Chapter

Appendix II: Principal Policy Decisions of the Executive Board and Reports to the Board of Governors

Author(s):
International Monetary Fund
Published Date:
September 1979
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A. Increases in Quotas of Fund Members—Seventh General Review

Report of the Executive Board to the Board of Governors

1. Article III, Section 2(a) of the Articles of Agreement provides that “The Board of Governors shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members. It may also, if it thinks fit, consider at any other time the adjustment of any particular quota at the request of the member concerned.” This report and the attached Resolution on increases in quotas under the current, i.e., the seventh, general review are submitted to the Board of Governors in accordance with Article III, Section 2.

In their Resolution of March 22, 1976, 1 the Board of Governors decided that “The seventh general review of quotas shall be completed by February 9, 1978.” The review was not completed by that date. At its meeting in Mexico City in April 1978, considerable progress was made by the Interim Committee toward achieving a consensus on the Seventh Review as reflected in the communiqué issued at the end of its meeting on April 30, 1978.

2. At the last meeting of the Interim Committee in Washington in September 1978, understandings were reached on all major issues of the Seventh Review, as reflected in the relevant passages from the Committee’s communiqué of September 24, 1978, as follows:

  • The Committee resumed its discussion of the Seventh General Review of Quotas and considered three major issues relating to it: the size of the overall increase in quotas, selective quota adjustments, and the method of payment of the increases in quotas. These issues were considered by the Committee in conjunction with the various issues relating to the SDR with which they are regarded as interrelated. The Committee recalled its view that there was a need for an increase in total quotas under the Seventh Review that would be adequate to meet the expected need for conditional liquidity over the next five years. The Committee also recalled its view that an adequate increase would strengthen the available sources of balance of payments financing by enhancing the ability of the Fund to provide such financing without heavy recourse to borrowing and by furthering the process of international adjustment.
  • The Committee’s view was that an increase in the overall size of quotas of 50 per cent would be appropriate to bring about a better balance between the size of the Fund’s resources and the need of members for balance of payments financing over the medium term. The Committee noted that the Executive Board does not intend to propose a general adjustment in quotas for five years after the Board of Governors approves the increase in quotas under the Seventh Review, unless there is a major change in the world economy and its financing needs.
  • The Committee noted with satisfaction that agreement had been reached on selective quota increases for 11 developing member countries: Iraq, Iran, Korea, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Singapore, and the United Arab Emirates.
  • Taking into account the conclusions reached on the issues relating to SDRs, including allocations of SDRs, the Committee was of the view that, for the quota increases proposed as a result of this review, participants in the Special Drawing Rights Department should pay 25 per cent of the quota increase in SDRs and that nonparticipants should pay the equivalent of 25 per cent of the increase in foreign exchange.
  • The Committee agreed to request the Executive Board to prepare and complete by November 1, 1978, for final decision and vote by the Board of Governors before the end of the year, a proposed resolution on increases in the quotas of members, which would include necessary provisions dealing with participation, the effective date of quota increases, and the method of payment of the increases in accordance with the understandings reached in the Committee.

The communiqué also included the following passage:

  • The Committee reached the conclusions … [on the issues related to SDRs] … with the understanding that these conclusions are interrelated and must be adopted in their entirety together with the understandings reached by the Committee on the Seventh General Review of Quotas. In the view of the Committee, therefore, decisions on all these issues relating to SDRs and on the Seventh General Review should be taken at the same time.

3. The Executive Board has considered a number of factors, both of a qualitative and quantitative nature, that affect the expected need for conditional liquidity and the Fund’s ability to finance that need over the medium term without heavy reliance on borrowing. One factor is the extent of the growth of, and possible fluctuations in, the value of international transactions; another factor is the likely continuation of relatively large payments imbalances for many countries in the next few years. In these circumstances, the demand for balance of payments financing may well rise, and the Fund’s resources should be sufficient to permit the Fund to finance a reasonable share of that demand.

Furthermore, the Executive Board, while acknowledging the contribution made by the international capital markets to the effective functioning of the international monetary system over the last few years, believes that an increase in Fund quotas can promote the process of international adjustment in ways that could not be achieved through the private markets. The Fund provides its members with balance of payments financing on the understanding that these members will follow appropriate policies of economic adjustment. In these circumstances, members’ access to the Fund’s resources must be sufficiently large to induce members with substantial balance of payments needs to use those resources and to pursue economic policies and programs which the Fund is able to support. While access to the Fund’s resources in terms of quota is now considerably in excess of the traditional policy norm of 100 per cent of quota under the credit tranche policy, the ratio between access to Fund credit and payments imbalances is considered to be lower than a decade ago.

In recent years, the Fund has established or expanded a number of special facilities to help deal with certain balance of payments problems of its members. Some of them, notably the Extended Fund Facility and the expanded Compensatory Financing Facility, which are of a continuing character, have increased access to Fund resources in relation to quota without additional financing being available to the Fund. On the other hand, borrowing by the Fund for the Oil Facilities of 1974 and 1975 and the Supplementary Financing Facility, which is expected to come into operation shortly, entailed, or will entail, the creation of claims on the Fund’s general resources which are encashable on demand if a lender has a balance of payments need. Moreover, as was the case with the Oil Facilities, the resources provided under the Supplementary Financing Facility will augment members’ access for a limited period of time only. At the end of that period, the Fund will be faced with both a reduction in the resources available to meet the needs of members and possibly large liquid liabilities relative to its quotas.

In view of the possibility of large payments imbalances over the next few years and the distribution of such imbalances, the Fund’s liquidity position is likely to be vulnerable, even though the volume of usable currencies available to the Fund has recently increased. Resources made available through increases in quotas give the Fund a more assured access to resources than borrowing.

In light of the above considerations, the Executive Board is of the view that, in general, increased access to the Fund’s resources should, over the longer run, normally result from an increase in Fund quotas.

4. For these reasons, and in accordance with the understandings reached by the Interim Committee at its meeting on September 24, 1978, the Executive Board now proposes to the Board of Governors increases in Fund quotas of 50 per cent for most members and special increases for 11 members. The Executive Board does not intend to propose a general adjustment of quotas for five years after the Board of Governors adopts this Resolution, unless there is a major change in the world economy and its financing needs.

5. The Executive Board will review the customary method of calculating quotas after the Seventh General Review of Quotas has been completed. In the context of the next general review of quotas, the Executive Board will examine the quota shares of members in relation to their positions in the world economy with a view to adjusting those shares better to reflect members’ relative economic positions while having regard to the desirability of an appropriate balance in the composition of the Executive Board.

6. Under the proposed Resolution, a member will be able to consent to the increase in its quota at any time on or before November 1, 1980. Therefore, unless this period is extended by the Executive Board, members will have until November 1, 1980 to take whatever action may be necessary under their laws to enable them to give their consent.

7. It is proposed that the increase in a member’s quota will take effect on the latest of the following three dates:

  • (a) The date on which the Fund receives the member’s consent to the increase in quota;
  • (b) The date of the payment of the increase in subscription; and
  • (c) The date on which the Fund determines that the participation requirement in paragraph 2 of the proposed Resolution has been satisfied. The proposed Resolution provides, however, that if the participation requirement in paragraph 2 has not been met by June 30, 1980, no increase in quotas under the Seventh Review would become effective until after October 5, 1980, so that there would be no changes in quotas during, or shortly before, the 1980 Annual Meeting of the Board of Governors, when the next election of Executive Directors will take place. If the participation requirement were met during the period July 1 to October 5, 1980, increases in quotas would become effective only after October 5, 1980.

