Appendix III Press Communiqués of the Interim Committee of the Board of Governors on the International Monetary System 1

International Monetary Fund
Published Date:
September 1979
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Press Communiqué, Eleventh Meeting, Washington, September 24, 1978

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its eleventh meeting in Washington, D.C. on September 24, 1978, under the chairmanship of Mr. Denis Healey, Chancellor of the Exchequer of the United Kingdom. Mr. J. de Larosiere, Managing Director of the International Monetary Fund, participated in the meeting. The following observers attended during the Committee’s discussions: Mr. Gamani Corea, Secretary-General, UNCTAD; Mr. Ali M. Jaidah, Secretary-General, OPEC; Mr. Rene Larre, General Manager, BIS; Mr. Emile van Lennep, Secretary-General, OECD; Mr. F. Leutwiler, President, Swiss National Bank; Mr. Olivier Long, Director-General, GATT; Mr. Robert S. McNamara, President, IBRD; Mr. Frangois-Xavier Ortoli, Vice-President, CEC; Mr. Jean Ripert, Under-Secretary-General for International Economic and Social Affairs, UN; and Mr. Cesar E. A. Virata, Chairman, Development Committee.

2. The Committee discussed the world economic outlook and the working of the international adjustment process.

The Committee recognized that progress had been made on various fronts in overcoming the serious difficulties that had beset the world economy during the years 1973-75. In countries that had taken policy measures to adjust to the disturbances of those years, the favorable effects were clearly evident. Nevertheless, the Committee noted, the current situation remained unsatisfactory in several important respects.

The Committee expressed concern that in most member countries rates of price increase continued to be much too high and substantial underutilization of economic resources, including high levels of unemployment, continued to prevail. On the international adjustment process, the Committee noted that wide differences in rates of inflation and growth in domestic demand had contributed to the continuation of large deficits and surpluses on current account among the industrial countries. These imbalances had resulted in unstable foreign exchange markets during the past year, and that this instability, in turn—through its effects on prices, confidence, and investment—had made the formulation and implementation of policies more difficult. The Committee emphasized that a return to exchange market stability would require the adoption of national policies to reduce inflation and to achieve more convergent rates of growth in domestic demand. In a further observation on the adjustment process, the Committee noted that a number of nonindustrial countries were encountering difficult problems of adjustment and external financing, in part because of the slow pace of world trade.

The Committee noted that inflation has continued to subside in a number of industrial countries but that it has tended to accelerate in some others, including the United States, where inflation has become the top priority of economic policy.

With respect to growth and resource utilization in the industrial world, the Committee’s concern focused mainly on the abnormally high unemployment rates and substantial slack in industrial capacity prevailing outside the United States. Attention was drawn to the marked differences in growth rates in recent years between the United States, where a relatively full cyclical recovery has taken place, and most of the other industrial countries, where real economic activity has not generally expanded fast enough since 1975 to reduce unemployment.

The Committee noted that in the group of non-oil developing countries the average rate of growth in total output had been relatively well sustained, but at a level appreciably below that of the 1967-72 period, so that only little room was left for gains in real income.

The Committee reiterated its concern about the risk of increasing resort to protectionism, and stressed the importance of an early and successful completion of the Multilateral Trade Negotiations.

In its discussion of the current situation and outlook, the Committee concluded that a welcome change in international trade flows was emerging. This reflected the effects of changes in exchange rates for major currencies that had taken place over the past year and a half. The effects on exports and imports in volume terms, which take considerable time to come through, were beginning to produce favorable shifts in the current account balances of the United States, Japan, and certain other countries. These shifts, the Committee observed, may be expected to increase and, over time, could lead to a substantial improvement in the current account balances of industrial countries, provided that the pattern of price increases and growth rates in domestic demand among countries was an appropriate one. Achievement of such a pattern, the Committee stressed, would require that countries adopt internal measures to offset the expansionary effects of exchange rate depreciation and the deflationary effects of exchange rate appreciation.

The Committee reaffirmed the conviction it expressed at the April 1978 meeting in Mexico City that a coordinated strategy of policy, including measures with respect to energy, was needed in present circumstances in order to encourage noninflationary growth of the world economy and to ensure a reduction in imbalances in international payments, thereby promoting underlying conditions conducive to economic and financial stability as well as to greater stability in exchange markets. The Committee emphasized that implementation of such a strategy for the medium term would require each country to contribute to growth of the world economy in relation to the strength of its external position and the success of its anti-inflation policy.

Successful pursuit of a medium-term strategy in the industrial countries would lead, in the Committee’s view, to marked improvement of the global environment for trade and development, with substantial benefits for the developing countries and other primary producing countries. The Committee believed that an improved world trading environment would help to arrest the recent ominous tendency toward use of protectionist trade measures. In addition, the Committee emphasized the desirability of measures on the part of the developed countries to open their markets more widely to products of the developing countries, to provide those countries more generous access to their capital markets, and—more generally—to assure the developing countries an adequate inflow of real resources, including a more satisfactory level of official development assistance.

