issues increasedmore than in 1964, and the market for these secu-rities tended to become more internationalized.

ProductionIn contrast to the experience of recent years,

output in 1965 expanded more rapidly in NorthAmerica than in continental Europe (Chart 7).This difference in rates of growth reflected a con-tinuation of expansion in the United States andCanada at slightly higher rates than in 1964, whilethe advance in Europe slowed down. Japan ex-perienced a marked slowing of its rate of expan-sion until late in the year, and in the UnitedKingdom measures to moderate the excess expan-sion in 1964 were partly effective.

CHART 7. SELECTED AREAS AND COUNTRIES: INDUSTRIALPRODUCTION, SEASONALLY ADJUSTED, 1962-APRIL 1966

62

I

1 United States and Canada.

(1958=100)


DEVELOPMENTS IN THE MAIN INDUSTRIAL COUNTRIES 63

Economic activity in the United States expandedrapidly in the second half of the year, under thestimulus of buoyant consumption and investmentdemand and increasing military outlays (Table19). For the year as a whole, the rise in the grossnational product at constant prices was slightlygreater than that in 1964 and than the averageincrease during the last five years. This continuedgrowth is the longest uninterrupted advance in theUnited States since World War II. It has servedto ease one of the important economic and socialproblems of the United States: by December theunemployment rate had fallen almost to 4 per cent(an interim target established by the Administra-tion in 1961 when the rate was 7 per cent). In

TABLE 19. GROSS NATIONAL PRODUCT AT CONSTANTPRICES, QUARTERLY, 1963-65

(Percentage increases or decreases from precedingquarter, seasonally adjusted)

1963I

IIIIIIV

1964I

IIIIIIV

1965IninIV

Canada

1.71.21.32.0

2.11.70.50.8

3.01.32.01.0

Italy1

0.12.31.21.1

0.6-0.55-0.88

1.4

0.61.91.31.1

UnitedKingdom *

0.23.70.13.9

0.40.50.52.2

0.8-0.99

0.50.9

UnitedStates

0.80.91.21.4

1.11.01.00.6

2.21.01.61.9

1 Gross domestic product.

the early months of 1966, it fell below 4 per cent.However, the achievement of this social targetserved to create scarcities of some types of labor,thereby limiting the capacity for further expansion.Also, despite a large and steadily rising volumeof capital spending, excess physical capacityseems to be declining. A number of industries—notably nonferrous metals, rubber, textiles, andmachinery—have reported shortages. By the endof the Fund's fiscal year, although price increasescould not be said to have reached serious pro-portions, the problem of incipient inflation wasreceiving more attention, and the problem of over-all unemployment was causing less concern.

In the United Kingdom, the first quarter of 1965

marked the end of a two-year period of relativelyrapid expansion. Output, seasonally adjusted, de-clined in the second quarter of 1965, and the re-covery in the second half of the year did littlemore than make good this decline; unemployment,after a fall in the first quarter, remained more orless unchanged during the rest of the year. In thelast quarter, 1.5 per cent of the labor force wasunemployed. These movements were, in part,reactions to the restraining policies followed bythe Government in order to correct the balance ofpayments maladjustments that had been largelyinduced by the expansion during 1963 and 1964.The balance of payments improved markedly dur-ing 1965, although it still provides inadequateleeway for any important relaxations of policy.

In the European Economic Community as awhole, there was little expansion of output earlyin the year but more rapid progress later. InFrance and Italy, the restraints on expansionresulting from the financial policies imposed in1963 and 1964 were eased during the year. Asexternal demand continued to be active, outputin these countries recovered and showed a fairlystrong advance. In Germany, demand and outputcontinued to rise; however, labor shortages anda nearly full utilization of capacity limited theexpansion of output to a lower rate than thatachieved in earlier years.

In Japan, the trend of industrial productionwas, if anything, downward until the third quarter,when output began to expand gradually.

Costs and PricesIn the United States, the pace of wage advances

accelerated slightly in 1965 (Chart 8), yet laborcosts per unit of output in manufacturing (Chart9) remained virtually unchanged. Since the be-ginning of the current economic expansion, unitcosts have declined by 3 per cent, as productivityhas advanced somewhat faster than wage rates.However, a number of recent labor contracts haveinvolved immediate increases in hourly labor costs(including the effects of benefits other than higherwages) somewhat in excess of the "guideposts"outlined in the 1962 Annual Report of the Coun-cil of Economic Advisers. Indeed, a few of these



contracts have provided for increased paymentsover the next few years which are markedly abovethe limits outlined in these "guideposts."

CHART 8. SELECTED AREAS AND COUNTRIES: WAGERATES, 1962-APRIL 1966


In the United Kingdom, wage increases werelarger than in previous years and higher than theincreases in productivity. As a result of thesewage increases, combined with a decline in the

CHART 9. SELECTED COUNTRIES: WAGE COST PER UNITOF OUTPUT IN MANUFACTURING, 1962-FmsT

QUARTER 1966

(1958 = 100)

rate of growth of productivity consequent on theless rapid expansion in total output, labor costsper unit of output rose sharply, particularly in thefirst part of the year. In Germany, wages in-creased fairly rapidly in 1965, leading to an in-crease of about 5 per cent in average labor costsfor all output (including services as well as manu-facturing), compared with 2.5 per cent in 1964and 3 per cent in 1963. In Italy, the pace ofwage increases moderated. Wage rates also con-tinued to advance in Belgium and the Netherlands,even though output was increasing less rapidly.In Japan, the rate of wage increase declined dur-ing the year, but less markedly than output, sothat the declining trend of Japanese wage coststhat had prevailed since early in 1963 was re-versed.

CHART 10. SELECTED AREAS AND COUNTRIES:WHOLESALE PRICES, 1962-MAY 1966

(1958 = 100)

The pace of price increases in the UnitedStates and Canada accelerated, but the rise inprices there was still less than in Europe (Chart10). The U.S. wholesale price index for indus-trial commodities—i.e., all except farm productsand processed food—was 1.7 per cent higher atthe end of 1965 than a year earlier. While thiswas not a very striking increase, it contrastedwith the virtually flat trend of recent years. Themovement of U.S. consumer prices during 1965was substantially affected by the spurt in foodprices, on the one hand, and by the reduction offederal excise taxes (some of which were raisedagain early in 1966), on the other. The consumerprice index, which had risen by only about 1.2per cent annually for the past several years, in-


(1958=100)



creased by 2.0 per cent during the year (Chart11). In the United Kingdom, the increases inlabor costs per unit of output have not exercisedtheir full effect on prices; part of the increase inthe cost of living during 1965 was due to higherindirect taxes. In continental Europe, the in-creases in wholesale prices were less sharp thanthose in the cost of living indices. In the UnitedStates, Canada, and Japan, export prices (Chart12) trended slightly downward during 1965, in

CHART 11. SELECTED AREAS AND COUNTRIES:COST OF LIVING, 1962-MAY 1966

(1958 = 100)


CHART 12. SELECTED AREAS AND COUNTRIES:EXPORT PRICES, 1962-MARCH 1966

(1958 = 100)


contrast to the increases in wholesale prices inthese countries.

Credit and Interest Rates

For some time, bank credit has been expandingin the United States and in Europe at roughly

comparable rates (Charts 13 and 14). Thesenearly parallel trends continued during 1965 de-spite signs of a slight deceleration in continentalEurope. In the United Kingdom, the pace ofadvance was sharply stemmed.

The strength of demand for credit, interactingwith the monetary policies followed by most coun-

CHART 13. MONETARY SYSTEM CREDIT TO THE PRIVATESECTOR, 1962-APRIL 1966

(1958 = 100)

tries to restrain it, contributed to a continuance ofthe upward drift in interest rates that has been inprogress over the last decade (Charts 15 and 16).These increases were sharpest in some of thosecountries where rates had been relatively low atthe end of 1964. Rates in the United States, inparticular, moved upward quite markedly. SinceJanuary 1966, the yield on Treasury bills has been



at a height that was only touched briefly duringthe crisis late in 1929; that on medium-term gov-ernment bonds has been higher than at any timesince shortly after World War I. In Germany, theyield on government securities passed out of the6 per cent and into the 7 per cent range duringthe year. By April 1966 the yield approached 8per cent. In these circumstances it was agreed

CHART 14. MONEY, SEASONALLY ADJUSTED, 1962-MARCH 1966

(1958=100))


that the states and municipalities and the Federal.Railways and Post Office would refrain tempo-rarily from issuing securities. On the other hand,in Italy and Japan, a relative easing of monetarypolicies, as the difficulties of 1963 and 1964 wereovercome, served to bring interest rates downfrom their very high levels in 1964. Rates in theUnited Kingdom also declined from those reachedduring the crisis at the end of 1964. As a conse-

CHART 15. SELECTED COUNTRIES: LONG-TERMGOVERNMENT BOND YIELDS, 1962-MAY 1966

(In per cent per annum)

CHART 16. SELECTED COUNTRIES: SHORT-TERMINTEREST RATES, 1962-MAY 1966

(In per cent)



quence of the upward drift of some interest ratesthat had been low, and of declines in some thathad been high, the international differentials ofinterest narrowed in 1965, in contrast to theirtendency to widen during the previous year.

In 1964, all the changes in central bank dis-count rates had been increases (Chart 17), moti-vated to a large degree by desires to protect ex-ternal positions. In 1965, Japan and the UnitedKingdom lowered their discount rates, as pressureson the balance of payments eased; most of theother changes during the year (Table 20) weredirected to influencing domestic economic condi-tions.

CHART 17. DISCOUNT RATES, 1962-JuNE 1966

(In per cent)

Money and Debt Management Policies

The increase in the money stock and outstand-ing bank credit in the United States occurred inthe face of rather restrictive monetary policies.There was an accelerated shift in the compositionof bank deposits from demand to time and savings

deposits as a result of the increases in November1964 in the maximum rates of interest payableon the latter. This somewhat reduced the need formore rapid reserve accumulation by the memberbanks. The increase in member bank reserves(somewhat larger than in 1964) that neverthe-less took place was partly accounted for by anincrease in borrowings from the Federal ReserveSystem. From March onward, the banks' borrow-ings from the Federal Reserve were larger thantheir excess reserves. As a consequence of thehigh demand for credit and the restraining mone-tary policies, interest rates rose rather steadilythroughout the year, so that, by October, theTreasury bill rate was above the discount rate.

TABLE 20. SELECTED COUNTRIES: CHANGESDISCOUNT RATES, 1965 AND FIRST HALF 1966

IN

Increase orDecrease ( — )

Date Percentage Points

BelgiumCanada

FranceGermany

Japan

NetherlandsSweden

UnitedKingdom

United States

June 2, 1966Dec. 6, 1965Mar. 14, 1966Apr. 9, 1965Jan. 22, 1965Aug. 13, 1965May 27, 1966Jan. 9, 1965Apr. 3, 1965June 26, 1965May 2, 1966Apr. 9, 1965June 10, 1966

June 3, 1965Dec. 6, 1965

0.500.500.50

—0.500.500.501.00

—0.365—0.365—0.365

0.500.500.50

—1.000.50

NewRate

5.254.755.253.503.504.005.006.2055.8405.4755.005.506.00

6.004.50

With effect from December 6, the discount ratesof the New York and Chicago Reserve Bankswere raised from 4.0 per cent to 4.5 per cent (thehighest rate for the New York bank since Febru-ary 1930). The other Reserve Banks broughttheir rates into line within a few days. By earlyin January 1966, the Treasury bill rate was againhigher than the discount rate. The Federal Re-serve Board also increased the maximum interestrate payable on time deposits and certificates ofdeposit. The intention was to bring these ratesinto line with money market rates without puttingsuch pressure on other personal savings institu-tions as would have led to a rise in constructionmortgage rates. To maintain the desired growthof bank reserves in 1965, the Federal ReserveSystem purchased more government securities in



open market operations than during 1964. Thesepurchases were the main element in an expansionof $4 billion in Federal Reserve credit, whichwas more than sufficient to offset the effect onbank reserves of increased gold sales and the con-tinued expansion of holdings of currency by thegeneral public. The ratio of short-term issues tothe total debt held by the Federal Reserve Systemincreased, as its net purchases were concentratedon Treasury bills. While the yields on all gov-ernment securities rose during the year, the in-creases were most marked at the short end of themarket (Chart 18). In the early months of 1966the authorities continued their restraining policies.

CHART 18. TERM STRUCTURE OF INTEREST RATES

(In per cent)

The Federal Reserve System sold a small amountof securities in the first quarter, the gold stock de-clined slightly, and, despite increased bank bor-rowing, the excess reserves of the member banksdeclined.

In Canada, as in the United States, the devel-oping economic situation led to a need for greater

monetary restraint. On December 6—simultane-ously with the U.S. discount rate increase—theBank of Canada raised its rate from 4.25 percent to 4.75 per cent. The strong demand con-tinued after the turn of the year, but the markedupward movement of U.S. interest rates made itpossible for the Bank of Canada to impose furtherrestraint by again raising its discount rate, to 5.25per cent from March 14, 1966.

In the United Kingdom, the authorities wereactively engaged during the year in further revis-ing and strengthening the measures designed torestore domestic and external equilibrium. OnApril 29, 1965, the Bank of England called forspecial deposits of 1 per cent from the Londonclearing banks and l/2 per cent from the Scot-tish banks. On May 5 the Bank of England ad-vised the banks not to increase their advances tothe private sector by more than an annual rate of5 per cent in the year to March 1966. The bankswere also asked to apply restraint to the grantingof acceptance facilities and the purchase of com-mercial bills. On June 3, the bank rate was low-ered to 6 per cent from the 7 per cent level thathad been set in November 1964, on the under-standing, expressed by the Chancellor of theExchequer, that the reduction was not to betaken as representing a relaxation of credit re-strictions. On July 27, the Bank requested thebanks to scrutinize credit even more carefullythan before where it appeared that the purposemight be to facilitate payment for imports.Largely as a consequence of these measures,the rate of increase in advances by the Londonclearing banks, seasonally adjusted, changed froman average of .£22 million a month in January-April to nil for the rest of the year. Becauseof the pattern of interest rates, the authoritieswere able to sell only a moderate amount ofgovernment debt to the economy, apart fromthe banks. The latter, therefore, remained liquidthroughout most of the year; the liquidity ratioof the London clearing banks was somewhathigher at the end of 1965 (32.1 per cent) thana year earlier (30.6 per cent).

In France, the discount rate was reduced from4 per cent to 31/* per cent on April 9, and on



June 24 the authorities took further steps to easecredit. The limitation of the increase in com-mercial bank loans to not more than 10 per centa year, which had existed since September 1963,was lifted from July. Hire-purchase regulationswere also relaxed: institutions specializing in fi-nancing installment sales were allowed to increasetheir credits, and the maximum duration formedium-term credits eligible for rediscounting atthe Bank of France was raised from five years toseven years. (However, rediscounting facilitieswere available only for credits having at the mostthree years to run to maturity.) In the condition ofrelative ease which had developed by the end ofthe year, interest rates were tending to fall, afterhaving risen slightly in earlier months. In Decem-ber, the Minister of Finance announced that,owing to the improvement in the Treasury situa-tion, the minimum proportion of their liabilitieswhich the banks are required to cover by Treasurybonds would be reduced from 7.5 per cent to 5per cent.

Italy adopted a combination of monetary anddebt management policies intended to fostergrowth in output. To stimulate construction ac-tivity, credit facilities previously available for in-vestment in agriculture and industry were extendedto the building industry. Steps were also taken toreduce interest costs to purchasers of houses. Agenerally expansive monetary policy resulted in a14 per cent increase in the stock of money duringthe year, compared with an 8 per cent rise in1964. As a result of the measures taken by theauthorities, long-term interest rates, which hadrisen sharply in 1964, declined in 1965. To takeadvantage of this decline and of the generallyfavorable conditions, the Government shifted itsfinancing from heavy reliance on borrowing fromthe Bank of Italy to primary reliance on long-termbond issues. The result was that while in 1964almost half the government deficit was covered byborrowing from the Bank, in 1965 the Govern-ment made small net repayments to the Bank andcovered over half of its increased deficit in thelong-term market.

Largely as a result of the external surplus, thecredit institutions' liquidity was eased in 1965. To

prevent the monetary expansion from getting outof hand, and to keep Italian interest rates in linewith those prevailing in other markets, the author-ities encouraged the banks to make large invest-ments in foreign short-term markets, particularlyin Euro-dollars, by entering into repurchase ar-rangements with them for funds invested. Thebanks' investments markedly eased the strain onthese markets resulting from the withdrawal ofU.S. and Canadian funds and the strong demandfrom German borrowers. Toward the end of theyear the authorities' policies were modified inthe direction of lower interest rates. The repur-chase arrangements were also intended to assist thecommercial banks to reduce their net foreign in-debtedness and were withdrawn for those bankshaving net foreign asset positions.

In Germany, faced with persistent demandsfor credit and continued upward pressure on wagesand prices, the Bundesbank considered it neces-sary to increase its discount rate twice during theyear: from 3 per cent to 3Vi per cent onJanuary 22, and from 3V2 per cent to 4 per centon August 13. On May 27, 1966, the discount ratewas raised again, to 5 per cent. The rate for ad-vances on securities was increased in 1965 by thesame amounts as the discount rate, but in May1966 it was raised by \1A per cent, to 61A percent. Since the beginning of 1965, the Bundes-bank's selling rates for money market paper havebeen adjusted upward by amounts ranging from2% per cent to 25/8 per cent. During the year, thedemands made by public authorities on the capitalmarket were exceptionally high. At the sametime, the tight liquidity positipns of the banks pre-vented them from participating in the market asactively as they had been accustomed to do. Long-term rates increased sharply. The granting of per-mits for new issues was suspended by the Gov-ernment from July 28 until measures designed toreduce and coordinate public-sector borrowinghad been introduced. These demands for financeand associated high rates induced an inflow fromother countries of Euro-dollars, other short-termcapital, and some long-term funds. The pressureon the capital market continued in the early partof 1966, with results discussed on page 73. How-



ever, the Federal Government has indicated that,under its budget for 1966, repayments on loanswould exceed new borrowing.

In most of the other Western European coun-tries financial policies continued to be directedtoward a containment of demand. In the Nether-lands the quantitative restrictions on bank lend-ing were continued. Even so, the money supplyincreased by 11 per cent, compared with 8 percent in 1964. For this there were two maincauses: the improvement in the balance of pay-ments, and the fact that the central governmentfinanced its rising requirements largely by salesof short-term Treasury bills. Interest rates, onbalance, moved upward, and there were furtherrises early in 1966. Bank rate was raised by l/2per cent to 5 per cent on May 2, 1966. In Swe-den, restrictive measures were tightened in April1965, when the Riksbank increased its discountrate from 5 to 5l/2 per cent; such measures werecontinued into 1966, and the discount rate wasraised by a further l/2 per cent on June 10. InSwitzerland, despite the general maintenance ofrestraining monetary policies, the National Bankreversed in July the swap of Sw F 473 million fordollars and sterling made with the commercialbanks in January 1965 in order to foster lowerinterest rates and stem the inflow of foreign ex-change. On the other hand, the National Bankof Belgium eased some monetary restrictions inmid-July 1965. It rescinded the 1 per cent cashreserve requirement introduced in August 1964and suspended its recommendation to the banksthat they limit to 20 per cent the increase in theircredits to the private sector over the two years1964-65. However, the banks were requested tomaintain cautious lending policies.

In Japan, monetary policy during 1965 wasdirected toward the revival of economic activity.The Bank of Japan reduced its basic discountrate three times, from 6.57 per cent at the endof 1964 to 5.48 per cent on June 26, 1965. Inmid-July reserve requirements for certain typesand sizes of deposits were lowered. During theyear, also, the Bank of Japan purchased securitiesand provided loan funds to semiofficial institu-tions. Although bank liquidity has been relatively

ample, bank credit expanded at a slower paceduring 1965 than in 1964.

Fiscal and Other Economic Policies

Fiscal policy was used, if anything, a littlemore widely to maintain balance between domesticdemand and supply in 1965 than in earlier years.Quite appropriately, domestic considerations inthis field have tended to be given more weightthan those arising from balance of paymentsproblems.

Through 1965, fiscal measures in the UnitedStates were, on the whole, motivated by a desireto foster longer-term growth rather than by short-term cyclical considerations. The first stages of aprogram of excise tax reductions became effectivein June. Other legislation provided for hospitalcare for elderly citizens and an increase of at least7 per cent in all social security payments. Tohelp offset the increase in payments, social securitytaxes were increased in January 1966 and are torise gradually until 1987. On August 10, 1965,the President signed into law a $7.5 billion hous-ing bill with a rent subsidy provision for low-income families. The bill extended for four yearsurban renewal, public housing, and other meas-ures. An anti-poverty program was also launched.The Federal Government's cash deficit of $4.5billion for the calendar year was slightly less thanin the preceding year ($5.2 billion).

The budget presented in January 1966 involveda shift in the direction of fiscal policy, from en-couraging economic growth to restraining the in-cipient inflationary pressures which appeared to beemerging, partly as a consequence of the Viet-Nam conflict. As a first fiscal step to restraindemand, some of the reductions in excise taxesthat went into effect in January 1966 were re-scinded, and the further reductions scheduled forthe future were deferred. These changes, togetherwith the effect of rising incomes on tax revenuesand with economies in government operations, areexpected to result in a federal government consoli-dated cash surplus of $0.5 billion in 1966/67.This compares with an expected deficit of $6.9



million for the fiscal year 1965/66, and an actualdeficit of $2.7 billion for fiscal 1964/65.

The Canadian economic situation, and the fiscalpolicies adopted to meet it, also altered during theyear. Early in 1965 the Government consideredan expansionary policy to be appropriate, and per-sonal income taxes were reduced. Later in theyear, rather excessive demand pressures emerged,and the March 1966 budget rescinded most of the1965 income tax reductions. It also required cor-porations to make compulsory loans to the Govern-ment—in effect, additions to the corporation tax,to be offset by effective tax reductions in lateryears.

In the United Kingdom, new fiscal measureswere introduced during 1965 in the continuingeffort to stabilize the economy. Hire-purchase con-trols were tightened early in June. On July 27,the Chancellor of the Exchequer announced afurther series of economic measures. In thepublic sector, the rate of increase in expenditureon capital projects was reduced, and instructionswere given for purchases of equipment and storesby government departments, local authorities, andnationalized industries to be deferred as far aspossible. Economies in defense spending resultedin its reduction by about 5 per cent. Governmentlegislation was introduced to license the startingdates of privately sponsored office buildings andsimilar construction projects valued at <£ 100,000or more.

The Budget for 1966/67 proposes to achieve asharp reduction in the over-all deficit, despite anincrease of about 10 per cent in governmentexpenditure (including grants and loans to localauthorities and public corporations). The reduc-tion expected in the deficit is due mainly to the im-position of an employment tax on service indus-tries, combined with a subsidy to manufacturingindustries.

When the French Parliament was presented inSeptember with budget proposals for 1966, theywere based on an expected surplus of someF 3.91 billion in 1965. The new budget includedfeatures designed to stimulate saving. Beginningin 1966, investors may choose to pay a flat rate of25 per cent on interest from bonds instead of pay-

ing income tax on it. The withholding tax on divi-dends has been abolished and shareholders nowreceive a tax credit amounting to 50 per cent ofdividends. The schemes to encourage the publicto maintain longer-term savings accounts havebeen made more comprehensive. In order notto distort the distribution of savings, interestearned on savings deposits (except the firstF 15,000 deposited with savings banks) and otherfixed-interest-bearing assets (e.g., Treasurybonds), hitherto exempt from taxes, has beensubjected to the same taxation as industrial bonds.

The Italian authorities introduced several meas-ures during the year to help to stimulate activityin lagging sectors. The budget estimates for 1966provide for an increase in the deficit over that of1965, which in turn was higher than in 1964. InSeptember, a long-term credit program for low-rent housing was inaugurated, and subsidies wereprovided for house purchases. In October, re-strictions on the hire purchase of many consumerdurables were abolished.

The German authorities, after curtailing orpostponing some requests for increased expendi-ture and increasing fiscal revenue by raisingthe tax on spirits and sparkling wines, and byraising railroad charges, expect to achieve a betterbalance on the budget for the next fiscal year.

Ordinary budget expenditure in Belgium is ex-pected to be 10 per cent higher in 1966 than in1965. New tax measures are proposed to narrowthe gap between revenue and expenditure. The1966 extraordinary budget proposals includedhelp to depressed areas and increased credits forinfrastructural projects.

The Swiss budget for 1966 is on the whole lesscontractionary than that for 1965; it is expectedto produce an over-all surplus of Sw F 35 million,compared with one of Sw F 488 million in 1965.The anti-inflationary measures adopted in 1964have remained in force with only slight modifica-tions.

Fiscal policy was used fairly actively to assistthe recovery of the Japanese economy, the deficitbeing larger in 1965 than in 1964. In July, theGovernment expanded its program to stimulatethe economy. The measures introduced included



(1) the release for public works expenditure ofthe 10 per cent reserve in the original budget forthe fiscal year ended March 1966; (2) furtherexpenditures amounting to about ¥ 210 billion inthe current fiscal year on the projects in theTreasury investment and loan program; (3) thereduction of interest rates on loans for medium-sized and small businesses by government finan-cial institutions. In August, various measures forexpanding exports were announced. In December,a supplementary budget was approved which pro-vided for financing the shortfall in tax revenuesby the issue of domestic government bonds forthe first time since World War II.

Money and Securities Markets

Conditions in domestic money markets in 1965were dominated by the forces discussed in pre-vious sections of this chapter. They reflected thehigh level of economic activity, and also the mone-tary, credit, and interest rate policies applied tomeet national problems. The balances of pay-ments on capital account described in Chapter 5involved large transfers of short-term funds on theEuro-dollar and similar international money mar-kets. Data on commercial banks' operations inforeign currencies vis-a-vis nonresidents—i.e., theEuro-currency market—are available only for tencountries which report to the Bank for Interna-tional Settlements; these data are presented inTable 21. This table throws into relief the impor-tant change in the position of the Italian banksduring the year, particularly the expansion in theirEuro-currency assets in the second half of 1965.This more than compensated for the decline inCanadian participation in the market caused bythe fact that the Canadian commercial banks wereimportantly affected by the Canadian and U.S.guidelines, particularly during the first ninemonths of 1965 (see below, Chapter 8, p. 96).The Canadian commercial banks reduced theirforeign currency assets vis-a-vis nonresidents(particularly those in Europe) by $820 millionbetween the end of December 1964 and March1966, and reduced their foreign currency liabili-

ties (largely to the United States) by $540 millionover the same period; the banks' net position vis-a-vis nonresidents thus deteriorated by nearly$300 million. The deterioration in net positions—i.e., the increase in effective borrowing in themarket—of the reporting banks was greatest forBelgium, Canada, and the Netherlands.

Long-term security markets were also very ac-tive during 1965. Record amounts were raisedby the issue of company securities in Canada, theUnited Kingdom, and the United States, although,in all three, equity issues were lower in 1965 thanin 1964. New issues were also high, if not at rec-ord levels, in the other industrial countries.

TABLE 21. SELECTED COUNTRIES: COMMERCIAL BANKS'FOREIGN CURRENCY LIABILITIES TO, AND CLAIMS ON,

NONRESIDENTS, AT END OF PERIOD,SEPTEMBER 1963-MARCH 1966 *


LiabilitiesBelgiumCanadaFrance 2

GermanyItalyJapanNetherlandsSwedenSwitzerland 3

United KingdomTotal

AssetsBelgiumCanadaFrance 2


United KingdomTotal

Net positionsBelgiumCanadaFrance 2


United KingdomTotal

1963Sept.

640—1,280

3702,2902,190

360120

3,61012,210 4

490—1,330

7401,3501,890

710250

3,46012,3804

—150

50370

—940—300

350130

—150—640

1964Mar.

750

1,200330

1,8202,440

360130

3,54012,090*

520—1,270

8501,0802,080

550320

3,34012,470*

—230

70520

—740—360

190190

—200—560

Dec.

9402,6101,370

5201,8902,730

510160

1,9204,900

17,550

6803,3801,520

7601,1902,610

680340

2,7404,330

18,230

—260770150240

—700—120

170180820

—570680

1965Mar.

9702,4001,280

2901,7902,870

510200

1,7905,110

17,210

7302,9601,480

8201,0602,690

720290

2,7804,130

17,660

—240560200530

—730—180

21090

990—980

450

Dec.

1,1602,4001,600

4402,1502,910

740220

2,0605,800

19,480

8502,7801,860

7902,0403,000

820420

3,2105,340

21,110

—310380260350

—1109080

2001,150—4601,630

1966Mar.

1,3302,0701,520

3301,7202,910

860240

1,8506,060

18,890

1,0102,5601,900

7201,8402,940

860380

3,0805,730

21,020

—320490380390120300

1401,230—3302,130

Source: Bank for International Settlements, Annual Reports.1 Deutsche mark, French francs, Italian lire, Netherlands guilders,

pounds sterling, and U.S. dollars.2 Positions vis-a-vis banks only.3 Including Euro-currency assets of the Bank for InternationalSettlements.4 Over-all estimates by the Bank for International Settlements.

Not only did the international securities marketexpand during the year (Table 22) but its struc-ture changed. A part of this change is not reflect-



ed in statistics of international capital move-ments.1 Prior to the effective date of the U.S. In-terest Equalization Tax (August 1963), NewYork was the prime market for the issuance ofsecurities by borrowers wishing to raise funds out-side their national capital markets.2 By 1965,European subsidiaries of U.S. companies were thelargest national group making new issues on theEuropean markets (Table 23), and this financinghad become an integral part of the total opera-tions of these companies. Mainly in compliancewith the U.S. voluntary balance of payments pro-gram, transfers of direct investment funds to Eu-rope sharply decelerated during the year, althoughfor 1965 as a whole they aggregated slightly more

TABLE 22. NEW FOREIGN ISSUES BY MARKETS OF ISSUE,1963-FiRST QUARTER 1966


1965 1966

1963 1964 1965

1st 2nd 3rd 4th 1stquar- quar-quar- quar- quar-ter ter ter ter ter

United StatesCanadaEurope

National marketsBelgiumGermany *FranceItalyLuxembourgNetherlandsSwitzerlandUnited

KingdomOther

Euro-issuemarkets 1

Total EuropeGrand Total

1,443

—i 319

14401224—3

142

6519

169488

1,931

1,155

—333

13231

——1582

73

—629962

2,117

1,45123

21012—2524

62977

37—

1,1161,3262,800

34123

9

———9

——

274283647

419

—63

——52227

9—

179243662

363

—822

25

—17

19

28

—139221584

328

—5610

24——22

——

523579907

51919

99

68——31

——

450549

1,087

Sources: IMF and OECD staff estimates, and U.S. Departmentof Commerce.

1 "Euro-issues" are defined as those denominated in currenciesother than that of the market of flotation, including dollar issuesfloated in New York for sale to nonresidents only. For 1964, for-eign deutsche mark issues yielding less than 6 per cent per annumare treated as Euro-issues; from 1965, all foreign deutsche markissues are treated as Euro-issues.

even than the large total for 1964. Complete dataon the transactions by U.S. direct investment en-terprises in Europe are not available. It is pos-sible, however, to make some rough estimatesfrom the available data, on the basis of past ex-perience and of the plans of these companies

1 When a foreign-owned subsidiary (but not the parentcompany) raises money for investment in the subsidiary'scountry of domicile, neither the borrowing nor the lend-ing appears in the balance of payments accounts.

2 See Annual Report, 1965, page 51.

made by the end of 1965. These estimates, pre-sented in Table 24, suggest that investment byU.S.-controlled enterprises in Europe was morethan 15 per cent larger in 1965 than in 1964, thenecessary additional funds having been obtainedprimarily from bond issues on European markets.Transfers to Europe rose in the last quarter of1965, as subsidiaries were accumulating liquidfunds for the financing of still further enlarged in-vestments in 1966 3 and in response to pressureson foreign direct investment companies in theUnited Kingdom and other European countriesto finance part of their total expenditure from non-resident sources. The tightening of credit in theUnited States also encouraged corporations toseek financing in Europe, so as to release part oftheir available domestic funds for domestic in-vestment. This made them willing to turn to the

TABLE 23. EUROPE: NEW FOREIGN ISSUES,1963-FiRST QUARTER 1966


1965 19661st 2nd 3rd 4th 1st

quar- quar- quar- quar-quar-1963 1964 1965 ter ter ter ter ter

European countriesand institutions

Scandinaviancountries

EEC countriesOther European

countriesEuropean

institutionsJapanU.S. companiesOther countries

Sterling areaOther

Internationalinstitutions

Total

348

83147

42

7659

—815625

—488

643

33489

70

150199

—985543

23963

696

237225

104

12735

37214812028

761,326

186

9038

20

3835

—

——62

283

166

6131

39

35

—283434—14

243

114

1570

9

20

—444848—

—206

230

7189

36

34

—299

663828

—594

263

42157

20

44

—2224040

—24

549

Sources: IMF and OECD staff estimates.

European security markets, even though the in-terest rates and other features of new issuesabroad were considerably more costly than thoseof issues in the United States. At the same time,issues by European borrowers themselves outsidetheir national markets continued to grow. Up to1963, European issues ranked after those ofCanada on the New York foreign issue market

3 Plans for plant and equipment outlays in Europe lookto an expenditure of over $3,500 million in 1966 (U.S.Department of Commerce, Survey of Current Business,Washington, D.C., March 1966, p. 7).



TABLE 24. EUROPEAN AFFILIATES OF U.S. COMPANIES:USES AND SOURCES OF FUNDS, 1962-65


1962 1963 1964 1965

Expenditures on plantand equipment

Increase in other assets 1

TotalFunds from United StatesUndistributed earningsDepreciation and

depletionBorrowing abroad

Bond issuesOther 3

1,674885

2,599

867292

750650

—650

1,9031,7093,612

924513

8751,300

—1,300

2,1422,2604,402

1,342410

1,0501,600

—1,600

2,5202,5835,103

1,378 2

325

1,2502,150

3721,778

TABLE 26. NEW FOREIGN ISSUES BY CURRENCY,1963-FiRST QUARTER, 1966


1966

First1963 1964 1965quartei

Issues inCurrency of market issue 1,762 1,488 1,684 637Other currency 121 619 1,116 401Of which

U.S. dollars 107 580 1,043 381Swiss francs 14 — — —Sterling and deutsche mark — 39 73 20

Units of account 48 10 — 49Total 1,931 2,117 2,800 1,087

Sources: IMF staff estimates based on Table 23, andU.S. Department of Commerce, Survey of Current Busi-ness, August 1964, October 1964, September 1965, No-vember 1965, and March 1966.

1 Including purchases of equity in existing businesses.2 Excluding $80 million borrowed in Europe by U.S.

companies for transfer to their European subsidiaries.3 To some extent a residual.

Sources: IMF and OECD staff estimates,other than that of the market in which bondswere sold, and frequently this currency differedfrom that of the borrower. These issues were atfirst arranged by European financial institutions.

TABLE 25. UNITED STATES: NEW FOREIGN ISSUES, 1963-FiRST QUARTER 1966(In millions of U.S. dollars)

1965

CanadaWestern EuropeLatin AmericaJapanInternational institutionsOther

Total

1963

73435156

202

1001,443

1964

72551

258

5117

1,155

1965

7381805963

200211

1,451

Firstquarter

100205

18135

341

Secondquarter

240451843

73419

Thirdquarter

214886

1936

363

Fourthquarter

184273020

67328

1966First

quarter

465

15

39519

Sources: U.S. Department of Commerce, and IMF staff estimates. These data refer to the total issues (including those regarded asEuro-dollar issues in Table 22) and not to those amounts of the issues sold to U.S. residents as recorded in U.S. balance of paymentsstatistics.

(Table 25). However, the reduced accessibilityof the U.S. market to such issues, as a conse-quence of the Interest Equalization Tax andofficial discouragement, has caused European bor-rowers to turn to other markets. In 1965, inter-national issues by these borrowers on Europeanmarkets alone were more than twice as large asin 1963.

In one respect, the market for these issues tend-ed to become more internationalized in 1965.Almost all the increase in international issueswas accounted for by the rise of so-called Euro-issues (Table 26). As late as 1963, the interna-tional securities market was dominated by issuesdenominated in the currency of the market inwhich they were floated. By 1965, two fifths ofthe total issues were denominated in a currency

However, the market has now become dominatedby U.S. dollar issues, frequently handled by insti-tutions based in New York. In some respects, theU.S. dollar has become an international capitalcurrency, as well as a reserve currency. From thenineteenth century on, many international issueshave been denominated in reserve currencies andother currencies different from those of the bor-rowers, but in practically every case the currencyinvolved was that of the market on which theissues were sold. In 1965, by contrast, the dollarissues and the Euro-mark issues were sold else-where than in the United States or Germany. Itmight be noted that an earlier attempt to inter-nationalize this market by the issue of securitiesdenominated in "units of account" seems to havehad little success.



This increase in international transactions hastaken place despite restrictions on, and informaldiscouragement of, foreign security issues in theUnited States, and despite further restrictions onthe outflow of capital from the United Kingdom,with little offsetting liberalization in other coun-tries. National markets have adjusted with re-markable flexibility to the new situation, althoughsome European countries—among them theNordic countries like Finland—that had been bor-rowing regularly on European markets foundincreasing difficulty in raising funds in 1965,partly as a result of competition from U.S. bor-rowers. Another consequence of these develop-

ments has been further upward pressure oninterest rates. While the Euro-currency marketsare still largely insulated from national currencymarkets, the growing ability and willingness oflenders to acquire foreign issues, albeit frequentlydenominated in U.S. dollars, has provided alterna-tive opportunities for borrowers, and has therebyserved to bring the various national capitalmarkets into closer contact. This has provideda somewhat informal integration of the inter-national capital market over a period when therehave been disappointingly few steps taken towarda more formal integration of European capitalmarkets.


Chapter 7

Developments in Countries Exporting Primary Products

Commodity Prices

HE disparity in movement between the pricesof agricultural products and those of minerals

and metals has been a conspicuous feature in themost recent experience of major commodity pricefluctuations, which set in with the upsurge in agri-cultural prices early in 1963. The price index forminerals and metals did not begin to rise signifi-cantly until the first quarter of 1964. The indicesfor agricultural products had then leveled off, andduring the rest of that year and the early part of1965 they moved rapidly downward (see Chart19). By mid-1965, when the decline in agricul-tural prices flattened out, quotations for severalnonferrous metals had reached levels not experi-enced since the Korean conflict, and their indexcontinued to rise vigorously into 1966. However,although a number of countries derive a signifi-cant proportion of their export earnings from theextraction and primary processing of minerals andmetals, only four or five are heavily dependent onsuch earnings. If petroleum is excluded, as inChart 19, the prices for the products of extractiveindustries do not weigh heavily in the over-all in-dex, as these products, even at the higher unitvalues realized in 1965, probably account for onlysome 20 per cent of the total value of world tradein primary products; in consequence, the over-allcommodity index reflects primarily changes inagricultural prices.