The participation requirement in paragraph 2 is reached when the Fund determines that members having not less than 75 per cent of the total of quotas on November 1, 1978 have consented to increases in their quotas. In determining whether this degree of participation has been reached, the Fund will take into account all consents to increases, whether they are increases to the maximum amount provided for or to a smaller amount.

8. The proposed Resolution does not provide for increases in quotas by fixed installments. A member will be able, however, to consent to an increase smaller than the maximum provided for. The member will be able to consent to further increases, up to the maximum provided for, at a later date, provided it is within the period for consent under paragraph 3 of the proposed Resolution.

9. The proposed Resolution provides that a member must pay the increase in its subscription within 30 days after (a) the date on which the member notifies the Fund of its consent, or (b) the date on which the participation requirement is met, whichever is the later.

10. Reflecting the understandings reached at the September 1978 meeting of the Interim Committee, 25 per cent of the increase in quotas proposed as a result of the current review should be paid in SDRs for those members that are participants in the Special Drawing Rights Department, and 25 per cent of the increase in the quotas of nonparticipants should be paid in the currencies of other members specified by the Fund, subject to their concurrence. The balance of the increase shall be in a member’s own currency. These payments are in accordance with the prescription of Article III, Section 3(a), and therefore it is not necessary to include any provision for the payment of increases in the Resolution.

11. In accordance with paragraph 3 of the Interim Committee’s communiqué of September 24, 1978, the Executive Board has taken decisions on aspects of the special drawing right that are referred to in paragraph 5 of that communiqué. These decisions will become effective on the dates referred to in them if the proposed Resolution and the Resolution on allocations of SDRs become effective. The proposed Resolution provides that it will become effective if it and the proposed Resolution on the Allocation of Special Drawing Rights are adopted by the necessary majority of the total voting power for each.

12. The Executive Board recommends adoption of the attached Resolution. The attached Resolution is designed to enable the Board of Governors to vote at one time on all matters connected with the increases in quotas under the Resolution.

October 25, 1978

Resolution Submitted to the Board of Governors

Increases in Quotas of Members—Seventh General Review

Whereas the Executive Board has submitted to the Board of Governors a report entitled “Increases in Quotas of Fund Members—Seventh General Review” containing recommendations on increases in the quotas of individual members of the Fund; and

Whereas the Executive Board has recommended the adoption of the following Resolution of the Board of Governors, which Resolution proposes increases in the quotas of members of the Fund as a result of the Seventh General Review of Quotas and deals with certain related matters, by vote without meeting pursuant to Section 13 of the By-Laws of the Fund;

Now, therefore, the Board of Governors hereby resolves that:

1. The International Monetary Fund proposes that, subject to the provisions of this Resolution, the quotas of members of the Fund shall be increased to the amounts shown against their names in the Annex to this Resolution, provided that any member may consent to an increased quota that is smaller than the one shown in the Annex, and may consent thereafter to further increases that raise its quota to the amount shown against its name in the Annex not later than the date prescribed by or under paragraph 3 below.

2. A member’s increase in quota as proposed by this Resolution shall not become effective unless the member has notified the Fund of its consent to the increase not later than the date prescribed by or under paragraph 3 below and has paid the increase in quota in full, provided that (a) no increase in quota shall become effective before the date of the Fund’s determination that members having not less than three fourths of the total of quotas on November 1, 1978 have consented to increases in their quotas, and (b) if the determination has not been made before July 1,1980, no increase in quota shall become effective until after October 5,1980.

3. Notices in accordance with paragraph 2 above shall be executed by a duly authorized official of the member and must be received in the Fund not later than November 1, 1980, provided that the Executive Board may extend this period as it may determine.

4. Each member shall pay to the Fund the increase in its quota within 30 days after the later of (a) the date on which it notifies the Fund of its consent or (b) the date of the Fund’s determination under paragraph 2 above. If this determination is made in the period between July 1 and October 5, 1980, for the purpose of this paragraph it shall be deemed to have been made on October 5, 1980.

5. This Resolution shall become effective if it and the Proposed Resolution on Allocation of Special Drawing Rights for the Third Basic Period are adopted by the necessary majority of the total voting power for each.

ANNEX
Proposed

Maximum

Quota
(In millions

of SDRs)
1.Afghanistan67.5
2.Algeria427.5
3.Argentina802.5
4.Australia1,185.0
5.Austria.495.0
6.Bahamas49.5
7.Bahrain30.0
8.Bangladesh228.0
9.Barbados25.5
10.Belgium1,335.0
11.Benin24.0
12Bolivia67.5
13.Botswana13.5
14.Brazil997.5
15.Burma109.5
16.Burundi34.5
17.Cameroon67.5
18.Canada2,035.5
19.Central African Empire24.0
20.Chad24.0
21.Chile325.5
22.China, Republic of550.0
23.Colombia289.5
24.Comoros3.5
25.Congo, People’s
Republic of the25.5
26.Costa Rica61.5
27.Cyprus51.0
28.Denmark465.0
29.Dominican Republic82.5
30.Ecuador105.0
31.Egypt342.0
32.El Salvador64.5
33.Equatorial Guinea15.0
34.Ethiopia54.0
35.Fiji27.0
36.Finland393.0
37.France2,878.5
38.Gabon45.0
39.Gambia, The13.5
40.Germany, Federal
Republic of3,234.0
41.Ghana159.0
42.Greece277.5
43.Grenada4.5
44.Guatemala76.5
45.Guinea45.0
46Guinea-Bissau5.9
47Guyana37.5
48.Haiti34.5
49Honduras51.0
50.Iceland.43.5
51India1,717.5
52Indonesia720.0
53Iran1,075.0
54Iraq234.1
55Ireland232.5
56Israel307.5
57Italy1,860.0
58Ivory Coast114.0
59Jamaica111.0
60.Japan2,488.5
61.Jordan45.0
62.Kampuchea,
Democratic25.0
63.Kenya103.5
64.Korea255.9
65.Kuwait393.3
66.Lao People’s Democratic
Republic24.0
67.Lebanon27.9
68.Lesotho10.5
69.Liberia55.5
70.Libya298.4
71.Luxembourg46.5
72.Madagascar51.0
73.Malawi28.5
74.Malaysia379.5
75.Maldives1.4
76.Mali40.5
77.Malta30.0
78.Mauritania25.5
79.Mauritius40.5
80.Mexico802.5
81.Morocco225.0
82Nepal28.5
83Netherlands1,422.0
84New Zealand348.0
85Nicaragua51.0
86Niger24.0
87Nigeria540.0
88Norway442.5
89Oman.35.1
90Pakistan427.5
91Panama67.5
92Papua New Guinea45.0
93Paraguay34.5
94Peru246.0
95Philippines315.0
96.Portugal258.0
97Qatar66.2
98.Romania367.5
99.Rwanda34.5
100.São Tomé and Principe3.0
101.Saudi Arabia1,040.1
102.Senegal63.0
103.Seychelles2.0
104.Sierra Leone46.5
105Singapore92.4
106Solomon Islands3.2
107.Somalia34.5
108.South Africa636.0
109Spain835.5
110.Sri Lanka178.5
111.Sudan132.0
112.Suriname37.5
113.Swaziland18.0
114.Sweden675.0
115.Syrian Arab
Republic94.5
116.Tanzania82.5
117.Thailand271.5
118.Togo28.5
119.Trinidad and Tobago123.0
120.Tunisia.94.5
121.Turkey.300.0
122.Uganda75.0
123.United Arab
Emirates202.6
124.United Kingdom4,387.5
125.United States12,607.5
126.Upper Volta24.0
127.Uruguay126.0
128.Venezuela990.0
129.Viet Nam, Socialist
Republic of135.0
130.Western Samoa4.5
131.Yemen Arab Republic19.5
132.Yemen, People’s
Democratic
Republic of61.5
133.Yugoslavia415.5
134.Zaïre228.0
135.Zambia211.5

Board of Governors Resolution No. 34-2.