3. The Committee considered a number of questions concerning the SDR on the basis of a report of the Executive Board on the subject. The Committee reached the conclusions set forth in paragraphs 4 and 5 below 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.

4. The Committee discussed the question of the resumption of allocations of SDRs and, in that connection, took into account the various views and considerations presented in the report of the Executive Board. The Committee agreed to recommend that a decision to allocate SDRs, on the basis of a proposal to be made by the Managing Director concurred in by the Executive Board by November 1, 1978, should be acted on by the Board of Governors before the end of the year in order to help meet the long-term global need to supplement existing reserve assets in a desirable manner. Such an allocation would also help to promote the objective of the amended Articles of making the SDR the principal reserve asset in the international monetary system. In the Committee’s view the Fund should make allocations of 4 billion SDRs in each of the next three years 1979 to 1981.

5. The Committee reached the following conclusions with regard to other aspects of the SDR.

(a) It was agreed that the interest rate on the SDR should be increased from 60 per cent of the weighted average of the short-term interest rates in the five member countries with the largest quotas to 80 per cent of that average and that the rate of remuneration should be set at 90 per cent of the interest rate on the SDR, that is, at 72 per cent of the combined market rate. This change would be subject to the following understandings: (i) Shortly before the end of each financial year, the Fund would consider whether the estimated net income of the Fund for that year was sufficiently large to permit the average annual rate of remuneration applicable for that year to be raised to a level above 90 but not above 100 per cent of the average annual rate of interest on the SDR and, in this connection, would also consider the possibility of lowering periodic charges on the Fund’s currency holdings in the future, (ii) At the time that the Executive Board decides to adopt the new formula for the rate of remuneration, it would take a decision to prevent an automatic increase in the initial rate of periodic charges on the Fund’s holdings that would otherwise occur under the Fund’s Rules and Regulations. The Executive Board would review the Fund’s financial position, and would take such action as might be necessary to protect that position, if the Fund’s total expenses exceeded its income in any period of six successive months.

(b) The Committee noted that the Executive Board had been pursuing its work with regard to additional types of uses of SDRs, namely, for loans, collateral security, and the direct settlement of obligations, that could be permitted by the Fund in accordance with the provisions of the amended Articles and expressed the hope that the Executive Board would complete this work, take the necessary decisions in the near future, and report on them to the Committee at its next meeting.

(c) The Committee endorsed the view of the Executive Board that the requirement of reconstitution of special drawing rights, namely, the obligation to maintain a minimum average balance of SDRs over specified periods, should be reduced from 30 to 15 per cent of net cumulative allocations and that this requirement should be considered further in the light of experience.

(d) The Committee noted that the Executive Board intends to keep under review the question of a Substitution Account.

6. 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.

7. In view of the need of a number of members for prompt financial assistance on the scale envisaged by the Supplementary Financing Facility, the Committee stressed again the importance it attached to the entry into operation of the Facility at the earliest possible date and urged all members that are expected to contribute to the financing of the Facility to take the necessary action so that it could be brought into operation at the earliest possible date.

8. The Committee noted that, in accordance with the Committee’s request, the Executive Board has begun a review of the conditionality attaching to the use of the Fund’s resources and that it intends to resume its consideration of the subject as soon as possible after the Annual Meeting of the Board of Governors.

9. The Committee agreed to hold its next meeting in Washington, D.C. in the spring of 1979.

Press Communiqué, Twelfth Meeting, Washington, March 7, 1979

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twelfth meeting in Washington, D.C. on March 7, 1979, under the chairmanship of Mr. Denis Healey, Chancellor of the Exchequer of the United Kingdom. Mr. J. de Larosière, Managing Director of the International Monetary Fund, participated in the meeting. The Committee welcomed Mr. Abdul Aziz Al-Quraishi, Governor of the Saudi Arabian Monetary Agency, Alternate for Mr. Mohammed Abal-Khail, Minister of Finance and National Economy of Saudi Arabia, on the occasion of the addition of a Saudi Arabian member to the Interim Committee.

The following observers attended during the Committee’s discussions: Mr. Gamani Corea, Secretary-General, UNCTAD; Mr. Jean Ripert, Under-Secretary-General for International Economic and Social Affairs, UN; Mr. Pierre Languetin, General Manager, Swiss National Bank; Mr. René Larre, General Manager, BIS; Mr. Emile van Lennep, Secretary-General, OECD; Mr. Olivier Long, Director-General, GATT; Mr. Ugo Mosca, Director General for Economic and Financial Affairs, CEC; Mr. René G. Ortiz, Secretary-General, OPEC; Mr. Ernest Stern, Vice President, Operational Staff, IBRD; and Mr. Cesar E. A. Virata, Chairman, Development Committee.