Agricultural Products

For agricultural prices, the recession which fol-lowed the 1963 boom appeared to have workeditself out by the middle of 1965, and there was atendency toward greater firmness at the turn ofthe year. For a number of commodities, stocksand exportable supplies from the 1964/65 crops

had been sufficiently large to continue to exert adepressing influence on prices, and, during thefirst half of 1965, prices for several major food-stuffs were still rapidly depreciating. The substan-tial extent of such reductions for cocoa, Africancoffees of the robusta type, and both rice andsugar traded in "free" markets may be seen in

CHART 19. PRIMARY PRODUCING COUNTRIES: PRICES OFCOMMODITIES EXPORTED (EXCLUDING PETROLEUM),

1962-FiRST QUARTER 1966

(1961 = 100)

Chart 20. In contrast, firm or improving priceswere recorded for the larger volumes of rice andsugar which move under bilateral and multilateralcontracts, and for other coffees, tea, and edibleoils. The effects of a strong supply situation werealso conspicuous for wheat, and export prices lostduring the first quarter of the year all their 1964gains. Prices for other major temperate products(cereals, meat, and dairy products) remainedcomparatively high. Quotations for agricultural

76

T


DEVELOPMENTS IN COUNTRIES EXPORTING PRIMARY PRODUCTS 77

CHART 20. SELECTED PRIMARY PRODUCTS: AVERAGE PRICES IN 1963-FmsT QUARTER 1966

(1961 = 100)



raw materials generally steadied during the firsthalf of 1965, wool, long-staple cotton, and sisalbeing important exceptions.

Wool prices recovered after mid-1965, and thedecline in long-staple cotton prices was arrestedat what was still a relatively high level, as a resultof stockbuilding in producing countries. The sisalmarket has continued to weaken, being oversup-plied. Growing substitution by synthetic productsmore than offset whatever effects the political ten-sions in several of the major producing areas inthe Far East might have had on the rubber mar-ket. In contrast, however, similar tensionsstrengthened quotations for jute and burlap dur-ing the last quarter of the year.

Among foodstuffs, the second half of 1965also brought sharp recoveries for cocoa androbusta coffee; more generally, the price situationstabilized or improved for many commodities,tropical and temperate, as supply and demandprospects for the 1965/66 marketing seasonbecame clearer. Special factors on the demandside, which were principally reflected in wheatprices, included larger contracts with the Sovietcountries and Mainland China, stock replenish-ment in some industrial countries, the politicalsituation in a number of rice producing countries,and the critical food shortage in India. It is pos-sible that, on the supply side, the cocoa marketmay be influenced in the course of 1966 by con-certed international action. Within the frameworkof the International Coffee Agreement, the coffeemarket was beginning toward the end of 1965 tobe affected by increases in shipments from Brazil,as that country filled more of its quota than it haddone in previous seasons. (In 1964 a short crophad restricted the supplies available for export.)

Prices for food products, which make up abouthalf of the trade in primary products if petroleumis excluded, have fluctuated more violently duringthe recent cycle than those of agricultural rawmaterials. The index shown for food in Chart 19does not include the important and relatively sta-ble U.S. import price for sugar, but the degree offluctuation is still large if allowance is made forthis omission. While the course of manufacturingactivity in industrial countries may have had

some bearing on the prices of a few agriculturalraw materials, notably those of textile fibers, nosuch link is likely to exist with the movements infood prices, whose response to moderate changesin activity in industrial importing areas is negligi-ble. For agricultural raw materials, the smallerfluctuations in prices in 1963-65 are explainedmainly by the resistance of consumers to largeprice increases through substitution or stock ad-justment and, to a lesser extent, by the manage-ment of supply.

The results of these years demonstrate the in-herent instability of commodity market pricesmore clearly than those of any other part of thepostwar period. The principal causes were appar-ently the susceptibility of supply to changes innatural conditions, combined with overadjustmentin both output and import demand to temporaryimbalance. Thus the downturn was brought aboutby larger world crops in the 1964/65 season,partly in response to the higher prices of 1963-64and partly in the course of natural rec'overy.These influences were sometimes complementedby an appreciable slackening of demand due tothe inventory position, or, where the competitionof substitutes was important, in reaction to higherprices. The price levels ruling at the beginning of1966 retained a moderate part of the gains madeduring the upswing, but these gains were general-ly smaller for those raw materials with ready sub-stitutes.

Minerals and Metals

Sharply increased expenditures on nonferrousmetals in 1964-65, in marked contrast to the sta-ble or declining import trends which prevailed inall industrial countries except Japan during theearly 1960's, caused a situation of relative scar-city to emerge for these raw materials, and conse-quently a strong pressure on prices. The stimulusgiven to demand by the faster rate of growth ofworld industrial activity since 1963 was supple-mented by a widespread tendency to build upprecautionary inventories in importing countries,in anticipation of supply interruptions, furtherprice increases, or a worsening of the internation-al political situation.



The supply of nonferrous metals was short be-cause the level of prices in previous years hadbeen considered unsatisfactory by producers, andhad led to the modification of plans for expansion.These curtailments were in some instances ar-ranged through a formal international agreement(tin) or by less formal collaboration between ma-jor producers (copper, zinc), and their effectswere still being felt during 1965. For some met-als, losses of output owing to recurring industrialdisturbances were also a contributory factor.

The coincidence of restrictions on output withthe emergence of markets of unforeseen strengthin 1964 thus raised prices more than was antici-pated by producers. The dangers of a too violentupward price fluctuation were recognized bysome of them (although the fact that the pricesfor all major metals rose together did narrow thescope for economic substitution), and agreementwas reached in certain instances on price ad-ministration as had earlier been done on the man-agement of supply. Exporters of zinc undertooktrading operations on the commodity exchanges,and those of copper offered to regular users fixedprices at lower levels than were being realized onthe exchanges. Lead and tin continued, however,to be traded without intervention, and with somevariation in prices; the buffer stock held underthe international agreement for tin had been in-operative since 1963. Exceptionally, in the UnitedStates, the actual or threatened use of nonferrousmetal stockpiles, together with action on tradecontrols, pegged the prices for most such metals.These various price control efforts led to amarked divergence between pegged prices andopen market values, whose fluctuations during thefirst half of 1965 account for the behavior of theindex shown in Chart 19. There was apparentlysome growth in the relatively small volume ofcopper which moves in the open market.

Copper provides the most striking example ofthe unusually volatile situation which developedin most nonferrous metal markets. Althoughworld output advanced to record levels in 1964and 1965, the market appeared to be increasinglyseriously undersupplied. By the beginning of thesecond quarter of 1966, the prices quoted by pro-

ducers outside the United States had more thandoubled since 1963, and quotations in the openmarket, though quite unsteady, exceeded all pro-ducers' prices by a substantial margin.

Although extractive industries are not atomis-tic, as are agricultural industries, the experienceof 1963-65 demonstrates that the possibility ofdestabilizing interactions between responses tosupply and demand, which characterizes agricul-tural commodity cycles, also exists for mineralsand metals. The risk of over adjustment to thecurrent boom for these raw materials cannottherefore be excluded. While the restraint exer-cised in some price policies should encouragecontinuing growth in the use of these metals,especially if this is taken as an indication that theindustries concerned or their governments willcontinue to cooperate in administering prices, itmay be significant that for the first time in the1960's world consumption of lead, zinc, and cop-per showed little or no gain last year over theprevious year.

Trade

In assessing the significance of the recent fluc-tuations in commodity prices for the earnings ofcountries exporting primary products, it is impor-tant to bear in mind the substantial differencewhich may arise, at any rate in the short run,between the unit values of exports and quotationson commodity exchanges. The possibility of sucha difference arises most clearly, of course, in con-nection with products such as sugar, rice, and anumber of minerals and metals, for which thebulk of the output is traded under bilateral ormultilateral contracts, so that the open marketmay be comparatively unimportant. Such contrac-tual trade provides an important reason for thegreater stability exhibited by unit value indicesthan by market prices. Moreover, the exports ofprimary producing countries include certain goods,e.g., some manufactures or items in border trade,whose prices are more stable than those coveredby indices of primary product prices. More gener-ally, however, disparities in movements between



market prices and unit values are accounted forin large measure by the fact that, for most primarycommodities, trade flows are not constant throughthe year. The bulk of some producing countries'sales for export may for various reasons be con-centrated within short periods, so that their re-ceipts may not reflect more than marginally what-ever price movements may occur, as a result ofchanges in international demand and supply, dur-ing the periods between sales.

Terms of Trade

These considerations are less relevant to themore developed primary producing countries, ex-porting mainly temperate agricultural products(see Table 27), for which the marketing systemis such that export unit values and market pricesmove closely together. These countries sufferedserious fluctuations in export unit values in thecourse of 1963-65, and their terms of trade movedaccordingly, the unit value of their imports show-ing much less change. Export unit values weremuch more stable for the less developed primaryproducing countries taken as a whole; by mid-1964they had steadied at a level some 5-6 per centabove values in 1962, and, with minor fluctua-tions, remained there through 1965. Meanwhilethe unit values of these countries' imports hadrisen by some 4 per cent, so that the less devel-oped countries in general emerged from the re-cent commodity price cycle with an improvementin their terms of trade of 1-2 per cent.

This over-all result, however, masks rather dis-similar patterns from area to area. The terms oftrade of Latin America countries as a group, afterimproving sharply in 1963-64, stayed at a levelsome 16 per cent above that of 1962, if petro-leum is excluded from exports. (If petroleum isincluded, the mild secular decline in its unit valuereduces the gain in terms of trade to 11 percent.) This favorable development at a time ofgeneral recession in agricultural prices can be ac-counted for by the upswing for metals and miner-als—on which Chile and Bolivia are heavily de-pendent, and which provide a significantproportion of the earnings of other countries—

and by the support of coffee prices through theinternational agreement. In contrast, the terms oftrade of African countries, which followed quiteclosely the price cycle for tropical foods, showedlittle or no gain over 1962 by the end of 1965;and the same pattern was exhibited by a numberof Asian, principally non-sterling, countries. Theterms of trade of the sterling area countries ofAsia, while also showing only a small improve-ment over 1962 at the end of 1965, moved quitedifferently in the interval, depending as they doon a number of disparate commodities (tea, jute,copra, rubber, and tin) whose prices fluctuated inreverse to the general cycle.

Value of Exports

The growth of the value of exports in 1965followed a very different pattern in the less devel-oped primary producing countries from that inthe more developed countries. The latter's ex-ports, after two years of high growth (11 per centfrom 1962 to 1963 and 13 per cent from 1963to 1964), increased by only 3 per cent in 1965(Table 5, page 45). Virtually the whole of thisincrease was concentrated in the second half ofthe year (Table 3, page 41). The rate of growthin the less developed countries fell off by muchless. Preliminary figures suggest increases of 8 percent from 1962 to 1963, 9 per cent from 1963 to1964, and 6 per cent from 1964 to 1965, andgrowth appears to have been fairly steadythroughout 1965. From country to country, how-ever, there were rather more variations amongthe less developed than among the more devel-oped countries.

For the less developed countries as a group,practically all the increase in exports in 1965 ap-pears to have resulted from increases in volume.In Asia, however—mainly because of the reversecycle observed in the terms of trade of sterlingarea countries—more of the rise in earnings wasaccounted for by increased unit values than byvolume. For the more developed primary pro-ducers, for Latin America, and particularly forAfrica, the increase in volume more than offsetthe decline in unit values.



TABLE 27. PRIMARY PRODUCING COUNTRIES: TRADE, 1964 AND 1965

(Value in millions of U.S. dollars)

Exports f.o.b.

Countries exporting mainlyCoffee

BrazilColombiaOthers

Total

Mixed tropical foodstuffsCeylonChina, Republic ofNigeriaPhilippinesThailandOthers

Total

Fibers and rubberMalaysiaPakistanUnited Arab RepublicOthers

Total

Mixed and mainly temperateagricultural products

ArgentinaAustraliaIrelandNew ZealandSpain

Total

Other mixed agriculturalproducts

GreeceMexicoPeruTurkeyOthers

Total

Mixed minerals andagricultural products

MoroccoSouth AfricaOthers

Total

Metals and mineralsChileZambiaOthers

Total

PetroleumKuwaitIranSaudi ArabiaVenezuelaOthers

Total

Other major exportersFinlandHong KongIndiaSingaporeYugoslavia

Total

All other primary producingcountries

Grand Total

1964

1,433537675

2,645

394433601742593

2,3295,092

909426539846

2,720

1,4103,038

6231,074

9547,099

3091,054

666411

1,4123,852

4321,490

3372,259

624470663

1,757

1,2181,2541,1802,7423,2299,623

1,2911,0121,701

903893

5,800

3,013 i

43,860

Percentage changefrom previous year

1965 1964 1965 1964

1,595539703

2,837

409450752767624

2,260 i5,261

1,014528605

2,976

1,4932,978

6271,007

9457,050

3281,146

669459

4,091

4301,486

3902,306

682527724i

1,933

1,2431,3031,3882,7833,430 i

10,147

1,4271,1431,688

9811,0926,331

3,418 i

46,350

220138

930132

277

11

323

-12

39

13183012

77

23121914

124

177

16301619

1034124

1413

12163

-20134

12

10

11

47

44

2535

-33

122412

-29

6-2

1-6-1-1

69

1286

162

9129

10

24

18165

1113

-19

229

13

6

1,263586665

2,514

415428711868680

2,8385,940

824998953

1,0003,775

1,0773,313

974961

2,2458,570

8851,493

571542

2,3645,855

4592,350

6863,495

607247631

1,485

322673394

1,2692,4335,091

1,5051,4962,8031,1361,3218,261

4,391 1

49,480

Imports c.i.f.

Percentage changefrom previous year

1965 1964 1965

1,096454748i

2,298

310556771894725

2,987 i6,241

8521,043

875880i

3,650

1,1983,7611,0411,0523,009

10,061

1,1341,560

719577

2,5786,568

4542,696

7433,893

604337744i

1,685

86040Qi

1,3752,499 i5,484

1,6461,5692,9051,2441,2888,652

4,688 i

53,220

-151617

-2

33182226111116

12445

1019146

1515

1020-1

-22118

327

-1313

9441315

-12923349

17

251513

-192511

6

11

-16-23

12-9

-253083755

35

-8-12-3

111479

3417

284

2669

12

-1158

11

361813

9282838

9549

-25

7

8

Source: Based on data from International Monetary Fund, International Financial Statistics.1 Data are partly estimated.

8291

1,5191

3501



Imports

A similar difference in pattern between themore developed and the less developed countriesoccurred in 1965 in relation to imports. As a re-sult partly of movements in the terms of trade,the importing power of the exports of the moredeveloped countries rose from its 1964 level byless than 1 per cent. Their imports, however, roseby almost 16 per cent, and this growth was ratherfaster during the first half of the year than in thesecond half (Table 4, page 42). Since the im-porting power of their exports was falling par-ticularly sharply in the first six months, their tradedeficit was larger then than in the second half ofthe year.

In contrast, preliminary figures indicate thatthe less developed countries' imports rose by onlysome 4 per cent, whereas the importing powerof their exports increased by over 5 per cent.However, just as for the more advanced group,the less developed countries' imports grew ratherfaster during the first half of the year than duringthe second half. As a result, the trade balance ofall primary producers taken together improvedconsiderably after mid-year, although the im-provement was concentrated in the less developedcountries.

A geographical analysis, based on preliminaryfigures, shows that the pattern of import growthfor the less developed countries was dominatedin 1965 by the situation in Latin America, wherethe importing power of exports rose by some 4per cent while total imports increased by less than2l/2 per cent, and in the Middle East, wherethese two rates of increase were of over 6 per centand under 3 per cent, respectively. In Asia, thegrowth of imports appears to have matched therise in importing power (both increased by some5 per cent); only for Africa did the increase intotal imports (9 per cent) exceed that in import-ing power (6l/2 per cent).

Trade Balances

Within these areas, however, the balances oftrade for individual countries differed widely, aswill be seen from Table 27. These balances were

influenced not only by differing market conditionsfor the countries' principal exports and by thesecountries' own role within those markets, but also—mostly on the import side—by domestic devel-opments. The most conspicuous improvements intrade balances emerged in the countries exportingeither coffee or fibers and rubber. It should, how-ever, be noted that in the second of these groupsthe sizable advance of Malaysian exports was duemuch more to the booming market for tin than toany growth in its principal export, rubber. Pakis-tan benefited from shortfalls in other cotton pro-ducing countries in order to increase its earningsmarkedly in a market not characterized bystrength. The improved trade balance of theUnited Arab Republic is explained by an in-crease in its receipts from long-staple cottonexports on a strong market early in the year, andby the severity of restrictions on imports.

Among the countries exporting coffee, the con-tinued decline in Brazil's imports, due in part tothe exchange reforms introduced under the stabi-lization program of 1964, contributed to a sizableimprovement in its trade balance. So did thesharp downturn in the imports of Colombia, ow-ing principally to the very tight restrictions main-tained until the exchange reform late in the year.Earnings from coffee exports declined for mostmajor producers from 1964 to 1965. In Brazil,however, in contrast to other countries, this wasmuch more than made up by a sharp rise in otherexports, including manufactures, so that its ex-ports as a whole grew more strongly than those ofthe other coffee exporting countries. This was areversal of the situation in the previous year. InYugoslavia the devaluation of the exchange rateboth stimulated exports and reduced imports con-spicuously. In Nigeria the important factor wasthe contribution of surging oil exports, offsettingweakening prices for some agricultural exports.

Developments in Ghana, India, Korea, andPeru are discussed in Chapter 8.

The countries relying on metals and mineralsdid not experience as much improvement in theirtrade balances as might have been expected, asimports rose sharply everywhere except in Chile,where the measures of stabilization undertaken in



the course of the year were reflected in reducedimport demand. Preliminary figures suggest that itwas still mainly strong import demand in Iranand Venezuela that reduced the surpluses in theirbalance of trade, as receipts from petroleumexports remained close to their level in 1964.

The effect of domestic conditions was mostprominent in countries exporting temperate agri-cultural products—that is, in the more developedprimary producers. Their export receipts, likethose of many of the less developed countriesproducing tropical foodstuffs, showed either de-clines or only small gains in 1965. In contrast,however, to many tropical producers, whose im-ports rather rapidly adjusted to this situation, im-ports in many of the more developed countriescontinued to boom during most of 1965, underconditions of excess demand. A large trade deficitresulted.

Balance of Payments

In 1965 the balance of trade was again the keyto the balance of payments of the primary pro-ducing countries. Table 28 shows that the deteri-oration in 1965 of the trade balance for thewhole group resulted from a slowdown in the rateof growth of exports not wholly matched on theimport side. In this general result, however, someimprovement in the balance of trade of the lessdeveloped countries was overshadowed by a dete-rioration in that of the more developed ones. The$1.2 billion swing into deficit in the latter coun-tries' aggregate over-all balance was more thanaccounted for by an increase of nearly $1.7 bil-lion in their trade deficit (the difference beingmade up, in roughly equal parts, by increased re-ceipts from services and transfers and by largercapital inflows). In contrast, the less developedcountries' trade balance appears, on preliminaryfigures, to have improved by some $0.4 billion in1965, and their over-all surplus by $0.9 billion.The difference between these figures $temmedfrom a favorable change in short-term capital andunrecorded transactions, which, together withsome increase in net inflows of government capi-tal and aid, more than offset the decline in re-

corded inflows of private long-term capital andthe increase in net payments on services andtransfers.

The rise in the less developed countries' over-all surplus during 1965 was hardly less spectacu-lar than the downswing into deficit for the moredeveloped countries, even though the latter werein general more affected by the decline in primaryproduct prices. The more developed countries asa group used $0.7 billion in reserves, but the lessdeveloped countries added some $1.2 billion totheirs (virtually all in foreign exchange), in con-trast to a negligible change in 1964. Broadlyspeaking, the much more comfortable reserve po-sition of many of the more developed countriesallows them more time to ride out a deteriorationin their payments position. The experience of theless developed countries showed greater varia-tions from country to country, but, as was sug-gested in Chapter 5, their more precarious re-serve position and the rising level of their foreigndebt obligations may have prompted them to takemeasures of adjustment more rapidly. The resultswere the more striking since a reduction in therate of growth of exports may easily result in adeficit where an economy has become geared torising receipts; and it may be that in some in-stances there was an element of overadjustment.In other countries, however, the improvement inthe external position may have been related tomeasures designed to correct the external effectsof domestic imbalance, rather than an adjustmentto lower export receipts. Such measures may havebrought about not only a fall in the rate ofgrowth of imports but also an interruption of cap-ital flight and perhaps a reflux. This may explainsome part of the swing of $0.7 million in "othershort-term capital and errors and omissions,"which is an important element in the improvementof the less developed countries' over-all position in1965. In contrast, preliminary and still incompletereports from the less developed countries indicatethat their receipts of foreign long-term privatecapital, although they remained above their 1962and 1963 levels, declined from their 1964 peak.This decline appears particularly pronounced if thespecial capital receipts, accruing to a number of



TABLE 28. PRIMARY PRODUCING COUNTRIES: BALANCE OF PAYMENTS SUMMARIES, 1964 AND 19651


1964

A. More DevelopedPrimary Producers


Total, Group A

B. Less DevelopedPrimary Producers

Latin AmericaArgentinaBoliviaBrazilChileColombiaCosta RicaDominican RepublicEcuadorEl SalvadorGuatemalaHaitiHondurasJamaicaMexicoNicaraguaPanamaParaguayPeruUruguayVenezuela

Subtotal, LatinAmerica

AsiaBurmaCeylonChina, Republic ofIndiaKoreaMalaysiaPakistanPhilippinesThailandViet-Nam

Subtotal, Asia

Middle EastIranIraqIsraelJordanSaudi ArabiaSyrian Arab Rep.United Arab Rep.

Subtotal, MiddleEast

AfricaEthiopiaGhanaIvory CoastLibyaMoroccoNigeriaRhodesiaSierra LeoneSomaliaSudanTunisiaZambia

Subtotal, Africa

Total, Group B

C. Total Primary Producers

Exportsf.o.b.(1)

2,9991,292

308111595

1,093636

2,5471,004

433907

11,925

1,411100

1,4305916361131801611761593895

2231,071

1248445

685184

2,481

9,987

227371433

1,720119

1,10050275758550

5,864

1,13084035024

1,016176524

4,060

105321303620434591403

8833

201137489

3,725

23,636

35,561

Importsf.o.b. 3

(2)

—2,829— 1,510 5

—8825—120— 948 5

—908— 818 5

—2,226—2,081 5

—475—1,342 5

—14,139

—1,078 5—98

—1,086— 623 5

—575—125—191—140— 192 5

—185—37—95

—248—1,499 5

—110—170

—44—513—169

—1,219

—8,397

—233—412—400

—2,920 5—365

—1,003—887—780— 679 5

—3255—8,004

— 661 5

—4095—7315

—1385—374—2355

—9275

—3,475

—109—319—261 5

—2955—437—6875—309—88—56

—252 6

—240—221

—3,274

—23,150

—37,289

TradeBalance(Cols.

'&2)

170—218—574

—9—353

185—182

321—1,077

—42—435

—2,214

3332

344—32

61—12—11

21—16—26

1

—25—428

14—86

117215

1,262

1,590

—6—41

33—1,200

—24697

—385—23—94

—275—2,140

469431

—381—114

642—59

—403

585

—42

42325—3

—9694

—23—51

—103268451

486

—1,728

Servicesand

PrivateTransferPayments

(4)

—54643

3621

254—183

198—4261,105—45210973

—299—21

—283—106—192—14—47—48—11—26—10—17

—810

—2863

—11—157—24

—1,052

—2,281

—33—9

—153079

—158—107

924137

—43

—515—375

16351

—50353

117

—1,009

—15—93—53

—341—37

—172—103—28

—9—39—20

—176—1,086

—4,419

—3,446

Goods,Services,

andPrivate

TransferPayments

(Cols.3£>4)

—376—175—212

—8—99

216

—10528

—87—225

-1,241

34—19

61—138—131—26—58—27—27—52

—9—17—33

—418—14—23—10

15—9210

—691

—39—50

18—1,170

—167—61

—49269

—53—238

—2,183

—4656

—218—63139—6

—286

—424

—19—91—11—16—40

—268—9

—28—32—90

—12392

—635

—3,933

—5,174

CentralGovern-

mentCapitaland Aid

(6)

—1166880

—1—5—86125

—2097

105286

7032

19294287

22157

—31196166

743

—19

567

265323

1,32015718

4781342

2022,332

—1929839041

—12267

479

124815147784

—1112243285

—16376

3,754

4,040

PrivateLong-Term

Capital(7)

'si12014

103

38—52267

30—

1,035

—27113363

15322

71420

384

4991887

14—7

—41

809

1__

15

—12111493466

328

26—39174

1—11

19—7

163

12171949

—9174181942

19—29295

1,595

2,630


(8)

—26—12

5—1

115—132

27540

—12080

7724

28619503

—36—5—6

—32—3

2—20

875

—93

103—13150

685

—123

56

—26835

11655

—36477

—39463928

1691

—26

218

5—26

234728

—10—2

3—4

—56—19

4736

1,416

1,496

OtherShort-Term

Capitaland NetErrors

andOmissions

(9)

555 •7223

4228 «2

66996

—15426

—28—8

—921

—69—10

239

173412

25—35

391

—78—8

—65

—268

9—447

— 125 «—5

-1155—93

—12029

—3—420

—12—92—21—14—74—520

—198

6—9

—264

—80459

14—5

710

—25—50

—936

—510

Total4

(Cols.8 + 9)

(10)

6346

—108

4122

117—6637446

—135506

4916

19420

—19—7

—134

112

—245

528

—425

—2185

417

—3—110325

—3—47—58

—484

—3957

—51—46

181495

—4—6

20

11—35

—351

—52357

17—9

—49—922

—14

480

986

Source: Based on data reported to the International Monetary Fund.1 No sign indicates credit; minus sign indicates debit. 2 Preliminary and including Fund staff estimates. 3 F.o.b. unless otherwise noted.Footnotes continued on page 85.



TABLE 28 (concluded). PRIMARY PRODUCING COUNTRIES: BALANCE OF PAYMENTS SUMMARIES, 1964 AND 19651


1965 2

Exportsf.o.b.

A.

B.

C.

More DevelopedPrimary Producers


Total, Group A

Less DevelopedPrimary Producers

Latin AmericaArgentinaBoliviaBrazilChileColombiaCosta RicaDominican RepublicEcuadorEl SalvadorGuatemalaHaitiHondurasJamaicaMexicoNicaraguaPanamaParaguayPeruUruguayVenezuela

Subtotal, LatinAmerica

AsiaBurmaCeylonChina, Republic ofIndiaKoreaMalaysiaPakistanPhilippinesThailandViet-Nam

Subtotal, Asia

Middle EastIranIraqIsraelJordanSaudi ArabiaSyrian Arab Rep.United Arab Rep.

Subtotal, MiddleEast

AfricaEthiopiaGhanaIvory CoastLibyaMoroccoNigeriaRhodesiaSierra LeoneSomaliaSudanTunisiaZambia

Subtotal, AfricaTotal, Group B

Total Primary Producers

(1)

2,9321,427

331129630

1,064626

2,587995474

1,12112,316

1,488116

1,56068057011212017418919038

129220

1,1591498660

687196

2,457

10,380

239401451

1,678176

1,22660078361241

6,207

1,23388440328

1,200170590

4,508

117321285800436738440

8040

209124510

4,10025,19537,511

Importsf.o.b. 3

(2)

—3,302—1,651 5—1,0315

—126—1,040 5

—996—9335

—2,540—2,760s

—505—1,3205

—16,204

—1,195 5—122—970—620 5

—445—159

—90—155—201 5

—210—43

—112—259

—1,577 5—137—189—51

—646—130

—1,318

—8,629

—221—403—530

—2,932 5—420

—1,045—930—808—7235—357s

—8,369

—8475—4285

—7335—1555—460—210 5

—8505

—3,683

—132—437—255s

—3205—417—7445—370—100—60

—2135

—261—300

—3,609—24,290—40,494

TradeBalance(Cols.1+2))

(3)

—370—224—700

3—410

68-307

47—1,765

—31—199

—3,888

293—659060

125—47

3019

—12—20

—517

—39—418

12—103

94166

1,139

1,751

182

—79—1,254

-244181

—330—25

—111—316

—2,162

386456

—330—127

740—40

—260

825

—15—116

3048019

—670

—20—20—4

—137210491905

-2,983

Servicesand

PrivateTransferPayments

(4)

—63637

4231

270—201

291—4791,300

11229

1,246

—111—25

—430—110—135—19—40—48—15—30—11—17

654

—3477

—13—167

—8—1,104

—2,180

—48—1

—14—111

115—165—120

1417093

—40

—557—390

12858

—60040

110

-1,211

—16—112

—64—420—53

—186—110

—30—10—38—46

—200—1,285—4,716—3,470

Goods,Services,

andPrivate

TransferPayments

(Cols.3 + 4)

(5)

—1,006—187—277

4—140—133

—16—432—465—20

30—2,642

182—31160

—50—10—66—10—29—27—50—16

—33—364—22—26—4

—1265835

—429

—30—3

—93—1,365

—12916

—450116

—41—223

—2,202

—17166

—202—69

140

—150

—386

—31—228

—3460

—34—192—40—50—30—42

—18310

—794—3,811—6,453

CentralGovern-

mentCapitaland Aid

(6)

—43—242

432999

'9142

351

8334

2111102235201427

~649

215

117

634

66

818

—53650

1,15811655

4009780

2612,248

—169

1558040

150

418

318413—1149510202525

103

—5204,0044,355

PrivateLong-Term

Capital(7)

'34171

570

'2784

350 7

18

—1,387

—52

75204030—~1212201

1015

1171434

2557

—32

420

_

—122404091

——4340— .

189

331—40

1281

—1010

—10

410

148919302

171302057

80—10457

1,4762,863


7)(8)

— iss—64

9—70

"46—249—115

8972

—904

2605

5128052

—110

—312

—30—9

14—9

—226—3

—127

—3811969

809

—3532

—21—167

27162

—501707938

235

144358112

17010

—10

442

14—55

—2908274

——10

——10

——183

1,669765

OtherShort-Term

Capitaland NetErrors

andOmissions

(9)

693 6

8231

— 330

— 10 6

129411

—20—23219

—857

134—35—17

3—10—10—12

307

—89

189239

—153

—86—60

140

83

3064

—22—133—25

—1364

—1—208

—82—33

1051

—40—10

10

—94

2145

—20—30—60

—10

——13—4—

—96—258

—39

Total *(Cols.

8 + 9)(10)

—356—73—33

6—40

—10052

—155—104

6949

—685

17512

64645352

——13

———26

——3720

—36

15339

949

—27359

—1035

29—75

34833727

622

9163

130

——

348

16—41

3705214

————23

—4—87

1,411726

For Footnotes 1-3, see page 84.* Represents net official reserve movements, including changes in reserve position in the Fund. No sign indicates an over-all surplus;

minus sign indicates an over-all deficit. 5 c.i.f. 6 Including private long-term capital, an estimate for which is included in the area totals forcolumns (7) and (8). 7 Including government capital, an estimate for which is included in the area total for column (6).



oil producing countries in 1965 from the renego-tiation of contracts, are excluded.

More Developed Countries

Except for two countries, the over-all balanceof all more developed primary producers wors-ened from 1964 to 1965; in most countries itswung from surplus into deficit (Group A in Ta-ble 28). This was in striking contrast to the im-provement which these countries, again with twoexceptions, recorded from 1963 to 1964. Butfrom 1963 to 1964 the two exceptions (Australiaand South Africa) dominated the outcome forthe group as a whole, while from 1964 to 1965the improvement in Turkey and Yugoslavia didlittle to modify that outcome. In Turkey it wasmostly connected with services and privatetransfer payments. The improvement in Yugo-slavia's position was conspicuous not only be-cause its trade deficit was halved, primarily as aresult of the devaluation of the dinar in July1965, which raised the value of other currenciesby 67 per cent, but also because the inflow ofcapital was reduced, in contrast to the experienceof many of the other countries.

The year's outcome for the group as a wholewas dominated by Australia, New Zealand, SouthAfrica, and Spain. In these countries exportseither failed to improve or fell, and imports con-tinued to soar for the greater part of the year. Inthe first three of these countries, net payments onservices and private transfers contributed to theworsening of the current account, while inflows ofcapital both on government and private long-termaccount were an important offset to this. (Thedifferent experience of Spain is described inChapters.)

The experience of the other countries in GroupA was rather more varied. For most of them,however, exports did show some increase in1965, and in this respect they differed from thefour countries just discussed. But, again, the in-crease in their imports substantially outstrippedthat of exports, except in Iceland, Turkey, and,of course, Yugoslavia, so that, with these excep-

tions, their trade surpluses shrank or their tradedeficits widened considerably from 1964 to 1965.A sizable increase in receipts from tourism and inremittances from workers abroad provided an im-portant offset to this for the Mediterranean coun-tries. The role of capital movements, and theirdistribution between government and private ac-count, varied from country to country. On thewhole, however, such movements were of thesame order of magnitude and direction as in1964, and generally acted as an offset to the dete-rioration in the current account. The experienceof Finland was, however, conspicuously differentin this respect; its swing from 1964 to 1965 ofalmost $120 million into over-all deficit was dueprimarily to its inability to borrow as muchabroad in 1965 as in 1964, and hardly at all tothe slight increase in its current account deficit.

Less Developed Countries

Looking at the geographical divisions of GroupB in Table 28, it is apparent that the most con-spicuous change from 1964 to 1965 in the over-all balances of the less developed countries wasthe $0.5 billion increase in the surplus recordedfor Latin America. This seems to have resulted,in equal parts, from a decrease in the deficit oncurrent account and an increase in the surplus oncapital account. As to the latter, it may be seenfrom the preliminary figures set out in the table,which include some estimates by the Fund staff,that most of the net movement can be ascribed toa swing in the residual item (consisting of theoutflow of private short-term capital and transac-tions unrecorded elsewhere). The increasedinflow on government account was more thanoffset by a fall in inflows of private long-termcapital—which is in striking contrast to develop-ments in 1964. Similarly favorable, though lesspronounced, swings occurred in the residual itemfor the Middle Eastern and Asian countries; onlyfor those African countries covered in Table 28did the total net outflow on this item increase. Anincrease of $0.3 billion was recorded in the over-all surplus of those Middle Eastern countries for



which balance of payments statistics are available.This stemmed largely from an increased privatecapital inflow resulting from the renegotiation ofsome oil contracts, as the current account balanceshowed almost no change, and inflows of officialcapital some decline, in comparison with 1964.The slight decrease in the over-all surplus of theAsian group, to a position of near balance, reflectsdevelopments on current account (specifically onthe trade balance); the favorable swing in theresidual item was matched by a decline in recordedcapital inflows, both official and private. In theAfrican countries a small improvement in the tradebalance was more than offset by an increase in netpayments on services and private transfers andthe swing into over-all surplus was the result of aconspicuous increase in capital inflows.

This broad picture is, however, the result ofrather disparate movements in individual coun-tries, and of different factors within each country.In Latin America, the improvement in the tradebalance was by no means general; the increase ofimports combined with almost unchanged exportsexperienced by Costa Rica, Peru, and Venezuelawas as conspicuous as the reverse combination inBrazil, Chile, and Uruguay. In the DominicanRepublic a severe curtailment of imports morethan made up for the fall in exports. A decreasein net payments on services and private transfers,sometimes associated with a decrease in imports,contributed to the current account improvementin many countries, with the conspicuous exceptionof Brazil. The balance on capital account im-proved rather generally; in the majority of coun-tries net receipts of government capital and aidwere also greater. The inflow of private long-termcapital appears at first sight to have fallen off sub-stantially in many countries in 1965. However,when using preliminary figures, it is usually neces-sary to examine at the same time the residual itemcovering short-term capital and unrecorded trans-actions, where the largest decreases in privatelong-term capital inflows are found in 1965 tohave been offset to some extent. The swing intosurplus on this residual item may, for instance inBrazil, be related to a decrease in the rate ofcapital flight, and some reflux.

Exports showed substantial increases from1964 to 1965 in most of the Middle Easterncountries covered in Table 28, and the trade bal-ances rather generally improved, with Iran as anotable exception. For this country, however,special receipts arising out of the renegotiation ofcontracts with foreign oil companies turned anover-all deficit into a sizable surplus in spite ofthe outcome on current account. In contrast, onlythe severe restriction of imports into the UnitedArab Republic enabled that country to maintainover-all balance in the face of a very large dropin the inflow on account of official capital andaid.

The small increase in the trade deficit of theAsian countries, as a group, was the result of un-changing or declining exports combined with in-creasing imports in some countries (particularlyChina, India, and Viet-Nam) not being fully offsetby the improvement in other countries (notablyMalaysia and Pakistan). A decline in the currentaccount deficit in Korea, and an increased surpluson this account in the Philippines, were due en-tirely to higher net receipts on services andtransfer payments. No generalization is possibleabout the countries' capital accounts. However, inBurma a net outflow on account of official capi-tal, replacing an inflow, was almost entirely re-sponsible for the increased over-all deficit, whilein China, the Philippines, and Thailand largerinflows on official account more than offset thedecline in private inflows (including those implic-it in the residual item).

The moderate improvement recorded in thetrade balance of the group of African countriescovered in Table 28 is, as elsewhere, the resultof much variation from country to country. Strik-ingly enough, one of the largest quantitative im-provements in this balance was recorded in acountry whose exports were unchanged from1964 to 1965, namely Morocco. Exports failed torise in Ghana while imports soared. Here, andalso in Zambia, an increased inflow of capital wasan important offset to the deterioration in thecurrent account. In Ivory Coast exports fell bymore than imports, but this setback was morethan made up on transactions as yet unidentifi-



able. An upsurge in exports from Libya andNigeria was combined with only a moderateincrease in imports.

Data for the primary producing countries overa number of years, as a whole and in certain sub-groups, are shown in Chart 21, where balanceson account of goods, services, and privatetransfers are compared with balances on basic ac-count. For the two main groups of primary pro-ducers, Chart 22 compares the over-all balances(including movements of short-term capital anderrors and omissions, in addition to the transac-tions entering the basic accounts) with the basicbalances for the years 1958-65.