Adopted December 11, 1978

B. Allocation of Special Drawing Rights for the Third Basic Period

Proposal by the Managing Director of the International Monetary Fund

Introduction

Article XVIII, Section 4(a) and (b) of the Articles of Agreement of the Fund provides in relevant part that:

“(a) Decisions under Section 2(a), (b), and (c) or Section 3 of this Article shall be made by the Board of Governors on the basis of proposals of the Managing Director concurred in by the Executive Board.

(b) Before making any proposal, the Managing Director, after having satisfied himself that it will be consistent with the provisions of Section 1(a) of this Article, shall conduct such consultations as will enable him to ascertain that there is broad support among participants for the proposal.”

On June 29, 1977, the Managing Director made a report to the Board of Governors entitled “Report by the Managing Director to the Board of Governors and to the Executive Directors on the Allocation of Special Drawing Rights (Article XXIV, Section 4(c)),” 2 which concluded that, with respect to the third basic period, which would start on January 1, 1978, the Managing Director was not in a position to make a proposal before January 1, 1978.

The Report referred to above noted that the Managing Director can make a proposal at any time during the third basic period when he is satisfied that the requisite conditions of Article XVIII, Section 4(b) are fulfilled, and indeed is obliged to do so by Article XVIII, Section 4(c).

Pursuant to Article VIII, Section 4(a) and (b), I am now submitting to the Board of Governors a proposal for allocation of special drawing rights during the third basic period. Before making this proposal, I have satisfied myself, as required by Article XVIII, Section 4(b), that the proposal will be consistent with the provisions of Section 1(a) of that Article. Section 1(a) provides that:

“(a) In all its decisions with respect to the allocation and cancellation of special drawing rights the Fund shall seek to meet the long-term global need, as and when it arises, to supplement existing reserve assets in such manner as will promote the attainment of its purposes and will avoid economic stagnation and deflation as well as excess demand and inflation in the world.”

In addition, consultations have been conducted pursuant to Article XVIII, Section 4(b), which have enabled me to ascertain that there is broad support among participants for the proposal set forth in this Report. I refer in particular to paragraph 4 of the Press Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund, issued after its meeting on September 24, 1978, which states: “In the Committee’s view the Fund should make allocations of 4 billion SDRs in each of the next three years 1979 to 1981.”

Parts Iand II of this Report, which follow, discuss the reasons underlying my proposal and explain its various features. Part III includes the proposal and the draft of a resolution of the Board of Governors approving allocation of special drawing rights in accordance with this proposal.

Part I. Need to Supplement Reserves

1. Basis for allocation

This proposal to allocate special drawing rights is made in accordance with my conclusion that, as required by Article XVIII, Section 1(a), there is at present “a long-term global need … to supplement existing reserve assets.” The basis for this conclusion is set forth below.

With greater exchange rate flexibility, countries might have been expected to make do with much smaller reserves. Moreover, important changes have taken place in world financial markets in the last decade, and most countries can obtain reserves by making use of international money and capital markets.

Experience shows, however, that countries want to increase their reserves as the level of their international transactions rises, and such increases can be expected to continue in the coming years. While it is true that most countries have a means for satisfying their need for reserves when international capital markets are as free as they are today, the decision to allocate special drawing rights does not depend on a finding that the long-term global need cannot be met except by allocation. A characteristic of a system in which countries add to their gross reserves as their international indebtedness increases is that they are faced with the need for periodic refinancing. This difficulty does not arise when additions to net reserves are made through allocation of special drawing rights.

Another consideration is the objective of making the special drawing right the principal reserve asset of the international monetary system, as set out in Article VIII, Section 7 and Article XXII. Exclusive reliance on the accumulation of reserve currencies to provide the needed reserve increases would hardly be compatible with that objective. Although the role of the special drawing right does not depend on purely quantitative considerations, the amount of special drawing rights in existence is nonetheless relevant. The volume of special drawing rights has not increased since the beginning of 1972, and thus the share of this component in international liquidity has been progressively reduced. When allocation of special drawing rights for 1970-72 was decided upon at the end of 1969, it was thought that thereafter special drawing rights might well account for the bulk of reserve increases. In the event, holdings of reserve currencies have increased much faster than expected, and the actual share of holdings of special drawing rights in reserves excluding gold has declined from about 10 per cent at the beginning of 1972 to about 4 per cent at present. In the absence of allocation, the special drawing right would continue its rapid decline as a proportion of reserves.

In view of these considerations, I have concluded that, in accordance with the Articles, a decision should be taken to resume allocation of special drawing rights.

2. Size and period of allocation

Views on the desirable size of allocations of special drawing rights naturally take into account the present magnitude and expected growth of official reserves. The growth of official reserves in turn bears a relationship to the value of world trade, which for the next five years can conservatively be estimated to increase by some 10 per cent a year. The ratio of official reserves to the value of international trade has varied, however, from one period to another, and the increase in reserves could thus be above or below that rate. With the present level of members’ holdings of foreign exchange and Fund-related assets of SDR 230 billion, an average increase of SDR 20 billion a year over the next five years would appear to be a low estimate of the likely growth. Figures of this kind do not, of course, provide precise guidance for determining the appropriate level and time of allocations of special drawing rights, but do offer some point of reference for consideration in making such decisions.

It can be maintained, although this view is not universally shared, that with a highly elastic supply of reserves available through international capital markets, a substantial part of any allocation of special drawing rights could be expected to substitute for increases in official holdings of foreign exchange that would otherwise have taken place. This line of reasoning would suggest that any expansionary effects of allocation would be limited in size. Whatever view is taken of these issues, there can be no question that in the world of today the possible effects on expectations with respect to inflation of a decision to allocate special drawing rights also need to be taken into account. This consideration suggests that allocations at this time should be modest in terms of both annual size and the length of the period for which they should be made.

I have therefore concluded that the Fund should make allocations of SDR 4 billion in each of the next three years 1979 to 1981. In specifying these amounts, I have also had in mind the agreement that has been reached that special drawing rights will be used in partial payment for the quota increases that are to take place under the Seventh General Review of Quotas. The first allocation would be made as of the first day of the month following the effective date of the resolution of the Board of Governors, and the succeeding two allocations would be made as of the same day in each of the subsequent two years.

Part II. Elements of the Proposal

3. Proposed basic period

Article XVIII, Section 2(a) specifies that: “Decisions of the Fund to allocate or cancel special drawing rights shall be made for basic periods which shall run consecutively and shall be five years in duration.” That same section, however, allows the Fund to provide that the duration of a basic period shall be other than five years.