2. The Committee discussed the world economic outlook and the working of the international adjustment process.

The Committee found that the international economic picture remains unsatisfactory in some important respects, but looked forward to an improved payments situation among the industrial countries in 1979.

The Committee noted that although in some industrial countries growth of output had picked up, in most of them it continued at rates that were inadequate to reduce the prevailing high levels of unemployment and to stimulate stronger investment. Indeed, medium-term prospects for economic growth in the industrial countries were somewhat less favorable than they appeared at the time of the Committee’s previous meeting last September. In this environment, the volume of world trade was expanding at a slow pace and pressures for protectionist trade measures were spreading. It is hoped that the impending conclusion of the Multilateral Trade Negotiations in Geneva will help to reverse the trend toward protectionism.

The Committee was particularly concerned that rates of price increase remained much too high in many of the industrial countries. In some of them, particularly in Europe, inflationary tendencies would seem to require more moderate growth of money incomes. Indeed, the problem of inflation appeared to have become even more difficult over the past several months. This situation required stronger efforts to combat the persistent strength of price and cost pressures, since in many countries further progress in reducing inflation was an essential precondition for the resumption of vigorous economic growth.

A source of special concern to the Committee was the fact that many nonindustrial, or primary producing, countries continue to suffer from subnormal growth rates and high inflation rates. Although some of the primary producing countries have taken successful adjustment action, the general picture for that group, in the Committee’s view, is far from satisfactory. The Committee noted with concern the renewed rise in the balance of payments deficits on current account of most developing countries.

The Committee noted the prospect of a better distribution of current account balances among the major industrial countries in 1979 than in 1978—an improvement that would result from the effects of past exchange rate changes and of welcome shifts in growth rates of domestic demand, especially in the United States, the Federal Republic of Germany, and Japan. Realization and maintenance of this improvement, the Committee emphasized, would depend on the pursuit of appropriate national economic policies. The Committee believed that reduced payments imbalances would facilitate the attainment of greater exchange market stability and it noted the improvement achieved in this respect over recent months, following the important policy measures announced by the U.S. authorities on November 1, 1978.

Concern was expressed about the potentially unfavorable impact on many member countries of the recent emergence of uncertainties relating to the supply and price of oil. The Committee welcomed recent moves towards greater conservation of energy.

The Committee believed that the current situation called for maximum coordinated efforts on the part of member countries to follow appropriate policies to deal with problems of economic growth, inflation, and the balance of payments. The strategy envisaged was one geared to the existing diversity of economic positions among countries, to be implemented by economic measures tailored to their particular circumstances.

The Committee considered it especially important that economic policies of the industrial countries take account of the economic needs of the developing countries. Apart from the major contribution on this score that could be made through suecessful implementation of a coordinated medium-term strategy for growth and balance of payments adjustment, the Committee urged the industrial countries to make every effort to improve market access for the exports of developing countries and to expand the flow of official development assistance.

3. The Committee emphasized the importance of a high degree of international economic cooperation and, with this objective in mind, stressed the necessity of active surveillance by the Fund over the exchange rate and related policies of all members as a means of strengthening the adjustment process.

4. The Committee welcomed the recent entry into effect of the Supplementary Financing Facility, which will enhance the Fund’s ability to assist members facing serious payments imbalances that are large in relation to their quotas. The Committee reiterated its view that the Executive Board should consider the question of a subsidy account that would make it possible to alleviate the burden of the charges on low-income members of the Fund using the Facility.

5. The Committee also welcomed the decisions taken by the Executive Board under which SDRs can be used for making loans, settling obligations directly, and in providing security in the form of pledges and transfers subject to re transfer, and endorsed the intention of the Executive Board to pursue and complete, as soon as possible, its work on other types of operations involving uses of SDRs, in particular the use of SDRs in swaps, forward operations in SDRs, and donations of SDRs. The Committee also endorsed the intention of the Executive Board to consider increasing the number of official institutions that might, as other holders, be authorized to acquire, hold, and use SDRs.

6. The Committee considered a report by the Executive Board on an Account, to be administered by the Fund, that would accept deposits of foreign exchange from members of the Fund on a voluntary basis in exchange for an equivalent amount of SDR-denominated claims. The purpose of such an Account would be to take a further step toward making the SDR the principal reserve asset in the international monetary system. There was broad support in the Committee for active consideration in the Executive Board of such an Account, and the Executive Board has been asked to present its conclusions to the next meeting of the Committee.

7. The Committee agreed to hold its next meeting in Belgrade, Yugoslavia, on Monday, October 1, 1979, on the occasion of the next Annual Meeting of the Board of Governors. The Committee accepted with pleasure the invitation of the German Government to hold a meeting in Germany in the spring of 1980.


No communiqués were issued by the Development Committee during 1977/78. The following announcement was issued on September 27, 1978: “At its eleventh meeting on September 27, 1978, in Washington, D.C, the Development Committee selected the Honorable Cesar E. A. Virata, Minister of Finance of the Philippines, as Chairman for a further period of two years.”

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