CHART 21. PRIMARY PRODUCING COUNTRIES: BALANCESOF PAYMENTS, 1958-65


In contrast to the experience of the less devel-oped countries, the outcome of the basic balancefor the more developed countries has since 1961been determined by the current account, as thelevel of capital inflow has shown no definite tend-ency to rise. In the less developed countries, andparticularly in areas other than Latin America,rising capital inflows have made possible the grad-

ual accumulation of larger reserves. In LatinAmerica similar improvements in the net foreignposition have been more closely related to thecurrent account.

Chart 22 shows that, while the movements inthe basic balance and in the over-all balance havein general been similar, there has been in eachyear since 1960 an inflow on account of short-term capital and unrecorded transactions for themore developed countries and an outflow for theless developed countries. The size of these flowswidened substantially in 1964, but in 1965 ap-pears to have reverted to that of earlier years.

CHART 22. PRIMARY PRODUCING COUNTRIES: BASIC ANDOVER-ALL BALANCES, 1958-65


Domestic Developments

It has been suggested in the preceding sectionthat in 1965, as in earlier years, the state of thedomestic economy was at least as important aninfluence on the external position of many pri-mary producing countries as the changes whichoccurred in export earnings. In the domestic situ-ation the joint or separate operation of three fac-tors can usually be pinpointed, with consequentimplications for policy: on the demand side, thefiscal position of the public sector and thegrowth of credit to the private sector; and on thesupply side, the level of agricultural production.

In 1965 agricultural output played a particu-larly significant role in determining the degree ofimbalance between the generation of incomes andthe supply of goods and services. In some coun-tries chronic shortages suggested the need for pol-icies to stimulate agriculture, in addition to what-



ever short-run measures were necessary, in theabsence of adequate imports, to restrain demand.In other countries, where shortages were of atemporary character, such short-run measuresmight have been sufficient, but they were not al-ways taken. It is true that, up to a point, theefficacy of such measures is limited in the lessdeveloped countries because of the high propor-tion of income spent on food. However, their ap-plication is made all the more important becauseeffective domestic mechanisms to stabilize foodprices in the short run are absent and becausesuch stabilization can be wrought through importsonly to a limited extent, given the level of re-serves. An increase in food prices (such as re-sults from the pronounced cycles to which outputis subject in many less developed countries) canbe readily translated into a permanent, step-likeincrease in the cost of living. This is particularlylikely to occur where a history of inflation hasmade the whole cost structure (while rigid in adownward direction) very sensitive to whatwould otherwise be only temporary increases inthe cost of living.

Broadly speaking, however, domestic imbal-ances in 1965 could again be traced to two lead-ing causes on the demand side: in the more de-veloped primary producers to the expansion ofcredit to the private sector, and in the less devel-oped countries to budget deficits.

More Developed Countries

In the majority of the more developed coun-tries output continued to grow during most of1965 at high rates, close to those prevailing inother recent years. But such growth was rathergenerally associated with increasing internalstrains and symptoms of excess demand; the rap-id expansion of nonagricultural sectors under rel-atively easy credit conditions coincided almosteverywhere with weakness in the agricultural sec-tor, ranging from chronic difficulties in Mediter-ranean countries to severe drought in Australiaand South Africa. These strains were for the mostpart quickly reflected in the deterioration of thetrade balance discussed above. Surges of imports

combined with unchanging exports did contributeto price stability, particularly in Australia, NewZealand, and South Africa. However, it was feltin a number of countries that a situation of excessdemand could not continue unchecked withouteventually reducing reserves, in a few instancesalready low, to an inadequate level. Accordingly,corrective measures, mainly more restrictive cred-it policies, were widely taken in the second halfof the year, and there was evidence of some weak-ening in the expansionary forces and the rate ofgrowth toward the end of the year, notably inAustralia and South Africa. The trade balancebegan to show some improvement, particularly onthe import side. In New Zealand, however, cor-rective action was slow to be taken, althoughwhen the expansion of recent years began therewas already full employment of resources andlow international reserves. Here, and also to someextent in South Africa, where an inflow of short-term capital had partly offset the effect of tightercredit, the reimposition or tightening of importcontrols contributed to the improvement in thetrade balance, while the underlying domestic situ-ation continued in some imbalance.

One of the more encouraging aspects of theNew Zealand expansion, as it affects long-term ex-port growth, has been the sharp increase in farminvestment. In a number of other countries, how-ever, notably Greece, Portugal, and South Africa,an attempt was made to coordinate measures tostimulate investment in the agricultural sectorwith restrictive credit policies for the rest of theeconomy and in particular for the importing sec-tor. The recovery of agricultural output in Portu-gal is the key to the sharp improvement in growthrates which this country, alone among the moredeveloped primary producers, showed in 1965.

Although the trade balance has respondedquite readily to variations in domestic conditionsin Iceland, Ireland, and the Mediterranean coun-tries, the rapid growth of incomes in these coun-tries in recent years has resulted in pronouncedchanges in the* pattern of demand, which in cer-tain sectors (for instance, housing construction)have strained resources for which imports cannotbe substituted. The price level has thus reflected



domestic imbalance to a greater extent in thesecountries than in Australia, New Zealand, andSouth Africa. Furthermore, while there remainswidespread underemployment in the rural areasof Spain, Greece, and Portugal, and a high rate ofunemployment in Finland and Ireland, emigrationhad begun by 1965 to cause a shortage of skilledlabor and, consequently, an upward pressure oncosts in all these countries, as wages responded tothe higher levels prevailing in other Europeancountries.

The measures taken during 1965 to contain ex-cess demand in these countries did succeed, invarying degrees, in slowing down the rate of in-crease in the price level. Exceptionally, the costof living in Yugoslavia increased sharply towardthe end of the year, as the price structure adjust-ed to the higher cost of imports resulting from asubstantial devaluation. There remains for manyof these countries a longer-term problem ofachieving simultaneously a diversification of out-put and a strengthening of the agricultural sector.The attempt, mentioned above, to prevent thetighter credit in 1965 from discouraging agricul-tural investment is a step toward its solution insome countries.

Less Developed Countries

It appears that, in a majority of the less de-veloped countries, output may have expandedsomewhat more slowly in 1965 than in the previ-ous year. However, preliminary information sug-gests that the rates of growth, and the domesticconditions within which such growth wasachieved, varied considerably from country tocountry. In some—for instance, Peru and theUnited Arab Republic—the maintenance or re-sumption of a high growth rate was achievedagainst a background of worsening domestic bal-ance, combined with a weakening of the Externalposition. In others, where a process of readjust-ment was under way (as in Colombia and Mo-rocco) the rate of growth suffered in conse-quence, though after a period of consolidation abasis for balanced growth should have been re-stored.

Most Central American countries continued in1965 to achieve very favorable rates of growth inan atmosphere of price stability. In contrast, therate of development in many African countriesdid not show much advance. In some, this wasthe consequence of a serious shortage of re-sources, while in others, particularly Ghana andMali, continuing price inflation and balance ofpayments difficulties have depressed the rate ofgrowth of output and investment. There havebeen conspicuous exceptions among the countriesbenefiting from petroleum exports. Even in Lib-ya, however, the extraordinary rise in incomesfollowing the upsurge in oil exports has resultedin such pronounced changes in the pattern of de-mand that the rapid expansion of imports has notprevented substantial price increases. In the ma-jority of Asian primary producing countries, therate of growth appears to have fallen off appre-ciably, but Korea and Thailand stand out as ex-ceptions.

During 1965 a recovery in agricultural outputwas at least in part responsible for the improve-ment in the trade balance, affecting both importsand exports, of a number of less developed coun-tries, particularly in the Middle East. In anumber of Latin American countries, however—notably Chile and Colombia—food supplies havecontinued to expand only sluggishly, and in someAfrican and Asian countries the production ofexport crops was adversely affected by both tem-porary and structural factors. Conditions in Indiabecame particularly alarming: during the secondhalf of the year the worst drought in several dec-ades caused a drop of more than 15 per cent inthe already inadequate output of foodgrains;there were widespread power shortages; and theexisting inflationary gap was further widened.

The economic problems of primary producingcountries can be persistent, and sometimes intrac-table, unless full and balanced use is made of therelatively few effective instruments of directionand control at the disposal of the authorities.During 1965 the management of credit to the pri-vate sector appears on the whole to have im-proved. In a number of countries, however, atight monetary policy reflected a worsening fiscal



situation, squeezing credit to the private sector.In a few others, the stagnation or decline in theprivate sector's demand for credit was evidenceof a level of public investment which, by provid-ing only inadequate services to the rest of theeconomy, failed to create the conditions necessaryto stimulate private investment (though such alow level of public investment was associatedwith mounting current expenditures).

The public finances remained in a precariouscondition in a majority of less developed coun-tries. The reasons for fiscal weakness were moreoften than not to be found on the side of currentexpenditures, while the remedy applied was alltoo frequently a cut in investment expenditures.Expenditures for defense increased substantiallyduring 1965 in several countries. In addition, thefinancing which the central government or centralbank has had to provide to states, local authori-ties, and public enterprises, whose budgets are of-ten not subject to central control, continued to bea major weakness in a number of fiscal systems,particularly those of Latin American countriesand of India. In Argentina, the deficit of the rail-ways, which worsened again in 1965, can be sin-gled out among the foremost fiscal problems.

The rapidly increasing level of current expendi-tures which results from an inflationary situation(and which contributes to its aggravation) hasagain proved to be troublesome. It is oftendifficult to control increases in the public sector'swage bill; in this respect, however, the applica-tion of wage restraint in Brazil during 1965 isnoteworthy as a key element in the strengtheningof that country's fiscal position (though it wasdoubtless made easier by the substantial readjust-ments granted in the previous year). In a numberof other countries, the attempt to reduceinflationary pressures (and in particular to re-strain wage demands) by holding down the costof living continued to involve a rapidly rising de-gree of subsidization for both food and services.In the United Arab Republic more realistic pric-ing policies were introduced at the end of theyear.

Elsewhere, a number of marketing boards andsimilar entities incurred substantial losses (usual-

ly covered by transfers from the central govern-ment or by loans from the central bank) eitherby maintaining prices to growers as the exportprice for their crops declined (as in Ghana for alarge part of the year), or by covering the cost ofthe stockbuilding necessary to maintain the ex-port price (as in Brazil and Ivory Coast). Themanagement of a similar situation in the Colom-bian coffee sector improved markedly in thecourse of the year.

On the side of revenues, the government, states,and other public entities in many primary productexporting countries have become heavily depend-ent on the fiscal receipts from international trade.Under such circumstances the effect of a fluctua-tion in export earnings (both directly and throughits effect on imports and so on customs duties) canseldom readily be offset by alternative fiscal poli-cies. This close link between the fiscal and pay-ments positions was again widely demonstrated byevents in 1965, particularly in the Sudan (whereboth continued to deteriorate together) and inAfghanistan and Korea (where increased exportsand imports were a major factor in fiscal im-provement). In Colombia, a substantial improve-ment in the fiscal situation is expected for 1966,to which the relaxation of import restrictions latein 1965 should contribute markedly. In a numberof countries the government is also dependent onforeign aid for an important part of its budgetsupport, and this may sometimes be a factor infiscal imbalance. Thus, in Jordan the emergence in1965 of a cash deficit in the budget was relatedto a sharp decline in foreign aid.

A further difficulty created by too great a re-liance on international trade for revenue is thatchanges in the constitution of imports may reactadversely on the fiscal position. Where, as in anumber of less developed countries, imports ofconsumer goods are being replaced by domesti-cally manufactured substitutes so that importscomprise to an increasing extent capital goods andraw materials, the tariff structure becomes an in-creasingly inadequate means of taxing consumerexpenditures. The introduction of some new salesand excise taxes in Pakistan during 1965 repre-



sents an important step toward broadening thetax base in response to such a change.

Finally, in countries for which the link is closebetween the payments and fiscal positions, fluc-tuations in export earnings may be particularlydamaging to sustained development, through im-portant secondary effects, unless some compensa-tory action can be taken. While the best course ofadjustment will, of course, be found to vary ac-cording to the circumstances of individual coun-tries, it is usually desirable, in the interests ofsteady growth, for the public sector to moderatethe impact of a fluctuation in export earnings onthe rest of the economy by maintaining a rea-sonable and consistent level of expenditures inthe face of the related fluctuation in revenuesfrom trade. If such a course is not to jeopardize

the balance between the generation of incomesand the supply of goods and services available tothe economy, some variation in the level of inter-national reserves and use of short-term credit is,however, called for. Thus, an upswing in exportearnings, and consequently in revenues, shouldnot be entirely absorbed by a change in publicsector investment plans leading to an increase inimports but should result in some reserve accu-mulation or restoration of lines of credit. In theevent of a decline in export earnings, primaryproducing countries would then have access tothe use of more adequate reserves and credit fa-cilities to moderate the effect on the flow of im-ports and the growth of incomes. It is gratifyingto observe that this sort of adjustment was ratherwidely at work during the 1963-65 commodityprice cycle.


Chapter 8

Balances of Payments of Selected Countries

HIS chapter reviews balance of paymentsdevelopments in a number of individual coun-

tries, to supplement the analysis of the broadertrends in world payments in Chapter 5. The coun-tries selected for examination are generally thosewhose balance of payments either had a significantimpact on world payments because of the size oftheir surpluses or deficits or exhibited interestingchanges during the last year. Some of the coun-tries (specifically Ghana and India) have beenselected primarily because they illustrate, in acuteform, problems encountered by a wide range ofcountries. In general the analysis is confined to1964, 1965, and the early part of 1966, but in afew countries where a broader perspective isneeded to appreciate the significance of recentdevelopments it covers also some earlier years.

United States

Developments in the balance of payments ofthe United States during 1965 (Table 29) werethe product of divergent trends. On the one hand,the surplus on account of current transactions(defined as in Group A) was reduced under theimpact of the economic expansion, which wasmore rapid in the United States than in the otherindustrial countries. On the other hand, an im-provement on capital account was brought aboutby the measures introduced to restrain theoutflow of capital, but also, increasingly, by thetightening of monetary conditions associatedwith the boom in the economy. For the year as awhole the favorable factors prevailed. However, itis more than usually difficult to express the bal-ance of payments of the United States during1965 in a single figure for an over-all balance. Aspecial problem is created by the liquidation bythe U.K. Government of about $500 million ofcorporate securities held by the U.K. Exchange

Equalization Account as secondary reserves.These transactions are shown in U.S. statistics asadding to the deficit "above-the-line," the corre-sponding accumulation of liquid liabilities beingincluded as financing "below-the-line," on boththe liquidity basis and the official settlements ba-sis. When allowance is made for this special fac-tor (as seems appropriate, at least in the esti-mates on the official settlements basis), there wasa reduction in the over-all deficit from 1964 to1965, whichever measure of the deficit is chosen.Moreover, the deficit was considerably lower in1965 than in 1963, independent of the basis ofmeasurement. The reduction in the deficit on theliquidity basis was particularly large (see Table 30).

During the first three quarters of the year thecumulative deficit was very small on the officialsettlements basis (see Group H) and there waseven a slight surplus when allowance is made fora liquidation of securities by the U.K. ExchangeEqualization Account, precise data for which arenot available by quarters. A worsening occurredin the fourth quarter because short-term capitalmovements (Groups E and F), which had result-ed in an inflow during the first three quarters ofthe year, turned adverse. This shift in movementsof short-term capital apparently reflected bothlarger than usual year-end operations by foreigjicommercial banks and some movement of fundsto London influenced by the strengthening ofsterling in the fourth quarter. The deficit on ac-count of current and long-term transactions(Group C) remained at a much reduced levelafter the first quarter of the year.

Behind the moderate changes in the over-allbalance there were several important shifts in theU.S. balance of payments in 1965. The trade sur-plus was reduced from $6.7 billion to $4.8 bil-lion, under the influence of higher rates of expan-sion in the United States than in the other

93

T



TABLE 29. UNITED STATES: BALANCE OF PAYMENTS SUMMARY, SEASONALLY ADJUSTED, 1964-FiRST QUARTER 1966 l


1965

A. Goods, Services, and Transfers (excluding aid)Exports f.o.b.Imports f.o.b.

Export surplusNet military expendituresInvestment incomeOther services, remittances, and pensions (excluding

aid and military transfers)Total

B. Aid and Nonmonetary Sectors' Selected CapitalAdvance repayments on U.S. Government loansOther government capital and grantsDirect investment abroadPortfolio investment abroadForeign direct and portfolio investment in

United StatesTotal

C. Total (A plus B)

D. Unrecorded Transactions

E. Short-Term Capital, n.i.e.U.S. private assetsForeign nonliquid capitalForeign liquid capital

Total

F. Liquid Liabilities to Foreign Commercial Banks

G. Total (D through F)

H. Total (C plus G)

I. "Official Settlements"Liabilities to central banks and governments

Nonliquid liabilitiesLiquid liabilities

IMF accountsU.S. convertible currency holdings (increase — )Gold sales (purchases — )

Total

J. Main Categories, without seasonal adjustmentExport surplusServices and transfers (excluding aid)Aid and nonmonetary sectors' selected capital

SubtotalUnrecorded transactionsShort-term capital, n.i.e.Liquid liabilities to foreign commercial banks

Subtotal"Official Settlements"

Memorandum item: change (increase — ) in monetaryreserves assets net of liquid liabilities

Seasonally adjustedWithout seasonal adjustment

1964

25,297—18,621

6,676-2,087

3,988

—9667,611

123—3,683—2,416—1,961

109—7,828

—217

—1,011

—2,146478100

—1,568

1,454

—1,125

—1,342

981,073

266—220

1251,342

6,676935

—7,828—217

—1,011—1,568

1,454—1,125

1,342

2,7982,798

1965

26,276—21,488

4,788-2,037

4,255

—1,0435,963

221—3,596—3,371—1,080

—167—7,993

—2,030

—429

76124634

1,041

116

728

—1,302

97—17

165—3491,4061,302

4,7881,175

—7,993—2,030

—4291,041

116728

1,302

1,3551,355

Firstquarter

5,625—4,656

969—4641,188

—3081,385

10-812

—1,212—664

285—2,393

—1,008

—

2716339

373

17

390

—618

—23—201

68—58832618

1,018544

—2,289—121

238366164768

—41

697185

Secondquarter

6,798—5,481

1,317—4721,212

—2961,761

5—954—859

101

—309—2,016

—255

—109

41219356

661

—59

493

238

— 15—291—207

—56331

—238

1,544354

—2,289—391

38613

—206445

—54

—226—189

Thirdquarter

6,826—5,595

1,231—5461,059

—2171,527

183—926—569—363

—235—1,910

—383

—240

1056

15126

733

619

236

—22—255

330—413

124—236

844—172

—1,580—908—347

286697636272

5341,006

Fourthquarter

7,027—5,756

1,271—555

796

—2221,290

23—904—731—154

92—1,674

—384

—80

—27—16—76

—119

—575

—774

—1,158

157730

—26178119

1,158

1,382449

—1,835—4

—358—224—539

—1,1211,125

350353

1966 2

Firstquarter

7,121—6,003

1,118—6431,097

—3031,269

3—958—630—244

241—1,588

—319

—228

—14—31

7934

268

74

—245

29—208—125

222327245

1,133279

—1,477—65

1027

408445

—380

56378

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.

industrial countries. Imports were 16 per centhigher than in 1964; exports increased only 4 percent for the year, although in the second half theywere a little over 6 per cent greater than in thesame period of 1964. In the first quarter of theyear exports were adversely affected by aprolonged dock strike, but they made some re-covery in the remainder of the year. The season-ally adjusted trade surplus rose slightly from the

first half of the year to the second half, despitesteadily climbing imports. The reduction in thecurrent account surplus (Group A) from 1964 to1965 was mitigated by an improvement of a fewhundred million dollars on services account, as asharp rise in income on investments more thanoffset higher payments on account of travel andother services; the surplus fell from $7.6 billionto $6.0 billion between the two years.


BALANCES OF PAYMENTS OF SELECTED COUNTRIES 95

TABLE 30. UNITED STATES: DEFICIT IN BALANCE OF PAYMENTS ON VARIOUS BASES, 1960-65


Liquidity basis"Official settlements"Basis of Table 15 *

basis

1960

-3,881-3,402-3,455

19611

-2,370-1,347-2,043

19622

-2,203-2,706-3,387

19633

-2,670-2,044-2,370

1964

-2,798-1,342-1,464

19655

-1,355-1,302-1,523

Table 15, adjusted for U.K.liquidation of securities 2 -3,455 -2,043 -3,387 -2,370 -1,464 -1,023

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.1 In addition to "official settlements," advance debt repayments are included below-the-line.2 The liquidation of securities by the U.K. Government is not shown separately in Table 29 because precise

figures for these transactions are not yet available.

This deterioration in the current balance by$1.6 billion was offset by a reduction in the netoutflow on account of private capital and errorsand omissions, while there was no appreciablechange in government grants and capital transac-tions. Changes in movements of private capital in-to and out of the United States have been re-viewed in Chapter 6. They may be summarizedas follows:

(1) During the first half of 1965, U.S. directinvestment abroad rose sharply. Theoutflow of $2 billion was about twice aslarge as during the first half of 1964. Inthe second half of 1965, the outflow ofdirect investment capital, though substan-tially reduced as the program of voluntaryrestraint became increasingly effective, re-mained at about the level attained in thesecond half of 1964. From 1964 to 1965as a whole, there was an increase of $955million. However, U.S. companies bor-rowed about $200 million in the secondhalf of the year in European markets forinvestment in their foreign affiliates.

(2) There was a reduction by $1.1 billion inthe net outflow of other U.S. long-termcapital (including aid), reflecting for themost part a diminution of long-term banklending. Total outflow of U.S. long-tormcapital thus declined by a little over $100million (or by about $300 million ifallowance is made for the borrowing forfuture investment referred to above).

(3) There was an unfavorable change totaling$276 million in the movements of long-

term foreign capital, reflecting largely thesales of about $500 million of corporatesecurities by the U.K. Exchange Equaliza-tion Account, less the borrowing in Euro-pean markets of about $200 million byU.S. corporations.

(4) The inflow of liquid funds held by foreigncommercial banks was reduced by about$1.3 billion to about $0.1 billion. Thischange may, in part, represent a sideeffect of the program to restrain the out-flow of capital.

In the first quarter of 1966, although the tradesurplus fell off slightly, the current surplus, afterseasonal adjustment, was much the same as in thepreceding quarter. However, a disturbing factorwas the continued rising trend in imports; at $6.0billion, imports for the first quarter were about12 per cent higher than the quarterly averagefor 1965. There was some decline in the netoutflow of long-term capital and aid, mainly owingto lower U.S. direct investment abroad. Short-term capital movements were not especially signi-ficant, although liquid liabilities to foreign com-mercial banks increased. The seasonally ad-justed over-all deficit on an "official settlements"basis was $245 million.

Canada

Although over all the Canadian balance ofpayments remained strong in 1965, the balanceon current account deteriorated during the yearunder the impact of boom conditions in thedomestic economy, which were even more vigor-



ous than those in the United States. The increasein imports continued to be large, while that ofexports slowed down, partly because of a largedecline in shipments of wheat under special bulkcontracts with foreign governments. On a year-to-year basis, imports were about 15 per centgreater than in 1964, following a similar risefrom 1963 to 1964. Exports were only about 6per cent higher than in 1964; the total exclusiveof wheat, however, rose by 9 per cent. With com-paratively little change in the services items, thetotal current account deficit appears to have wid-ened from about $0.4 billion in 1964 to almost$1.1 billion in 1965 (Table 31, Group A).

There was a fall of some $220 million in thenet inflow of long-term capital in 1965, despitesome increase in foreign direct investment inCanada. That increase was roughly offset by asteady attrition in foreign holdings of outstandingCanadian securities. The volume of Canadiannew issues sold abroad, however, remained vir-

tually unchanged—partly because of the post-ponement of a considerable volume of such issuesin the United States from late 1965 to 1966under the influence of "moral suasion" by boththe Canadian and the U.S. authorities.

The balance of combined current account andlong-term capital transactions (Group C) swungfrom a surplus of nearly $400 million in 1964into a deficit of somewhat larger size in 1965.The 1965 deficit, however, was more than cov-ered by a net inflow of short-term capital, muchof which represented a return of Canadian bank-ing funds from Europe in excess of a net outflowof such funds to the United States. Reserves in-creased by $146 million in 1965, compared with$336 million in 1964. The 1965 reserve gainmight well have matched or approached that of1964 had it not been for the postponement ofsecurity issues mentioned above.

In March 1966, the Canadian Government an-nounced a series of measures aimed at damping

TABLE 31. CANADA: BALANCE OF PAYMENTS SUMMARY, 1964 AND 19651


1965

A.

B.

C.

D.

E.

F.

Goods, Services, and Transfer PaymentsExportsImports

Trade balanceNonmonetary goldTransportationTravelInvestment incomeOther servicesTransfer payments

Total

Long-Term CapitalDirect investment in CanadaCanadian direct investment abroadTransactions in Canadian securities

New issuesRetirements and other transactions

Transactions in foreign securitiesColumbia River Treaty (net)Other loans by Canadian Government (net)Other

Total

Total (A plus B)

Short-Term Capital (including net errors and omissions)

Total (C plus D)

Monetary MovementsIMF positionOfficial gold and foreign exchange (increase — )

Total

1964

7,622—6,975

647134

—37—46

—614—401—83

—400

236—130

1,039—350—58

50—1

3789

389

—53

336

—256—80

—336

1965

8,081—7,989

92126

—73—45

—677—394—80

—1,051

362—106

1,043—508—68

30—5

—181567

—484

630

146

—15610

—146

Firstquarter

1,688—1,727

—3932

—8—82

—158—96—19

—370

65—32

253—135

—32— .5

—10114

—256

190

—66

—4310966

Secondquarter

2,025—2,051

—2631

—23—56

—156—98—12

—340

111—5

283—2255

—2—79

82

—258

259

1

—8685

—1

Thirdquarter

2,092—1,949

14332

—22125

—147—96—26

9

93—46

276—43—20

—1—61200

209

—

209

—76—133—209

Fourthquarter

2,276—2,262

1431

—20—32

—216—104—23

—350

93—23

231—105—11

30—13—31

171

—179

181

2

49—51—2

Source: Based on data published by the Dominion Bureau of Statistics.1 Preliminary. No sign indicates credit: minus sien indicates debit.



the boom conditions in the domestic economyand at containing the rise in the current accountdeficit.

As an outgrowth of the understanding with theUnited States in connection with Canada's ex-emption from the U.S. Interest Equalization Tax,the Canadian Government has indicated that itexpects Canada to draw on its official exchangereserves as well as to borrow in the United Statesto cover its current account deficit in the balanceof payments in 1966, and has expressed its inten-tion of purchasing Canadian securities in the U.S.market if necessary to ensure that the net flow ofcapital funds to Canada is not in excess of theamount required to meet the needs of the currentaccount balance and to keep Canada's reserveswithin an appropriate range.

United Kingdom

In 1964 the balance of payments of the UnitedKingdom showed a heavy deficit, which reachedits maximum during the second half of the year.Results in 1965 were substantially better than in1964, and the deficit on the combined currentand long-term capital accounts, which had been$2.2 billion in 1964, was reduced to less thanhalf that amount in 1965 (Table 32, Group C).As movements of short-term capital were on bal-ance more favorable than in 1964, the deficit asmeasured by official monetary movements(Group F) was reduced even more, to $358 mil-lion. In 1965, the United Kingdom again availeditself of the option to defer loan service on theU.S. and Canadian postwar loans, amounting to$174 million.

Favored by a continued rapid growth of theUnited Kingdom's main overseas markets, partic-ularly the United States, and perhaps also by asomewhat lower pressure of demand in certaindomestic sectors, British exports grew more rap-idly in 1965 than in 1964 and were, over the yearas a whole, 7 per cent higher (of which roughly 2per cent was accounted for by price increases).The rise in exports was heavily concentrated insales to the United States, which rose by 23 percent above those in 1964, while at the other endof the range exports to the European Economic

Community were almost unchanged. Imports forthe year as a whole, as well as their time patternduring the year, were affected, inter alia, by theimport surcharge, which was reduced from 15 percent to 10 per cent at the end of April 1965. Thisreduction, which had been announced in Febru-ary, caused imports in the first quarter to be heldback, but led to larger imports in the secondquarter. For the four quarters taken together, im-ports rose by about 1 per cent (both in value andvolume), following an increase of 14 per cent(10 per cent in volume) from 1963 to 1964.

Owing largely to these swings in imports, themarked improvement in the current balance ofpayments in the first quarter was followed by atemporary setback in the second quarter (GroupA). But a limited reduction in the current ac-count deficit was achieved in the third quarter,seasonally adjusted, and a small surplus emergedin the last three months of the year.

The net outflow of long-term capital was alsoerratic, with a sharp and unexpected increase inthe third quarter (largely due to an unforeseenbunching of net oil investments).

Uncertainties and occasional periods of specu-lation against the pound in 1965 were reflected inmovements of private short-term capital, whichwere adverse in the first half of the year. The lastperiod of speculation in the exchange marketslasted from June to early August. Starting earlyin September, there was a continuous influx ofprivate short-term capital, facilitating some re-payment of the short-term assistance which theauthorities had used during the earlier periods ofspeculation. In this period, drawings under thesesupport arrangements raised the level of out-standing debt to $890 million (at the end of Au-gust). For the year as a whole there was a netinflow of short-term capital, as in 1964.

British reserves were replenished by a drawingon the Fund of $1.4 billion in May 1965, follow-ing the earlier drawing of $1 billion in December1964, both of which involved the use by theFund of the General Arrangements to Borrow. Inaddition, $885 million was added to reserves inFebruary 1966, representing the proceeds of U.S.corporate securities sold by the Exchange Equali-



TABLE 32. UNITED KINGDOM: BALANCE OF PAYMENTS SUMMARY, 1964-FmsT QUARTER 19661


A. Goods, Services, and Transfer PaymentsExports, seasonally adjustedImports, seasonally adjusted

Trade balance, seasonally adjustedServices and transfer payments, seasonally adjusted

Total, seasonally adjustedSeasonal influences

Total, unadjusted

Memorandum item: Goods, Services, and PrivateTransfers, unadjusted

B. Long-Term Capital Movements, n.i.e.Official long-termPrivate long-term

Investment abroad (net)Investment in U.K. (net)

Total

C. Total (A plus B)

Memorandum item:Loan service, due to U.S. and Canada, but not paidTotal (A plus B including loan service)

D. Errors and Omissions

E. Short-Term Capital Movements, n.i.e.Miscellaneous capitalForeign currency liabilities (net) of banksSterling liabilities (net) other than Group G

Sterling area countriesOther

Total

F. Total (C through E)

G. Official Monetary MovementsIMF positionGold deposit liability to IMFCentral bank assistanceSwiss loanSterling liabilities (net) to overseas central monetary

institutionsSterling area countriesOther countries

Transfer of securities from dollar portfoliosto reserves

U.K. gold and currency reserves (increase — )GoldForeign currencies

Total

Memorandum item:Waiver of loan service, due to U.S. and CanadaTotal (Group F) including waiver

1964

12,519—14,017

—1,498361

—1,137—

—1,137

—681

—325

—1,117426

—1,016

-2,153

—174—2,327

62

151409

—176—157

227

—1,864

1,005—52578

59—145

—347—5

1,864

1742,038

1965

13,381—14,123

—742361

—381—

—381

106

—226

—874490

—610

—991

-1744-1,165

294

379—182

176—34

339

—358

1,3918

—5339

—440102

——129—560

358

174532

Firstquarter

3,265—3,374

—10959

—50—56

—106

57

—40

—274129

—185

—291

-2971

—3

28314

—17—162

163

—131

—17—414—

—218—34

—25

—39

131

131

Secondquarter

3,220—3,550

—330134

—196182

—14

103

—33

—199140

—92

—106

—106

134

42—269

—25—20

—272

—244

1,410——58039

—109—54

——115—347

244

244

1965

Thirdquarter

3,394—3,601

—20750

—157—173

—330

-2722

—70

—1968

—258

—588

-5888

12

207—151

12339

218

—358

28

389—

—199121

—87

—50

358

358

Fourthquarter

3,502—3,598

—96118

2247

69

164

—83

—205213

—75

—6

—174—180

151

102—76

95109

230

375

—4——276

8669

——126—124

—375

174—201

1966

Firstquarter

3,534—3,749

—215106

—10936

—73

81

—67

—243106

—204

—277

—277

216

—23—148

140

——31

—92

—1825

22

109— 341 2

885

230—798

92

92

Source: U.K. Balance of Payments article in Economic Trends for June 1966.1 No sign indicates credit; minus sign indicates debit.2 Central bank assistance is included in sterling liabilities to overseas central monetary institutions of non-sterling area countries.

zation Account. Although a net deficit in theoverseas sterling area added to the pressures aris-ing from the British balance of payments, U.K.reserves were considerably strengthened in thecourse of 1965 and the early part of 1966.

In the first quarter of 1966 the current balanceagain reverted to a deficit, because of a sharp risein imports and a greater net outflow of privatelong-term capital, which at $137 million was

rather higher than in previous quarters and whichprobably reflected in part an expectation of furtherrestraint on the outflow of private long-termcapital. Errors and omissions showed an unusu-ally large credit figure; revisions may eventuallylower the recorded deficit of $277 million on thecurrent and long-term capital accounts. There wasan over-all deficit of $92 million (Group F),which was financed by some unusually large trans-



actions under "Official Monetary Movements."An increase in gold and foreign currency holdingsof $568 million was more than explained by thetransfer of the proceeds ($885 million) of thesales of securities from the dollar portfolio. Com-plete details of foreign central bank operationswere not released, but the outstanding swapswith the Federal Reserve Board were repaid bythe end of February and a number of central bank

transactions in March together balanced out. Overthe quarter, partly reflecting these operations,sterling liabilities to monetary authorities in non-sterling countries fell by $341 million.

Germany

The balance of payments of Germany was inover-all deficit in 1965 in contrast to the situation

TABLE 33. FEDERAL REPUBLIC OF GERMANY: BALANCE OF PAYMENTS SUMMARY, 1964-FiRsr QUARTER 19661


1964 1965 2

1965 2

Firstquarter

Secondquarter

Thirdquarter

Fourthquarter

1966 2

Firstquarter

A. Goods, Services, and Transfer PaymentsExports f.o.b.Imports c.i.f.Other merchandise

Trade balancePaid services to foreign troopsOther services

Total goods and servicesTransfer payments

Total

B. Long-Term CapitalBondsSharesOther private long-term capitalOther government long-term capitalRepayments on post-EPU claimsOther Bundesbank assets (increase —) 3

Total

C. Total (A plus B)Total, excluding certain extraordinary transactions *

D. Short-Term Capital, n.i.e. (including net errors andomissions)

Government short-term capitalCommercial bank short-term credits (net)Other short-term capitalNet errors and omissions

Total

E. Commercial Bank Liquid Capital (net)5

Foreign exchange (increase —)Foreigners' deposits (decrease —)

Total

F. Total (C through E)

G. Memorandum item: Increase or decrease (—) inswap engagements between Bundesbank and com-mercial banks 5

H. Official Settlements 5

Reserve position in the FundBundesbank liabilitiesForeign exchange (increase —) 6

Monetary gold (increase —)Total

16,218-14,614

—242

17,896-17,474

—1931,3621,055

—1,061

2291,038

—1,3661,356

-1,236120

—12141

191—316

346

—99—1,454—1,553

—722

567—327

26—135

—165

—45-85

—1813943

392

61

—1,492—1,383

283—72209553

293

—11892

—26

222

89

—3605

537—404

973

—87112

-89

—16441

779—162

4,342-4,034

—62246231

—203274

—337—63

—88—41232

—4612

60

—3—6

35-266

6826097

25 —.

-178—73251

4,343—4,331

—64—52252

—409—209

—653

15

116—85

1

47

—606—607

—12—36

6340298

29—128

—222 494

752

3216

1045_

157

—80

-179—8602

-135280

4,308—4,391

—60—143

266—449—326—340—666

28—6106

—8923

—117—55

—721—627

15513876

132501

1128

120

—494 —157 —280 —100

-144

—212

102-12

100

4,903-4,718

—7178289

—305162

—333—171

—2749

113—107

1—20

—162—143

1059259

—17977

—50178128

43

-17

—1521

—29—20—43

4,739-4,528

—50161270

—303128

—379—251

—30—47

196—86

4982

—169—218

—21—173

105210121

—22—152—174

—222

—2443

1958̂

222

Source: Deutsche Bundesbank, Monthly Report, April 1966.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.8 Covers IBRD bonds and notes and repayments received on consolidated credits and other Bundesbank assets of limited usability.4 This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extra-

ordinary transactions: (a) advance debt redemption (none in period covered), (b) repayments on post-EPU claims, and (c) otherBundesbank assets, i.e., IBRD bonds and notes, repayments received on consolidated credits, and other Bundesbank assets of limited usability.However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should betaken into account in evaluating the balance.

8 U.S. dollars put at the disposal of the commercial banks by the Bundesbank through swap arrangements are included in the com-mercial banks' foreign exchange in Group E and excluded from the Bundesbank foreign exchange in Group H. The entries in the memo-randum item (Group G) show changes in the outstanding amounts of these swaps. An increase (no sign) results in a rise in the com-mercial banks' holdings and a decline in the Bundesbank's holdings of U.S. dollars on account of swaps; a decrease (minus sign) resultsin a decline in the commercial banks' holdings and a rise in the Bundesbank's holdings of such dollars.

6 Covers freely usable foreign exchange and earmarked assets.

9



prevailing in the rest of the EEC countries. Onthe current account there was a deficit of $1.6billion, compared with a surplus of $0.1 billion in1964 (Table 33, Group A). Notwithstanding thestrong pressure of domestic demand in Germanyand the rather weak demand conditions in someneighboring countries, the value of exports con-tinued to grow strongly, in line with demand inforeign markets, but imports rose by nearly 20per cent and the trade surplus (with importsmeasured c.i.f.) amounted only to $0.2 billion,compared with $1.4 billion in 1964. Other factorscontributing to the deterioration of the currentaccount were the increased deficit on account ofinvestment income (owing largely to the in-creased remittances of profits by U.S.-owned en-terprises in Germany, partly in response to meas-ures introduced by the U.S. Government inFebruary), tourism, and transfer payments. Therise in net outward transfer payments was attribu-table especially to the increases in foreignworkers' remittances and in indemnification pay-ments. Although the final installment under theagreement with Israel was paid in 1965, a notice-able decline in indemnification payments to for-eign countries cannot be expected for a few moreyears. In the last quarter of 1965, by which timedemand conditions in Germany had begun toease and a gradual revival of activity had begunin France as well as in Italy, the current accountof the balance of payments improved considera-bly more than seasonally.