On the occasion of the first decision to allocate, a basic period of three years running from January 1, 1970 was prescribed. The second basic period thus began on January 1, 1973; as the Fund did not provide otherwise, that period ran for five years, with the current, i.e., third, basic period beginning on January 1, 1978.

It is proposed that allocations now be made under Article XVIII, Sections 2(c) and 4(c) (ii) for three years of the third basic period, and that the basic period end on the final day of the year in which the last of the three annual allocations is made. The third basic period that began on January 1, 1978 would thus have a terminal date of December 31, 1981 and a duration of four years, with allocations in the last three of those four years.

4. Participation during basic period

Article XVIII, Section 2(d) deals with members that become participants after a basic period begins—on this occasion, as from January 1, 1978. New participants may be new or existing members. New participants would include two classes: (a) those that were not participants at the start of the third basic period but that were participants on the effective date of the proposed resolution and (b) those that become participants after the effective date of the resolution. Article XVIII, Section 2(d) declares that a new participant shall not receive allocations in the basic period in which it becomes a participant but authorizes the Fund to decide to permit the member to receive allocations made after it becomes a participant. The decision referred to is taken by the Executive Board by a majority of the votes cast. I would expect that the Executive Board would react sympathetically to any request by a new participant, whether in class (a) or (b), above, to receive allocations made in the third basic period after it becomes a participant.

5. Allocations as percentages of quotas

Article XVIII, Section 2(b) provides that: “The rates at which allocations are to be made shall be expressed as percentages of quotas on the date of each decision to allocate,” but the Fund, under Section 2(c) of the same Article, may provide that the basis for allocations shall be quotas on dates other than the dates of decisions to allocate.

On the assumption that the only members receiving allocations were those that are at present participants, the rate for the first allocation would be 10.6 per cent of quotas. The method adopted to express the percentages of quotas for the proposal is designed to ensure that each of the three allocations will be close to SDR 4 billion and that the total amount allocated will be close to SDR 12 billion. 3 Specifically, the total would not be increased if the Executive Board should decide, by the date that the resolution of the Board of Governors becomes effective, to make new participants in class (a) of section 4, above, i.e., members that were not participants at the start of the third basic period but were participants on the effective date of the resolution, eligible to receive the allocations for that period.

The total amount of allocations would be reduced, however, if participants entitled to receive allocations “opt out.”4 In contrast, the total amount of allocations would be increased when any new participants in class (b) of section 4, above, i.e., those that become participants after the effective date of the resolution, are made eligible, by a decision of the Executive Board, to receive allocations made after they become participants.

The proposal also provides that the basis for each allocation shall be quotas on the day before that allocation. This provision is intended to deal with the expectation that increases in quotas under the Seventh General Review are to take place during the third basic period. It would have the result that all participants for which new quotas had gone into effect by the day prior to the allocation in question would receive allocations based on their share in the total quotas prevailing on that day, and that those participants whose new quotas had not gone into effect would receive a much reduced share.

6. Interrelated issues

The draft resolution provides that it would not become effective unless the draft resolution on the Seventh General Review of Quotas that is being proposed for simultaneous adoption by the Board of Governors is adopted. 5 This provision of the draft resolution on allocation is in accordance with paragraph 3 of the Interim Committee’s communiqué of September 24, 1978. In accordance with the same paragraph, the Executive Board has taken decisions on aspects of the special drawing right that are referred to in paragraph 5 of the communiqué. These decisions will become effective on the dates provided for in the decisions if the draft resolution becomes effective.

Part III. Proposal for the Allocation of Special Drawing Rights

I hereby propose that the Fund allocate special drawing rights to the participants in the Special Drawing Rights Department, in accordance with the Articles of Agreement, as follows:

  • 1. The third basic period, which began on January 1, 1978, shall end on December 31, 1981.
  • 2. Allocations during this basic period shall be made as of the first day of the month following the effective date of the resolution of the Board of Governors and as of the same date in each of the subsequent two years.
  • 3. The rate for each participant receiving an allocation shall be the percentage, rounded to the nearest one tenth of 1 percentage point, resulting from dividing SDR 4 billion by the total of quotas on the day before allocation of those participants that were eligible to receive allocations on the date on which this resolution becomes effective.

I further recommend that in accordance with the foregoing proposal, which has been concurred in by the Executive Board on October 25, 1978, the Board of Governors adopt the following proposed resolution.

October 25, 1978

Resolution Submitted to the Board of Governors

Allocation of Special Drawing Rights for the Third Basic Period

Whereas the Managing Director has submitted a proposal for the allocation of special drawing rights pursuant to Article XVIII, Section 4, of the Articles of Agreement of the International Monetary Fund;

Whereas in the Report containing his proposal, the Managing Director has declared that, before making the proposal, he had satisfied himself that the proposal would be consistent with the provisions of Article XVIII, Section 1(a), and that, after consultation, he has ascertained that there is broad support among participants for the proposal; and

Whereas the Executive Board has concurred in the proposal of the Managing Director;

Now, Therefore, the Board of Governors, being satisfied that the proposal of the Managing Director meets the principles governing the allocation of special drawing rights set forth in Article XVIII, Section 1(a) hereby resolves that:

  • 1. The third basic period, which began on January 1, 1978, shall end on December 31, 1981.
  • 2. The Fund shall make allocations to participants in the Special Drawing Rights Department that are eligible, in accordance with the Articles of Agreement, to receive allocations during the third basic period.
  • 3. Allocations shall be made as of the first day of the month following the date on which this resolution becomes effective and as of the same date in each of the subsequent two years.
  • 4. The rate for the allocations to participants eligible to receive allocations in accordance with 2 above shall be the percentage, rounded to the nearest one tenth of 1 percentage point, resulting from dividing SDR 4 billion by the total of quotas on the day before allocation of those participants that were eligible to receive allocations on the date on which this resolution becomes effective.
  • 5. This resolution shall become effective if it and the proposed resolution on the Seventh General Review of Quotas are adopted by the necessary majority of the total voting power for each.

Board of Governors Resolution No. 34-3

Adopted December 11, 1978

C. Rate of Interest on Special Drawing Rights, Rate of Remuneration, and Rates of Periodic Charges

(a) Rate of Interest on Special Drawing Rights: Rule T-1(b)

Rule T-1(b) shall be amended as follows with effect from the date of the first allocation of special drawing rights in the third basic period:

Unless the Executive Board decides otherwise, the rate of interest on holdings of special drawing rights for each calendar quarter shall be four fifths of the combined market interest rate as determined in (c) below, provided that the rate shall be rounded to the nearest ¼ of 1 per cent.

Decision No. 5933-(78/168) S

October 25, 1978, effective December 11, 1978

(b) Rate of Remuneration: Rule 1-10

Rule I-10 shall be amended as follows with effect from the date of the first allocation of special drawing rights in the third basic period:

  • (a) The rate of remuneration shall be equal to 90 per cent of the rate of interest on the special drawing right under Rule T-1 (b).
  • (b) The Fund shall review the rate of remuneration on the occasion of the quarterly review of the rate of interest paid by it on holdings of special drawing rights.
  • (c) Shortly before the end of each financial year the Fund shall consider whether the estimated net income of the Fund for that year was sufficiently large to permit the average annual rate of remuneration for that year to be raised to a level above 90 per cent but not above 100 per cent of the average annual rate of interest on the special drawing right. In considering whether to establish a higher rate of remuneration for a particular year, the Fund shall also consider the possibility of reducing the rates of charges applicable under Rule 1-7(5) (b)(i) from the beginning of the subsequent financial year.