The substantial deficit on current account wasfinanced only to a limited extent by a decline inthe reserves, since there was a considerable inflowof foreign capital. In contrast to the net outflowof long-term funds in 1964, there was some netinflow in 1965 (Group B), despite a continuednet outflow on account of transactions in securi-ties and increased capital exports by public au-thorities. This stemmed from an accelerated risein foreign direct investment in Germany—mainlythe reinvestment of profits and conversions ofshort-term loans (granted previously by foreignparent companies to their subsidiaries in Ger-many) into capital resources and long-term cred-its. There was also a substantially enlarged inflow

of short-term capital and an increase in the posi-tive errors and omissions items (Group D). Thispresumably reflects, in large measure, a greaterutilization of foreign suppliers' credits, associatedwith the accelerated growth in imports. In addi-tion, parts of this inflow of short-term capitalrepresent a revival of borrowing abroad by Ger-man enterprises and a reduction in the FederalGovernment's foreign assets.

Germany's over-all deficit (Group F) was lessthan $500 million, most of it accumulated in thefirst half of the year. Foreign exchange holdingswere reduced, not only because all reserve losseswere taken in this form but also because transac-tions with the Fund resulted in conversions ofdeutsche mark, and the proportion of Germanforeign exchange holdings to total reserves de-clined to its lowest level during the postwar peri-od. Aside from gold sales to Germany by theFund of $132 million, gold reserves increased byonly $30 million.

In the first quarter of 1966 there was a currentaccount deficit of some $250 million, quite sub-stantially larger than that of the first quarter of1965 and well above that of the fourth quarter of1965. However, it was below the quarterly aver-age for that year. The pattern of capital flows didnot change the picture significantly. A net outflowof short-term funds from credit institutions waslargely offset by errors and omissions. Since, atthe same time, there was a small surplus on long-term capital account, the resulting over-all deficitwas of much the same magnitude as the currentdeficit.

France

The current account surplus of metropolitanFrance vis-a-vis countries outside the franc area,which had fallen abruptly in 1964, rose againin 1965, to more than $500 million (Table 34,Group A). This was mainly a reflection of theimprovement in the trade balance, following anexceptional deficit in 1964, and resulted from theeffects of the stabilization policies, which sloweddown the growth of imports while exports con-tinued to rise quite rapidly, in line with foreign



TABLE 34. METROPOLITAN FRANCE: BALANCE OF PAYMENTS SUMMARY, 1964 AND 19651


1965 2

A.

B.

C.

D.

E.

F.

G.

H.

I.

J.

K.

Goods, Services, and Transfer PaymentsExports f.o.b.Imports f.o.b.

Trade balanceServicesTransfer payments

Total

Private Long-Term CapitalForeign direct investment in FranceOther foreign capitalFrench direct investment abroadOther French capital

Total

Official Long-Term CapitalAdvance debt redemptionOther official

Total

Total (A through C)Total, excluding advance debt redemption

Private Short-Term Nonmonetary Capital

Total (D plus E)

Net Errors and OmissionsOperations pending settlementsOther net errors and omissions

Total

Net Transactions of Overseas Franc Area

Commercial Bank Short-Term CapitalLiabilitiesAssets (increase — )

Total

Total (F through I)

Official Monetary Movements3

IMF positionOther liabilitiesForeign exchange (increase — )Monetary gold (increase — )

Total

1964

7,625-7,714

-891057187

327276

-16286

527

—-82

-82

532532

-57

475

61-160

261

249-230

19

815

-169j-91

-554-815

1965 2

8,596-8,208

3888942

519

334202

-23358

361

-179-70

-249

631810

-90

541

-7159152

269

273-527-254

708

-265-79613

-977-708

Firstquarter

2,062-2,000

6249-2109

11150

-7417

104

—-10

-10

203203

-41

162

-53328

92

-26315

287

-23-51255

-468-287

Secondquarter

2,109-2,038

719313

177

7561

-4218

112

—-3

-3

286286

-12

274

-94738

48

-2-113-115

245

-160-17168

-236-245

Thirdquarter

2,157-1,894

263-94

13182

6036

-393

60

-179-27

-206

36215

-26

10

-12131

47

185-154

31

89

-64-22120

-123-89

Fourthquarter

2,268-2,276

-8411851

8855

-782085

—-30

-30

106106

-11

95

196685

82

116-291-175

87

-181170

-150-87

Source: Data provided by the French authorities.1 Groups A through G cover settlements of Metropolitan France with the non-franc area, while Group H covers the

transactions of the rest of the franc area with the non-franc area settled through Metropolitan France. Groups I andK cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts ofthe franc area with the rest of the world. No sign indicates credit; minus sign indicates debit.

2 Preliminary. The quarterly figures for 1965 have been adjusted by the Fund staff to agree with the annual totalby distributing any differences between the quarterly and annual figures evenly among the four quarters. Differences arisebecause certain adjustments are made by the French authorities to the annual figures but not to the quarterly figures.

3 Central government short-term capital is included in official monetary movements (Group K).

demand. The trade surplus, however, tended todecline in the final months of 1965, when the

growth of imports accelerated as more rapid ex-pansion of domestic production was resumed.



The net inflow of private long-term capitaltended to decline during 1965 from the high levelreached in the latter part of 1964. The inflow offoreign long-term capital was lower than in 1964,though still larger than in 1963; while the outflowof French long-term capital for direct investmentabroad was much larger than in any recent year.The combined surplus on current and long-termcapital account, excluding an advance debt repay-ment by the Government, amounted to some$800 million (Group D). This, together with thenet transactions of the overseas franc area withthe non-franc area, which again added some $270million to French reserves, produced an aggregatesurplus of nearly $1,100 million, some $300 mil-lion higher than in 1964. Nevertheless, Frenchreserves, including the net IMF position, rosesomewhat less than in that year, increasing byabout $700 million. The somewhat smaller accu-mulation of reserves was in part the consequenceof the French Government's advance debt repay-ment of $179 million at mid-year, when the cur-rent account surplus was rising sharply; there hadbeen no such advance repayment in 1964, whenthe increase in reserves was due predominantly tothe inflow of capital. Another important factor in1965 was a marked outflow of short-term capital(both monetary and nonmonetary), in part sti-mulated by U.S. measures to restrain capitaloutflows from the United States and in part by aneasing of French capital controls and the low in-terest rates in the French money market. Whilethe increase in reserves in France was lower thanin 1964, the addition to its gold holdings rosefrom $554 million in 1964 to $977 million in1965, and French official foreign exchange hold-ings, which had risen moderately in 1964, fell bymore than $600 million in 1965.

Italy

The current account surplus of $2.2 billion re-corded by Italy in 1965 was more than doublethat of any previous year on record (Table 35,Group A). Although there was a change from asmall inflow to an outflow of about $650 millionon account of nonmonetary capital (Group B),

there was a sharp rise in the over-all surplus(Group E). On an official settlements basis, theover-all surplus increased from $330 million in1964 to $960 million in 1965. Moreover, the im-provement in the net foreign position of the com-mercial banks accelerated from 1964 to 1965,and the increase in the total net foreign positionof the monetary sector reached $1.6 billion(Group C).

Most of the current account improvement re-sulted from trade, although net receipts throughother current account items, in particular travel,rose from about $1.2 billion to $1.6 billion. Forthe year as a whole, exports increased by over20 per cent to $7.1 billion, while imports (valuedf.o.b.) fell slightly.

Capital transactions in the Italian balance ofpayments are difficult to interpret because ofinflation of the figures for foreign investment byinvestment for Italian account financed throughforeign intermediaries by means of Italian liranotes. In 1964, recorded foreign investmentswere $500 million higher than the amount of thenotes remitted back to Italy, suggesting a genuineflow of foreign capital for investment in Italy ofat least that amount; Italian investments abroadwere only about $100 million. In 1965, foreigninvestments in Italy were small and probably fellshort of Italian investments abroad; in addition,there appeared to be an increase in the alreadyquite large outflow of short-term funds. In bothyears, the outflow of short-term capital was pre-sumably mainly associated with the improvementin the trade balance, which tended to produce anexcess of export credits, extended over importcredits received.

In spite of the surplus of $1.6 billion on ac-count of current transactions and nonmonetarysector capital (Group C), the rise in Italian goldand foreign exchange reserves was quite limited.First, the commercial banks, encouraged by themonetary authorities, increased their net foreignassets by $634 million. Second, $402 million ofthe surplus was absorbed by Italian participationin Fund transactions. Third, second-line reserves(other net claims, in Group F) increased by$375 million. Altogether, ordinary gold and for-



TABLE 35. ITALY: BALANCE OF PAYMENTS SUMMARY, 1964 AND 1965


1965 2

A.

B.

C.

D.

E.

F.


Trade balanceTravel (net)Other services (net)Transfer payments (net)

Total

Capital Movements (excluding Groups D and F)and Net Errors and Omissions

Remittances of Italian banknotes3

Foreign investments in Italy3

Italian investment abroadOther private capital and net errors and

omissionsGovernment capital

Total

Total (AplusB)

Commercial Banks' CapitalLiabilitiesAssets

Total

Total (C plus D)

Official Monetary MovementsIMF positionShort-term liabilitiesForeign exchange (increase — )Other net claims (increase — )Monetary gold (increase — )

Total

1964

5,863-6,508

-645827126311619

-5771,088-109

-26315

154

773

-287-155-442

331

80-144-734

230237

-331

19652

7,095-6,429

6661,062

169351

2,248

-314388

-135

-65461

-654

1,594

400-1,034

-634

960

-4028

106-376-296-960

Firstquarter

1,653-1,568

851151360

273

-133115

-60

-1292

-205

68

-10755

-52

16

-3237

182-216

13-16

Secondquarter

1,763-1,574

189246

593

533

-50136-5

-171

—-90

443

-24-196-220

223

-164-1816386

-290-223

Thirdquarter

1,777-1,583

19449110893

886

-4256

-41

-10845

-90

796

19-519-500

296

-200-30

2-62-6

-296

Fourthquarter

1,902-1,704

19821043

105556

-8981

-29

-24614

-269

287

512-374

138

425

-619

-241-184-13

-425

Sources: Ufficio Italiano dei Cambi (UIC), Movimento Valutario, and Bank of Italy.xNo sign indicates credit; minus sign indicates debit. Some data in Group B are on a payments (exchange record)

basis.2 Preliminary.3 Part of "Foreign investments in Italy" is believed to be financed from the proceeds of Italian banknotes remitted

abroad and subsequently repatriated; to that extent foreign investment in Italy may be overstated.

eign exchange reserves rose by less than $200million. While gold holdings increased by $296million during 1965, they remained at about thelevel reached at the end of 1963, when total re-serves were about $1 billion lower than at the endof 1965.

Japan

During 1965 Japan experienced once againone of the rather dramatic adjustments of its cur-rent account position which have become charac-

teristic of its postwar balance of payments (Table36). The current account swung from a deficit ofabout $0.4 billion in 1964 to a surplus of about$1.0 billion (Group A), as policies of financialrestraint to strengthen the balance of paymentsadopted in 1964 had led to recessionary condi-tions in the domestic economy while demand inJapan's foreign markets expanded rapidly. Meas-ures to reactivate the economy taken during 1965brought about an improvement in the last quarterof the year, but imports did not revive during1965. On the other hand, the rise in exports



TABLE 36. JAPAN: BALANCE OF PAYMENTS SUMMARY, 1964 AND 19651(In millions of U.S. dollars)

1965 2

A.

B.

C.

D.

E.

F.

G.

H.

Goods, Services, and Private Transfer PaymentsExports f.o.b.Imports f.o.b.

Trade balanceGovernment special receipts 3

Other services and private transfer paymentsTotal

Private Long-Term CapitalDirect investmentOther

Total

Central Government Transfer Payments andNonmonetary Capital

Reparations and loans extendedIBRD loans received (net)Other4

Total

Total (A through C)

Net Errors and Omissions

Private Short-Term CapitalNonmonetary sectorCommercial banks

LiabilitiesAssets (increase — )

Total

Total (D through F)

Treasury and Bank of Japan Monetary Capital and GoldIMF positionLiabilities 4

Payments agreement assetsOfficial reserves (increase — )

Total

1964

6,703—6,328

375329

—1,102—398

5291

143

—1081

—2—109

—364

11

233

669—598

304

—49

-4028

7949

1965 2

8,333—6,432

1,901345

—1,2211,025

—32—250—282

—18210

—43—215

528

—51

—62

85—373—350

127

—357

—1—98

—127

Firstquarter

1,812—1,625

18771

—274—16

61117

—332

—28—59

—58

29

—9

144—50

85

56

—22

—5—51—56

Secondquarter

2,066—1,665

40182

—321162

—32—56—88

—353

—5—37

37

—13

37

14—138

—87

—63

—63133

11063

Thirdquarter

2,198—1,546

65285

—284453

5—112—107

—641

—6—69

277

3

—52

—87—145—284

—4

30—9

2—19

4

Fourthquarter

2,257—1,5%

661107

—342426

—11—95

—104

—504

—4—50

272

—70

—38

14—40—64

138

—1—1

—138—138

Source: Data provided by the Japanese authorities.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.3 Including sales to U.S. and UN forces under the special procurement program.4 Liabilities for the yen portions of subscriptions to the International Development Association ($6 million for 1964) are included in

Group C rather than in Group H.

slowed down in the closing months of the year, inpart under the influence of a shipping strike. For1965, as a whole, exports rose 24 per cent above1964, whereas imports rose only 1.6 per cent.

The improvement in the current account posi-tion did not lead to a significant strengthening ofthe over-all balance of payments (Group G), be-cause it was for the most part offset by an oppo-site change in capital movements. In 1964, as inother recent years, Japan had been a net importerof capital, but in 1965 there was an outflow ofcapital on both long-term and short-term account,totaling about $0.8 billion. In part this outflowrepresented a continuation of the consolidation ofthe net foreign position of the commercial bankswhich had begun in 1964 and was encouraged bythe monetary authorities, but the change in thetrade balance combined with the lowering of in-

terest rates in Japan compared with those in for-eign money markets also tended to bring about anet outflow of funds.

Australia

The deterioration in Australia's over-all bal-ance of payments by some $400 million from1964 to 1965 (Table 37, Group D) was linkedto sharply rising imports as well as to a drop insome export prices from their high level in1963/64. The rise in imports by 17 per cent in1965 was partly due to special factors such asheavy imports of defense equipment, of civil air-craft, and of copper and alloys because of a strikeagainst the country's largest copper mining com-pany. But in the main it reflected high levels ofincomes and activity in the economy, supported



TABLE 37. AUSTRALIA: BALANCE OF PAYMENTS SUMMARY, 1964-FiRST QUARTER 19661


19652

A.

B.

C.

D.

E.

Goods, Services, and Transfer PaymentsExports f .o.b.

Wool (at current prices)Wool (at 1958 prices)Wheat (at current prices)Wheat (at 1958 prices)

Imports f.o.b.Investment income3

Other services and transfersTotal

Private Capital (including errors and omissions)Marketing authoritiesOther

Total

Official Capital

Total (A through C)

Monetary MovementsIMF positionOfficial and banking reserves (increase — )

Monetary goldOther

Total

1964

2,9991,004

790408385

—2,829—376—255—461

20535555

—31

63

—18—45—63

1965 2

2,934876799414441

—3,299—335—377

—1,077

—94745651

71

—355

—34

—5394355

Firstquarter

720246231101105

—764—73—96

—213

—419756

5

—162

—12

—3177162

Secondquarter

746208199132143

—811—83

—107—255

—38217179

—22

—98

—12

—111198

Thirdquarter

720775161110119

—899—90—88

—357

—8217209

26

—122

—1123122

Fourthquarter

748247208

7174

—825—89—86

—252

—7214207

72

27

—10

—17—27

1966 2

Firstquarter

719241199

7474

—737—65—92

—175

35194229

—35

19

—25

8—2

—19

Source: Based on data from the Commonwealth Statistician.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.3 Includes royalties and copyrights.

by four years of external surpluses; demand wasespecially strong for fixed investment, and therewas a large accumulation of inventories. Thedamping effect of the balance of payments deficitand of measures taken by the authorities to mod-erate the expansion began to be apparent towardthe end of 1965.

Export earnings were slightly lower in 1965than in 1964, being adversely affected by lowerprices for wool and other products and the effectsof a prolonged drought which began to reduceagricultural production in some areas. To a largeextent, these losses were offset by increasing ex-ports of minerals and manufactured goods. Largedeposits of minerals, particularly iron ore andbauxite, have been discovered in recent years,and from now on their exploitation will quickenthe gradual shift in Australia's export patternaway from farm products. The capital inflow toAustralia remained strong in 1965; indeed thereare indications of a further increase in direct for-eign investment attracted by the new mining ven-tures.

In the first quarter of 1966 there was a consid-erable improvement in the current account. Im-

ports at $737 million were 4 per cent lower thanin the corresponding quarter of 1965 and 11 percent lower than the quarterly average for 1965.The net inflow of private capital (including errorsand omissions) rose further above the alreadyhigh level of 1965, so that despite a net outflowof official capital there was a modest over-all sur-plus.

Ghana

The external position of Ghana since 1959 hasbeen marked by persistent deficits on the currentaccount of the balance of payments (Table 38,Group A) and by a sharp decline in reserves.The deficit on current account, $228 million in1965, was higher than in any previous year; inthe seven years 1959-65 such deficits aggregatedabout $800 million. Official net reserves and for-eign exchange holdings of commercial banks andofficial and semiofficial bodies (Group E) fell bysome $450 million during this period, and at theend of 1965 amounted to $14 million. At thesame time, the Government's foreign debt in-creased from a very small amount at the end of



1959 to almost $700 million at the end of 1965,consisting for the most part of suppliers' credits.

The principal cause of the deterioration in thebalance of payments has been an increase in im-ports resulting from large development expendi-tures and high consumer demand. The increase inimports was marked in 1960, and again in 1961,when the Government introduced a number of re-strictions on current and capital payments, aimedat arresting the deterioration in the balance ofpayments. The import control regime waschanged from one of predominantly open generallicenses to one administered almost entirelythrough individual licensing. After declining in

growth in expenditure has far outstripped the risein receipts. In recent years the budgetary deficithas been financed largely by resort to the centralbank; previously, the Government had drawndown external assets.

By the end of 1965, Ghana had undertaken222 separate commitments for loans and creditsfrom 22 foreign countries in respect of specificprojects involving a total expenditure of some$870 million. Most of the contracts call for re-payment in five to eight years. Scheduled capitalrepayments and interest on suppliers' credits in1966 represent about 23 per cent of exports ex-pected during this year.

TABLE 38. GHANA: BALANCE OF PAYMENTS SUMMARY, 1958-651(In millions of U.S. dollars)

1958 1959 1960 1961 1962 1963 1964 1965 2

A. Goods, Services, and Transfer PaymentsExports f.o.b. 3Imports f.o.b.

Trade balanceServices and transfer payments

Total

B. Private Capital and Net Errors and Omissions

C. Central Government Miscellaneous Capital(excluding Group E)

301—219

82—48

34

—26

317—300

17—43—26

24

335—349

—14—94

—108

—14

333—386

—53—93

—146

—30

320—311

9—86—77

35

308—338—30—99

—129

322—319

3—94—91

17

Source: Data provided by the Ghanaian authorities.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.3 Including nonmonetary gold.

321-437-1166-1122-2288

89

D.

E.

Loans and commercial credits received (net)Other

Total

Total (A through C)

Monetary MovementsIMF positionSterling assets (increase — )

Commercial banks (net)Cocoa Marketing Board and other official entitiesCentral governmentCentral bank and currency reserves

Total

—5

——5

3

——10—9—4

20—3

—11—

—11

—13

410402

—3513

34—232

—90

—1220481090

4—4

—172

—107992

—9172

35—530

—12

1414

—62

—1212

335

38

—84

—10318

3584

444

48

—26

——69

—42726

503484

—55

—111421

4955

1962, imports rose again in 1963 and jumpedsharply upward in 1965, when there were ex-traordinary imports of capital goods (includingaircraft and ships) as well as of consumer goods.While imports were increasing, export receipts re-mained relatively stable. Although the output ofcocoa (which accounts for about two thirds ofexports) rose substantially, receipts increasedvery little, owing to the decline in the world priceof cocoa.

The upward pressure on imports has stemmedprimarily from the public sector, where the

After a change of government in February1966, the Ghanaian authorities worked out a.pro-gram designed to reduce the budgetary deficit, ar-rest the deterioration in the balance of payments,and rehabilitate the economy. In support of thisprogram, the Fund approved a stand-by arrange-ment for $36.4 million for Ghana in May 1966.Negotiations have also been started to work outpossible solutions to Ghana's debt problems. Atthe invitation of the U.K. Government, repre-sentatives of 13 creditor countries met repre-sentatives of Ghana in London on June 1 and 2,

7



1966. Representatives of the Fund and of theIBRD participated in these meetings. A com-munique issued at the conclusion stated thatGhana found itself unable to meet all its debt ob-ligations and sought immediate relief by a tempo-rary suspension of all payments under suppliers'credits. Ghana proposed a further meeting withcreditor countries in August or September to ne-gotiate a rearrangement of these debt repayments.In the meantime, the Ghanaian Government hasdecided not to enter into any new suppliers'credits.

than would otherwise have appeared (and whichhas contributed to some extent to the positive er-rors and omissions item in the table). On theother hand, debt service payments continued toincrease. In the latter part of 1965, exchange re-serves increased steadily because of the disap-pearance of the earlier delays in repatriating ex-port proceeds, some inflow of banking capital,and the tight import restrictions—which, how-ever, soon began to affect domestic industrialproduction adversely. Moreover, by the end ofthe year, the basic payments position was further

India

India's balance of payments position was underpressure throughout 1965 (Table 39), and thedifficulties have continued into 1966, necessitat-ing sizable use of Fund resources despite a severetightening of restrictions.

As the year 1965 opened, exchange reserveshad already been reduced to a low level by in-creased payments for food imports occasioned bythe shortfall in domestic production and by de-lays in the repatriation of export proceeds. InMarch, a stand-by arrangement for $200 millionwas approved by the Fund.

The authorities took steps designed to slowdown the monetary expansion, including raisingthe Bank Rate to 6 per cent, adopting a substan-tially less expansionary Union Government budg-et for the fiscal year beginning April 1, 1965, andimposing a 10 per cent surcharge on all but themost essential imports. In August, a supplemen-tary budget was adopted, including additionaldomestic taxation and a simplification and ration-alization of the import tariff, which also had theeffect of increasing further the duties on most im-ports. However, the tempo of monetary expan-sion has in fact continued unabated, in part be-cause of unexpected adverse developmentsaffecting the Union Government's budgetary posi-tion and of deficits in State government budgets.

Exports failed to increase in 1965. However,this was the result of a change, toward the end of1965, in the system of recording exports, whichhas resulted in a lower export figure for 1965

TABLE 39. INDIA: BALANCE OF PAYMENTS SUMMARY,1962-65 i


1962 1963 1964 19652

-1,254-163

52

A.

B.

C.

Goods, Services, andPrivate Transfers

Exports f.o.b.Imports, mainly c.i.f.

Trade balanceServicesPrivate transfers

Total

Private Capital andNet Errors andOmissions

Official Transfers andCapital

1,412—2,288

—876—69

47—898

18

1,623—2,493

—830—20

72—818

—52

1,717—2,915—1,198

—3258

—1,172

—125

1,678—2,932-1,254

-16352

—1,365

96

D.

E.

TransfersCapital

Total

Total (A through C)

Monetary MovementsIMF positionCommercial banksCentral institutions

Other liabilitiesOther assets

(increase — )Government assets

(increase — )Total

123594717

—163

29—

—8

116

26163

151805956

86

—2024

13

—16

—87—86

261974

1,235

—62

—44—1

18

8762

1051,1621,267

—2

1348

—14

—17

—1092

Source: Data provided by the Indian authorities.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.3 Grants of U.S. surplus agricultural commodities through

private agencies are included with official transfers.

seriously aggravated by a pause in the inflow ofexternal assistance and by a domestic drought ofunprecedented severity, which sharply increasedrequirements of imported foodgrains. In order tohelp meet the balance of payments impact of thedrought, a drawing of $187.5 million from theFund was made in March 1966. Reflecting this,and remittances received under the National De-fence Remittance Scheme, foreign exchange re-serves increased substantially further in the first



five months of 1966. The Remittance Scheme,which operated from November 1965 to May1966, afforded a more depreciated exchange rateto certain inward remittances by providing for theissuance of transferable certificates against whichimport licenses up to 60 per cent of the value ofthe remittance could be issued.

In the most far-reaching policy change of re-cent years, designed to effect a basic improve-ment in the balance of payments position, Indiadevalued the rupee by 36.5 per cent early in June1966. Simultaneously, export promotion arrange-ments in the form of import entitlement schemesand tax credits were abolished. In order to avoida deterioration in export prices, export dutieswere imposed on about a dozen commodities, in-cluding tea and jute goods. Import duties, whichhad been increased sharply in 1965, were reducedsomewhat, but the net effect was to increase thelanded costs of imports substantially. The author-ities also expressed the hope that, with sufficientassistance forthcoming from friendly nations orinstitutions abroad, it would be possible to liber-alize imports soon, so as to meet in a substantialmeasure the needs of the economy for raw mate-rials, spare parts, etc.

Korea

After deteriorating markedly in 1962 and1963, Korea's external payments situation im-proved in 1964, and further progress was madein 1965 (Table 40). The improvement was relat-ed to a devaluation in 1964 and the adoption of afluctuating exchange rate system with the supportof a stand-by arrangement approved by the Fundin 1965. The decline in the current accountdeficit (Group A) from 1964 to 1965 was largerthan the reduction in the inflow of capital and netofficial aid. As a result, the over-all balance(Group D) improved by about $9 million, to asurplus of $5 million in 1965.

A rise of 45 per cent in exports, following in-creases averaging 43 per cent in 1962-64, was amajor factor in the improvement of the balanceof payments. The composition of exports con-tinued to change from primary products to manu-

TABLE 40. KOREA: BALANCE OF PAYMENTS SUMMARY,1960-65 *


A.

B.

C.

D.

E.

Goods, Services,and PrivateTransfers

Exports f.o.b.Imports f.o.b.

Trade balanceReceipts on

account offoreignmilitaryforces

Other servicesand privatetransfers

Total

Private Capitaland NetErrors andOmissions

Official Transfersand Capital

TransfersCapital

Total

Total (Athrough C)

MonetaryMovements

LiabilitiesAssets

(increase — )Total

1960

33—305—272

63

—33—242

1

256—13243

2

5

—72

1961

41—283—242

80

—11—173

—4

20717

224

47

3

—50—47

1962

55—390—335

85

—5—255

—6

20011

211

—50

16

3450

1963

87—497—410

58

1—351

61

20734

241

—49

10

3949

1964

120—365—245

64

14—167

6

14116

157

—4

4

4

1965 *

176—420—244

74

40—130

19

135—19116

5

14

—19—5

Source: Based on data from the Bank of Korea.1 No sign indicates credit; minus sign indicates debit.2 Preliminary,

factures: exports of manufactured goods account-ed for as much as 61 per cent of the total in1965, compared with 21 per cent in 1962. Im-ports, which had decreased substantially in 1964,expanded by 15 per cent from 1964 to 1965, asan increase of 18 per cent in manufacturing pro-duction stimulated import demand. Net foreignofficial aid-financed imports continued to decline;their ratio to total imports fell from 72 per centin 1960 to 40 per cent in 1964 and 28 per centin 1965.

In the first three months of 1966 the favorableexternal payments situation continued; exportswere nearly twice as large as in the correspondingperiod of 1965, and international reserves in-creased by $12 million to $158 million at the endof March 1966.

Peru

In the years since the 1959 stabilization pro-gram, the Peruvian balance of payments has gen-



erally been in comfortable over-all surplus, sup-ported by a sharply rising trend in exports (Table41). At the same time the economy has achieveda fairly high rate of economic growth in an envi-ronment of monetary stability. Until 1964, percapita income at constant prices rose on the aver-age by some 3 per cent a year, and consumerprices at a yearly average of no more than 6 percent.

mand was no longer contained, and there was anabrupt worsening of the trade balance as the rateof increase of consumer prices accelerated furtherto 15 per cent. Imports rose by 26 per cent from1964 to 1965 and a balance of payments deficitwas recorded for the first time since 1958.

The key to recent changes in the Peruvian bal-ance of payments is to be found in shifts of thebalance of trade, propelled by alternating in-

TABLE 41. PERU: BALANCE OF PAYMENTS SUMMARY, 1958-651


1958 1959 1960 1961 1962 1963 1964 1965 2

A.

B.

C.

D.

E.


Trade balanceServices (net)Transfers (net)

Total

Private Capital (net) and Net Errors and Omissions

Official Capital (net)

Total (A through C)

Monetary MovementsIMF positionCentral bank net foreign exchange assets (increase — )Monetary gold (increase — )Banco de la Nacion net foreign exchange

liabilitiesCommercial banks' and specialized banks' net foreign

assets and gold (increase — )

292—345

—53—84

15—122

102

8

—12

.49

——112

323—281

42—92

10—40

58

—6

12

—1—8—9

—6

—12

444—341

103—116

218

30p

29

—1—18—14

—4

—29

510—429

81—120

27—12

55

—8

35

—1—28

—5

——1

—35

556—478

78—133

18—37

29

21

13

—1—6

—

——6

—13

555—518

37—138

19—82

64

50

32

—1—8

—10

——13—32

685—518

167—168

1514

—38

59

35

—15—10

——10—35

687—654

33—174

15—126

23

76

—27

—15—38

427

Source: Data provided by the Central Reserve Bank of Peru.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.

In the course of 1964, however, signs of strainbegan to appear in the economy, which resultedin a weakening of the balance of payments in1965. A large volume of bank credit, required tofinance deficits incurred by the Central Govern-ment, combined with an export boom to supply agreatly increased volume of liquidity to the sys-tem. The Peruvian economy is an open one, butthe resulting expansion in demand did not imme-diately work itself out in rising imports and aconsequent deterioration of the balance of pay-ments—a result to which an adjustment in thecustoms tariff contributed. Instead, the rise indomestic prices accelerated to 11 per cent. In1965 the domestic monetary imbalance becamemore acute as a sharp advance in bank credit toprivate borrowers was added to continued bankfinancing of the government sector. Import de-

creases in the production of exportables and ofimport demand. Peruvian exports are rather morediversified than those of many other developingcountries. Nevertheless, the rise in export re-ceipts, while strong enough over the years to haveprovided one of the dominant factors underlyingPeruvian economic growth, has more recentlybeen unsteady. On the other hand, the incidenceof domestic policies has been such that importshave adjusted to export receipts only after a cer-tain lag. In 1964, after stagnating for a year, ex-ports spurted ahead while imports were re-strained. In 1965 there was again a virtualstagnation of exports while imports soared. Fluc-tuations in the production of fish and fishmealwere the major cause of the variations in exports.An extraordinarily large increase in output ofthese products in 1964 raised exports of them to



a record height, offsetting by far the decline inexports of the traditional agricultural products(cotton and sugar). Together with an increase inthe production of copper, it accounted for thestrong upsurge in total exports in that year. In1965 the scarcity of anchovies, the raw materialfor Peruvian fishmeal, caused a decline in theproduction and export volume of fish andfishmeal, which was the principal cause of thefailure of exports to continue to grow.

A steady increase in the net capital inflow,especially of official capital, has accompaniedPeruvian economic development for many years.This allowed balance of payments surpluses to berecorded up to 1964 despite fluctuations in thetrade balance. Even in 1964 and 1965, when themovement of private capital became much lessfavorable, official capital continued to come in ata substantial rate. In 1965, however, the ordinaryinflow of capital (official and private) fell shortof the current deficit by $27 million. This short-fall was more than financed by a three-year loanof $40 million obtained from a group of U.S.commercial banks by the Banco de la Nation, theGovernment's fiscal agent, and the foreign re-serves of the Central Reserve Bank increasedfurther. At the end of 1965, they were $175 mil-lion, representing a little over three months' im-ports at the 1965 rate.

Spain

An important change occurred between 1964and 1965 in the balance of payments of Spain(Table 42). Since the stabilization program of1959, which included a devaluation, Spain hasexperienced continuous balance of payments sur-pluses, and has accumulated almost $1.5 billionin reserves. In 1965, however, its internationaltransactions turned for the first time into deficit,and official reserves (as measured by changes inits IMF accounts, monetary gold, and foreign ex-change assets) declined by $110 million. Themain factors of strength in the balance of pay-ments during the period 1959-65 were a rapidrise in income from tourism and remittances by

TABLE 42. SPAIN: BALANCE OF PAYMENTS SUMMARY,1961-65 i


A.

B.

C.

D.

Goods, Services,and TransferPayments

Exports f.o.b.Imports c.i.f.

Trade balanceTravel

, Other servicesTransfer payments

Total

Nonmonetary Capitaland Net Errorsand Omissions

Total

Total (A plus B)

Monetary MovementsIMF positionMonetary gold

(increase — )Foreign exchange

assets(increase — )

Commercial banks(net)

Other netliabilities

Total

1961

759—1,053

—29433120

163

220

183—75

108

328

—50

—139

—182

2221

—328

1962

802— 1,455

—653466

4171

—12

13128

159

147

—15

—130

—14

19—7

—147

1963

786—1,812

—1,026611

—38270

r —183

16074

234

51

—17

-127

45

3810

—51

1964

1,004—2,081

-1,077852

—70327

32

24367

310

342

—53

—42

—260

32—19

—342

19652

1,019—2,778

—1,7591,027—114

361

—485

30247

349

—136

—34

—194

338

1f 2o

136

Source: Based on data from the Spanish authorities.1 No sign indicates credit; minus sign indicates debit.2 Preliminary.

Spanish migrant workers, combined with aninflow of private capital.

In 1965, for the first time, net income fromtourism exceeded the income from merchandiseexports. Exports in 1965 rose only slightly, de-spite the fact that the modernization of the econ-omy that has taken place in recent years has ledto an increase in the share of manufactured prod-ucts in total exports. Imports, on the other hand,stimulated by the rapid growth of the economyand the gradual liberalization of internationaltransactions, practically quadrupled between1959 and 1965, to an estimated $2.8 billion(f.o.b.). The rate of growth of imports becameparticularly pronounced in 1965 as excess de-mand pressure in the economy developed and thecurrent account of the balance of payments raninto a substantial deficit. While the net loss ofreserves was limited by a continuation of theinflow of capital to a little over $100 million, thecomposition of reserves changed. Gold holdingsincreased by about $200 million, while foreign


BALANCES OF PAYMENTS

exchange holdings fell by about $340 million, ofwhich $34 million is attributable to conversionof pesetas made available for Fund transactionsand has a counterpart in an increase in Spain's re-serve position with the IMF.

The reserve losses continued in the earlymonths of 1966, and in January the Spanish Gov-

OF SELECTED COUNTRIES 1 1 1

ernment announced a series of measures to com-bat the rising pressures of demand in the econ-omy, including a reduction in governmentexpenditures, the imposition of certain luxurytaxes, and a tightening of bank credit. In May thebalance of payments was almost balanced, show-ing only a slight deficit ($1.4 million) .


Chapter 9

GoldGold Production

FOR the twelfth successive year world out-put of gold, excluding the production of

the Soviet countries and Mainland China, in-creased in 1965. The increase, which amountedto about 3.1 per cent, carried total productiononce again to the highest figure ever reached,namely, about 41.4 million ounces, worth (at$35 a fine ounce) approximately $1,450 mil-lion (Table 43). The growth of production inSouth Africa and the United States more thancovered the increase. The South African gold

7.518 dwt. in 1965. Combined working profitsfrom gold, uranium, and other products declinedslightly from R 332.6 million ($465.6 million) in1964 to R 332.2 million ($465.1 million) in1965.

The announcement in Johannesburg of theofficial launching of the Elsburg Gold MiningCompany brought to three the number of newgold mines being developed in South Africa. Theother two are Kinross and Kloof, which are pro-gressing toward the production stage. The newElsburg mine aims at reaching a throughput of50,000 tons of ore a month by mid-1969.

TABLE 43. GOLD: VALUE OF WORLD PRODUCTION, 1940, 1945, AND 1961-65 *(In millions of U.S. dollars at US$35 a fine ounce)

South AfricaCanadaUnited StatesAustraliaGhana

RhodesiaJapanPhilippinesColombiaCongo, Dem. Rep. ofMexico

Other2

Total 2

1940

4921861705731

293039222031

157

1,264

1945

42895322319

203

—181217

69

736

1961

803155553829

2013151489

56

1,215

1962

892145553831

1915151478

61

1,300

1963

961139513632

2015131188

62

1,356

1964

1,020133513430

2016151387

59

1,406

1965

1,069126593126

1918151278

60

1,450

Source: International Monetary Fund, International Financial Statistics.1 Excluding the output of the Soviet countries and Mainland China.2 These figures include estimates for data not available.

mining industry once again established newrecords, its production having increased by some1.4 million ounces (about 4.8 per cent) to atotal of 30.5 million ounces, equivalent in valueto $1,069.4 million. Output in South Africa con-stituted nearly 74 per cent of world production.

The number of tons of ore milled in SouthAfrica in 1965 was approximately 0.6 per centgreater than in 1964 and the average grade of oreper ton milled rose from 7.185 dwt. in 1964 to

The value of production also increased in theUnited States, by $7.5 million to $58.9 million(the highest level since 1958), and in Japan, by$2.0 million to $18.1 million. The increase in theUnited States is attributed to a rise in productionin Utah and Nevada. The former was due to anincreased yield from gold-bearing copper ore andto the achievement of a full 12 months' produc-tion (in 1964 the mines were closed for 2 monthsthrough a labor dispute). The increase in Nevada

112


GOLD 113

was due almost entirely to production from thenew Carlin mine.

Gold production in Mexico and the Philippinesremained virtually unchanged in 1965 at about$7.6 million and $14.9 million, respectively. Pro-duction declined elsewhere, the output in Austra-lia dropping by the equivalent of $3.1 million to$30.6 million, in Canada by $7.4 million to$125.6 million, in Colombia by $1.2 million to$11.6 million, in Ghana by $3.9 million to $26.4million, in India by $0.6 million to $4.6 million,in Nicaragua by $1.3 million to $5.6 million, andin Rhodesia by approximately $1.0 million toabout $19.0 million. The causes of these declinesin production are various. In some countries theindustry has been disrupted by unsettled politicalconditions and in others there has been a short-age of labor, but in general the gold mining in-dustry remains concerned about the increasingcosts of production and the fixed price for gold,$35 a fine ounce.

There has been little news from Bolivia of thedevelopment of the gold reserves in northeasternLa Paz during the past year, although it was re-ported that five foreign companies were seekingconcessions from the Bolivian Government. Oneof the reasons for the relatively slow developmentof the area has been its inaccessibility. With aview to opening up the area, a new road, expect-ed to be completed in 1966, is being cut throughthe mountains to link the gold producing area ofTipuana with La Paz.

The U.S.S.R. again sold gold in 1965, to a val-ue estimated at $550 million, in order to provideforeign exchange to cover imports, mostly ofgrain. This figure compares with estimates of$450 million in 1964, $550 million in 1963, and$215 million in 1962.

There have been further reports of gold discov-eries in the Soviet Union, the most interesting be-ing the location of alluvial gold deposits in quartzveins in Uzbekistan. A treatment plant is under-stood to be planned for the area, which will bemined by opencast techniques. Following this dis-covery, prospecting has apparently been greatlyextended in the Kyzyl-Kum Desert and other de-posits have been reported by a member of the

Russian State Committee for Geology as beingmost promising. There are also reports that a richprimary deposit has been discovered by Soviet ge-ologists in the upper reaches of the Irtysh River inKazakhstan, that the construction of an ore dress-ing plant is planned, and that the projected newmine is expected to be the largest in Kazakhstan.

The arrangements under which some membercountries have granted assistance to their goldmining industries are mentioned below.

Gold HoldingsThe monetary authorities of the world are esti-

mated to have added only about $250 million totheir stocks of gold in 1965 (Table 44 and Chart23). This compares with additions of about $750million in 1964, $840 million in 1963, $330 mil-lion in 1962, and $600 million in 1961, and isthe second smallest increase since World War II,exceeding only the increase of $225 million in1951. The holdings of the Soviet countries andMainland China have not been included in thesefigures, but they do include those of the Bank forInternational Settlements, the European Fund,and the International Monetary Fund, which soldsome $310 million net of gold to members in1965. World reserves of gold, thus defined,amounted to the equivalent of approximately$43.3 billion. The important movements in the

TABLE 44. WORLD GOLD RESERVES:SOURCES OF CHANGES, 1963-65


ProductionSales by U.S.S.R.

Total availablePurchase by Mainland ChinaConsumption in industry and arts, and

private hoarding

Total added to world monetarygold stock1

IMF gold transactionsSubscriptionsSales to countriesRepaymentsCharges

BIS and EF gold transactions

1963

1,356550

1,906

—1,066

840

—45

—49—24238

Total added to countries' monetarygold stock1-2 960

1964

1,406450

1,856

—1,106

750

—71250

—20—27

—225

660

1965

1,450550

2,000—150

—1,600

250

—61400

—12—16487

1,045

Sources: International Monetary Fund, International FinancialStatistics, and Fund staff estimates.1 Excluding stocks held by Soviet countries and Mainland China.

2 Totals do not equal the sums of the items because of rounding.



CHART 23. ESTIMATED SUPPLIES AND ABSORPTION OF GOLD, 1951-65


1 Including purchases by Mainland China in 1965 amounting to the equivalent of $150 million.2 Excluding the Soviet countries and Mainland China.


GOLD 115

distribution of reserves during 1965 are discussedin Chapter 5.

The value of the newly available gold in theWestern world in 1965 was of the order of$2,000 million. Mainland China is reported tohave bought an estimated $150 million of gold inthe London market and absorption by privateholders, industry, and the arts appears, in 1965,to have been in the region of $1,600 million,some $500 million more than in 1964 and thehighest figure recorded. Since 1951 gold to thevalue of nearly $12 billion has gone into privatehoards or has been used by industry and the arts.It is probable that the use of gold in industry hasbeen increasing. The fluctuations in the volume ofhoarding from year to year appear to havereflected to some extent variations in confidencein the stability of the major currencies. In 1965the escalation of the conflict in Viet-Nam, warbetween India and Pakistan, border disputes be-tween Mainland China and India, and domesticpolitical uncertainties in several countries allcontributed to a periodic intensification of the de-mand for gold, which on occasions temporarilyexceeded available market supplies of the metal.Reference is made below to the influence of theevents of 1965/66 on the price of gold.

Gold Markets and Prices

New York

The U.S. Treasury, through the Federal Re-serve Bank of New York as its fiscal agent,stands ready to buy gold at the price of $34.9125a fine ounce and to sell gold for official monetarypurposes at $35.0875 a fine ounce. During 1965it released the equivalent of $1,546.7 million (net)to foreign countries and international institutions.In addition, the equivalent of $117.9 million wassold domestically for industrial, professional, andartistic uses. The total decrease in the U.S. goldstock was thus $1,664.6 million in 1965 (Table45), which compares with $125.2 million in1964, $460.7 million in 1963, and $889.9 millionin 1962. Purchases of gold from foreign countriesduring the year under review included the equiva-

lent of $149.7 million from the United Kingdom;this will have included any distribution from theGold Pool, in which the United States has a 50per cent share. The operations of the Gold Poolwere described in the Fund's Annual Report for1964 (p. 131). Sales of gold included the equiva-lent of $884.2 million to France and amounts re-quired by other Fund members to pay 25 percent of the increases in their quotas in gold. TheUnited States transferred gold to the value of$258.8 million to the International MonetaryFund in respect of the gold portion (25 per cent)of the increase of its quota in the Fund.

TABLE 45. U.S. GOLD TRANSACTIONS, 1963-65


1963 1964 1965

Purchases fromBrazilItalyUnited KingdomOther countries

Total

Sales toAustriaBelgiumFranceGermanyItalyNetherlandsSpainSwitzerlandTurkeyOther countriesIndustrial, professional,

artistic

TotalTransfer to International

Monetary Fund

TotalNet decrease in stocks

72.2—

329.336.7

438.2

82.1

—517.7

———

130.0

——100.1

69.0

898.9

—

898.9460.7

54.2200.0617.7

35.0

906.9

55.440.1

405.1225.01

—60.032.081.0

—44.5

89.0

1,032.1

—

1,032.1125.2

25.2

—149.738.4

213.3

100.082.7

884.2

—80.035.0

180.050.03°6.852.5

117.9

1,619.1

258.8

1,877.91,664.6

1 Two hundred million dollars of these sales formedpart of the transaction initiated by the purchase fromItaly shown.

The amount of gold held under earmark by theFederal Reserve Banks for account of foreigngovernments, central banks, and international in-stitutions increased in 1965 by the equivalent of$197.7 million despite some repatriation of themetal by France.



London

Over the period May 1, 1965 to April 30,1966, the price of gold quoted in U.S. dollars,converted from sterling at the buying price fordollars in London at the time of the daily fixing,fluctuated within a range of W5/s cents—betweena minimum of $35.08% a fine ounce on June 15,1965, and a maximum of $35.19% a fine ounceon August 6, 1965 (Chart 24). Over the sameperiod in 1964/65 the corresponding range wasIiy16 cents—between $35.0611/16 and $35.17%a fine ounce.

creased steadily, reflecting the relative weaknessof the exchange rate. Until mid-July, however,the U.S. dollar price remained within very narrowmargins while the sterling figure ranged between250s. 9^d. and 251s. 6%d.; activity was rela-tively light. There was then a general escalation ofbuying due to a combination of factors—the fur-ther appearance of Mainland China in the marketas a buyer, political unrest in Greece, the deterio-rating military situation in Viet-Nam, and the dis-turbed condition of the exchange markets. Towardthe end of July the British Chancellor of the EX-

CHART 24. GOLD: PRICE IN LONDON MARKET, MONTHLY AVERAGES, MARCH 1954-ApRiL 1966

(In U.S. dollars a fine ounce)

On May 3, 1965 the equivalent price at the"fixing" was slightly above $35.10n/16 a fineounce. Despite moderate demand for gold fromthe continent of Europe in the ensuing week, theprice eased slightly toward mid-month. Renewedbuying, attributed to Mainland China, pushed upthe price to about $35.1111/16 a fine ounce byMay 20. Thereafter the market turned quiet andthe price fell to just under $35.10 a fine ounce bythe end of the month. In sterling terms the price in-

chequer announced certain austerity measures andthe President of the United States made a widelypublicized policy speech on Viet-Nam. In theface of all these influences the U.S. dollar price ofgold reached nearly $35.17^ a fine ounce byJuly 31.

The same price trend continued into Augustand the dollar price rose to $35.19% a fine ounceon August 6. On the same day the sterling pricewas 252s. 3d. a fine ounce. These were the high-


GOLD 117

est prices in both dollars and sterling terms to berecorded during the 12-month period. On Au-gust 11 news was released of Russian purchases ofwheat from Canada; sales of gold by the U.S.S.R.for this purpose brought about a fall in the priceto $35.10%6 and 251s. 6%d. a fine ounce by Au-gust 23.

Demand continued heavy in August after hos-tilities broke out between India and Pakistan.The pound sterling came under some pressure atthis time, but after the announcement on Sep-tember 9 of further international support for thepound the price for gold in sterling termsdropped, reaching a level of 250s. 1 l%d. by Sep-tember 15. The gold market was less active to-ward the end of the month when the ceasefirebetween India and Pakistan was proclaimed andtension was eased on the Chinese-Indian border.At the end of September, under the influence ofrenewed buying by speculators, the price roseonce again to nearly $35.17 a fine ounce, but thisactivity was shortlived. The price was alsoinfluenced by more sales of gold by the U.S.S.R.in the early days of October, declining to under$35.09 a fine ounce by October 20. Thereafter,the prices in London moved within relatively nar-row limits until the third week in December,when it appeared that the authorities did notmeet in full the demand for end-of-year opera-tions, thus permitting the dollar price to rise to alevel just in excess of $35.16 a fine ounce. Withthe re-entry into the market of the U.S.S.R. asa seller, the price declined to $35.12^ a fineounce at the year end.

Demand for gold was heavy at times in Jan-uary 1966 and available supplies from producerswere reported to be less than normal andinsufficient to satisfy market demand. MainlandChina was again reported as a buyer in mid-January, and by the end of the month prices hadrisen to about $35.17^ and 250s. 10%d. a fineounce. During February and March persistent de-mand kept prices fairly high; the sterling price, inparticular, was affected by the announcement onFebruary 28 of the British General Election fixedfor March 31, which created renewed uncertaintyfor sterling in the exchange markets. However,

the results of the election, giving a substantialworking majority to the Government, caused themarkets to settle down and the prices in bothU.S. dollars and sterling declined gradually. OnApril 29 they reached $35.131/s and 251s. 6d. afine ounce.

The central bank Gold Pool, operated by theBank of England, appears to have had a some-what active year, and for perhaps the first sevenor eight months of 1965 was a seller of gold onbalance to the market to meet demand in excessof supplies and to stabilize the price. Continuedactivity in August and October, however, enabledthe Pool to recoup its earlier losses, and by theend of October all the gold subscribed earlier inthe year by members had been repaid. By the endof 1965 the net position of the Pool was some-what better than it had been at the beginning ofthe calendar year.

During 1965 the United Kingdom importedsome 39.4 million ounces of gold bullion, equiva-lent to $1,378.3 million, compared with 40.9 mil-lion ounces ($1,429.8 million) in 1964, 34.3 mil-lion ounces ($1,200.5 million) in 1963, and 34.1million ounces ($1,192.9 million) in 1962. Ofthe imports in 1965, the equivalent of $1,209.6million ($1,106.0 million in 1964) came fromSouth Africa; for the second year this figure ex-ceeded production there. The equivalent of$112.6 million was imported from the U.S.S.R.,much less than the amount of $268.6 million im-ported in 1964. In 1963 the equivalent of $816.1million was imported from South Africa and theequivalent of $281.2 million from the U.S.S.R. In1962 the figures were $664.7 million and $106.9million, respectively.

Exports of gold from London amounted to 76.5million ounces, equivalent to $2,678.1 million,compared with 17.6 million ounces ($615.8 mil-lion) in 1964. In 1965 the equivalent of $2,163.2million was shipped to Europe, of which $1,512.8million went to France and $425.4 million toSwitzerland. In 1964 total exports to Europe hadbeen equivalent to only $389.0 million, of which$94.1 million went to France and $149.6 millionto Switzerland. Other exports in 1965 were theequivalent of $225.9 million to the Far East



($19.0 million in 1964), $218.2 million to theMiddle East ($171.6 million in 1964), $52.4 mil-lion to South America ($33.3 million in 1964),$10.5 million to the United States and Canada($1.2 million in 1964), and $6.5 million to East-ern European countries ($1.6 million in 1964).

Other Developments

In markets where gold is bought and soldagainst local currencies (Table 46) the day-to-day movements of the U.S. dollar equivalentprices have varied from the London pattern be-cause of the special characteristics of each marketand the fluctuations in the intermediary rate ofexchange.

Prices for bar gold and gold coins in local cur-rencies in the period May 1, 1965 to April 30,

with the objective of generating additional re-sources for development and defense and it washoped that the terms of the issue would discour-age gold hoarding and smuggling. The market'sreaction was at first hesitant and the firm trendreappeared, prices continuing to rise steadily to$103.85 a fine ounce on April 11, 1966; onApril 30, 1966, the price was $101.61 a fineounce.

In other markets, bar gold and gold coin priceshave also been firm throughout the year, reflect-ing a surge of private demand caused by the po-litical and monetary uncertainties whichinfluenced the London market during this period.Price fluctuations have been relatively modest, nodoubt reflecting the stability of the London mar-ket and the influence of the Gold Pool.

TABLE 46. GOLD: PRICES IN VARIOUS WORLD MARKETS, END OF APRIL 1965 AND 1966

(In U.S. dollars a fine ounce, at day's dollar rate)

BeirutBombayBrusselsHong KongMilanParis

Bar

End ofApr. 1965

35.2884.26 i35.3539.8835.4535.27

Gold

End ofApr. 1966

35.27101.61 *35.3040.2835.4535.22

Sovereign

End ofApr. 1965

42.33

41.83

42.1542.02

End ofApr. 1966

42.03

41.95

42.0142.38

Napoleon

End ofApr. 1965

46.37

48.17

51.4548.18

End ofApr. 1966

48.18

50.14

51.0549.84

1 This figure has been obtained by conversion from quotations for 14-carat gold; transactions are limited to gold ofthat purity.

1966 followed a generally firm trend, reflectingthe tenor of the London market for most of theyear; in most centers, fluctuations were confinedwithin a relatively narrow margin.

In Bombay prices fell sharply in May but recov-ered in the following month to reach a level of$93.50 a fine ounce on June 25, the highest pricesince August 1962. Prices declined somewhatthereafter until the outbreak of hostilities betweenIndia and Pakistan in early September providedan added stimulus to hoarding tendencies on thesubcontinent. A firm trend persisted through theremaining months of 1965, although there was atemporary decline in November in reaction to theIndian Government's 15-year Gold Bond Scheme.As mentioned later, this scheme was introduced

Changes in National Policies AffectingGold

Greece. In order to supplement controls onforeign exchange transactions, and thus help tosafeguard the country's official gold and foreignexchange reserves, the Greek authorities regulat-ed the free gold coin market on December 22,1965. From that date sales of gold coins (mainlysovereigns) from the stocks of the Bank ofGreece could be made only through officially li-censed stockbrokers. Persons wishing to buy goldcoins are required to submit an application to acertified broker, who may sell any amount ofcoins against declarations giving the purchaser'sname, profession, and address. Persons wishing to


GOLD 119

resell sovereigns can do so only to the Bank ofGreece.

As a result of these measures the Bank ofGreece is reported to have recovered, in fourmonths, some 4.8 million sovereigns out of the10 million sold in 1965. The Bank of Greece esti-mates that there are still approximately 35 mil-lion sovereigns in private hands in Greece.

India. The Government of India announced onOctober 19, 1965 certain measures designed toprovide additional resources for development anddefense. These included the issue of National De-fence Gold Bonds, subscriptions for which wouldbe in gold (to be assayed in terms of gold 0.995fine) with repayments in gold of the same fine-ness after 15 years. Interest is to be paid at Rs 2 ayear for each 10 grams of gold. Certain taxconcessions were granted in respect of thesebonds.

Indonesia, which had withdrawn from theFund in August 1965, announced the nationali-zation of the gold and silver mines on Novem-ber 2, 1965. Gold production in Indonesia is notlarge, but the falling off of production in recentyears has been attributed to the absence ofefficient planning and managerial ability and to areluctance to invest new capital in the industryrather than to the exhaustion of reserves orworked-out mines.

United Kingdom. On April 27, 1966, theUnited Kingdom banned the use of gold for themanufacture of medals, medallions (includingimitation coins), tablets, and other pieces in picto-rial relief or bearing inscriptions; with certain ex-ceptions, the import of such items and of goldcoins was prohibited. The new Exchange Control(Gold Coins, Exemption) Order, 1966, alsoplaced further restrictions on the buying, selling,and holding of gold coins. No resident is nowallowed to hold more than four gold coins minted

after 1837 without special exchange control per-mission. Sales also require permission unlessmade at the current London market price throughan authorized dealer. Exceptions to the ban onthe sale or use of gold for the manufacture ofmedals, etc., may be allowed for medals for ex-port and for use as academic and sportingawards.

Gold Subsidy Programs

The gold subsidy programs of Australia,1

Canada,2 the Philippines,3 and Rhodesia4 dis-cussed in previous Annual Reports have con-tinued in operation during the past year.

South Africa consulted the Fund with regard tothe extension for a period of one year fromJune 30, 1965 of its present governmental assist-ance to marginal gold mines.5 The Fund deemedthis extension of South Africa's governmental as-sistance arrangements to be consistent with theFund's statement of December 11, 1947 on goldsubsidies.6

Gold Transactions Service

Since the inauguration of the Fund's goldtransactions service in March 1952, the centralbanks of 26 member countries and 5 internation-al organizations have purchased or sold goldthrough the facilities provided by the Fund. Inall, 120 transactions, amounting to some $1,093million, have taken place since March 1952.There were none in the fiscal year 1965/66.

1 Annual Report, 1960, page 144; 1963, page 181;7965, page 103.

2 Annual Report, 1959, pages 149-50; 1961, pages 125-26; 1964, page 109.

5 Ibid., page 109.4 Annual Report, 1964, page 109.5 Ibid., page 109.6 Selected Decisions, pages 14-15.


SUPPLEMENTARY NOTES


A. Activities of the Fund

THIS note supplements the information givenin Chapter 4 about the activities of the

Fund during the past year and provides somestatistics of its operations since its inception.

Par Values

Initial par values were established by agree-ment between the Fund and three members dur-ing the fiscal year, as shown in Table 47.

TABLE 47. INITIAL PAR VALUES ESTABLISHED,FISCAL YEAR ENDED APRIL 30, 1966

MemberCurrency

UnitEffective

Date

Units ofMember'sCurrencyper U.S.Dollar

Rwanda Franc April 7, 1966 100.000Sierra Leone Leone August 6, 1965 0.714286Zambia Pound March 7, 1966 0.357143

A number of changes in par values were pro-posed by members and agreed by the Fund dur-ing the year. The Government of Ghana notifiedthe Fund that, with effect from July 19, 1965, itproposed to introduce a new monetary unit to becalled the "cedi," which would replace the Ghanapound as the legal unit of currency. The Fundconcurred in the proposal to establish a par valuefor the cedi at $ 0.857143 = US$1. The Fundalso concurred in the proposals of the Govern-ment of Yugoslavia for a change in the par valueof the Yugoslav dinar from Din 300 = US$1 toDin 1,250 = US$1, with effect from July 26,1965, and of the Government of the Philippinesfor a change in the par value of the Philippinepeso from P 2.00 = US$1 to P 3.90 = US$1from November 8, 1965. Subsequently, the Gov-ernment of Yugoslavia notified the Fund that,with effect from January 1, 1966, a new mone-tary unit, also called the dinar, would be intro-

duced to become the legal unit of currency andproposed a par value for the new dinar equivalentto 100 former dinars. The Fund concurred in thisproposal for a par value for the new dinar at therate of Din 12.50 = US$1. The Fund also con-curred in the par values proposed by the UnitedKingdom in connection with the introduction ofnew monetary units for the following nonmetro-politan territories in respect of which it has ac-cepted the Fund Agreement: the South Arabiandinar, introduced on April 1, 1965 by the Feder-ation of South Arabia to replace the East Africanshilling; the East Caribbean dollar, introduced onOctober 6, 1965 by the Governments of Antigua,Barbados, Dominica, Montserrat, St. Chris-topher-Nevis-Anguilla, St. Lucia, and St. Vincentto replace the West Indian dollar; the Bahraindinar, introduced on October 16, 1965 by theGovernment of Bahrain to replace Indian rupeenotes and coin; and the Guyana dollar, intro-duced on November 15, 1965 by the Governmentof British Guiana to replace the West Indian dol-lar.

Article VIII Countries

Australia accepted the obligations of ArticleVIII, Sections 2, 3, and 4, of the Fund Agree-ment, with effect from July 1, 1965. The 27members which have rendered their currenciesconvertible under the Articles of Agreement arelisted in Table 48.

Quotas

Table 49 lists the increases in quotas of Fundmembers during the past fiscal year. It shows sep-arately the increases stemming from the GeneralAdjustment of Quotas described in Chapter 4 andthose approved under the Fund's Compensatory

123



TABLE 48. COUNTRIES THAT HAVE ACCEPTEDARTICLE VIII

Member

AustraliaAustriaBelgiumCanadaCosta Rica

Effective Dateof Acceptance

July 1, 1965August 1, 1962February 15, 1961March 25, 1952February 1, 1965

Dominican RepublicEl SalvadorFranceGermanyGuatemala

HaitiHondurasIrelandItalyJamaica

JapanKuwaitLuxembourgMexicoNetherlands

NicaraguaPanamaPeruSaudi ArabiaSweden

United KingdomUnited States

August 1, 1953November 6, 1946February 15, 1961February 15, 1961January 27, 1947

December 22, 1953July 1, 1950February 15, 1961February 15, 1961February 22, 1963

April 1, 1964April 5, 1963February 15, 1961November 12, 1946February 15, 1961

July 20, 1964November 26, 1946February 15, 1961March 22, 1961February 15, 1961

February 15, 1961December 10, 1946

Financing Decision.1 This Decision provided thatthe Fund would give sympathetic consideration torequests for the adjustment of quotas from coun-tries exporting primary products, particularlycountries with relatively small quotas, to makethem more adequate in the light of fluctuations inexport proceeds and other relevant criteria. Theincrease of quota shown for Malaysia under thisheading represents the second installment of threeby which the country's quota is being increased.

Paragraph l(a) of the First Resolution of theBoard of Governors on the Increases in Quotas—Fourth Quinquennial Review 2 proposed increasesof 25 per cent in the quotas in effect on Febru-ary 26, 1965, or in the maximum quotas to whichmembers could consent under Resolutions adopt-ed by or submitted to the Board of Governors

1 Executive Board Decision No. 1477-(63/8), adoptedFebruary 27, 1963 (Selected Decisions, pp. 40-43).

2 Board of Governors' Resolution No. 20-6, adoptedMarch 31, 1965 (Annual Report, 1965, pp. 130-31).

before that date. In the case of 7 members—Iraq,Jamaica, Jordan, Liberia, Morocco, Nicaragua,and Tunisia—for which special quota increasesunder the Compensatory Financing Decision wereapproved after February 26, 1965, the Governorsdecided that the quotas so approved could serveas the basis for the 25 per cent general increase.

In addition to the increases listed in Table 49the following members have consented to the in-crease in their quotas specified in the table an-nexed to the Executive Directors' Report3 buthad not completed the payment of the additionalsubscription by the end of the fiscal year: Guin-ea, Norway, Tanzania, Cameroon, the CentralAfrican Republic, Chad, Congo (Brazzaville),the Democratic Republic of Congo, Dahomey,Gabon, Nigeria, Upper Volta. Except for the firstthree of these, each member has opted for anincrease in five annual installments.

Fund Transactions

Table 50 lists the purchases of currencies fromthe Fund and Table 51 the stand-by arrange-ments in force during the year.

Any drawing or stand-by arrangement thatwould increase the Fund's holdings of a member'scurrency by more than 25 per cent of its quotawithin any 12-month period (except to the extentthat the Fund's holdings of the member's cur-rency are less than 75 per cent of its quota) re-quires a waiver under Article V, Section 4, of theArticles of Agreement. During the fiscal year,waivers for this purpose were required for all thestand-by arrangements, except the one for Tur-key. All purchases, not under stand-by arrange-ments, made during the year also required awaiver, except the gold tranche purchases by theUnited States and Guatemala, the purchase byArgentina, and purchases made by Burundi, Co-lombia, Cyprus, Ghana, Haiti, India, the SyrianArab Republic, the United Arab Republic, andYugoslavia in connection with the increases intheir quotas.

3 Annual Report, 1965, page 129.


ACTIVITIES OF THE FUND 125

TABLE 49. INCREASES IN QUOTAS, FISCAL YEAR ENDED APRIL 30, 1966(In millions of U.S. dollars)

Member

AfghanistanAlgeriaAustraliaAustriaBoliviaBrazilBurundiCeylonColombiaCyprusDenmarkDominican RepublicEcuadorEl SalvadorEthiopiaFinlandGhanaGreeceGuatemalaHaitiHondurasIcelandIndiaIranIraqIrelandIsraelItalyIvory CoastJamaicaJapanJordanKenyaKoreaLiberiaLibyaMalagasy RepublicMalaysiaMaliMauritaniaMexicoMoroccoNepalNew ZealandNicaraguaPakistanParaguayPeruPortugalRwandaSaudi ArabiaSierra LeoneSomaliaSouth AfricaSpainSudanSwedenSyrian Arab RepublicThailandTrinidad and TobagoTunisiaUgandaUnited Arab RepublicUnited KingdomUnited StatesVenezuelaViet-NamYugoslavia

Under Compensatory FinancingDecision

Quota onMay 1, 1965 New quota Effective date

22.5060.00

400.0075.0022.50

280.0011.2562.00

100.0011.25

130.0025.0020.0020.0015.0057.0055.0060.0015.00 20.00 June 25, 196511.2515.0011.25

600.0070.0055.00 64.00 July 19, 196545.0050.00

500.0015.0020.00 24.00 Jan. 3, 1966

500.0011.25 12.25 July 2, 196525.0018.7511.25 16.00 Dec. 27, 196515.0015.0058.33 84.172 Apr. 29, 196613.007.50

180.0052.50 72.00 Sept. 7, 19657.50

125.0011.25 15.00 Jan. 24, 1966

150.0011.2537.5060.0011.2555.00 72.00 June 24, 196511.2511.25

150.00150.0045.00

150.0025.00 30.00 Feb. 14, 196645.00 76.00 May 4, 196520.0022.50 28.00 Mar. 21, 196625.00

120.001,950.004,125.00

150.0022.50

120.00

Under General Adjustment

New quota

29.0063 .OO1

500.00175.0029.00

350.0015.0078.00

125.0015.00

163.0026.401

25.0025.0019.00

125.0069.00

100.0025.0015.0019.0015.00

750.00125.0080.0080.0090.00

625.0015.801

30.00725.00

13.001

32.0024.0020.0019.0019.0063.331

17.008.001

270.0075.601

10.00157.00

19.00188.0015.0047.0075.0012.001

90.0015.0015.00

200.00250.0057.00

225.0038.0095.0025.00

32.00150.00

2,440.005,160.00

250.0023.801

150.00

Effective date

Feb. 23, 1966Apr. 27, 1966Feb. 23, 1966Mar. 25, 1966Mar. 16, 1966Mar. 14, 1966Mar. 15, 1966Mar. 25, 1966Mar. 25, 1966Apr. 15, 1966Mar. 25, 1966Mar. 29, 1966Apr. 1, 1966Feb. 23, 1966Mar. 25, 1966Mar. 21, 1966Apr. 21, 1966Apr. 13, 1966Mar. 15, 1966Mar. 24, 1966Mar. 25, 1966Mar. 17, 1966Mar. 12, 1966Mar. 10, 1966Mar. 24, 1966Mar. 25, 1966Mar. 23, 1966Mar. 24, 1966Mar. 25, 1966Mar. 25, 1966Mar. 25, 1966Mar. 23, 1966Mar. 25, 1966Feb. 28, 1966Mar. 25, 1966Mar. 22, 1966Apr. 12, 1966Mar. 24, 1966Apr. 26, 1966Apr. 22, 1966Mar. 9, 1966Apr. 15, 1966Mar. 25, 1966Mar. 23, 1966Mar. 24, 1966Apr. 19, 1966Feb. 23, 1966Apr. 4, 1966Mar. 17, 1966Apr. 15, 1966Mar. 17, 1966Mar. 25, 1966Apr. 13, 1966Mar. 18, 1966Mar. 25, 1966Mar. 16, 1966Mar. 24, 1966Mar. 21, 1966Mar. 25, 1966Mar. 28, 1966

Mar. 30, 1966Apr. 5, 1966Mar. 23, 1966Feb. 23, 1966Mar. 24, 1966Mar. 23, 1966Mar. 23, 1966

Quota onApril 30,

1966

29.0063.00

500.00175.0029.00

350.0015.0078.00

125.0015.00

163.0026.4025.0025.0019.00

125.0069.00

100.0025.0015.0019.0015.00

750.00125.0080.0080.0090.00

625.0015.8030.00

725.0013.0032.0024.0020.0019.0019.0084.1717.008.00

270.0075.6010.00

157.0019.00

188.0015.0047.0075.0012.0090.0015.0015.00

200.00250.00

57.00225.00

38.0095.0025.0028.0032.00

150.002,440.005,160.00

250.0023.80

150.001 Represents payment of first of five annual installments.2 Represents payment of second of three annual installments.



TABLE 50. PURCHASES OF CURRENCIES FROM THE FUND,FISCAL YEAR ENDED APRIL 30, 1966


In Con-nection

withQuota

Increases

MemberPurchasing

AfghanistanArgentinaBrazilBurundiCeylonChileColombiaCosta RicaCyprusEcuadorGhanaGuatemalaHaitiHondurasIndiaIrelandLiberiaMaliNew ZealandPakistanRwandaSomaliaSudanSyrian Arab

RepublicTunisiaUnited Arab

RepublicUnited KingdomUnited StatesYugoslavia

Total

UnderStand-ByArrange-

ments

5.06

25.00

22.5034.0013.507.00

8.00

1.952.50

75.00

3.00

37.503.003.60

5.80

80.00

327.41

UnderFirst

Resolu-tion

0.944.00

6.25

0.941.253.50

0.50

37.50

1.001.008.009.50

0.943.00

2.00

7.50122.50

7.50

217.81

Other

30.00

5.00

187.5022.50

1.19

62.00

11.25

1.251.38

1,400.00550.00

2,272.071

Total

5.0630.0025.000.94

26.5034.0019.757.000.949.253.505.002.452.50

300.0022.505.191.00

70.0047.00

3.004.54

14.25

3.257.18

7.501,522.50

550.0087.50

2,817.29!

1 Total does not equal sum of items because ofrounding.

Stand-By Arrangements

Some particulars follow of the stand-by ar-rangements approved during the year.

In June 1965 the Fund approved a stand-byarrangement for Afghanistan which authorizespurchases equivalent to $6.75 million. It is in-tended to support a stabilization program adoptedby the Afghan authorities for the purpose of re-storing internal and external equilibrium. Draw-ings under the arrangement totaled $5.1 millionby April 30, 1966.

A stand-by arrangement for Ceylon, approvedin June 1965, authorizes drawings equivalent to$30 million. It is intended to support the correc-tive policies which are being adopted by the Cey-lonese authorities in the fiscal and monetaryfields. Under the arrangement, $22.5 million hadbeen drawn by April 30.

A stand-by arrangement for Colombia, whichbecame effective in January 1966, authorizesdrawings equivalent to $36.5 million and is in-tended to provide support for the efforts of theColombian authorities to restore monetary stabili-ty and improve the country's balance of paymentsposition. Under this arrangement, $13.5 millionhad been drawn by April 30.

A stand-by arrangement for El Salvador, ap-proved in October 1965, authorizes purchasesequivalent to $20 million. The arrangement willprovide a secondary line of foreign exchange re-serves against unforeseen balance of paymentscontingencies. No drawing under this arrange-ment was made during the fiscal year.

A stand-by arrangement for Guatemala, whichbecame effective in January 1966, authorizesdrawings equivalent to $15 million. It is intendedto provide a secondary line of foreign reserveswhich may be used, as needed, to finance balanceof payments difficulties. No drawing under thisarrangement was made during the fiscal year.

A stand-by arrangement for Morocco, ap-proved in September 1965, authorizes drawingsof $45 million. The arrangement will providesupport to restore and maintain internal and ex-ternal financial stability without seriously disrupt-ing imports or economic growth. Nothing wasdrawn under this arrangement during the fiscalyear.

A stand-by arrangement for Panama, the firstfor this member, was approved in July 1965. Itauthorizes drawings up to $7 million to support aprogram designed to strengthen the country'sfinancial position. No drawing under this arrange-ment was made during the fiscal year.

The stand-by arrangement for Rwanda, ap-proved in April 1966, was also the first for themember. It authorizes drawings up to $5 million



in conjunction with the establishment of an initialpar value for the Rwanda franc and the introduc-tion of a comprehensive set of stabilization meas-ures. The equivalent of $3 million was drawnunder the arrangement during the fiscal year.

The stand-by arrangement for Yugoslavia, ap-proved in July 1965, authorizes purchases of cur-rencies equivalent to $80 million; the full amount

available under the arrangement has been drawn.The arrangement is in support of a reform of thecountry's economic organization and foreign ex-change system.

Stand-by arrangements approved during theyear for Bolivia, Brazil, Burundi, Chile, CostaRica, Ecuador, Haiti, Honduras, Korea, Liberia,Peru, the Philippines, Somalia, Tunisia, and Tur-

TABLE 51. FUND STAND-BY ARRANGEMENTS FOR MEMBERS, FISCAL YEAR ENDED APRIL 30, 1966(In millions of U.S. dollars)

Member

AfghanistanBolivia

Brazil

Burundi

CeylonChile

ColombiaCosta Rica

Dominican RepublicEcuador

El SalvadorGuatemalaHaiti

Honduras

IndiaKorea

Liberia

MaliMoroccoPakistanPanamaParaguayPeru

Philippines

RwandaSomalia

Tunisia

Turkey

United Arab RepublicUnited KingdomUnited StatesYugoslavia

Total1 Canceled on March 30,

Date ofInception

June 17, 1965Sept. 1, 1964Sept. 1, 1965Jan. 13, 1965Feb. 1, 1966Jan. 26, 1965Mar. 28, 1966June 15, 1965Jan. 6, 1965Mar. 1, 1966Jan. 1, 1966Feb. 1, 1965Mar. 1, 1966Aug. 1, 1964July 1, 1964July 1, 1965

Oct. 15, 1965Jan. 1, 1966Oct. 1, 1964Oct. 1, 1965Aug. 5, 1964Jan. 1, 1966Mar. 22, 1965Mar. 22, 1965Mar. 22, 1966June 1, 1964June 1, 1965July 1, 1964Sept. 23, 1965Mar. 16, 1965July 26, 1965Nov. 23, 1964Apr. 8, 1965Mar. 31,1966Apr. 12, 1965Apr. 12, 1966Apr. 15, 1966Jan. 19, 1965Jan. 19, 1966Oct. 1, 1964Nov. 12, 1965Feb. 1, 1965Feb. 1, 1966May 23, 1964Aug. 8, 1964July 22, 1964July 26, 1965

1966.

Date ofExpiration

June 16, 1966Aug. 31,1965Aug. 31, 1966Jan. 12, 1966Jan. 31, 1967Jan. 25, 1966Mar. 27, 1967June 14, 1966Jan. 5, 1966Feb. 28, 1967Dec. 31, 1966Jan. 31, 1966Feb. 28, 1967July 31, 1965June 30, 1965June 30, 1966Oct. 14, 1966Dec. 31, 1966Sept. 30, 1965Sept. 30, 1966Aug. 4, 1965Dec. 31, 1966Mar. 21, 1966Mar. 21, 1966Mar. 21, 1967May 31, 1965May 31, 1966June 30, 1965Sept. 22, 1966Mar. 15, 1966July 25, 1966Nov. 22, 1965Apr. 7, 19661

Mar. 30, 1967Apr. 11, 1966Apr. 11, 1967Apr. 14, 1967Jan. 18, 1966Jan. 18, 1967Sept. 30, 1965Ndv. 11, 1966Dec. 31, 1965Dec. 31, 1966May 22, 1965Aug. 7, 1965July 21, 1965July 25, 1966

Amount

6.7512.0014.00

125.00125.00

4.005.00

30.0036.0040.00

36.5010.0010.0025.0013.0012.0020.0015.004.004.007.50

10.00200.00

9.3012.004.404.009.90

45.0037.507.005.00

30.0037.5040.4026.70

5.005.602.80

14.255.60

21.5021.5040.00

1,000.00500.0080.00

New orRenewed in

1965/66

6.75—14.00—125.00

5.0030.00

—40.00

36.50—10.00——12.00

20.0015.00

—4.00—10.00

—12.00—4.00

45.00—7.00

——37.50— 1

26.705.00

—2.80—5.60—21.50

———80.00

575.35

AmountAvailable

April 30, 1966

1.69—14.00

—125.00

5.007.50

—30.00

23.00

—8.00

——4.00

20.0015.00

—2.05

—7.50

—12.00

—1.00

45.00

—7.00—

—37.50

—26.702.00

—2.80—2.80—21.50

————

421.04



key were in continuation of the financial supportthe Fund had accorded to them under stand-byarrangements in the preceding year. Those forEcuador, Liberia, the Philippines, Somalia, andTunisia were for smaller amounts, those for Bo-livia, Burundi, Chile, Honduras, Korea, and Peruwere for larger amounts, and those for Brazil,Costa Rica, Haiti, and Turkey were for similaramounts.

General Arrangements to Borrow

The position of the participants in the GeneralArrangements to Borrow at May 31, 1965 wasdetailed in the Annual Report, 1965. There wasno further change during the fiscal year in thisposition, which is set out in Table 52.

TABLE 52. POSITION OF PARTICIPANTS IN GENERALARRANGEMENTS TO BORROW


BalanceMaximum Amounts Borrowed AvailableAmounts by Fund April 30, 1966

TABLE 53. REPURCHASES OF CURRENCIES FROM THEFUND, FISCAL YEAR ENDED APRIL 30, 1966


Participant

BelgiumCanadaFranceDeutsche BundesbankItaly

JapanNetherlandsSveriges RiksbankUnited KingdomUnited States

Total

*J1 V^iCUlLArrange-

ments

150200550

1,000550

250200100

1,0002,000

6,000

Dec.1964

30.015.0

100.0180.0

5.0

20.040.015.0

—

405.0

May1965

37.535.0

140.0167.565.0

25.037.517.5

——

525.0

U11UC1 V^lCUll

Arrange-ments

82.5150.0310.0652.5480.0

205.0122.567.5

1,000.02,000.0

5,070.0

Charges paid by the Fund in accordance withparagraph 9(a) of the General Arrangements toBorrow amounted to $2.6 million, and interestpaid by the Fund in accordance with paragraph9(b) amounted to a total of $13.4 million. Bothcharges and interest were paid in gold.