Decision No. 5934-(78/168)

October 25, 1978, elective December 11, 1978

(c) Rates of Periodic Charges: Rule I-7(5)(b)(i)

Rule I-7 (5) (b) (i) shall be amended as follows with effect from the date of the first allocation of special drawing rights in the third basic period:

[I-7(5) The charge on a segment that is not subject to another schedule of charges and that is in excess of quota after exclusion of any segments subject to [charges under special facilities], shall be … (b) if the segment includes holdings acquired on or after July 1, 1974]

4⅜ per cent per annum for the first twelve months, provided that if in any period of six successive months the Fund’s total expenses exceeded its income the Executive Board will promptly review all aspects of the Fund’s financial position, including the rate of remuneration pursuant to Rule I-10 and the rate of charge for the first twelve months, and take such action as it considers necessary to safeguard the financial position of the Fund, and provided further that the rate of charge for the first twelve months shall be ¾ of 1 per cent above the rate of remuneration, unless, as a result of this review, the Executive Board decides within one month after the end of any such six-month period that a different rate of charge shall apply.

Decision No. 5935-(78/168)

October 25, 1978, effective December 11, 1978

D. Special Drawing Rights: Allocations to New Participants

Pursuant to Article XVIII, Section 2(d), it is decided that members that have, or will, become participants in the Special Drawing Rights Department between January 1, 1978 and December 31, 1978 and have informed the Fund that they wish to receive allocations of special drawing rights during the third basic period shall receive allocations in accordance with the Resolution of the Board of Governors on allocations of special drawing rights for the third basic period.

Decision No. 5956-(78/180) S

November 17, 1978

E. Special Drawing Rights: Reconstitution

(a) Reduction in the Minimum Average Holdings of SDRs

I. The Executive Board, having reviewed the rules for reconstitution in accordance with Article XIX, Section 6(b), decides as follows with respect to the five-year periods ending after the date of the first allocation of special drawing rights in the third basic period:

  • 1. The requirement under Schedule G, Paragraph 1(a)(i), regarding the maintenance of a minimum average of total daily holdings of special drawing rights shall be 15 per cent instead of 30 per cent.
  • 2. For the purposes of calculations under Schedule G, Paragraph 1 (a) (ii), that are made after the resolution on allocations becomes effective but before the date of the first allocation of special drawing rights in the third basic period, the minimum average daily holdings of special drawing rights required under Schedule G, Paragraph 1 (a) (i), shall be 15 per cent.

3. For the purposes of calculations under Schedule G, Paragraph 1(a) (ii), it shall be assumed that no allocations or cancellations of special drawing rights will be made after the third basic period.

II. The Executive Board will consider further in the light of experience the requirement under Schedule G, Paragraph 1 (a) (i), as amended by this decision.

Decision No. 5936-(78/168) S

October 25, 1978

(b) Obligation of a Participant That Has Received a First Allocation of SDRs Less Than Five Years Prior to the End of a Reconstitution Period

The Executive Board, having reviewed the rules for reconstitution in accordance with Article XIX, Section 6(b), decides that the requirement in Paragraph 1(a) (i) of Schedule G, as modified by Decision No. 5936-(78/168) S, October 25, 1978, shall apply to a participant for the reconstitution period ending five years after the first allocation of special drawing rights to it, and for the five-year period terminating at the end of each calendar quarter thereafter.

Decision No. 6063-(79/43)

March 14, 1979

F. Special Drawing Rights: Additional Uses

(a) Use in Settlement of Financial Obligations

A. In accordance with Article XIX, Section 2(c), the Fund prescribes that:

  • 1. A participant, by agreement with another participant, may use SDRs to settle a financial obligation to the other participant, other than an obligation to make a donation, if
    • (a) the obligation is denominated in
      • (i) SDRs, or
      • (ii) the currency of a member, or
      • (iii) the currency of a nonmember or another unit of account that is composed of currencies and is applied under an intergovernmental agreement, in respect of which arrangements have been completed for determination by the Fund of equal value in terms of the SDR on the basis of Article XIX, Section 1(a) and Rule 0-2; and
    • (b) the amount of SDRs to be used in the settlement of an obligation referred to in (a) (ii) or (a) (iii) above is equal in value, in terms of the SDR, at the time of settlement, to the amount of the obligation.
  • 2. The calculations under 1(b) above shall be made at the exchange rate of the third business day preceding the value date or of the second business day preceding the value date if agreed between the parties.
  • 3. Participants intending to use or acquire SDRs under 1(a) above shall inform the Fund of the denomination and amount of the obligation and the intended value date of the operation. As required by Rule P-7 the lender and the borrower shall declare that the intended use of SDRs will be in accordance with this prescription.
  • 4. Transfers of SDRs under this prescription shall be made only upon the receipt by the Fund of instructions from the transferor and the transferee.

B. The Fund shall record operations under this prescription in accordance with Rule P-9.

C. The Fund shall review this decision prior to June 30 of each year.

Decision No. 6000-(79/1) S

December 28, 1978

(b) Use in Loans

A. In accordance with Article XIX, Section 2(c), the Fund prescribes that:

  • 1. A participant, by agreement with another participant, may make a loan of SDRs to the other participant if
    • (a) the principal amount of the loan is denominated in
      • (i) SDRs, or
      • (ii) the currency of a member, or
      • (iii) the currency of a nonmember or another unit of account that is composed of currencies and is applied under an intergovernmental agreement, in respect of which arrangements have been completed for determination by the Fund of equal value in terms of the SDR on the basis of Article XIX, Section 1(a) and Rule 0-2; and
    • (b) the amount of SDRs used in a loan referred to in (a) (ii) or (a) (iii) above is equal in value, in terms of the SDR, at the time of the use, to the amount of the loan; and
    • (c) the borrower has undertaken the following obligations under the loan agreement:
      • (i) if the loan is denominated in SDRs, to repay with the same amount of SDRs, or the equivalent, at the time of repayment, in the currency of a member on the basis of Article XIX, Section 1(a) and Rule 0-2, or in the currency of a nonmember or another unit of account under (a) (iii) above in accordance with the arrangements for valuation referred to therein;
      • (ii) if the loan is denominated in the currency of a member and is to be repaid in SDRs, to repay with the equivalent in SDRs, at the time of repayment, on the basis of Article XIX, Section 1(a) and Rule 0-2;
      • (iii) if the loan is under (a) (iii) above and is to be repaid in SDRs, to repay with the equivalent in SDRs, at the time of repayment, in accordance with the arrangements for valuation referred to in (a) (iii) above.
    • 2. The calculations under 1(b) and (c) above shall be made at the exchange rate of the third business day preceding the value date or of the second business day preceding the value date if agreed between the parties.
    • 3. Repayment and the payment of interest with SDRs shall be made in accordance with the prescription of the use of SDRs in the settlement of financial obligations.
    • 4. Participants intending to lend or borrow SDRs under this prescription shall inform the Fund of the amount and value date of the loan, the denomination, rate of interest, maturity, and means of repayment agreed between the parties. As required by Rule P-7 the lender and the borrower shall declare that the intended use of SDRs will be in accordance with this prescription.
    • 5. Transfers of SDRs under this prescription shall be made only upon the receipt by the Fund of instructions from the transferor and the transferee.