Repurchases

Table 53 gives details of the repurchases ofcurrencies from the Fund during the fiscal year,supplementing the summary description inChapter 4. Table 54 similarly amplifies the refer-ence made in that chapter to the currencies inwhich drawings and repurchases were made dur-ing the year.

MemberRepurchasing

AfghanistanArgentinaBoliviaBrazilBurundi

CeylonChileColombiaCosta RicaEcuador

GhanaHaitiHondurasIndiaIran

JordanMalaysiaMoroccoNicaraguaParaguay

PhilippinesSomaliaSudanSyrian Arab RepublicTunisia

TurkeyUnited Arab RepublicUruguayYugoslavia

Total

Amount

1.1352.002.50

58.952.00

11.2541.5028.002.502.00

5.602.752.50

75.003.46

0.03i

5.91i

0.36

10.500.022.507.300.24

21.5034.50

2.0030.00

406.00

1 Less than $5,000.

Summary of Transactions, 1948-66

From the inception of Fund operations, 61members have purchased currencies from theFund, and 3 members have had stand-by arrange-ments without drawing under them. Total salesby the Fund were equivalent to $12.2 billion. AllFund transactions are summarized in Table 55.Drawings outstanding at April 30 of each year,together with the amounts available (but notused) under stand-by arrangements on the samedate, are shown in Chart 25.

The drawings made by 53 members have beenwholly or partly repaid, either through repur-chases in gold or convertible currencies or as aresult of purchases of their currencies by othermembers. On April 30, 1966, the total amount ofmembers' purchases still outstanding was equiva-



CHART 25. OUTSTANDING BALANCES OF DRAWINGS FROM THE FUND AND UNUSED STAND-BY ARRANGEMENTS, ONAPRIL 30, 1948-66


1 Belgium, Canada, Denmark, France, Italy, Japan, Netherlands, and Norway.



lent to $4.75 billion. On that date the amountsdrawn had been outstanding for the following pe-iods:

12 months or less13 to 18 months19 to 24 months25 to 30 months31 to 36 months37 to 42 months43 to 48 months49 to 54 months55 to 60 months

Fund Charges

Currently, 27 members are paying the chargeslevied by the Fund on its holdings of members'currencies in excess of their quotas; the amountof such charges incurred during the year totaled$65.7 million, compared with $35.9 million dur-ing the preceding year. Since the beginning of theFund's operations, 50 members have been subject

Amount inmillions ofU.S. dollars

2,817.31,235.1

121.651.6

194.085.599.038.0

106.6

Number ofmembersinvolved

2921159

126645

to such charges. At present, part of these chargesis paid by 3 members in, their own currencies, inaccordance with Article V, Section 8 (/), of theFund Agreement, which permits such payments ifa member's monetary reserves are less than halfof its quota. The present schedule of charges tobe levied on the Fund's holdings of a member'scurrency in excess of quota, which has been ineffect from May 1, 1963, was reviewed by theExecutive Board in April 1966 and extended.The decision will be reviewed by the ExecutiveBoard annually. The schedule is reproduced ineach issue of International Financial Statistics.Service charges on drawings totaled $14.1 millionduring the year under review, compared with$9.5 million in 1964/65. Charges collected onstand-by arrangements, after deductions of theamounts credited against service charges if andwhen drawings were made under the arrange-ments, and of refunds resulting from changes inthe level of the Fund's holdings of members' cur-

TABLE 54. DRAWINGS AND REPURCHASES BY CURRENCY, FISCAL YEAR ENDED APRIL 30, 1966


Drawings

Currency

GoldAustrian schillingsAustralian dollarsBelgian francsCanadian dollars

Danish kronerFrench francsDeutsche markItalian lireJapanese yen

Mexican pesosNetherlands guildersSaudi Arabian riyalsSpanish pesetas4

Swedish kronor

Pounds sterlingU.S. dollars

Total

UnitedKingdom

__

——82.5

107.5

30.0242.5435.0182.577.5

—87.5

—40.037.5

200.0

1,522.5

UnitedStates

__

——40.0

250.0__

40.0

180.0

—

—25.0—

15.0

—550.0

OtherCountries

_

—20.038.291.0

108.2111.193.927.5

4.539.3

—4.515.0

69.4122.3

744.8 3

Total

__

—20.0160.7448.5

30.0390.7546.1456.4105.0

4.5151.8

—44.567.5

69.4322.3

2,817.3 3

UnderArticle V,Sec. 7(6)i

9.90.1—0.2— 2

6.69.7

2___ 2

2

0.32

2

2

26.9s

Repurchases

Other

3.3——0.1

273.7

9.024.925.542.4

0.12

2

379.1 3

Tdtal

13.20.1—0.3

273.7__

15.634.625.6 3

42.42

0.42

2

2

406.0 3

1 Including discharges in respect of previous years.2 Less than $50,000.3 Total does not equal sum of items because of rounding.4 The peseta cannot be accepted for repurchases because Spain has not yet accepted the obligations of Article VIII.

Sections 2, 3, and 4.



rencies that recreated or increased the member'sgold tranche, totaled $0.9 million during the yearended April 30, 1966. These charges are not con-sidered as income until the expiration or cancella-tion of the stand-by arrangement; the income de-rived from them in the past fiscal year was $0.4million, compared with $2.1 million in 1964/65.

TABLE 55. SUMMARY OF FUND TRANSACTIONS, FISCALYEARS ENDED APRIL 30, 1948-66


19481949195019511952

19531954195519561957

19581959196019611962

1963196419651966

Total1

TotalPurchases

byMembers

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

1,897.442,817.29

12,186.07

TotalStand-By

Arrangementsin Force

at End ofFiscal Year

—

———

53.0090.0090.0097.50

968.90

884.281,132.84

291.88338.62

1,942.88

1,287.251,970.15

516.15421.04

TotalRepurchases

byMembers

-

—24.2119.0936.58

184.96145.11276.28271.66

75.04

86.81537.32522.41658.60

1,260.00

807.25380.41516.97406.00

6,208.68 2

1 Totals may not equal sums of items because ofrounding.

2 Including $281.61 million repurchased in excess ofdrawings. Of this amount, $257.51 million representsrepurchases that reduced the Fund's holdings of mem-bers' currencies below the amounts originally paid onsubscription account, and $24.10 million representsrepurchases of members' currencies paid as charges.Repurchases do not include sales of currencies equivalentto $1,459.90 million and adjustments of $50.45 milliondue primarily to settlement of accounts with membersthat have withdrawn from the Fund, making a total of$1,510.35 million having the effect of repayment.

Consultations with Members

Member countries that are availing themselvesof the transitional arrangements in accordancewith Article XIV, Section 2, of the Fund Agree-ment are required by that Article to consult with

the Fund annually on the retention of their ex-change restrictions. During the fiscal year1965/66 such consultations were completed with44 countries; with others the procedures had beeninitiated but had not been completed by the endof the fiscal year. These consultations have con-tinued to provide opportunities for the examina-tion of the economic and financial problems ofthe members and of their efforts to reduce andsimplify exchange restrictions. Several of the con-sultations under Article XIV have been combinedwith discussions of new financial programs orhave included reviews of such programs alreadybeing implemented.

Consultations were also held with 19 membersthat have accepted the obligations of ArticleVIII, Sections 2, 3, and 4, of the Fund Agree-ment. The Executive Board Decision No.1034-(60/27) of June 1, I9604 stressed themerit of holding periodic discussions between theFund and its members even if no question involv-ing action under Article VIII should arise. Thesediscussions include exchanges of views on mone-tary and financial developments and enable theFund to further the objective of securing the ful-lest possible degree of consultation and collabo-ration on international monetary problems.

Relations with Other InternationalOrganizations

The Fund's continuing cooperation with otherinternational organizations with which it has com-mon interests is maintained by its representationat meetings of those organizations and by theirattendance at the joint Annual Meetings of theFund and Bank Boards of Governors and by re-ciprocal staff collaboration at the working level.

Fund representatives attended the 20th Sessionof the United Nations General Assembly, the39th and 40th Sessions of the Economic and So-cial Council (ECOSOC) and meetings of its Eco-nomic Commission for Asia and the Far East andEconomic Commission for Europe. Staffmembers also attended the first session of the

4 Selected Decisions, pages 81-83.



Governing Council of the newly created UN De-velopment Program and the first session of theCommittee of Experts on Development Planningheld in New York, as well as the Inter-RegionalSeminar on Planning the External Sector held inAnkara. The Fund was also represented at the13th session of the Food and Agriculture Organi-zation Conference in Rome and the 164th sessionof the Governing Body of the International LaborOrganization in Geneva.

The Managing Director addressed the 40thSession of ECOSOC on the occasion of hispresentation of the Fund's Annual Report. Healso attended the 20th Anniversary Commemo-rative Meeting of the United Nations in SanFrancisco, meetings of the UN AdministrativeCommittee on Coordination (ACC) in NewYork and London, the first session of the Inter-agency Consultative Board of the UN Develop-ment Program in New York, the Annual GeneralMeeting of the Bank for International Settlements(BIS) in Basle, and the Ministerial Meeting ofthe Organization for Economic Cooperation andDevelopment (OECD) in Paris, and deliveredtwo lectures at the Latin American Center forMonetary Studies in Mexico City. Other Fundrepresentatives attended periodic meetings of theBIS during the year and meetings of the Prepara-tory Committee of the ACC.

Fund representatives also attended the 23rdsession of the CONTRACTING PARTIES to the Gen-eral Agreement on Tariffs and Trade (GATT) inMarch-April 1966, and meetings of other GATTbodies, including those of the Committee onTrade and Development and other groups con-cerned with the expansion of the trade of the lessdeveloped countries. The CONTRACTING PARTIESconsult the Fund in connection with their consid-eration of import restrictions maintained by con-tracting parties for balance of payments reasons,as well as in other connections involving balanceof payments or exchange matters. During thefiscal year, the Fund was consulted by theCONTRACTING PARTIES in connection with theirconsultations with Brazil, Finland, India, Israel,New Zealand, Spain, Tunisia, the United Arab

Republic, the United Kingdom, Uruguay, andYugoslavia. Background material relating to con-sulting countries, and decisions which the Fundreaches as a result of its consultations withmembers under Article XIV, are provided to theGATT. Fund representatives cooperate with theGATT Committee conducting consultations.

Representatives of the Fund attended the sec-ond and third sessions of the UN Trade and De-velopment Board, the permanent organ of theUN Conference on Trade and Development(UNCTAD). The Fund was also represented atnumerous meetings of the regular committees andof special groups of UNCTAD, held both inGeneva and in New York. Of particular interesthas been the work of the Committee on Invisiblesand Financing Related to Trade and of theGroup of Experts on International Monetary Is-sues, based on resolutions of the First UNCTADConference concerning the responsibilities of theFund. In order to maintain a closer relationshipwith the international institutions that deal withproblems of concern to the Fund and that main-tain staffs or hold meetings in Geneva—notablythe UNCTAD and the GATT—the Fund assign-ed a representative to Geneva in October 1965.

Under the arrangements for cooperation withthe OECD, the Fund has continued to be repre-sented in the various committees in its field ofinterest, in particular Working Party 3 of theOECD Economic Policy Committee, which hasintensified its work on the balance of paymentsadjustment process. Fund representatives havealso participated in meetings of the Study Groupon Capital Markets, recently established by theOECD Committee on Invisible Transactions, andin meetings of the Working Party on FinancialAspects of Development Assistance of the Devel-opment Assistance Committee.

In Latin America, Fund representatives attend-ed the 9th meeting of the Central American Eco-nomic Cooperation Committee of the UN Eco-nomic Commission for Latin America inGuatemala City, the 7th Annual Meeting of theBoard of Governors of the Inter-American Devel-opment Bank in Mexico City, and, in Buenos



Aires, the 4th Annual Meetings at the Expert andMinisterial Levels of the Organization of Ameri-can States Inter-American Economic and SocialCouncil and the 7th meeting of the Inter-AmericanCommittee on the Alliance for Progress (CIAP)that preceded them. As in the previous year,Fund staff, at the invitation of the Chairmanof the CIAP, participated informally in anadvisory capacity in a series of meetings dealingwith country reviews and attended periodicallyinformal interagency meetings arranged by theCIAP Secretariat to discuss procedures for thecountry reviews and other matters of mutual in-terest.

In Africa, a Fund staff member participated ina seminar on "Current Problems and TrainingNeeds in Tax Administration," held by the UNEconomic Commission for Africa (EGA) in Ad-dis Ababa, and a staff member attended the Sub-Regional Meeting on Economic Cooperation con-vened by the ECA in North Africa at Tangier.

Staff

At the end of the fiscal year, the Fund staffnumbered 750, including 36 on temporary ap-pointments. This total represents a net increase of76 over the total at the beginning of the year.During the year, 164 new staff members were ap-pointed from 43 member countries. Nationals of69 countries are now on the staff.

Publications

The Fund's regular program of publicationswas continued in 1965/66: Annual Report of theExecutive Directors for the Fiscal Year EndedApril 30, 1965 (Twentieth Annual Report), withshortened versions in French, German, and Span-ish; Balance of Payments Yearbook, Volume 17,1960-64; International Financial News Survey,weekly; International Financial Statistics, month-ly, and Supplement to 1965/66 Issues; Scheduleof Par Values, 40th and 41st issues; SixteenthAnnual Report on Exchange Restrictions; Staff

Papers, Volume XII, Nos. 2 and 3, and VolumeXIII, No. 1; and Summary Proceedings of theTwentieth Annual Meeting of the Board of Gov-ernors.

In conjunction with the World Bank, the Fundpublished Direction of Trade, monthly, andFinance and Development, quarterly (English,French, and Spanish editions).

Other publications of the Fund in 1965/66were a second edition of the pamphlet Introduc-tion to the Fund, and a new pamphlet Mainte-nance of the Gold Value of the Fund's Assets.The first of these is available in English, French,and Spanish; a German version is in preparation.The second pamphlet is available in English;French and Spanish translations are being pre-pared.

All the above are available without charge ex-cept for the Balance of Payments Yearbook, In-ternational Financial Statistics (and Supplement),Staff Papers, and Direction of Trade, which areavailable by subscription. For general subscribersthe subscriptions to the four publications amountto $33.50 a year; university libraries, faculties,and students may obtain them at a special rate of$10 a year for all four, or $3 a year for any oneof them.

Administrative Finance

During the financial year, the Fund's operatingincome, equivalent to $81,316,600, exceeded itstotal expenditure by $44,545,482. This amountwas transferred provisionally to the General Re-serve pending action by the Board of Governors.The General Reserve now totals about$186,356,950.

The Fund continued to invest a part of its goldholdings in U.S. Government securities, with theunderstanding that the same quantity of gold canbe reacquired whenever the investment is termi-nated. The amount so invested was $800 million.The income therefrom amounted to $33,907,383for the financial year; it was credited to a



Special Reserve, which showed a balance of$182,181,830 on April 30, 1966.

The administrative budget approved by the Ex-ecutive Directors for the period May 1,1966-April 30, 1967 is presented in AppendixIII. Comparative income and expenditures figuresfor the fiscal years ended 1964, 1965, and 1966are given in Appendix IV.

The Executive Directors requested the Govern-ments of Nigeria, the Philippines, and the UnitedKingdom to nominate members of the AuditCommittee for 1966. The following nominations

were made and confirmed: Mr. G.M. Okufi, Sen-ior Auditor, Federal Audit Department, Nigeria;Mr. Julian D. Mercado, Executive Assistant tothe Deputy Governor, Central Bank of the Philip-pines; Mr. Ronald W. Tizard, Deputy Director ofAudit, Exchequer and Audit Department, UnitedKingdom. The report of the Committee is submit-ted separately. Appendix V gives the Auditors'Certificate, together with the audited BalanceSheet as at April 30, 1966 and the audited State-ment of Income and Expenditure for the financialyear.


DATA FOR CHARTS

B. Data for Charts

The following tables set out the data on whichthe charts in the preceding chapters have beendrawn. The data are mainly taken from Interna-tional Financial Statistics, but they have beensupplemented in a few instances by figures sup-plied by other international organizations, bynational statistics, and by Fund staff estimates.

135


ANNUAL REPORT, 1966

Chart 1

TABLE 56. RESERVES AS PERCENTAGE OF IMPORTS, 1951-65

All countriesAll countriesUnited StatesAll countries (excl.

United States)

All countries (excl. UnitedStates)

"Group of Ten" (excl.United States)

Other developedcountries


Selected industrial countriesFranceGermanyItalyUnited Kingdom


Selected countries withinitial high reserves

Major oil exporters

1951

67204

39

27

46

64

14133622

11860

1952

69211

40

30

46

60

16253020

9564

1953

74198

48

36

59

72

21473229

12867

1954

73206

48

40

55

66

28563832

13555

1955

66183

44

37

46

64

42524322

12664

1956

62169

41

34

45

61

24643921

9480

1957

57170

36

30

44

47

10693721

6075

1958

62154

44

42

48

46

19786830

5664

1959

58126

44

40

50

50

34569125

5552

1960

55117

43

43

44

44

36706929

4149

1961

54117

44

45

47

41

50657327

3450

1962

5197

43

43

50

39

54576326

3051

1963

5091

43

40

52

43

56594423

2776

1964

4682

40

38

48

40

57543915

2166

1965

4367

39

37

41

42

61426019

2264

Other less developedcountries 41 44 52 44 42 44 35 37 47 44 41 38 33 39 42

136


DATA FOR CHARTS

Chart 2

TABLE 57. TRENDS IN TRADE BALANCES OF MAJOR AREAS,1962-65

(Change from same period of preceding year,of U.S. dollars)

1963 1964

in billions

1965

Second First Second First Secondhalf half half half half

Industrial countriesMore developed

primary pro-ducing countries

Less developedcountries

-0.33

-0.11

0.7

-0.88

-0.22

0.4

1.2

-0.88

-0.55

1

-1

-0

.0

.3

.1

-0.55

-0.66

0.8

Total

137

0.3 -0.6 0.0 -0.3 -0.4


ANNUAL REPORT, 1966

Chart 3

TABLE 58. SEASONALLY ADJUSTED TRADE BALANCES OF

(Monthly averages in

Firstquarter

EEC

EEC, excluding Germany —

-6

179

1961

Second Thirdquarter quarter

31

-1233

98

-69

1962

Fourthquarter

-61

-1666

First Secondquarter quarter

-19

-1166

-87

-1755

Thirdquarter

-1466

-2422

Fourthquarter

-1733

-2555

Firstquarter

-2177

-2800

19

Secondquarter

-1744

-2877

EFTA, excluding UnitedKingdom and Portugal —

Canada

GermanyItalyJapanUnited KingdomUnited States

—

—

1717

173103-81140580

-179912

154-91

-119-84462

-179912

167-81

-154-56383

-1944-4

105-69

-177-66449

-1966-13

97-88

-1166-93388

-16993

88-96-57-78425

-23553

96-1355-25

-1088398

-219933

82-1544-50-85331

-177736

63-1522-70-62329

-213329

113-2066-99-94444

Chart 4TABLE 59. SEASONALLY ADJUSTED EXPORTS AND IMPORTS

(Monthly averages in

Total EECExportsImports

EEC, excludingGermany

ExportsImports

EFTA, excludingUnited Kingdomand Portugal

ExportsImports

CanadaExportsImports

GermanyExportsImports

ItalyExportsImports

JapanExportsImports

United KingdomExportsImports

United StatesExportsImports

Firstquarter

2,6232,619

1,5811,756

696867

472465

1,042863

327430

349430

9361,076

1,6981,118

1961

Second

1962

Third Fourth Firstquarter quarter quarter quarter

22

1

,693,673

,6241,755

1

687866

474462

,069918

341432

347466

9291,013

1,6031,141

2,7632,676

1,6901,756

716895

488476

1,073920

362443

354507

9451,001

1,6691,286

2,7222,773

1,6721,832

713907

494498

1,050941

384453

360537

9381,004

1,7421,293

2,8422,861

1,7491,865

739935

487500

1,093996

389477

379495

9291,022

1,7171,329

Secondquarter

2,8262,907

1,7241,893

756925

491488

1,1021,014

392488

406463

9741,052

1,7981,373

Thirdquarter

2,8613,007

1,7471,989

742977

496493

1,1141,018

389524

431456

9691,077

1,7861,388

Fourthquarter

2,9103,084

1,7912,047

763982

501468

1,1191,037

404558

418465

9661,051

1,7021,371

Firstquarter

2,8933,109

1,7822,061

763940

511475

1,1111,048

409561

421493

9871,049

1,6881,359

19

Secondquarter

3,1533,327

1,9532,240

8201,033

527498

1,2001,087

427633

440539

1,0141,108

1,8631,419

138


DATA FOR CHARTS

Chart 3

SELECTED INDUSTRIAL COUNTRIES, 1961-FmsT QUARTER 1966

millions of U.S. dollars)

63

Thirdquarter

-239

-3744

-194414

136-252-121-119

427

1964

Fourthquarter

-2499

-469

-198846

220-231-144-146

510

Firstquarter

-2355

-4522

-22848

217-222-1800-254

587

Second Third Fourth

1965

First Second Third Fourth

19666

Firstquarter quarter quarter quarter quarter quarter quarter quarter

-2133

-3822

-224465

170-138-1199-2800

528

-1844

-2477

-236689

63-24-76

-278594

-1322

-2155

-23538

83-48-63

-248634

27

-74

-22933

102-315

-176297

-76

-82

-2499

61320

-258467

-1677

-1344

-2650

-33-35

44-213

577

-1311

-1833

-2288-13

52-43

8-188

389

-1699

-2466

-240049

77-24

43-215

389

EECEEC, ex.Germany

EFTAex. UK.,PortugalCanada

GermanyItaly

JapanU.K.U.S.

Chart 4OF INDUSTRIAL COUNTRIES,millions

63

Thirdquarter

3,2093,448

1,9702,344

8441,038

530511

1,2391,104

431683

464584

1,0431,162

1,8991,472

1961-FiRST QUARTER 1966of U.S. dollars)

1964

Fourthquarter

3,2573,506

1,9682,437

8601,058

583540

1,2891,069

433663

486630

1,0431,189

1,9801,470

Firstquarter

3,4523,687

2,1072,559

8791,107

608559

1,3451,128

456679

483661

1,0601,314

2,0581,471

Secondquarter

3,4763,689

2,1552,537

9201,144

652589

1,3211,152

489627

537656

1,0571,337

2,0611,533

Thirdquarter

3,5093,693

2,1952,442

9231,159

667562

1,3141,251

512536

564641

1,0541,333

2,1601,566

Fourthquarter

3,7043,836

2,2962,511

9691,204

631593

1,4081,325

512560

621684

1,0911,339

2,2631,629

Firstquarter

3,8553,828

2,3812,455

9991,228

646613

1,4741,373

568571

680664

1,1071,282

1,8561,559

1965

Secondquarter

3,9103,986

2,4622,544

1,0111,260

652642

1,4481,442

606593

717697

1,1021,360

2,2901,823

Third Fourth

1966

Firstquarter quarter quarter

3,9984,165

2,5272,661

1,0241,289

671671

1,4711,504

598633

728684

1,1601,373

2,3041,727

4,1984,329

2,6322,815

1,0561,284

724731

1,5661,514

616659

694686

1,1901,378

2,3691,980

4,1954,364

2,5842,830

1,0791,319

778729

1,6111,534

646670

790747

1,2051,420

2,3932,004

Total EECExp.Imp.

ECC, ex.Germany

Exp.Imp.

EFTA, ex.U.K.,

PortugalExp.Imp.

CanadaExp.Imp.

GermanyExp.Imp.

ItalyExp.Imp.

JapanExp.Imp.U.K.Exp.Imp.U.S.Exp.Imp.

139


ANNUAL REPORT, 1966

Charts

TABLE 60. SELECTED AREAS AND COUNTRIES:

(In millions of U.S.

BALANCES OF PAYMENTS, 1958-65

dollars)

EEC Countries

1958GSPT1

BB2

1959GSPTBB

1960GSPTBB

1961GSPTBB

1962GSPTBB

1963GSPTBB

1964GSPTBB

1965GSPTBB

France

-290-50

7301,260

610750

9601,320

8401,110

510880

150530

650810

Germany

1,7901,050

1,590380

1,6701,040

1,590620

420-520

1,080770

900-270

-690-1,120

Italy

580770

890950

370430

550550

330-90

-670- 1,240

650770

2,3101,590

Total

2,8802,550

3,7902,990

3,1802,830

3,4202,720

1,900710

970520

1,5701,150

2,4901,470

Canada

-1,11060

-1,490-320

-1,220-330

-920-190

-800-180

-46030

-340340

-1,000-510

Japan

500350

430390

22080

-880-990

40100

-690-320

-400-360

1,030520

UnitedKingdom

1,120410

540-140

-450-880

320-230

590

660-160

-680-2,150

130-990

UnitedStates

1,670-3,660

-440-4,670

3,390-1,750

5,120-770

4,410-1,890

5,080-2,170

7,610-220

.5,960-2,030

PrimaryProducingCountries

-^4,930-310

-3,1701,460

-4,770-10JO

-5,100450

-4,930-100

-4,0201,800

-5,1701,500

-6,450760

1 Goods, services, and private transfers.2 Basic balance.

140


DATA FOR CHARTS

Chart 6 Chart 7

TABLE 61. ALL COUNTRIES IN BALANCE OF PAYMENTSDEFICIT, AGGREGATE DEFICIT 1958-FmsT QUARTER 1966


TABLE 62. SELECTED AREAS AND COUNTRIES:INDUSTRIAL PRODUCTION, SEASONALLY ADJUSTED,

1962-APRIL 1966

(1958 = 100)

1958IIIIIIIV

1959IIIIIIIV

1960IIIIIIIV

1961IIIIIIIV

1962IIIIIIIV

1963IIIIIIIV

1964IIIHIIV

1965IIIIIIIV

1966I

IndustrialCountries

-490-920

-1,040-1,040

-1,060-870

-1,000-1,230

-680-610

-1,390-1,630

-1,130-860

-1,370-1,100

-1,300-1,100-1,780-1,190

-980-1,090-750

-1,180

-1,380-780

-1,030-2,100

-650-660-1,040-1,270

-1,160

PrimaryProducingCountries

-740-640-620-160

-130-260-320-420

-280-510-640-490

-540-850-600-450

-450-550-370-310

-330-280-380-290

-290-420-510-390

-570-820-490-370

-430

Total

-1,230-1,560-1,660-1,200

-1,190-1,130-1,320-1,650

-960-1,120-2,030-2,120

-1,670-1,710-1,970-1,550

-1,750-1,650-2,150-1,500

-1,310-1,370-1,130-1,470

-1,670-1,200- 1,540-2,490

-1,220-1,480-1,530- 1,640

-1,590

EuropeanEconomicCommunity

1962IIIIIIIV

1963IIIIIIIV

1964Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.


1966Jan.Feb.Mar.Apr.

132133135137

134141141146

148150151149152149148146150154154154

156157154156157157157157158160160159

161162

NorthAmerica

123126128127

129133134135

136137138139140140142143143141144147

147148150150151152154154153154155158

160162163

Japan

194195194192

197206220231

234244240242246253255250260263257257

262259261258253261261255265260261264

273270275279

UnitedKingdom

114115116115

113118120124

127127127127127127127127127129131132

133132131131132130132132131132132133

133132133

141


ANNUAL REPORT, 1966

Chart 8

TABLE 63. SELECTED AREAS AND COUNTRIES:WAGE RATES, 1962-APRIL 1966

(1958 = 100)


1962IIIIIIIV

1963IIIIIIIV




129133135138

140144146149

152154156157158159160161161164165166

167168169171172173174175175176111111

111

NorthAmerica

113113113114

115116118118

119119119119120120120119121120121122

122123123123124124124123125125126126

Japan

127132134137

137144147151

151154153157158163164163166167169172

168171169174173179178178180182184186

183186186174

UnitedKingdom

112113114116

116118118119

121121122122123123124124124124125125

126127127127127128129130130130131131

133133

Chart 9

TABLE 64. SELECTED COUNTRIES: WAGE COST PERUNIT OF OUTPUT IN MANUFACTURING,


(1958 = 100)

United UnitedCanada France Germany Italy Japan Kingdom States

142

1962IIIIIIIV

1963IIIIIIIV

1964IIIIIIIV

1965IIIIIIIV

19661

90888787

86868686

85858686

86878788

112113113117

122117121118

115117124122

122123125121

122

118119122122

127124123124

119123124127

126129134135

9595100106

111115111113

113114114117

112117

102103103105

104105103100

101102101102

105103106105

106

110111112112

111111109109

109113113111

113116112117

119

96969797

97969597

96969596

97969697

98


DATA FOR CHARTS

Chart 10 Chart 11

TABLE 65. SELECTED AREAS AND COUNTRIES:WHOLESALE PRICES, 1962-MAY 1966

(1958 = 100)

TABLE 66. SELECTED AREAS AND COUNTRIES:COST OF LIVING, 1962-MAY 1966

(1958 = 100)


1962IIIIIIIV

1963IIIIIIIV


1965Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec,

1966Jan.Feb.Mar.Apr.May

104105104106

107107107109

110109110109110110109110111111112111

111111112112112112111111112112113113

114114115

NorthAmerica

100100100100

100100100100

101100100100100100100100100100100100

101101101101102103103102103103103104

105106105105

Japan

102101101101

102103103104

104104104103103103103103104103104104

104104104104104104104104104105105105

106108107107108

UnitedKingdom

106106107107

107108108109

110110110111112112112113113113114114

114115115116117116117117117118118118

118119119119


1962IIIIIIIV

1963IIIIIIIV


1965Jan.Feb.Mar.Apr.MayJuneJulyAugSept.Oct.Nov.Dec.


109110111112

115115116117

118118118118119120120120120120121121

122122122123123124125124124124125126

126127127128

NorthAmerica

104104104105

105105106107

107107107107107107107107108108108108

108108108109109109109109109110110110

110111111112

Japan

116118118120

124128128129

129129130132133133133133133136135135

137138140145142143142142145145142142

144146147151150

UnitedKingdom

107110110110

112112111112

113113113114115116116116116116117118

118118118121121121121122122122122123

123123124125

143


ANNUAL REPORT, 1966

Chart 12 Chart 13

TABLE 67. SELECTED AREAS AND COUNTRIES:EXPORT PRICES, 1962-MARCH 1966

(1958 = 100)

TABLE 68. MONETARY SYSTEM CREDIT TO THE PRIVATESECTOR, 1962-ApRiL 1966

(1958 = 100)


1962IIIIIIIV

1963IIIIIIIV



1966Jan.Feb.Mar.

102102102102

103103103104

105106106106106106107107107107108108

107107107107107108108108108108108108

NorthAmerica

104102102102

103102102102

103103102102102102102103103104104104

106107107106106107106107106106106106

Japan

98989797

9999100100

101101101101101101101101101101101101

101101101101100100100100100100100100

100100100

UnitedKingdom

102102102103

104104105106

106106106106107107108108108108108108

108109109109109109109110110110110111

111112113

1962IIIIIIIV

1963IIIIIIIV




EuropeanEconomic UnitedCommunity Japan Kingdom

168 212 170174 219 175180 230 179193 244 185

195 260 193204 271 201208 288 197221 305 202

219218221225225227230229232237238245

315

326

339

>353

213

223

226

235

242243245248250

359 =

254 ' 354258 357256 361259 369264 372266 377275 388

251

257

252

254

387390398

...

UnitedStates

129135137145

139151153162

159160162165167170168169172172174181

178180184186198195192194197197200208

203200208209

144


DATA FOR CHARTS

Chart 14

TABLE 69. MONEY, SEASONALLY ADJUSTED,1962-MARCH 1966

(1958 = 100)


1962I 141II 146III 151IV 156

1963I 160II 164III 169IV 173

1964Jan. 173Feb. 174Mar. 175Apr. 175May 177June 179July 179Aug. 180Sept. 181Oct. 183Nov. 184Dec. 188

1965Jan. 188Feb. 189Mar. 191Apr. 193May 195June 197July 198Aug. 199Sept. 200Oct. 204Nov. 205Dec. 204

1966Jan. 207Feb. 207Mar. 208

North UnitedAmerica Japan Kingdom

104 165 114104 172 114105 182 115106 194 117

107 221 113107 241 115108 249 115110 259 118

110109110109110112112113113114113115

266 121

277 122

284 124

296 124

114115116116115

128306

131116 ^309117 309118 315 V132118 321118 328119 329 V134120 330

120 333120 338122 335

145


ANNUAL REPORT, 1966

Chart 15

TABLE 70. SELECTED COUNTRIES: LONG-TERMGOVERNMENT BOND YIELDS, 1962-MAY 1966

(In per cent)

Chart 16

TABLE 71. SELECTED COUNTRIES: SHORT-TERMINTEREST RATES, 1962-MAY 1966

(In per cent)

1962I

IIIIIIV

1963I

IIIIIIV

1964Jan.Feb.Mar.

MayJuneJulyAug.Sept.Oct.Nov.Dec.

1965Jan.Feb.Mar.


1966Jan.Feb.Mar.

May

Canada

4.954.915.405.11

5.084.935.155.11

5.185.185.245.275.205.195.195.245.235.195.105.09

4.985.035.105.045.095.165.265.325.335.415.485.48

5.465.625.695.665.66

Ger-many

5.75.86.06.2

6.06.16.16.0

5.95.96.06.26.36.36.36.36.46.46.46.4

6.46.56.56.66.97.17.27.37.47.57.57.7

7.67.67.7

:::

Italy

5.065.275.365.35

5.085.315.625.70

5.705.565.755.956.537.187.046.656.146.176.316.10

5.735.675.455.615.665.625.835.885.935.865.755.62

5.265.42

Nether-lands

3.994.274.344.24

4.154.114.144.50

4.724.664.624.694.694.905.195.034.985.115.205.25

4.954.844.774.985.185.245.355.325.175.325.565.89

5.805.815.90

UnitedSwitzer- King-

land dom

3.023.223.153.12

3.123.133.273.47

3.643.803.893.884.024.054.044.054.054.084.084.08

4.043.943.913.923.923.923.923.923.933.963.973.98

3.983.983.984.014.02

6.336.185.825.66

5.805.545.395.62

5.835.965.955.956.066.116.036.046.046.076.076.25

6.286.306.326.446.576.656.676.546.246.266.316.44

6.446.506.666.696.75

UnitedStates

4.063.893.983.88

3.913.984.014.10

4.154.144.184.204.164.134.134.144.164.164.124.14

4.144.164.154.154.144.144.154.194.254.274.344.43

4.434.614.634.554.57

Canada France

1962Mar.JuneSept.Dec.

1963I

IIIIIIV


1965Jan.Feb.Mar.



3.103.645.224.05

3.713.383.563.64

3.763.813.883.753.663.563.603.803.793.693.733.85

3.783.723.713.663.843.953.994.084.114.144.164.45

4.614.684.875.095.10

3.573.833.533.51

3.424.204.164.15

4.134.334.985.036.184.914.834.704.744.304.134.16

3.774.114.454.004.224.364.344.013.863.884.624.48

3.834.344.554.34

Ger-many

2.002.252.502.62

2.622.622.622.62

2.622.622.622.622.622.622.622.622.622.622.622.62

2.773.123.123.123.123.123.123.573.883.883.883.88

3.984.004.004.00

UnitedNether- Switzer- King-

lands land dom

1.382.301.771.93

1.831.911.912.10

2.312.332.883.003.103.814.263.743.703.803.843.68

3.293.343.393.544.054.084.134.074.004.074.164.29

4.324.344.484.50

1.251.251.251.56

1.501.501.792.21

2.252.252.252.252.252.252.252.252.252.502.692.75

2.472.382.222.382.532.722.882.752.752.752.782.95

2.782.632.843.063.25

5.214.003.793.71

3.513.693.723.72

3.723.924.304.304'.354.444.574.654.654.695.116.62

6.606.486.456.456.315.595.605.565.515.425.455.48

5.505.585.615.625.65

UnitedStates

2.742.722.862.80

2.912.943.283.50

3.533.533.553.483.483.483.483.513.533.583.623.86

3.833.933.943.933.903.813.833.843.914.034.084.36

4.604.674.634.614.64

146


DATA FOR CHARTS

Chart 17

TABLE 72. DISCOUNT RATES, 1962-JuNE 1966

(In per cent)

Nether- Switzer- United UnitedBelgium Canada France Germany Italy Japan lands Sweden land Kingdom States

1962Mar. 4.00 3.37 3.50 3.00 3.50 7.30 3.50 5.00 2.00 5.50 3.00JuneSept. 3.75 5.50Dec. 3.50 4.00

1963Jan.Feb.Mar.Apr.MayJuneJuly 4.

350

00Aug. 1 4;00Sept.Oct. 4.25Nov.Dec.

1964Jan.Feb.Mar.Apr.MayJuneJuly 4 75Aug.Sept.Oct.Nov.Dec.


1966Jan.Feb.Mar.Apr.Mayy

4.00

425

3

4i75

3.50

50

400

6757

400 4. 00

3.50 3!50

*6.215.84

400

4.00 4 50

6.57

4.

6.21

5.84

548

5

50

4.50

4.00

>

3.

f5.00

2.50

5.00

5

.00

.50

50

7 00 4.00

6 00

4.50

June 525 5'.25 350 5.00 3.50 5.48 5.00 6.00 250 6.00 4.50

147

6.00

5.25


ANNUAL REPORT, 1966

Chart 18 Chart 19

TABLE 73. TERM STRUCTURE OF INTEREST RATES

United StatesDec. 1964

Dec. 1965

United KingdomDec. 1964

Dec. 1965

GermanyDec. 1964

Dec. 1965

ItalyDec. 1964

Dec. 1965

Period to Maturity and RatePer Cent

Discount rate—4.0; 3 months—3.8;6 months—3.9; 1 year—3.9; 3 to 5years—4.0; 10 years—4.2Discount rate—4.5; 3 months—4.4;6 months—4.6; 1 year—4.8; 3 to 5years—4.8; 10 years—4.4

Discount rate—7.0; 3 months—6.7;5 years—6.7; 10 years—6.4; 20years or longer—6.4Discount rate—6.0; 3 months—5.6;4 years—6.7; 10 years—6.6; 20years or longer—6.5

Discount rate—3.0; 3 months—2.6;6 months—3.0; 1 year—3.1; 2 years—3.6; 10 years—6.3Discount rate—4.0; 3 months—3.9;6 months—4.4; 1 year—4.5; 2 years—4.8; 10 years—7.2

Discount rate—3.5; 1 year—3.6; 2to 5 years—5.6; 6 to 10 years—7.2; 20 years or longer—7.2Discount rate—3.5; 1 year—3.6; 2to 5 years—5.4; 6 to 10 years—6.6;20 years or longer—6.6

TABLE 74. PRIMARY PRODUCING COUNTRIES: PRICES OFCOMMODITIES EXPORTED (EXCLUDING PETROLEUM),


(1961 = 100)

AllCommodities Food

19622I

IIIIIIV

1963I

IIIIIIV

1964I

IIIIIIV

1965I

IIIIIIV

1966I

98.198.998.0

100.3

107.9117.8114.1125.6

126.4120.6114.8112.4

108.1107.7106.6107.5

111.3

97.599.1

100.6102.8

115.5133.6128.8147.9

147.4136.6123.7118.1

112.3109.4108.9108.2

111.6

AgriculturalNonfood

98.098.294.597.5

100.4101.798.3

102.2

103.4101.099.497.1

95.296.294.096.2

99.4

Mineralsand

Metals

101.3100.597.998.7

99.0101.7102.6105.9

111.7116.5128.1139.6

134.5140.3139.9143.7

151.7

148


DATA FOR CHARTS

Chart 20

TABLE 75. SELECTED PRIMARY PRODUCTS:AVERAGE PRICES, 1963-FiRST QUARTER 1966

(1961 = 100)

1963In

inIV

1964In

mIV

1965I

nmIV

1966I

1963IninIV

1964I

IImIV

1965In

inIV

1966I

Coffee(Brazil)

93.0393.3191.92

100.81

134.13133.57129.97128.58

126.35125.80124.97120.52

118.57

Rubber(Malaysia)

93.0489.7482.7881.32

78.7582.0580.5984.62

85.7186.0875.4676.19

78.75

Coffee(Uganda)

136.73144.69144.69178.55

216.68204.28179.52175.41

148.81137.38191.60196.59

189.92

Sisal(East

Africa)

150.04164.44164.44164.44

164.44164.44151.11122.67

108.44103.11101.3390.67

93.33

Cocoa(Ghana)

105.73116.30107.93116.74

107.4998.68

103.08103.52

88.9966.9664.3283.70

101.76

Cotton(Sudan)

89.2990.0291.7395.86

99.03122.87124.09121.41

116.06110.46108.52108.52

107.56

Tea(Ceylon)

104.1890.9195.6492.91

103.0991.2799.2797.27

108.7393.0999.6490.18

87.27

Wool(Australia)

115.84117.62116.44128.71

134.26118.81115.84110.30

101.0099.21

102.18111.49

114.05

1963IninIV

1964InmIV

1965IIIinIV

1966I

1963IIImIV

1964IIIIIIIV

1965IIIinIV

1966I

Sugar(World)

207.22319.93267.01374.23

313.40233.68148.80113.40

83.5176.9863.9266.67

66.67

Lead(LME)1

86.2596.25105.00111.25

127.50136.25166.25205.00

213.75176.25157.50171.25

167.50

EdibleOils

(Index)

87.6890.1091.9395.09

90.6293.0899.23111.01

118.44115.76106.15108.17

108.72

Tin(Malaysia)

95.45100.91100.91108.18

120.00121.82148.18162.73

140.00164.55165.45158.18

154.72

Wheat(Canada)

104.84104.50103.11108.30

110.73109.69109.69109.69

104.50103.11103.11104.50

107.26

Zinc(LME)1

90.7296.9097.94114.43

126.80160.82165.97159.79

149.48148.45142.26142.26

141.20

Rice(Thailand)

104.01106.42108.5099.52

98.2399.36102.5797.91

96.6393.90104.33105.94

110.11

Copper(Producers)

101.74101.74101.74101.74

103.47105.90108.33112.85

112.85120.83125.00129.51

145.83

1 London Metal Exchange.

149


ANNUAL REPORT, 1966

Chart 21

TABLE 76. PRIMARY PRODUCING COUNTRIES: BALANCESOF PAYMENTS, 1958-65


1958Goods, services, and

private transfersBasic balance















MoreDeveloped

—92010

—130620

—690—190

—1,010830

—540500

—710650

—1,24080

—2,640—900

Less

LatinAmerica

—1,280—460

—790—130

—1,070—100

—1,180—10

—1,100—290

—260550

—690680

—430810

Developed

Other

—2,730140

—2,250970

—3,010190

—2,910—370

—3,290—310

—3,050600

—3,240740

—3,370860

Total

—4,010—320

—3,040840

—4,08090

—4,090—380

—4,390—600

—3,3101,150

—3,9301,420

—3,8001,670

Chart 23

TABLE 78. ESTIMATED SUPPLIES AND ABSORPTIONOF GOLD, 1951-65

(In millions of US. dollars)

195119521953195419551956195719581959196019611962196319641965

Goldpro-

duction

826850848897941980

1,0191,0511,1271,1781,2151,3001,3561,4061,450

Supply

Reportedsales byU.S.S.R.

_—759595

180350235330175325215550450550

Absorption

Total

826850923992

1,0361,1601,3691,2861,4571,3531,5401,5151,9061,8562,000

Increasein

officialreserves

225230455670665490690680750310600330840750250

Flow intoprivate

holdings,arts, andindustries

601620468322371670679606707

1,043940

1,1851,0661,1061,750

Total

826850923992

1,0361,1601,3691,2861,4571,3531,5401,5151,9061,8562,000

Chart 22

TABLE 77. PRIMARY PRODUCING COUNTRIES: BASIC ANDOVER-ALL BALANCES, 1958-65


19588Basic balanceOver-all balance








MoreDeveloped

10-1500

620440

-190070

830860

500710

650760

80500

-9000-6900

LessDeveloped

-3200-8300

840540

90110

-3800-7600

-6000-7600

1,150740

1,420480

1,6701,410

Total

-3100-9800

1,460980

-1000180

450100

-1000-50

1,8001,500

1,500980

770720

150


DATA FOR CHARTS

Chart 24

TABLE 79. GOLD: PRICE IN LONDON MARKET, MONTHLY AVERAGES, MARCH 1954-APRIL 1966

(In U.S. dollars a fine ounce)

1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966

Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.

34.9735.0535.0935.0835.0835.0535.0835.0935.0735.04

35.0435.0535.0635.0635.0535.0535.0535.0334.9834.9834.9934.98

34.9934.9934.9934.9934.9934.9835.0035.0235.0135.0234.9834.90

34.8934.8934.9134.9234.9334.9934.9934.9734.9634.9734.9734.99

35.0135.0835.0935.1035.1135.1035.1135.1035.1035.1135.1035.09

35.0735.0635.0635.0835.1235.1P/235.1335.111/235.1235.1035.0635.05

35.081/235.0935.0935.1135.1035.0935.1035.1335.2235.8135.8235.53

35.5635.1735.0835.0835.0635.0735.1235.1635.1935.1935.1835.15

35.1635.1235.0935.07J/235.0835.1035.1235.1235.1335.1435.0935.08

35.0635.0835.1035.1035.0835.0835.0835.1035.0835.0835.0835.08

35.0835.0835.0835.0835.0835.0835.0835.0835.0935.1135.1035.12

35.1335.1435.1635.1435.1035.1035.1235.1535.1435.1135.1135.13

35.1435.1735.1535.13

Chart 25

TABLE 80. OUTSTANDING BALANCES OF DRAWINGS FROM THE FUND AND UNUSED STAND-BYARRANGEMENTS, ON APRIL 30, 1948-66


Outstanding Drawings Unused Stand-Bys

19481949195019511952

19531954195519561957

19581959196019611962

1963196419651966

UnitedStates

_

—

—

———

—

—

123.3323.0564.1

UnitedKingdom

300.0300.0300.0272.0272.0

272.0114.4

2.42.4

563.8

563.8347.6269.9

715.8

987.32,469.3

Otherindustrialcountries

241.8241.7220.2220.2210.4

135.2197.6167.4

—210.0

590.3393.8181.3

—

275.6183.9

—

Othercountries

64.3166.3222.4236.8257.1

228.6240.9210.3175.0473.5

668.5799.0711.5

1,092.91 ,299 .4

1,382.81,398.91,479.01,715.3

UnitedStates

—

—

——

—

—

375.0150.0

—

UnitedKingdom

_

—

—

——738.5

738.5938.5

1,130.0

1,000.01,000.0

——

Otherindustrialcountries

_

————

50.050.050.050.0

102.5

66.3—

305.0

305.0——

Othercountries

_

————

3.040.040.047.5

127.9

79.5194.3291.9338.6507.9

287.8290.1366.1421.0

151


APPENDICES


Appendix I. EXECUTIVE DIRECTORS AND VOTING POWER

on April 30, 1966

DirectorAlternate

APPOINTED

William B. DaleJohn S. Hooker

J. M. StevensDouglas W. G. Wass

Rene LarreGerard M. Teyssier

Ulrich BeelitzHorst Ungerer

J. J. AnjariaArun K. Ghosh

ELECTED

Ahmed Zaki Saad(United Arab Republic)

Albert Mansour(United Arab Republic)

Sergio Siglienti (Italy)Costa P. Caranicas (Greece)

Gengo Suzuki (Japan)Eiji Ozaki (Japan)

M. W. O'Donnell (Australia)A.M. de V illiers (South Africa)

Enrique Tejera-Paris (Venezuela)Jorge Gonzalez del Valle

(Guatemala)

CastingVotes of

United States

United Kingdom

France

Germany

India

AfghanistanEthiopiaIranIraqJordanKuwaitLebanonPakistanPhilippinesSaudi ArabiaSomaliaSyrian Arab RepublicUnited Arab Republic

GreeceItalyPortugalSpain

BurmaCeylonJapanNepalThailand

AustraliaNew ZealandSouth AfricaViet-Nam

Costa RicaEl SalvadorGuatemalaHondurasMexicoNicaraguaVenezuela

Votes byCountry

51,850

24,650

8,125

8,125

7,750

540440

1,5001,050

380750317

2,1301,0001,150

400630

1,750

1,2506,5001,0002,750

5501,0307,500

3501,200

5,2501,8202,250

488

450500500440

2,950440

2,750

Total Per CentVotes ! of Total

51,850 23.82

24,650 11.33

8,125 3.73

8,125 3.73

7,750 3.56

12,037 5.53

11,500 5.28

10,630 4.88

9,808 4.51

8,030 3.69

155


Appendix I (continued). EXECUTIVE DIRECTORS AND VOTING POWER

on April 30, 1966

DirectorAlternate

Pieter Lieftinck (Netherlands)H. M.H. A. van der Valk

(Netherlands}

Andre van Campenhout (Belgium)Herman Biron (Belgium)

Kurt Eklof (Sweden)Otto Schelin (Denmark)

S. J. Handfield-Jones (Canada)Patrick M. Reid (Canada)

Mauricio C. Bicalho (Brazil)Vacant

Semyano Kiingi (Uganda)Paul L. Faber (Guinea)

Luis Escobar (Chile)Enrique Domenech (Argentina)

CastingVotes of

CyprusIsraelNetherlandsYugoslavia

AustriaBelgiumKoreaLuxembourgTurkey

DenmarkFinlandIcelandNorwaySweden

CanadaIrelandJamaica

BrazilColombiaDominican RepublicHaitiPanamaPeru

BurundiCongo, Democratic

Republic ofGuineaKenyaLiberiaMaliNigeriaSierra LeoneSudanTanzaniaTrinidad and TobagoUganda

ArgentinaBoliviaChileEcuadorParaguayUruguay

Votes byCountry

4001,1504,3751,750

2,0003,625

490400

1,110

1,8801,500

4001,2502,500

5,7501,050

550

3,7501,500

514400362720

400

700400570450420750400820500500570

3,050540

1,250500400550

Total Per CentVotes i of Total

7,675 3.53

7,625 3.50

7,530 3.46

7,350 3.38

7,246 3.33

6,480 2.98

6,290 2.89

156


APPENDIX I (concluded). EXECUTIVE DIRECTORS AND VOTING POWER

on April 30, 1966

DirectorAlternate

CastingVotes of

Votes byCountry

TotalVotes i

Per Centof Total

Beue Tann (China)C. L. Chow (China)

China 5,750 5,750 2.64

Louis Kande (Senegal)Antoine W. Yameogo

(Upper Volta)

Cameroon 400Central African Republic 325Chad 325Congo (Brazzaville) 325Dahomey 325Gabon 325Ivory Coast 408Malagasy Republic 440Mauritania 330Niger 325Rwanda 370Senegal 500Togo 362Upper Volta 325 5,085 2.34

Amon Nikoi (Ghana)Vacant

AlgeriaGhanaLaosLibyaMoroccoTunisia

880940325440

1,006530 4,121 1.89

217,6572 100.00

1 Voting power varies on certain matters with use by members of the Fund's resources.2 This total does not include the votes of Malaysia, which was eligible to participate in the 1964

Regular Election of Executive Directors but abstained from voting. Neither does it include the votesof Malawi and Zambia, which joined the Fund after this election.

157


Appendix II. CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

Changes in the membership of the Executive Board between May 1, 1965 and April30, 1966 were as follows:

S. J. Handfield-Jones (Canada), formerly Alternate Executive Director to A. F. W.Plumptre (Canada), was elected Executive Director by Canada, Ireland, and Jamaica,effective May 1, 1965.

Chedly Ayari (Tunisia) served as Temporary Alternate Executive Director to Suma-nang (Indonesia), May 12, 1965.

Sumanang (Indonesia) resigned as Executive Director for Algeria, Ghana, Indonesia,Laos, Libya, Morocco, and Tunisia, effective May 31, 1965.

John A. Kirbyshire (United Kingdom) resigned as Alternate Executive Director toJ. M. Stevens (United Kingdom), effective June 2, 1965.

Douglas W. G. Wass (United Kingdom) was appointed Alternate Executive Direc-tor to J. M. Stevens (United Kingdom), effective June 3, 1965.

Louis Plum (Belgium) served as Temporary Alternate Executive Director to Andrevan Campenhout (Belgium), June 14 and 17 (p.m.) and November 19, 1965.

Rufino Gil (Costa Rica) served as Temporary Alternate Executive Director toEnrique Tejera-Paris (Venezuela), June 14 and November 10, 1965 and March 23and April 27, 1966.

Amon Nikoi (Ghana), formerly Alternate Executive Director to Sumanang (Indo-nesia), was elected Executive Director by Algeria, Ghana, Indonesia, Laos, Libya,Morocco, and Tunisia, effective June 15 1965.

Chalong Pungtrakul (Thailand) resigned as Alternate Executive Director to GengoSuzuki (Japan), effective June 30, 1965.

David C. Keys (United Kingdom) served as Temporary Alternate Executive Direc-tor to J. M. Stevens (United Kingdom), June 30 and December 3 (p.m.), 1965.

Eiji Ozaki (Japan) was appointed Alternate Executive Director to Gengo Suzuki(Japan), effective July 1, 1965.

Patrick M. Reid (Canada) was appointed Alternate Executive Director to S. J. Hand-field-Jones (Canada), effective July 1, 1965.

Edgardo Sogno Rata del Vallino (Italy) served as Temporary Alternate ExecutiveDirector to Sergio Siglienti (Italy), July 23, 1965.

158


Appendix II (continued). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

Jean Malaplate (France) served as Temporary Alternate Executive Director to ReneLarre (France), July 28 to August 6, 1965 and April 6, 1966.

W. Y. Hui (China) served as Temporary Alternate Executive Director to Beue Tann(China), August 6 to September 20, 1965.

I-Shuan Sun (China) resigned as Alternate Executive Director to Beue Tann (China),effective October 4, 1965.

C. L. Chow (China) was appointed Alternate Executive Director to Beue Tann(China), effective October 5, 1965.

Abderrahman Tazi (Morocco) served as Temporary Alternate Executive Directorto Amon Nikoi (Ghana), October 15 to 29, 1965 and March 30, 1966.

Walter Habermeier (Germany) resigned as Alternate Executive Director to UlrichBeelitz (Germany), effective October 31, 1965.

Horst Ungerer (Germany) was appointed Alternate Executive Director to UlrichBeelitz (Germany), effective November 1, 1965.

W. Kenneth Griffiths (Canada) served as Temporary Alternate Executive Director toS. J. Handfield-Jones (Canada), November 19, 1965.

Maurice Toussaint (Belgium) resigned as Alternate Executive Director to Andre vanCampenhout (Belgium), effective November 23, 1965.

Herman Biron (Belgium) was appointed Alternate Executive Director to Andre vanCampenhout (Belgium), effective November 24, 1965.

Helga Steeg (Germany) served as Temporary Alternate Executive Director to UlrichBeelitz (Germany), December 3, 1965.

Chalong Pungtrakul (Thailand) served as Temporary Alternate Executive Directorto Gengo Suzuki (Japan), January 14 and 26 and February 28 to March 7, 1966.

J. M. Garland (Australia) resigned as Executive Director for Australia, New Zealand,South Africa, and Viet-Nam, effective January 17, 1966.

M. W. O'Donnell (Australia) was elected Executive Director by Australia, NewZealand, South Africa, and Viet-Nam, effective January 18, 1966.

Roy Daniel (Australia), formerly Alternate Executive Director to J. M. Garland(Australia), was appointed Alternate Executive Director to M. W. O'Donnell (Aus-tralia), effective January 18, 1966, and resigned, effective February 1, 1966.

159


Appendix II (concluded). CHANGES IN MEMBERSHIP OF EXECUTIVE BOARD

A. M. de Villiers (South Africa) was appointed Alternate Executive Director toM. W. O'Donnell (Australia), effective February 2, 1966. Previously, he had served asTemporary Alternate Executive Director to Mr. O'Donnell, January 26 to 31, 1966.

G. Malcolm Gill (United Kingdom) served as Temporary Alternate Executive Direc-tor to J. M. Stevens (United Kingdom), February 4, March 25, and April 6, 1966.

Carlos Perez de la Cova (Venezuela) served as Temporary Alternate Executive Direc-tor to Enrique Tejera-Paris (Venezuela), February 15 to 18, 1966.

Albino Cabral Pessoa (Portugal) served as Temporary Alternate Executive Directorto Sergio Siglienti (Italy), February 23, 1966.

Marcelo Raffaelli (Brazil) served as Temporary Alternate Executive Director toMauricio C. Bicalho (Brazil), March 7 to 9 and April 22, 1966.

Manuel San Miguel (Argentina) served as Temporary Alternate Executive Director toLuis Escobar (Chile), March 11 to 30, 1966.

Juan Haus-Solis (Bolivia) served as Temporary Alternate Executive Director toLuis Escobar (Chile), April 13, 1966.

Antonio de Abreu Coutinho (Brazil) resigned as Alternate Executive Director toMauricio C. Bicalho (Brazil), effective April 18, 1966.

160


Appendix III. ADMINISTRATIVE BUDGET


July 11, 1966


The administrative budget of the Fund approved by the Executive Board for the FiscalYear ending April 30, 1967 is presented herewith, in accordance with Section 20 of theBy-Laws. The presentation also shows actual expenditures for the past two fiscal years.

I should like to reiterate that it is of course impossible to predict whether the amountsbudgeted will, in fact, meet the requirements of the Fund's program. The amountsshown are estimates of requirements on the basis of the expected level of activities.Should contingencies arise or present plans change materially, the management wouldrecommend appropriate amendments to the Executive Board.

Yours sincerely,/s/

P.-P. SCHWEITZERChairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

161


Appendix III (concluded)

ADMINISTRATIVE BUDGET AS APPROVED BY THE EXECUTIVE BOARD FOR THE FISCAL YEAR ENDINGAPRIL 30, 1967, COMPARED WITH ACTUAL EXPENDITURES FOR THE FISCAL YEARS

1964-65 AND 1965-66

Category of Expenditure

I. BOARD OF GOVERNORS

II. EXECUTIVE DIRECTORSSalariesOther compensations and benefitsTravel

Total

III. STAFFSalariesOther compensations and benefitsTravel

Total

IV. SPECIAL SERVICES TO MEMBER COUNTRIES

V. OTHER ADMINISTRATIVE EXPENSESCommunicationsOffice occupancy expensesBooks and printingSupplies and equipmentMiscellaneous

Total

TOTAL

BudgetF.Y. 1966-67

$ 595,000

1,099,000287,000318,000

$ 1,704,000

7,664,0002,602,0001,900,000

$12,166,000

$ 1,555,000

405,000431,000410,000432,000402,000

$ 2,080,000

$18,100,000

F.Y. 1965-66

Budget

$ 505,000

1,055,000249,000266,000

$ 1,570,000

6,640,0002,228,0001,655,000

$10,523,000

$ 775,000

377,000645,000320,000430,000315,000

$ 2,087,000

$15,460,000

ActualExpenditures

$ 473,432

1,047,582231,314239,570

$ 1,518,466

6,628,5642,203,8581,566,808

$10,399,230

$ 682,281

376,910554,748312,694410,872306,954

$ 1,962,178

$15,035,587

ActualExpendituresF.Y. 1964-65

$ 864,824

1,002,451189,568227,422

$ 1,419,441

5,648,7981,901,0811,279,519

$ 8,829,398

$ 352,445

304,250531,789247,930223,862237,535

$ 1,545,366

$13,011,474

162


Appendix IV. COMPARATIVE STATEMENT OF INCOME AND EXPENDITURE

(Values expressed in U.S. dollars on the basis of established parities)

Year Ended Year Ended Year EndedApr. 30, 1964 Apr. 30, 1965 Apr. 30, 1966

INCOME *Service charges

Received in goldReceived in members' currencies

Total

Charges on Fund's holdings of members' cur-rencies and securities in excess of quotas

Received i n goldReceived in members' currencies

Total

Other operational incomeMiscellaneous income

TOTAL INCOME

EXPENDITUREAdministrativeOperationalFixed propertyContribution to The Per Jacobsson Foundation.

TOTAL EXPENDITURE

1 Excludes income from investments transferredApril 30, as follows:

1964 $27,485,4141965 30,750,4351966 33.907.383

$ 2,504,482625,000

$ 3,129,482

$25,448,1966,051,559

$31,499,755

$ 1,721,2541,581

$36,352,072

$10,876,123115

2,182,01562,500

$13,120,523

to Special

$ 1,197,1878,290,000

$ 9,487,187

$26,167,0919,738,818

$35,905,909

$ 2,353,7092,257

$47,749,062

$13,011,474Cr. 4,557,523

4,635,295

$22,204,292

Reserve for the fiscal

$ 2,111,43711,975,000

$14,086,437

$25,539,93740,201,750

$65,741,687

$ 1,484,5723,904

$81,316,600

$15,035,58716,074,3735,661,158

$36,771,118

years ended

163


Appendix V. FINANCIAL STATEMENTS OF INTERNATIONALMONETARY FUND AND STAFF RETIREMENT FUND


July 11, 1966


In accordance with Section 20 (b) of the By-Laws of the Fund, I have the honor tosubmit for the consideration of the Board of Governors the audited financial statementsof the International Monetary Fund, and the Staff Retirement Fund, for the year endedApril 30, 1966, together with two memoranda from the Audit Committee, which includethe audit certificates.

In conformity with the By-Laws, the external audit of the Fund has been performedby an Audit Committee consisting of auditors nominated by three member countries.At the Fund's request, Nigeria, the Philippines, and the United Kingdom nominatedauditors to serve on this Committee. They respectively nominated Mr. G. M. Okufi,Senior Auditor, Federal Audit Department, Nigeria; Mr. J. D. Mercado, ExecutiveAssistant to the Deputy Governor, Central Bank of the Philippines; and Mr. R. W.Tizard, Deputy Director of Audit, Exchequer and Audit Department, United Kingdom.The Auditors thus nominated were confirmed by the Executive Directors.

It will be noted that, in the period under review, ordinary income amounted to$81,316,600 and expenditure amounted to $36,771,118, resulting in a net income of$44,545,482, which has been transferred provisionally to General Reserve pendingBoard of Governors' action. In addition, income of $33,907,383 from the Fund'sinvestment program has been transferred to the Special Reserve.

The detailed report of the Audit Committee is being submitted separately to the Boardof Governors.

Yours sincerely,/s/

P.-P. SCHWEITZERChairman of the Executive Board

Chairman of the Board of GovernorsInternational Monetary Fund

164


Appendix V (continued)

MEMORANDUM BY THE AUDIT COMMITTEE

June 21, 1966

To the Managing Directorand the Executive Directors


The report of the Audit Committee, dated June 21, 1966, submitted through you tothe Board of Governors, on the audit of the financial records and transactions of theFund for the fiscal year ended April 30, 1966, includes the following paragraphs relat-ing to the scope of the audit conducted, and the audit certificate given:

SCOPE OF THE AUDIT

The Audit Committee, in the conduct of its audit, took cognizance of the require-ments of Section 20 (b) of the By-Laws that the audit be comprehensive with respectto the examination of the financial records of the Fund; that it extend, insofar as prac-ticable, to the ascertainment that financial transactions consummated during the periodunder review were supported by the necessary authority; and that it determine thatthere was adequate and faithful accounting for the assets of the Fund. In determin-ing the authority for financial transactions, reference was made to the Articles ofAgreement, the By-Laws and Rules and Regulations of the Fund, the resolutions ofthe Board of Governors, the minutes of the Executive Board and the General Admin-istrative Orders of the Fund. The Committee applied such tests to the accountingand other financial records as it considered necessary to provide a thorough reviewof the adequacy of the system of accounting and internal control operated by theFund. In determining its program of test examination, due regard was paid to thework performed by the Internal Auditor, as reported by him to the Committee, andto the standard of his work performance as surveyed by the Committee.

AUDIT CERTIFICATE

We have made an independent examination of the Balance Sheet of the Interna-tional Monetary Fund as at April 30, 1966, of the Statements of Income and Expen-diture and of Reserves for the fiscal year then ended and of the schedules related tosuch financial statements. We have obtained from the officers and staff of the Fundall such information and representations as we have required in the conduct of ouraudit.

As the result of our examination, we report that, in our opinion, such BalanceSheet and related Statement of Income and Expenditure, together with the notesappearing thereon, present fairly the financial position of the International MonetaryFund as at April 30, 1966, and the results of its operations for the fiscal year thenended, and have been prepared in conformity with generally accepted accountingprinciples applied on a basis consistent with that of previous fiscal years.

AUDIT COMMITTEE:

/s/ R. W. Tizard, Chairman (United Kingdom)

/s/ G. M. Okufi (Nigeria)

/s/ J. D. Mercado (Philippines)

165



Exhibit A

BALANCE

as at April

Values expressed in U.S. dollars on the

ASSETS

GOLD ACCOUNTGold with depositories (See Note 2)

(73,987,683.778 fine ounces at $35 per ounce)Bars $2 368 869 727General deposits

Investments (See Note 3)$826,712,000 U.S. Government

securities maturing within 12months, at cost $799,979,933

Funds awaiting investment 11,578 799991511

CURRENCIES AND SECURITIESWith depositories

Currencies $ 3 1 18 219 548Securities 13,233,508,515

( nonnegotiable, noninterest-bearing demand obligations,payable at face value bymembers in their currencies)

SUBSCRIPTIONS TO CAPITAL — RECEIVABLEBalances not due

SUBSCRIPTIONS DUE FROM MEMBERS IN RESPECT OF AUTHORIZED INCREASESIN QUOTAS (Contra)

WITHDRAWING MEMBERS' CURRENCIES (See Note 4)Cuba $ 7,499,896Indonesia 63,446,067

OTHER ASSETS (See Note 5)(receivables, accruals, prepayments, and sundry cash)

TOTAL ASSETS

$ 3 389 560 443

16,351,728,063

875,721,807

12,680,000

70,945,963

33,883,281

$20,734,519,557

NOTES:1. With the exception of the following currencies which, for bookkeeping purposes, are computed at the following

provisional rates per U.S. dollar:

Algerian dinar 4.93706 Guinean franc 247.000 Nepalese rupee 7.61900Argentine peso 188.000 Ivory Coast, CFA franc 246.853 Paraguayan guarani 122.000Bolivian peso 11.8750 Kenya, EA shilling 7.14286 Peruvian sol 26.8150Brazilian cruzeiro 2,200.00 Korean won 255.000 Tanzania, EA shilling 7.14286Chad, CFA franc 246.853 Malagasy franc 246.853 Uganda, EA shilling 7.14286Chilean escudo 3.46000 Mali Iranc 246.853 Upper Volta, CFA franc 246.853Colombian peso 9.00000 Mauritania, CFA franc 246.853 Vietnamese piastre 35.0000

2. Excludes 68,940.512 fine ounces earmarked for members and a former member.

3. Made with the proceeds of the sale of 22,856,900.312 fine ounces of gold. Upon termination of the investment,the same quantity of gold can be reacquired.

4. Redeemable in gold, or convertible currencies acceptable to the Fund, in installments not later than July 1, 1968in respect of Cuba, and not later than August 17, 1970 in respect of Indonesia.

5. The assets and liabilities of the Staff Retirement Fund are not included in this Balance Sheet.

6. A stand-by charge has, under certain circumstances, to be credited against the service charge for a drawing underthe stand-by arrangement; the maximum amount on April 30, 1966 is $928,845. A portion of the stand-by chargeis refundable to a member if the arrangement is canceled; the maximum amount on April 30, 1966 is $634,458.

166

220,699,205 $2589568932



Exhibit A

SHEET

30, 1966

basis of established parities (See Note 1)

CAPITAL, RESERVES, AND LIABILITIES

CAPITALAuthorized subscriptions of members

RESERVES (Exhibit C)Special reserve $182,181,830General reserve 186,356,950

SUBSCRIPTION PAYMENTS IN RESPECT OF INCREASES IN QUOTASCONSENTED TO BUT NOT YET EFFECTIVE

Partial payments made $ 6,620,000Payments due (Contra) 12,680,000

INDEBTEDNESS TO PARTICIPANTS UNDER GENERAL ARRANGEMENTS TO BORROW.

PROVISION FOR POTENTIAL REFUNDS OF STAND-BY CHARGES (See Note 6)

OTHER LIABILITIES (See Note 5)(accruals, payables, and deferred credits)

TOTAL CAPITAL. RESERVES. AND LIABILITIES

$19,411,266,667

368,538,780

19,300,000

930,000,000

928,845

4,485,265

$20,734,519,557

/s/ OSCAR L. ALTMANTreasurer

/s/ P.-P. SCHWEITZERManaging Director

167



Exhibit B

STATEMENT OF INCOME AND EXPENDITURE

for the year ended April 30, 1966

Operational chargesCharges on balances in excess of quotasOther income

TOTAL INCOME (See N

Administrative expenditureBoard of Governors

Office of Executive DirectorsSalariesOther compensations and benefitsTravel

StaffSalariesOther compensations and benefitsTravel

Special services to member countries

Other administrative expensesCommunicationsOffice occupancy expensesBooks and printing (See Note 2)Supplies and equipmentMiscellaneous (See Note 3)

Total administrative expenditure

Operational expenditureTransfer charges on amounts borrowed

General Arrangements to BorrowInterest on indebtedness under General

Arrangements to BorrowGold handling costsExchange adjustments

Total operational expenditure

Fixed property expenditure

TOTAL EXPENDITURE

NET INCOME

INCOME$15,564,009

65,741,68710,904

bte 1)

EXPENDITURE

$ 473,432

$1,047,582231,314239,570 1,518,466

$6,628,5642,203,8581,566,808 10,399,230

682,281

$376910554,748312,694410 872306,954 1,962,178

$15,035,587

under$ 2,625,000

13,446,8752,847

349 cr.

16 074,373

5,661,158

(Transferred provisionally to General Reserve pendingBoard of Governors' action) (Exhibit C)

$81,316,600

36,771,118

$44,545,482

NOTES:1. Excludes income from investments amounting to $33,907,383, transferred to Special Reserve

(Exhibit C).2. After deduction of $62,326 for sales of Fund's publications.3. After deduction of $135,545 for food service sales.

168



Exhibit C

STATEMENT OF RESERVES

for the year ended April 30, 1966

SPECIAL RESERVE (See Note)

Balance, April 30, 1965

AddIncome from investments in U.S. Government

securities for year


$148,274,447

33,907,383

$182,181,830

GENERAL RESERVE


Add

$141,811,468

Net income for year (Exhibit B), transferredprovisionally pending Board of Governors' action

Balance, April 30 1966

TOTAL RESERVES (oer Balance Sheet)

44,545,482

186,356,950

$368,538,780

NOTE:Represents income from investments in U.S. Government securities from November 1, 1957.

169



STAFF RETIREMENT FUND

MEMORANDUM BY THE AUDIT COMMITTEE

June 21, 1966

To the Managing Directorand the Executive Directors


The report of the Audit Committee, dated June 21, 1966, submitted through youto the Board of Governors, on the audit of the financial records and transactions ofthe International Monetary Fund for the fiscal year ended April 30, 1966, includes thefollowing paragraphs relating to the scope of the audit conducted, the audit certificategiven and the investments held with respect to the Staff Retirement Fund:

SCOPE OF THE AUDIT

The Audit Committee has examined the separate accounts and financial statementsrelating to the Staff Retirement Fund for the fiscal year ended April 30, 1966. Inthe course of the examination, the Committee referred to the Articles of the StaffRetirement Plan and to the decisions of the Pension, Administration and InvestmentCommittees created under the Plan. The Audit Committee made what it consideredan adequate test check of the various classes of transactions, taking into accountthe audit coverage made by the Internal Auditor, as reported by him to the Com-mittee. The report of the Internal Auditor, among other audit activities conductedby his staff, showed that a detailed examination had been made of the Participants'Accounts.

AUDIT CERTIFICATE

As the result of our examination, we report that in our opinion the accompanyingBalance Sheet, Statement of Source and Application of Funds, and the related Sched-ules of Participants' Account, Accumulation Account, Retirement Reserve Account,and Reserve Against Investments present fairly the financial position of the StaffRetirement Fund as at April 30, 1966 and the results of its operations for the fiscalyear then ended, in conformity with generally accepted accounting principles appliedon a basis consistent with that of previous fiscal years.

INVESTMENTS

The Pension Committee made no changes in the General Rules on Investment dur-ing the fiscal year 1966. The Audit Committee received confirmation directly fromthe depository of the investments that it held, as at April 30, 1966, as custodianfor the Staff Retirement Fund of the International Monetary Fund. The Audit Com-

170



mittee also confirmed that the holdings of the various classes of investment were with-in the limiting percentages stated in original investment values prescribed by thePension Committee, as follows:

BondsU.S. GovernmentInternational Bank for Reconstruction and Development and

Inter-American Development BankCorporate (other than convertible)Corporate (convertible)

Total bondsCorporate stocks

Total portfolio

PercentageAuthorized

Minimum 30

Maximum 20Maximum 25Maximum 5

Maximum 40

PercentageHeld

34.52

14.4016.83

65.7534.25

100.00

AUDIT COMMITTEE:

/s/ R. W. Tizard, Chairman (United Kingdom)

/s/ G. M. Okufi (Nigeria)

/s/ J. D. Mercado (Philippines)

171


Appendix V (concluded)

Exhibit I

STAFF RETIREMENT FUND

BALANCE SHEET

as at April 30, 1966

ASSETS

CASH AT BANKS

INVESTMENTSBonds, at amortized value

United States Government (market value,$5,301 000) $5,710 321

International Bank for Reconstruction andDevelopment (market value, $2,262,880) . 2,397,072

Corporate (market value $2,502,970) 2866864 $10974257

Corporate stocks (common), at cost (marketvalue, $9,873,582) 6,977,675

ACCRUED INTEREST ON BONDS

ACCRUED CONTRIBUTIONS FROM PARTICIPANTS AND EMPLOYER

TOTAL ASSETS

LIABILITIES AND RESERVES

ACCOUNTS PAYABLE

PARTICIPANTS' ACCOUNT

ACCUMULATION ACCOUNT

RETIREMENT RESERVE ACCOUNT

RESERVE AGAINST INVESTMENTS

TOTAL LIABILITIES AND RESERVES

$ 84,631

17951 932

124 119

11,576

$18,172,258

$ 4,673

3,777 564

11,164,815

2 465,408

759,798

$18,172,258

/s/ OSCAR L. ALTMANTreasurer

/s/ P.-P. SCHWEITZERManaging Director

172


INDEX


INDEX

Numbers refer to pages. An asterisk (*) denotes a table, a dagger (t) denotes a chart.