B. The Fund shall record operations under this prescription in accordance with Rule P-9.

C. The Fund shall review this decision prior to June 30 of each year.

Decision No. 6001-(79/1) S

December 28, 1978

(c) Prescription Under Article XIX, Section 2(c) of Use of SDRs by Participants in Pledges

In accordance with Article XIX, Section 2(c), the Fund prescribes that:

  • 1. A participant, by agreement with another participant, may pledge SDRs to secure the performance of a financial obligation to the other participant, other than an obligation to make a donation, if the obligation is denominated in
    • (i) SDRs, or
    • (ii) the currency of a member, or
    • (iii) the currency of a nonmember or another unit of account that is composed of currencies and is applied under an intergovernmental agreement, in respect of which arrangements have been completed for determination by the Fund of equal value in terms of the SDR on the basis of Article XIX, Section 1(a) and Rule 0-2.

2. Participants intending to engage in an operation involving the pledge of SDRs as pledgor or pledgee shall inform the Fund of the terms of the pledge relating to the amount and denomination of the obligation to be secured by the pledge, the amount of SDRs to be pledged, the effective date of the pledge, and the party or other entity designated by the parties to the operation to give instructions to the Fund to terminate the pledge in whole or in part or to transfer the pledged SDRs to the pledgee. As required by Rule P-7 the parties to the operation shall declare that the intended use of SDRs will be in accordance with this prescription.

3. The Fund shall record a pledge of SDRs under this prescription only upon receipt by the Fund of instructions from the parties to the operation. A change in the terms of the pledge referred to in 2 above, if consistent with this prescription, shall take effect upon receipt by the Fund of instructions from the parties to the operation. The amount of SDRs to be pledged shall be set aside and shall not be used during the period of the pledge except in accordance with instructions authorized by the terms of the pledge or in order to discharge an obligation of the pledgor under the Articles of Agreement.

4. The amount of SDRs to be transferred to the pledgee in accordance with instructions authorized by the terms of the pledge in satisfaction of the secured obligation shall discharge an equal amount, in terms of the SDR, of the secured obligation at the time of the transfer. Calculations for this purpose shall be made at the exchange rate of the third business day preceding the date of the transfer or of the second business day preceding the date of the transfer if agreed between the parties.

5. The Fund shall give adequate notice to the parties to an operation under this prescription before pledged SDRs are to be transferred

  • (a) in accordance with the terms of the pledge; or
  • (b) in order to discharge an obligation of the pledgor under the Articles of Agreement.

6. The notice under 5(b) above may include advice on the ways in which the obligation could be discharged without the use of pledged SDRs, or in which the pledge of SDRs could be restored.

7. The Fund shall record operations under this prescription in accordance with Rule P-9.

8. The Fund shall review this decision prior to June 30 of each year.

Decision No. 6053-(79/34) S

February 26, 1979

(d) Prescription Under Article XIX, Section 2(c) of Use of SDRs by Participants in Transfers as Security for the Performance of Financial Obligations

In accordance with Article XIX, Section 2(c), the Fund prescribes that:

  • 1. A participant, by agreement with another participant, may transfer SDRs to the other participant in order to secure the performance of a financial obligation to the other participant, other than an obligation to make a donation, if the obligation is denominated in
    • (i) SDRs, or
    • (ii) the currency of a member, or
    • (iii) the currency of a nonmember or another unit of account that is composed of currencies and is applied under an intergovernmental agreement, in respect of which arrangements have been completed for determination by the Fund of equal value in terms of the SDR on the basis of Article XIX, Section 7(a) and Rule 0-2.

2. Participants intending to engage, as transferor or transferee, in an operation involving the transfer of SDRs as security shall inform the Fund of the terms of the security arrangement relating to the amount and denomination of the obligation to be secured, the amount of SDRs to be transferred, the effective date of the transfer, any agreement by the parties regarding SDRs received from the Fund as interest in respect of the transferred SDRs, and the party or other entity designated by the parties to the operation to give instructions to the Fund for the retransfer. As required by Rule P-7 the parties to the operation shall declare that the intended use of SDRs will be in accordance with this prescription.

3. The Fund shall record a transfer of SDRs under this prescription upon the receipt by the Fund of instructions from the parties to the operation. A change in the terms of the security arrangement referred to in 2 above, if consistent with this prescription, shall take effect upon receipt by the Fund of instructions from the parties to the arrangement. At the request of the parties, the amount of SDRs transferred as security shall be set aside and shall not be used during the period of the security arrangement except in accordance with instructions authorized by the terms of the arrangement or in order to discharge an obligation of the transferee under the Articles of Agreement.

4. The amount of SDRs transferred as security shall be retransferred in accordance with instructions authorized by the terms of the security arrangement, or retained in the absence of such instructions. The amount of SDRs retained shall discharge an equal amount, in terms of the SDR, of the secured obligation at the time of the retention. Calculations for this purpose shall be made at the exchange rate of the third business day preceding the date of retention or of the second business day preceding the date of retention if agreed between the parties.

5. The Fund shall give adequate notice to the parties to an operation under this prescription before the amount of SDRs held by the transferee as security are to be

  • (a) retransferred in accordance with the terms of the arrangement; or
  • (b) reduced in order to discharge an obligation of the transferee under the Articles of Agreement.

6. The notice under 5(b) above may include advice on the ways in which the obligation could be discharged without the use of the SDRs held as security, or in which these holdings could be restored.

7. The Fund shall record operations under this prescription in accordance with Rule P-9.

8. The Fund shall review this decision prior to June 30 of each year.

Decision No. 6054-(79/34) S

February 26, 1979

G. Trust Fund

(a) Amendment of Section III, Paragraph 4(a) of the Trust Instrument

Section III, Paragraph 4(a) of the Instrument to Establish the Trust Fund annexed to Decision No. 5069-(76/72), 6 adopted May 5, 1976, is modified to read as follows:

The Trustee may invest balances of currency held by the Trust with the concurrence of the member whose currency is to be used. The Trustee may invest in (i) marketable obligations of international financial organizations, (ii) marketable obligations denominated in special drawing rights issued by members or national official financial institutions of members, (iii) marketable obligations issued by, and denominated in the currency of, the member, or its national official financial institutions, whose currency is used to make an investment, and (iv) deposits denominated in special drawing rights with commercial banks.

Decision No. 5972-(78/189)

December 4, 1978

(b) Diversification of Trust Fund Investments

1. The Fund, recognizing that the SDR is the unit of account in which the assets of the Trust established by Decision No. 5069-(76/72), 7 adopted May 5, 1976, are valued, concludes that it would be desirable to continue to maintain, in a manner compatible with the operational needs of the Trust, the currency assets of the Trust, other than those that need to be distributed directly to developing countries in proportion to their quotas on August 31, 1975, in assets denominated in SDRs or in a combination of currencies that would, to the maximum extent practicable, correspond to the composition of the SDR basket.