AFGHANISTAN — 91; drawings, 126;Fund quota increase, 125*; repur-chases from Fund, 128*; stand-by,126, 127*

AFRICAN COUNTRIES—balance of pay-ments and reserves, 56*; see alsoindividual countries

AGRICULTURAL PRODUCTS—prices, 76-78, 81*, 148*, 149*

ALGERIA—Fund quota increase, 125*ALLIANCE FOR PROGRESS—Fund co-

operation with, 133ANTIGUA—par value, new East Carib-

bean dollar, 123ANTI-INFLATION—see STABILIZATION

PROGRAMSARGENTINA—balance of payments and

reserves, 13*, 57*, 84-85*; draw-ings, 124, 126*; international trade,81*; repurchases from Fund, 128*

ARTICLES OF AGREEMENT—see FUNDARTICLES OF AGREEMENT

ASIAN COUNTRIES—balance of pay-ments and reserves, 56*; see alsoindividual countries

AUSTRALIA—balance of payments andreserves, 4, 13*, 57*, 59*, 60*, 84-85*, 86, 104-105; capital move-ments, 105; economic developments,89-90; Fund Article VIII, accept-ance, 124*; Fund quota increase,125*; gold production, 112*, 113;gold subsidy program, 119; inter-national trade, 46, 81*; U.S. directinvestments in, 49*; wool prices,77t, 149*

AUSTRIA—balance of payments andreserves, 13*, 53*, 57*, 60*; FundArticle VIII, acceptance, 124*;Fund quota increase, 125*; goldpurchases, 115*; international trade,46*, 47*

BAHRAIN—par value, Bahrain dollar,123

BALANCE OF PAYMENTS—3-5, 49-58,62-75, 83-88, 93-111, 136*, 137*,140*, 141*, 150*; and liquidity, 9-20; deficits, 3-5, 56, 58, 140*; in-dustrial countries, 3-6, 51-58, 93-104; primary producing countries,5, 21-22, 83-88, 104-11; surpluses,11; see also individual countries

BANK CREDIT—industrial countries,65-67, 144*; see also individualcountries

BANK FOR INTERNATIONAL SETTLE-MENTS—Euro-dollar market, 72;Fund cooperation with, 132; goldtransactions, 113; reserve creationstudy, 9

BANKS—see BANKS, COMMERCIAL,CENTRAL BANKS, INTEREST RATES,INTERNATIONAL BANK FOR RECON-STRUCTION AND D E V E L O P M E N T ,MONETARY POLICY, and individualcountries

BANKS, COMMERCIAL—central banks,relations with, 29-30; foreign cur-rency operations, 72; functions per-formed by central banks, 31-32

BARBADOS—par value, new EastCaribbean dollar, 123

BELGIUM—balance of payments andreserves, 13*, 52*, 57*, 60*; capitalmarkets, 72, 73*; capital move-ments, 49*; currency purchases byFund for gold, 34; discount rates,67t, 147*; fiscal policy, 71; FundArticle VIII, acceptance, 124*;General Arrangements to Borrow,participation, 128*; General Ar-rangements to Borrow, renewed, 34-35; gold purchases, 115*; monetarypolicy, 70; wages, 64; see alsoBELGIUM-LUXEMBOURG

BELGIUM-LUXEMBOURG—internationaltrade, 46-47, 52*

BOARD OF GOVERNORS—see FUNDBOARD OF GOVERNORS

BOLIVIA—80; balance of paymentsand reserves, 13*, 84-85*; Fundquota increase, 125*; gold produc-tion, 113; repurchases from Fund,128*; stand-by, 127-28

BONDS, GOVERNMENT—yields, 65-66,146*

BRAZIL—balance of payments and re-serves, 13*, 56*, 60*, 84-85*, 87;central and commercial banking,separation, 32; coffee prices, 771,78, 91, 149*; drawings, 36, 126*;economic developments, 91; Fundquota increase, 125*; GATT con-sultation, conference with Fund,132; gold sales to U.S., 115*; inter-national trade, 81*, 82; repurchasesfrom Fund, 128*; stand-by, 126*,127-28; wages, 91

BRITISH GUIANA—par value, newGuyana dollar; see also GUYANA

BURLAP—prices, 78BURMA—balance of payments and re-

serves, 13*, 84-85*, 87BURUNDI—-drawings, 34, 126*; Fund

quota increase, 125*; repurchasesfrom Fund, 128*; stand-by, 126*,127-28

CAMEROON—Fund quota increase, 124CANADA—balance of payments and re-

serves, 13*, 51-57, 60*, 95-96,140*; Bank of Canada, 68; bonds,government, yields, 661, 146*; cap-ital markets, 72, 73*, 74*; capitalmovements, 48-49, 96-97; cost ofliving, 651, 143*; direct invest-ments, 48; discount rates, 67-68,147*; economic growth, 13, 62; em-ployment, 3; export prices, 681,144*; fiscal policy, 70-71; FundArticle VIII, acceptance, 124*;General Arrangements to Borrow,participation, 128*; General Ar-rangements to Borrow, renewed,34-35; gold production, 112*, 113;gold subsidy program, 119; grossnational product, 63*; industrialoutput, 62t, 141*; interest rates,66t, 146*; international trade, 43-49, 138-39*; monetary policy, 68;money supply, 661, 145*; prices,

175

64, 145*; U.S. direct investmentsin, 49; U.S. Equalization Tax, 97;wages, 641, 142*; wheat prices,77t, 149*

CAPITAL MARKETS—63, 72-75; control*of capital movements, effects of, 5

CAPITAL MOVEMENTS—controls, 5, 16;industrial countries, 4-5, 93-104;primary producing countries, 5, 86,104-11; private, 47-50

CENTRAL AFRICAN REPUBLIC—Fundquota increase, 124

CENTRAL AMERICAN M O N E T A R YCOUNCIL—Fund cooperation intraining, 38

CENTRAL BANKING SERVICE—see FUNDORGANIZATION AND ADMINISTRATION

CENTRAL BANKS—commercial bank-ing by, 31-32; foreign reserves, 31;industrial countries, 64-70; mone-tary policy instruments, 29-30; pri-mary producing countries, less de-veloped, 28-32; relations withgovernment, 30-31;' see also in-dividual countries

CEYLON—balance of payments andreserves, 13*, 84-85*; drawings,126; Fund quota increase, 125*; in-ternational trade, 81*; repurchasesfrom Fund, 128*; stand-by, 126,127*; tea prices, 77t, 149*

CHAD—Fund quota increase, 124CHILE—balance of payments and re-

serves, 13*, 84-85*; drawings,126*; economic conditions, 90; in-ternational trade, 81*; repurchasesfrom Fund, 128*; stand-by, 126*,127-28

CHINA, MAINLAND—dispute with India,effect on gold demand, 115; goldpurchases, 115-18; trade with lessdeveloped countries, 44-45; wheatcontracts, 78

CHINA, REPUBLIC OF—balance "of pay-ments and reserves, 13*, 84-85*, 87;international trade, 81*

COCOA—Ghanaian exports, 105-106;prices, 76-78, 149*

COFFEE—exporters, 81-82; prices, 76-78, 149*

COLOMBIA—balance of payments andreserves, 13*, 84-85*; drawings,126*; economic conditions, 90;Fund quota increase, 125*; goldproduction, 112; international trade,81*, 82; repurchases from Fund,128*; stand-by, 126, 127*

COMPENSATORY FINANCING—see FUNDTRANSACTIONS

CONGO (BRAZZAVILLE)—Fund quotaincrease, 124

CONGO, DEMOCRATIC REPUBLIC OF—Fund assistance, 37; Fund quota in-crease, 124; gold production, 112*

COPPER—Peruvian shipments, 109;prices, 77t, 78, 149*

COST OF LIVING—selected countries,65t, 143*

COSTA RICA—balance of paymentsand reserves, 13*, 84-85*, 87;drawings, 126*; Fund Article VIII,acceptance, 124*; Fund quota in-


176 INDEX

crease, 125*; repurchases fromFund, 128*; stand-by, 126*, 127-28

COTTON—long-staple, prices, 76-78,149*; long-staple, trade, 82; Peru-vian shipments, 109

CREDIT AND CREDIT CONTROL—seeBANK CREDIT and MONETARYPOLICY

CREDIT TRANCHE—see FUND TRANS-ACTIONS: Drawings

CUBA—currency held by Fund, 166CURRENCY PURCHASES—see FUND

TRANSACTIONSCYPRUS—drawing for quota increase,

124, 126*; Fund quota increase,125*

DAHOMEY—Fund quota increase, 124DAIRY PRODUCTS—prices, 76-77DEBT MANAGEMENT—industrial coun-

tries, 67-70; less developed coun-tries, 22

DENMARK—balance of payments andreserves, 13*, 53*, 57*, 60*; Fundquota increase, 125*; internationaltrade, 46*, 47*

DEVELOPED COUNTRIES—13*, 15t,136*; see also INDUSTRIAL COUN-TRIES, PRIMARY PRODUCING COUN-TRIES, MORE DEVELOPED, and in-dividual countries

DEVELOPING COUNTRIES—see PRI-MARY PRODUCING COUNTRIES, LESSDEVELOPED, and individual coun-tries

DISCOUNT RATES—industrial coun-tries, 67-70; primary producingcountries, 29-30

DOMINICA—par value, new EastCaribbean dollar, 123

DOMINICAN REPUBLIC—balance ofpayments and reserves, 13*, 84-85*,87; Fund Article VIII, acceptance,124*; Fund quota increase, 125*;stand-by, 127*

DRAWINGS—see FUND TRANSACTIONSand individual countries

ECUADOR—balance of payments andreserves, 13*, 84-85*; drawings,126*; Fund assistance in monetaryreform, request for, 28; Fund quotaincrease, 125*; repurchases fromFund, 128*; stand-by, 126*, 127-28

EDIBLE OILS—prices, 76, 77t, 149*EL SALVADOR—balance of payments

and reserves, 13*, 84-85*; FundArticle VIII, acceptance, 125*;Fund quota increase, 125*; stand-by, 126, 127*

EMPLOYMENT—10-11; industrial coun-tries, 3-4

ETHIOPIA—balance of payments andreserves, 13*, 84-85*; Fund quotaincrease, 125*

EURO-ISSUES — 72-75; Euro-dollars,49-50, 60, 72; Euro-marks, 74

EUROPEAN ECONOMIC COMMUNITY—balance of payments and reserves,51-56, 59*, 60*, 140*; capitalmarkets, 73*; cost of living, 651,143*; credit, private sector, 651,144*; economic conditions, 63;export prices, 65*, 144*; in-

dustrial production, 621, 141*; in-ternational trade, 41-46, 138-39*;money supply, 661, 145*; prices,64t, 143*; wages, 64t, 142*; seealso individual countries

EUROPEAN FREE TRADE ASSOCIATION—balance of payments and re-serves, 53-56; international trade,43-47, 138-39*

EUROPEAN FUND—gold transactions,113

EXCHANGE RATES—primary produc-ing countries, less developed, 24-25;industrial countries, 65-67

EXECUTIVE DIRECTORS—see FUNDEXECUTIVE BOARD

EXPORT EARNINGS—5, 41-47; see alsoWORLD TRADE and individual coun-tries

FINLAND—balance of payments andreserves, 4, 13*, 57*, 84-85*; em-ployment, 90; Fund quota increase,125*; GATT consultation, Fundconference on, 132; internationaltrade, 81*; securities issues, 75, 86

FISCAL POLICY—industrial countries,70-72; primary producing countries,less developed, 23-24; see also in-dividual countries

FISH AND FISHMEAL—Peruvian ship-ments, 109-10

FOREIGN EXCHANGE — see EXPORTEARNINGS, RESERVES, GOLD ANDFOREIGN EXCHANGE, and individualcountries

FRANCE—balance of payments and re-serves, 4, 13*, 15t, 52*, 54t, 57*,60*, 100-101, 136*, 140*; capitalmarkets, 72*, 73; capital move-ments, 48, 49, 102; discount rates,67t, 67*, 68-69, 147*; economicconditions, 63; employment, 3; fis-cal policy, 71*; Fund Article VIII,acceptance, 124*; General Arrange-ments to Borrow, participation,128*; General Arrangements toBorrow, renewed, 34-35; gold pur-chases, 115*, 117; interest rates,68*, 146*; international trade,46-47, 541, 140*; monetary policy,68-69; wages, 64t, 142*

FUND ARTICLES OF AGREEMENT—Articles III, Section 2, QuinquennialReview of Quotas, 34; V, Section 4,waiver, 124; V, Section 7(&), repur-chase postponement, 36; V, Section8(/), payment of Fund charges,130; VII, Section 2(ii), gold sales,34; VIII, acceptance, 123, 124*;VIII, Sections 2, 3, and 4, consulta-tions, 131; XIV, Section 2, consulta-tions, 131; signature, 33

FUND ASSISTANCE TO MEMBERS—seeFUND SERVICES TO MEMBERS

FUND BOARD OF GOVERNORS—quotaincrease, 6; Resolutions 20-6 and20-7, 33, 123

FUND CONSULTATIONS WITH MEM-BERS—see FUND SERVICES TO MEM-BERS

FUND COOPERATION WITH OTHER IN-TERNATIONAL ORGANIZATIONS—37,131-33; see also individual organiza-tions

FUND CURRENCY HOLDINGS — seeFUND RESOURCES

FUND EXECUTIVE BOARD—33; Execu-tive Directors, list and votingpower, 155-57; international liquid-ity discussions, 9-10, 20; member-ship changes, 158-60

FUND EXECUTIVE BOARD DECISIONS--102-(52/11), currencies for use inrepurchase, 36; 1034-(60/27), con-sultations, 13; 1289-(62/l), Gen-eral Arrangements to Borrow, re-newed, 34-35; 1371-(62/36), cur-rencies for drawing and repurchase,37; 1477-(63/8), compensatory fi-nancing, 124; fourth quota reviewcompleted, 34; postponement ofrepurchase, 36

FUND FINANCIAL STATEMENTS—161-72

FUND GOLD HOLDINGS—see FUND RE-SOURCES

FUND MANAGING DIRECTOR — ad-dresses, etc., 132; consulted in cur-rency purchases by Fund members,18-19; reserve creation proposals,9, 18-20

FUND MEMBERS—33FUND ORGANIZATION AND ADMINISTRA-

TION—Audit Committee, 134, 164-65; budget and expenditure, 133-34,162-63, 168; Central Banking Serv-ice, 28, 37; Fiscal Affairs Depart-ment, 37; IMF Institute, 37-38;publications, 138; staff, 133; staffretirement fund, 172; see also FUNDBOARD OF GOVERNORS, FUNDEXECUTIVE BOARD, and FUND MAN-AGING DIRECTOR

FUND QUOTAS—33; increases, 6, 33-34, 124, 125*; increases undercompensatory financing, 124

FUND RESOURCES—General Arrange-ments to Borrow, 6, 34-35, 128;gold and currency holdings, 36,113-15; quotas after increases, 6,33-34; under reserve creation plans,18-20; U.S. securities, investment,133-34, 166-67

FUND SERVICES TO MEMBERS—con-sultations, 7, 131; technical assist-ance, 37-38; training program, 38;see also FUND ORGANIZATION ANDADMINISTRATION: Central BankingService, Fiscal Affairs Department

FUND TRANSACTIONS—6-7, 35-37, 123-31; charges to members, 130-31;compensatory financing, 7-8, 34, 36,123-24; currencies used by Fund,36-37; currency purchases by Fund,35-36; drawings, 6-7, 16, 35-36,126*, 130*, 131*; drawings, goldtranche, 34, 124; General Arrange-ments to Borrow, 6, 34-35, 128;gold deposits by Fund, 34; goldtransactions, 34, 113*, 115; goldtransactions service, 119; repur-chases by members, 36-37, 128,130*; stand-bys, 7, 35-36, 106-108,124-28, 129t, 151*

GABON—Fund quota increase, 124GENERAL AGREEMENT ON TARIFFS AND

TRADE—Fund cooperation with, 132GENERAL ARRANGEMENTS TO BORROW


INDEX 177

—see FUND TRANSACTIONSGERMANY, FEDERAL REPUBLIC OF—

balance of payments and reserves,4, 13*, 15t, 51-57, 60*, 99-100,136*, 140*; bonds, government,yields, 66t, 146*; Bundesbank, 50,69, 128*; capital markets, 72, 73*,74; capital movements, 48-49, 100;currency purchases by Fund forgold, 34; discount rates, 671, 67*,69, 147*; economic growth, 3, 63;fiscal policy, 71; Fund Article VIII,acceptance, 124*; General Arrange-ments to Borrow, participation(Deutsche B u n d e s b a n k ) , 128*;General Arrangements to Borrow,renewed, 34-35; gold purchases,115*; indemnity payments, 100; in-terest rates, 66, 68t, 146*, 148*; in-ternational trade, 41-47, 138-39*;monetary policy, 69; wages, 64,142*

GHANA—balance of payments and re-serves, 13*, 84-85*, 87, 105-107;cocoa prices 76-78, 149*; draw-ing for quota increase, 124; draw-ings, 126*; economic develop-ments, 90; Fund quota increase,125*; gold production, 112*, 113;par value change for new cedi, 123;repurchases from Fund, 128*;stand-by, 106

GOLD—absorption by private holders,industry, and arts, 113*, 115;hoarding, 118; holdings, 60, 113-15;markets, 115-18; national policychanges, 118-19; prices, 115-18,151*; production, 112-13; subsidyprograms, 119; see also FUNDTRANSACTIONS

GOLD POOL—115, 117-18GOVERNMENT BONDS—yields, 65-66,

146*GREECE—balance of payments and

reserves, 4, 13*, 57*, 84-85*; eco-nomic developments, 90; Fundquota increase, 125*; gold policychanges, 118-19; international trade,81*

GROSS NATIONAL PRODUCT—propor-tion to aid and capital outflow, 5;selected countries, 63*

GROUP OF TEN—balance of paymentsand reserves, 13*, 59*; General Ar-rangements to Borrow, renewed, 34-35; reserve creation study, 9; seealso FUND TRANSACTIONS: GeneralArrangements to Borrow

GUATEMALA—balance of paymentsand reserves, 13*, 84-85*; drawings,gold tranche, 124, 126*; FundArticle VIII, acceptance, 124*;Fund quota increase, 125*; stand-by, 126, 127*

GUINEA—Fund quota increase, 124GUYANA—application for Fund mem-

bership, 33

HAITI—balance of payments and re-serves, 84-85*; drawing for quotaincrease, 124, 126*; Fund ArticleVIII, acceptance, 124*; Fund quotaincrease, 125*; repurchase fromFund, 128*; stand-by, 126*, 127-28

HONDURAS—balance of payments andreserves, 13*, 84-85*; drawings,126*; Fund Article VIII, accept-ance, 124*; Fund quota increase,125*; repurchases from Fund,128*; stand-by, 126*, 127-28

ICELAND—balance of payments andreserves, 4, 13*, 57*, 84-85*, 86;economic developments, 89; Fundquota increase, 125*

INCOMES POLICY—developing coun-tries, 25, 27; see also individualcountries

INDIA—balance of payments and re-serves, 13*, 60*, 84-85*, 87, 107-108; disputes with Mainland Chinaand Pakistan, effect on gold de-mand, 115-17; drawings for quotaincrease, 124, 126*, 127*; economicdevelopments, 90-91; food shortageproblems, 78, 90; Fund quota in-crease, 125*; GATT consultation,Fund conference on, 132; goldpolicy changes, 119; gold produc-tion, 113; international trade, 81*;National Defence Gold Bonds, 118-19; repurchases from Fund, 128*;stand-by, 127*

INDONESIA—currency held by Fund,166; gold production, nationaliza-tion, 119; withdrawal from Fund, 33

INDUSTRIAL COUNTRIES—aid to othercountries, 5; balance of paymentsand reserves, 4-5, 151, 51-61, 136*,140*, 141*; bank credit, privatesector, 651, 148*; capital markets,71-75; capital movements, 4-6, 47-50; economic conditions, 3-4; em-ployment, 3; financial develop-ments, 62-75; international trade,41-47, 138-40*; money supply, 661,145*; prices, 4; stand-bys, 129t,151*

INDUSTRIAL PRODUCTION—621, 141*INFLATION—industrial countries, 62;

relation to reserves, 12; see alsoPRICE STABILITY and STABILIZATIONPROGRAMS

INTER-AMERICAN DEVELOPMENT BANK—132

INTEREST RATES—control of capitalmovements, effect of, 5; credit con-trol, effect on, 23; industrial coun-tries, 65-67, 146*

INTERNATIONAL BANK FOR RECON-STRUCTION AND DEVELOPMENT(WORLD BANK)—cooperation with,37; primary producing countries,debt management analysis, 7

INTERNATIONAL COFFEE AGREEMENT—prices, 78

INTERNATIONAL LIQUIDITY—9-20INTERNATIONAL MONETARY FUND—

see FUNDINTERNATIONAL O R G A N I Z A T I O N S —

Fund cooperation with, 38, 131-33INTERNATIONAL RESERVES—see RE-

SERVES, GOLD AND FOREIGN EX-CHANGE

INTERNATIONAL TRADE—see WORLDTRADE and individual countries

IRAN—balance of payments and re-serves, 13*, 84-85*, 87; Fund quota

increase, 125*; international trade,81*; repurchases from Fund, 128*

IRAQ—balance of payments and re-serves, 13*, 84-85*; Fund quota in-crease, 125*

IRELAND—balance of payments andreserves, 4, 13*, 56*, 60*, 84-85*;drawing, 35, 126*; economic de-velopments, 90; Fund Article VIII,acceptance, 124*; Fund quota in-crease, 125*; international trade,81*

ISRAEL—balance of payments and re-serves, 13*, 60*, 84-85*; Fundquota increase, 125*; GATT con-sultation, Fund conference on, 132;German indemnity payment, 100

ITALY—balance of payments and re-serves, 13*, 15t, 48*, 51, 52*, 54t,57*, 60*, 102-103, 136*, 140*;bonds, government, yield, 661,146*; capital markets, 72*, 73*;capital movements, 4, 6, 49*, 50,102-103; economic developments, 3,63; fiscal policy, 71-72; Fund Ar-ticle VIII, acceptance, 124*; Fundquota increase, 125*; General Ar-rangements to Borrow, participa-tion, 128*; General Arrangementsto Borrow, renewed, 34-35; goldtransactions with U.S., 115*;gross domestic product, 63*;interest rates, 66; internationaltrade, 43t, 44t, 46*, 47*, 138-39*;monetary policy, 69; wages, 641,142*

IVORY COAST—balance of paymentsand reserves, 84-85*, 87-88; eco-nomic developments, 91; Fundquota increase, 125*

JAMAICA—balance of payments and re-serves, 13*, 84-85*; Fund ArticleVIII, acceptance, 124*; Fund quotaincrease, 125*

JAPAN—balance of payments andreserves, 13*, 48-49, 50-56, 57*,60*, 103-104, 140*; bank credit,65t, 66, 144*; capital markets,72*, 73*, 74*; capital movements,4, 48*, 50, 104; cost of living, 65t,143*; discount rates, 67*, 67t, 70,72, 147*; economic growth, 3, 63;export prices, 651, 144*; fiscalpolicy, 71-72; Fund Article VIII,acceptance, 124*; Fund quota in-crease, 125*; General Arrange-ments to Borrow, participation,124*; General Arrangements toBorrow, renewed, 34-35; gold pro-duction, 112; industrial production,62t, 141*; interest rates, 66; in-ternational trade, 43-47, 138-39*;monetary policy, 70; money supply,66t, 145*; prices, wholesale, 64t,143*; U.S. direct investment in,49*; wages, 64t, 142*

JORDAN—balance of payments and re-serves, 13*, 84-85*; economic de-velopments, 91; Fund quota in-crease, 125*; repurchases fromFund, 128*

JUTE—prices, 78


178 INDEX

KENYA—Fund quota increase, 125*KOREA—balance of payments and re-

serves, 13*, 84-85*, 108; economicdevelopments, 90-91; Fund quotaincrease, 125*; stand-by, 127-28

KUWAIT—balance of payments and re-serves, 13*; Fund Article VIII, ac-ceptance, 124*; international trade,81*

LATIN AMERICAN CENTER FOR MONE-TARY STUDIES—Fund cooperationwith, 132

LATIN AMERICAN COUNTRIES—balanceof payments and reserves, 56*,57*, 60*, 88t, 150*; internationaltrade, 80-82; see also individualcountries

LEAD—prices, 77t, 78-79, 149*LEBANON—balance of payments and

reserves, 13*LIBERIA—drawings, 126*; Fund quota

increase, 125*; stand-by, 126*, 127-28

LIBYA—balance of payments and re-serves, 13*, 84-85*; economic de-velopments, 88, 90; Fund quota in-crease, 125*

LIQUIDITY—see INTERNATIONAL LI-QUIDITY

LUXEMBOURG—capital markets, 73*;Fund Article VIII, acceptance,124*; see also BELGIUM-LUXEM-BOURG

MALAGASY REPUBLIC—Fund quota in-crease, 125*

MALAYSIA—balance of payments andreserves, 13*, 84-85*, 87; Fundquota increase, 124, 125*; interna-tional trade, 81*, 82; repurchasesfrom Fund, 128*; rubber and tinprices, 77t, 149*

MALI—drawings, 126*; economic de-velopments, 90; Fund quota in-crease, 125*; stand-by, 127*

MANUFACTURING COUNTRIES—see IN-DUSTRIAL COUNTRIES

MAURITANIA—Fund quota increase,125*

METALS—see MINERALS AND METALSMEXICO—balance of payments and

reserves, 13*, 57*, 60*, 84-85*;Fund Article VIII, acceptance,124*; Fund quota increase, 125*;gold production, 112*, 113; inter-national trade, 81*

MIDDLE EASTERN COUNTRIES—balanceof payments and reserves, 56*, 57*;see also individual countries

MINERALS AND METALS—Australianimports, 104; exporters, 81*; in-ternational trade, 79; prices, 76,77t, 78-79, 148*, 149*

MONETARY POLICY—credit control, 26-28; demand control, 22-23; ex-change rates, 24-25; implementa-tion, 26-27; incomes, 25; industrialcountries, 62-75; prices, 25; primaryproducing countries, 21-32; stateenterprises, 23-24; see also CEN-TRAL BANKS and individual countries

MONEY MARKETS—industrial coun-tries, 72-75

MONTSERRAT—par value, new EastCaribbean dollar, 123

MOROCCO—balance of payments andreserves, 13*, 84-85*, 87; economicdevelopments, 90; Fund quota in-crease, 125*; international trade,81*; repurchases from Fund, 125*;stand-by, 126, 127*

NEPAL—Fund quota increase, 125*NETHERLANDS—balance of payments

and reserves, 13*, 52*, 57*, 60*;bonds, government, yields, 661,146*; capital markets, 72-75; capitalmovements, 48*; discount rates,67*, 67t, 147*; Fund Article VIII,acceptance, 124*; General Arrange-ments to Borrow, participation,128*; General Arrangements toBorrow, renewed, 34-35; gold pur-chases, 115*; interest rates, 661,146*; international trade, 46, 47*;wages, 64

NEW ZEALAND—balance of paymentsand reserves, 4, 13*, 57*, 84-85*,86; drawings, 35, 126*; economicdevelopments, 89-90; Fund quotaincrease, 125*; GATT consultation,Fund conference on, 132; interna-tional trade, 46, 81*; U.S. directinvestment in, 49*

NICARAGUA—balance of payments andreserves, 13*, 84-85*; Fund ArticleVIII, acceptance, 124*; Fund quotaincrease, 125*; gold production,113; repurchases from Fund, 128*

NIGERIA—balance of payments and re-serves, 13*, 84-85*, 88; Fund quotaincrease, 124; international trade,81*, 82

NORWAY—balance of payments andreserves, 13*, 53*, 57*, 60*; Fundquota increase, 124; internationaltrade, 46*, 47*

OIL—see EDIBLE OILS and PETRO-LEUM

ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT—Fund cooperation with, 16, 37, 132;reserve creation study, 9, 18

PAKISTAN—balance of payments andreserves, 13*, 84-85*, 87; disputewith India, effect on gold demand,115; drawings, 34, 126*; Fundquota increase, 125*; internationaltrade, 81*, 82; stand-by, 127*

PANAMA—balance of payments andreserves, 13*, 84-85*; Fund ArticleVIII, acceptance, 124*; stand-by,36, 126, 127*

PAR VALUES—see FUND MEMBERS andindividual countries

PARAGUAY—balance of payments andreserves, 84-85*; Fund quota in-crease, 125*; repurchases fromFund, 128*; stand-by, 127*

PERU—balance of payments and re-serves, 13*, 84-85*, 108-109; capi-tal movements, 109; economic de-velopments, 90; Fund Article VIII,

acceptance, 124*; Fund quota in-crease, 125*; international trade,81*, 87; stand-by, 127*

PETROLEUM — exporters, 13*, 15t,81*, 136*; exports, 80; prices, 76,80; renegotiation- of contracts, 86,87

PHILIPPINES—balance of paymentsand reserves, 13*, 84-85*; economicdevelopments, 87; gold production,112*, 113; gold subsidy program,119; international trade, 81*; parvalue change, 123; repurchases fromFund, 128*; stand-by, 127-28

PORTUGAL—balance of payments andreserves, 13*, 14, 57*, 60*, 84-85*;economic developments, 89-90;Fund quota increase, 125*

PRICE STABILITY—developing coun-tries, 25-26

PRICES—cost of living, 651, 143*;developing countries, 25-26; export,65t, 144*; gold, 115-17, 151*; in-dustrial countries, 3, 63-64; primaryproducts, 3, 76-79, 148*, 149*;wholesale, 641, 143*; see alsoMONETARY POLICY

PRIMARY PRODUCING COUNTRIES, LESSDEVELOPED—aid from industrialcountries, 5; balance of paymentsand reserves, 4-5, 7, 13-16, 21-22, 51-61, 83-92, 136*, 140*, 141*,151*; capital movements, 5, 23,47-50; central banks, 28-32; creditand demand control, 23-24; debtmanagement, 7, 22, 37; draw-ings and stand-bys, 7, 22, L29t,151*; economic growth and prob-lems, 3, 7, 90-92; exchange rates,24, 25; export earnings and prices,7, 76t, 148*; fiscal policy, 23-24;Fund assistance, 27; incomes policy,25-26; international trade, 3, 41-47, 79-82, 137*; price control,25; stabilization problems, 21-23;state-controlled enterprises, 23-25;taxes, 23; wage policy, 25-26; seealso individual countries.

PRIMARY PRODUCING COUNTRIES,MORE DEVELOPED—balance of pay-ments and reserves, 4, 7, 15t, 51-61,77t, 83-86, 136*, 140*, 141*, 150*;capital movements, 5; defined, 4;drawings and stand-bys, 7, 129t,151*; economic developments, 79-82, 89-90; economic problems, 7;export earnings and prices, 7, 761,148*; international trade, 41-47, 79-82, 137*; see also individual coun-tries

PRIMARY PRODUCTS—prices, 3, 76-79,148*, 149*; world trade, 79-92; seealso PRICES, PRIMARY PRODUCINGCOUNTRIES, and individual coun-tries and products

QUOTAS OF FUNDFUND QUOTAS

MEMBERS—see

REDISCOUNT POLICY—credit control,20

RESERVE CENTERS—balance of pay-ments deficits, 4-6; control of capi-tal movements, effect of, 6


INDEX 179

RESERVE CREATION—9-20RESERVE CURRENCIES—6RESERVES, GOLD AND FOREIGN EX-

CHANGE—5; central bank, 31; crea-tion, 9-20; gold, 114t, 150*; in-dustrial countries, 93-104; primaryproducing countries, 104-11; world,5-6, 11-16, 53*, 84-85*, 113-15

RHODESIA—balance of payments andreserves, 84-85*; gold production,112*, 113; gold subsidy program,119

RICE—prices, 76; world trade, 79RUBBER—prices, 771, 149*; world

trade, 82RWANDA—drawings, 126*; Fund

quota increase, 125*; initial parvalue established, 123*; stand-by,36, 126-27

ST. CHRISTOPHER-NEVIS-ANGUILLA —par value, new East Caribbeandollar, 123

ST. LUCIA—par value, new East Car-ibbean dollar, 123

ST. VINCENT—par value, new EastCaribbean dollar, 123

SAUDI ARABIA—balance of paymentsand reserves, 13*, 60*, 84-85*;Fund Article VIII, acceptance, 124*;Fund quota increase, 125*; inter-national trade, 81*

SECURITIES MARKETS—see CAPITALMARKETS

SIERRA LEONE—balance of paymentsand reserves, 84-85*; Fund quotaincrease, 125*; initial par valueestablished, 123*

SINGAPORE—international trade, 81*SISAL—prices, 77t, 78, 149*SOMALIA—balance of payments and

reserves, 84-85*; drawings, 126*;Fund quota increase, 125*; repur-chases from Fund, 128*; stand-by,126*, 127-28

SOUTH AFRICA—balance of paymentsand reserves, 4, 13*, 57*, 60*, 84-85*, 86; economic developments,89-90; Fund quota increase, 125*;gold production, 112; gold sales,117; international trade, 46, 81*;U.S. direct investment in, 49*

SOUTH ARABIA, FEDERATION OF—parvalue change for Arabian dinar, 123

SOVIET COUNTRIES—imports, 45*;trade with less developed countries,44-45; wheat contracts, 78

SPAIN—balance of payments and re-serves, 4, 13*, 57*, 60*, 84-85*,86, 110-11; capital movements, 110;economic developments, 90; Fundquota increase, 125*; GATT con-sultation, Fund conference on, 132;gold purchases, 115; internationaltrade, 81*

STABILIZATION PROGRAMS—developingcountries, 21-27

STAND-BY ARRANGEMENTS—see FUNDTRANSACTIONS and individual coun-tries

STATE-OWNED ENTERPRISES—less de-veloped countries, 23, 25

SUDAN—balance of payments and re-serves, 13*, 84-85*; cotton prices,

77t, 149*; drawings, 36, 126*; eco-nomic developments, 91; Fundquota increase, 125*; repurchasesfrom Fund, 128*

SUGAR—Peru, exports, 108; prices, 76-78, 149*; world trade, 79

SWAP ARRANGEMENTS, BILATERAL—relation to reserves, 16

SWEDEN—balance of payments and re-serves, 13*, 53*, 57*, 60*; capitalmovements, 72*; discount rates, 67,70, 147*; Fund Article VIII, accept-ance, 124*; Fund quota increase,125*; General Arrangements toBorrow, participation (SverigesRiksbank), 128*; General Arrange-ments to Borrow, renewed, 34-35;international trade, 46, 47*; mone-tary policy, 70

SWITZERLAND—balance of paymentsand reserves, 13*, 14, 53*, 57*, 60*;bonds, government, yields, 661,146*; capital markets, 73*; capitalmovements, 48*; currency loan toUnited Kingdom, 35; discount rates,67t, 147*; fiscal policy, 71; goldpurchases, 115, 117-18; interestrates, 661, 146*; international trade,46*, 47*

SYRIAN ARAB REPUBLIC—balance ofpayments and reserves, 13*, 84-85*; drawing for quota increase,124, 126*; Fund quota increase,125*; repurchases from Fund, 128*

TANZANIA—Fund quota increase, 124TAXES—developing countries, 23-24TEA—prices, 76, 77t, 149*TECHNICAL ASSISTANCE AND COOPERA-

TION—see FUND ORGANIZATION ANDADMINISTRATION: Central BankingService and FUND SERVICES TOMEMBERS

TERMS OF TRADE—80THAILAND—balance of payments and

reserves, 13*, 84-85*, 87; economicdevelopments, 90; Fund quota in-crease, 125*; international trade,81*; rice prices, 77t, 149*

TIN—prices, 77t, 79, 149*TOURISM — Germany, 100; Mediter-

ranean countries, 86; Spain, 110TRINIDAD AND TOBAGO—Fund quota

increase, 125*TUNISIA—balance of payments and re-

serves, 13*, 84-85*, 87; drawings126*; Fund quota increase, 125*repurchases from Fund, 128*stand-by, 126*, 127-28

TURKEY—balance of payments and re-serves, 4, 13*, 86; gold purchases,115*; international trade, 81*; re-purchases from Fund, 128*; stand-by, 36, 127-28

UGANDA—coffee prices, 771, 149*;Fund quota increase, 125*

UNION OF SOVIET SOCIALIST RE-PUBLICS—gold production, 113;gold sales, 113*, 114t, 117, 151*;see also SOVIET COUNTRIES

UNITED ARAB REPUBLIC—balance ofpayments and reserves, 13*, 84-85*,

87; drawings, 36, 124, 126*; eco-nomic developments, 90-91; Fundquota increase, 125*; GATT con-sultation, Fund conference on, 132;international trade, 81*, 82; repur-chases from Fund, 128*; stand-by,127*

UNITED KINGDOM—balance of pay-ments and reserves, 4-6, 12*, 14,15t, 42*, 43*, 51-53, 54t, 97-99,136*, 140*; bank credit, 65, 144*;Bank of England, credit control, 68;Bank of England, Gold Pool opera-tion, 116-17; bonds, government,yields, 65-66, 146*; capital markets,72-74; capital movements and con-trol, 5, 47-50, 97-99; cost of living,65t, 143*; discount rates, 65-67,147*; drawings, 6-7, 35, 97-98,126*; economic growth, 3; employ-ment, 63; Exchange EqualizationAccount, 48, 93; export prices, 651,144*; fiscal policy, 71; Fund ArticleVIII, acceptance, 124*; Fund quotaincrease, 125*; General Arrange-ments to Borrow, participation,128*; General Arrangements toBorrow, renewed, 34-35; gold coins,restrictions, 119; gold prices, 116-17, 151*; gold transactions, 116-17;gross domestic product, 63*; indus-trial production, 62t, 141*; interestrates, 65-67, 68t, 146*, 148*; inter-national trade, 42-46, 47*, 138-39*;monetary policy, 68; money supply,66t, 145*; par value change for newmonetary units, nonmetropolitanterritories, 123; prices, 64-65; stand-by, 127*, 129t, 151*; Switzer-land, currency loan from, 35;wages, 64, 142*

UNITED NATIONS—Conference onTrade and Development, 8, 16-17;other affiliated organizations, co-operation with, 132-33

UNITED STATES—balance of paymentsand reserves, 4-6, 12-16, 51-61, 93-95, 136*, 140*; bank credit, 64-66;bonds, government, yields, 65-66,146*; capital markets, 71-75; capi-tal movements and control, 4-5, 47-51, 93-95; cost of living, 65t, 143*;debt management, 67-68; direct in-vestment, 47-50, 95; discount rates,67, 147*; dockworkers' strike, effecton economy, 43, 93; dollar sales, 5;drawings, gold tranche, 7, 35,126*; economic growth, 3-4, 62-63;employment, 3-4, 63; fiscal policy,70-72; Fund Article VIII, accept-ance, 124*; Fund quota increase,125*; General Arrangements toBorrow, participation, 128*; Gen-eral Arrangements to Borrow, re-newed, 34-35; gold holdings underearmark, 115; gold production, 112;gold transactions, 5, 115; gross na-tional product, 63*; industrial pro-duction, 62t, 141*; Interest Equali-zation Tax, 73, 97; interest rates,65-66, 68t, 148*; internationaltrade, 41-47, 138-39*; monetarypolicy, 67-68; money supply, 66t,145*; prices, 64-66; stand-by, 126*,127*, 129t, 151*; Viet-Nam con-


180 INDEX

flict, effects, 3, 6; wages, 63-64,142*

UPPER VOLTA—Fund quota increase,124

URUGUAY—balance of payments andreserves, 13*, 84-85*; economicconditions, 87; GATT consultation,Fund conference on, 132; repur-chases from Fund, 128*

VENEZUELA—balance of paymentsand reserves, 13*, 57*, 60*, 84-85*;economic conditions, 86; Fundquota increase, 125*; internationaltrade, 81*

VIET-NAM—balance of payments andreserves, 13*, 84-85*, 87; conflict

in, effects, 3, 6, 115-16; Fund quotaincrease, 125*

WAGE POLICY—developing countries,25

WAGES—cost per manufactured unit,641, 142*; industrial countries, 63-64; rates, 64t, 142*

WHEAT—Australian exports, 105*;Canadian shipments, 96; prices, 76-78, 149*

WHOLESALE PRICES—selected coun-tries, 64t, 143*

WOOL—Australian exports, 104-105;prices, 76-78, 149*

WORLD BANK—see INTERNATIONALBANK FOR RECONSTRUCTION ANDDEVELOPMENT

WORLD RESERVES—see RESERVES,GOLD AND FOREIGN EXCHANGE

WORLD TRADE—41-46, 137*; exportprices, 65t, 144*; growth, 41-45*;industrial countries, 431, 441, 138-39*; primary producing countries,79-82

YUGOSLAVIA—balance of paymentsand reserves, 4, 13*, 57*, 84-85*,86-87; drawings, 34, 124, 126*;GATT consultation, Fund confer-ence on, 132; international trade,81*; repurchases from Fund, 128*;stand-by, 127

ZAMBIA—balance of payments and re-serves, 84-85*, 87; initial par valueestablished, 123*; internationaltrade, 81*

ZINC—prices, 771, 79, 149*