2. The Managing Director shall place in deposits, denominated in SDRs, with the Bank for International Settlements (BIS) the profits from the gold sales realized in the remainder of the auctions to be held under Paragraph 7, Schedule B, with the exception of the portion of these profits that is to be distributed directly to developing countries in proportion to their quotas on August 31, 1975, unless the Managing Director considers that the terms offered by the BIS on an intended deposit denominated in SDRs are not sufficiently attractive. In that event the Managing Director shall inform the Executive Board and make other proposals to it for investment in SDR-denominated obligations, which may include obligations of international financial organizations or members or national official financial institutions of members or commercial banks. If it is not possible to make investments in SDR-denominated obligations on terms that are sufficiently attractive, the Managing Director shall make other proposals for investment.

Decision No. 5973-(78/189) TR

December 4, 1978

H. Oil Facility: Transferability of Claims

1. The Executive Board has reviewed paragraph 8 of the form letter in the Annex to Executive Board Decision No. 4242-(74/67), 8 adopted June 13, 1974, as amended.

2. The holders of claims to repayment by the Fund arising under agreements to borrow entered into by the Fund pursuant to Executive Board Decision No. 4242-(74/67) and Executive Board Decisions No. 4635-(75/47) 9 and No. 4916-(75/208) 10 for the purpose of financing the 1974 and 1975 oil facilities are authorized to transfer all or part of the claims to repayment on the terms and conditions set forth below:

  • (a) For value agreed between transferor and transferee, transfers may be made at any time of all or part of a claim to repayment in accordance with the following provisions:
    • (i) Transfers may be made to any member, a member’s national official financial institution (hereinafter referred to as an “institution of the member”), or any institution that performs functions of a central bank for more than one member, or to any lender to the Fund under the decisions cited in the preamble to this paragraph 2.
    • (ii) The transferor of a claim shall inform the Fund promptly of the claim that is being transferred, the transferee, the amount of the transfer, the agreed value for the transfer, and the value date. The transfer shall be registered by the Fund if it is in accordance with the terms and conditions of this decision. The transfer shall be effective as of the value date agreed between the transferor and transferee.
    • (iii) If all or part of a claim is transferred during a quarterly period as described in the standard paragraph 4 of the agreement as set forth in the Annex to Executive Board Decision No. 4242-(74/67), the Fund shall pay interest on the amount of the claim transferred for the whole of that period to the transferee.
    • (iv) The claim of a transferee shall be the same in all respects as the claim of the transferor and subject to the same provisions, except that:
      • a. The provision for encashment by the Fund set forth in paragraph 5(c) of the Annex to Executive Board Decision No. 4242-(74/67) shall apply only if, at the time of the transfer, the transferee is a member, or the institution of a member, that is in a net creditor position in the Fund and in the opinion of the Fund the member’s currency could be used in net sales in the Fund’s operational budgets for the foreseeable future;
      • b. In place of paragraph 6 of the original agreement on the means of repayment and payment of interest, the following text shall apply:
      • 6. The Fund shall consult the transferee in order to agree on the means in which payment of interest and repayment will be made, but, if agreement is not reached, the Fund shall have the option to make payment or repayment in the currency of the transferee or any freely usable currency or currencies, or some combination of these currencies. In addition, if the transferee is a participant in the Special Drawing Rights Department, or a prescribed holder of special drawing rights, the Fund may make payment or repayment, in whole or in part, in SDRs.

3. In accordance with paragraph 8 of the form letter in the Annex to Executive Board Decision No. 4242-(74/67) adopted June 13, 1974, as amended, transfers other than those subject to paragraph 2 above may be made on such terms and conditions and to such transferees as the Fund may prescribe.

4. On request, the Fund shall assist in seeking to arrange transfers.

Decision No. 5974-(78/190)

December 4, 1978

I. Transferability of Claims on Fund Under Oil Facility and Supplementary Financing Facility: Meaning of “Net Creditor Position in Fund”

For the purposes of Paragraph 3 of Executive Board Decision No. 5509-(77/127) 11 of August 29, 1977, Paragraph 8(d) of the letter annexed to that Decision, and Paragraph 2(a) (iv)a of Executive Board Decision No. 5974-(78/190) 12 of December 4, 1978, a member shall be considered to have a “net creditor position in the Fund” if the member has a reserve tranche position on which it receives remuneration and the Fund’s holdings of the member’s currency do not include any balances subject to repurchase under Schedule B or any balances subject to charges under Article V, Section 8(b) of the Articles of Agreement.

Decision No. 6008-(79/3)

January 5, 1979

J. Surveillance: Procedures

1. Review. The Executive Board has reviewed the procedures relating to the Fund’s surveillance over members’ exchange rate policies. These procedures, and the procedures for regular consultations under Article IV, will be reviewed again by the Executive Board in December 1979. The Executive Board will review the document “Surveillance over Exchange Rate Policies” at an appropriate time not later than April 1, 1980, as provided for in paragraph 2 of Decision No. 5392-(77/63), 13 adopted April 29, 1977....

3. Supplemental surveillance procedure …. Whenever the Managing Director considers that a modification in a member’s exchange arrangements or exchange rate policies or the behavior of the exchange rate of its currency may be important or may have important effects on other members, whatever the member’s exchange arrangements may be, he shall initiate informally and confidentially a discussion with the member before the next regular discussion under Article IV. If he considers after this prior discussion that the matter is of importance, he shall initiate and conduct an ad hoc consultation with the member and shall report to the Executive Board, or informally advise the Executive Directors, on the consultation as promptly as the circumstances permit after conclusion of the consultation. This procedure will supplement the proceedings in Executive Board Decision No. 5392-(77/63), adopted April 29, 1977.

Decision No. 6026-(79/13)

January 22, 1979

K. Guidelines on Conditionality

The Executive Board agrees to the text of the guidelines on conditionality for the use of the Fund’s resources and for stand-by arrangements as set forth [below].

Decision No. 6056-(79/38)

March 2, 1979

Use of Fund’s General Resources and Stand-By Arrangements

1. Members should be encouraged to adopt corrective measures, which could be supported by use of the Fund’s general resources in accordance with the Fund’s policies, at an early stage of their balance of payments difficulties or as a precaution against the emergence of such difficulties. The Article IV consultations are among the occasions on which the Fund would be able to discuss with members adjustment programs, including corrective measures, that would enable the Fund to approve a stand-by arrangement.

2. The normal period for a stand-by arrangement will be one year. If, however, a longer period is requested by a member and considered necessary by the Fund to enable the member to implement its adjustment program successfully, the standby arrangement may extend beyond the period of one year. This period in appropriate cases may extend up to but not beyond three years.

3. Stand-by arrangements are not international agreements and therefore language having a contractual connotation will be avoided in stand-by arrangements and letters of intent.

4. In helping members to devise adjustment programs, the Fund will pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members, including the causes of their balance of payments problems.

5. Appropriate consultation clauses will be incorporated in all stand-by arrangements. Such clauses will include provision for consultation from time to time during the whole period in which the member has outstanding purchases in the upper credit tranches. This provision will apply whether the outstanding purchases were made under a stand-by arrangement or in other transactions in the upper credit tranches.

6. Phasing and performance clauses will be omitted in stand-by arrangements that do not go beyond the first credit tranche. They will be included in all other stand-by arrangements but these clauses will be applicable only to purchases beyond the first credit tranche.

7. The Managing Director will recommend that the Executive Board approve a member’s request for the use of the Fund’s general resources in the credit tranches when it is his judgment that the program is consistent with the Fund’s provisions and policies and that it will be carried out. A member may be expected to adopt some corrective measures before a stand-by arrangement is approved by the Fund, but only if necessary to enable the member to adopt and carry out a program consistent with the Fund’s provisions and policies. In these cases the Managing Director will keep Executive Directors informed in an appropriate manner of the progress of discussions with the member.

8. The Managing Director will ensure adequate coordination in the application of policies relating to the use of the Fund’s general resources with a view to maintaining the nondiscriminatory treatment of members.

9. The number and content of performance criteria may vary because of the diversity of problems and institutional arrangements of members. Performance criteria will be limited to those that are necessary to evaluate implementation of the program with a view to ensuring the achievement of its objectives. Performance criteria will normally be confined to (i) macroeconomic variables, and (ii) those necessary to implement specific provisions of the Articles or policies adopted under them. Performance criteria may relate to other variables only in exceptional cases when they are essential for the effectiveness of the member’s program because of their macroeconomic impact.

10. In programs extending beyond one year, or in circumstances where a member is unable to establish in advance one or more performance criteria for all or part of the program period, provision will be made for a review in order to reach the necessary understandings with the member for the remaining period. In addition, in those exceptional cases in which an essential feature of a program cannot be formulated as a performance criterion at the beginning of a program year because of substantial uncertainties concerning major economic trends, provision will be made for a review by the Fund to evaluate the current macroeconomic policies of the member, and to reach new understandings if necessary. In these exceptional cases the Managing Director will inform Executive Directors in an appropriate manner of the subject matter of a review.

11. The staff will prepare an analysis and assessment of the performance under programs supported by use of the Fund’s general resources in the credit tranches in connection with Article IV consultations and as appropriate in connection with further requests for use of the Fund’s resources.

12. The staff will from time to time prepare, for review by the Executive Board, studies of programs supported by stand-by arrangements in order to evaluate and compare the appropriateness of the programs, the effectiveness of the policy instruments, the observance of the programs, and the results achieved. Such reviews will enable the Executive Board to determine when it may be appropriate to have the next comprehensive review of conditionality.

L. Guidelines for Early Repurchase

Preamble

This decision sets forth guidelines for members regarding early repurchase under the first sentence of Article V, Section 1(b) when the balance of payments and reserve position of members improves. The guidelines apply to the Fund’s holdings of currency that result from the purchases under Article V, Section 3 that are referred to in the following sentence and are subject to repurchase under the provisions of the Articles and policies of the Fund. This decision, and any future changes in it, shall apply in respect of holdings of currency resulting from purchases made either (i) under stand-by or extended arrangements approved by the Fund after October 1, 1977, or (ii) after the date of this decision, but not under stand-by or extended arrangements approved by the Fund before October 1, 1977. Decision No. 5704-(78/39) 14 shall continue to apply in respect of holdings of currency resulting from purchases made after April 1, 1978 and before the date of this decision that were not made under a stand-by or extended arrangement.

The Fund’s authority to select the currencies to be used in purchases in accordance with the Articles and its policies is not modified by these guidelines.

1. A member’s balance of payments and reserve position will be deemed normally to have improved sufficiently for early repurchases to be expected in accordance with these guidelines if the member’s position is judged sufficiently strong for the purposes of a quarterly designation plan and operational budget as determined by the Fund from time to time in the light of the relevant factors. A member that makes a purchase in the credit tranches or under a special policy of the Fund will not be expected, however, to make early repurchases until the quarter following the second full quarter after its purchase.

2. During the quarter following the decisions adopting the designation plan and operational budget, it will be expected that the Fund’s holdings of the member’s currency will be reduced by a specified amount, either by repurchases or by sales of the member’s currency, or by some combination of the two. The method employed will be at the option of the member.

3. Subject to paragraphs 4 and 5 below, the specified amount for the expected quarterly repurchase will be 1.5 per cent of the member’s gross reserves plus (minus) 5 per cent of the increase (decrease) in gross reserves over the latest six-month period for which data are available (“latest gross reserves”). The quarterly amount will be subject to a limit of 4 per cent of the member’s latest gross reserves. A quarterly repurchase will be limited to an amount that will not (i) reduce the member’s latest gross reserves below 250 per cent of the member’s quota, and (ii) exceed, together with the member’s early repurchases and sales of its currency during the preceding three quarters, 10 per cent of these reserves.

4. The specified amount in accordance with paragraph 3 above will represent the minimum reduction in the Fund’s holdings of the member’s currency expected during the quarter. Repurchases by the member and sales of the member’s currency during the quarter will be included in calculating the reductions for this purpose. If the member’s repurchases made during a quarter in advance of repurchase maturities, or the sale of its currency during that quarter, exceed the minimum reduction expected during that quarter, the excess will give rise to a credit that will meet pro tanto the expectations of early repurchase for the next five quarters. At the end of a quarter the credit will be reduced by the larger of (i) the repurchase expectation for the quarter that is deemed to be satisfied by the credit, and (ii) the repurchase obligations that would have matured during the quarter but have been discharged by the advance repurchase or by the sale.

5. If, during the two quarters prior to the date when a member is added to the list of members whose positions are considered sufficiently strong for the purposes of the quarterly designation plan and operational budget, the member’s repurchases in advance of maturity, or the sale of its currency, exceed the minimum reduction expected during those two quarters, a credit will be given in accordance with paragraph 4 above. Any credit still available when a member’s balance of payments and reserve position is no longer considered sufficiently strong for the purposes of a quarterly designation plan and operational budget will continue to apply in accordance with paragraph 4 above.

6. If a member has opted to have its currency sold, it will be included in the operational budget for the amount calculated in accordance with paragraphs 3, 4, and 5 above, less the amount of its repurchase obligations maturing during the quarter. If the Fund has not sold the currency in the specified amount before the end of the second month of the quarter, the member will be expected to repurchase any balance remaining before the end of the quarter.

7. In each operational budget the Managing Director will report on the observance by members of the guidelines for early repurchase.

8. This decision will be reviewed from time to time in the light of experience.

Decision No. 6172-(79/101)

June 28, 1979

1See Annual Report, 1976, page 108.
2Refers to Articles of Agreement in effect before the Second Amendment.
3Because the percentage is to be rounded to the nearest one tenth of 1 percentage point, an allocation could in practice exceed or fall short of the desired amount by not more than one twentieth of 1 percentage point of total quotas, i.e., a difference in absolute terms that would not be greater than about SDR 19 million on the basis of quotas at the present time.
4For a participant to be able to “opt out,” in accordance with Article XVIII, Section 2 (e), it must not have voted in favor of the resolution and must inform the Fund before the first allocation under the resolution that it does not wish to receive allocations under that resolution.
5See pages 121-23.
6See Annual Report, 1976, page 115.
7See Annual Report, 1976, pages 111-17.
8See Annual Report, 1974, pages 124-26.
9See Annual Report, 1975, pages 94-95.
10Selected Decisions of the International Monetary Fund and Selected Documents (Eighth Issue, Washington, 1976), page 128.
11See Annual Report, 1978, page 115.
12See page 135.
13See Annual Report, 1977, pages 107-109.
14See Annual Report, 1978, pages 125-26.

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