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INTERNATIONAL MONETARY FUND:
1978-86
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Federal Reserve Bank of St. Louis
Collection: Paul A. Volcker Papers
Call Number: MC279
Box 28
Preferred Citation: International Monetary Fund (IMF), 1978-1986; Paul A. Volcker Papers, Box
28; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University
Library
Find it online: http://findingaids.princeton.edu/collections/MC279/c194 and
https://fraser.sdouisfed.org/archival/5297
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Federal Reserve Bank of St. Louis
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BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
DIVISION OF INTERNATIONAL FINANCE
DATE
TO
FROM
1/27/86/
Chairman Volcker
TED TRUMAN
Attached for your information is the final
text of Charles Dallara's statement on IMF
conditionality. These discussions essentially
are mandated by the passage of time. In this
context and against the background of what you
and other U.S. officials have been saying, this
statement could have been worse. It does contain
-- see marked passages on pages 3, 9, 13, 18 and
19 -- some passages that suggest the conditional
nature of IMF conditionality.
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Federal Reserve Bank of St. Louis
DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE
January 23, 1986 - 86/8
Statement by Mr. Dallara on Issues
in the Implementation of Conditionality
Executive Board Meeting 86/1 1
January 24, 1986
The material provided as background for our Board discussion
on conditionality provides substantial empirical evidence, as
well as useful analysis, on many issues related to the implementation of Fund conditionality. I would like to take as a
point of departure for my statement the comment on page 1 of the
staff document (EBS/85/265) that the "Fund's support for members'
adjustment efforts has played a critical role for promoting a
coordinated approach to problems of adjustment and financing, an
approach that in the large has been remarkably successful in
preserving the fabric of international cooperation."
This success should be attributed in part to the Fund's
policies and procedures relating to the use of its resources,
policies knowr collectively as "conditionality." These policies,
built up through case-by-case experience over a period of more
than three decades, and codified in two Board reviews in the late.
1960s and 1970s, respectively, have generally served the Fund and
its membership well. They have enabled the Fund to support, as
Mr. Guitian indicates in his pamphlet on Fund conditionality,
members' adjustment efforts in a manner consistent with that
member's economic interests and objectives, as well as the
broader interests of the Fund as a whole.
This has, in some respects, been reinforced by the
experience of the early 1980s, when the Fund has been called upon
to provide temporary balance of payments financing and policy
advice, in the context of standby or extended arrangements, on an
unprecedented scale. The credibility of the Fund in providing
policy advice and encouraging needed policy changes has been
critical to the Fund's ability to catalyze additional resource
flows, and more generally to its ability to foster progress in
dealing with theAserious economic problems which many debtor
countries experienced during the early 1980s.
Fund conditionality has evolved over time, adapted gradually
to the changing economic circumstances and needs of its members. Further changes should also be made in a cautious and
evolutionary fashion.
But we should not shy away from the need
for further adaptations in Fund conditionality, particularly at a
time when the staff paper makes clear, "in spite of the adaptations that have been made in Fund conditionality, questions
remain about its effectiveness."
It is, therefore, important, as
the paper suggests, to consider "whether improvements can be made
in the design of adjustment programs to bring about stronger
assurances of both balance of payments adjustment and sustained
growth."
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It is a fact that a substantial number of members entering
into Fund arrangements over the last five years have not been as
successful in their adjustment efforts as would have been desirable (EBS/85/265, page 1). This has been due substantially in
many cases to problems of implementation. But adverse developments in the external environment have also been a factor, the
world economic expansion and lower interest rates of recent years
notwithstanding. Additionally, we must recognize that the design
of Fund programs may also have been a factor and is incumbent on
us to use the present review 1/ of conditionality to assess the
extent to which this has been the case, and to consider appropriate corrections as needed.
It was in recognition of the problems that have developed,
particularly in connection with a number of major debtors, that
Secretary Baker proposed a "Program for Sustained Growth" in his
speech at the Annual Meetings in Seoul. My colleagues are
familiar with this program to strengthen the international debt
strategy, which has received broad support in the international
financial community, including from this Board during our discussion of international capital markets this past November.
As
they will recall, this Program is centered on three elements:
o The adoption by principal debtors of comprehensive
macroeconomic and structural policies, supported by
the international financial institutions, to promote
growth and balance of payments adjustment, and to
reduce inflation.
o A continued central role for the IMF, in conjunction
with increased and more effective structural adjustment lending by the multilateral development banks
(MDBs), both in support of the adoption by principal
debtors of market-oriented policies for growth.
o Increased lending by the private banks in support of
comprehensive economic adjustment programs.
The emphasis in this strategy to promote both growth and balance
of payments adjustment, and the continued central role for the
IMF, underscore the importance of an introspective look at this
time of our policies relating to the use of Fund resources.
1/ I would be remiss if I did not mention the important role
the Fund can play in promoting a more favorable external environment, particularly through surveillance of the policies of member
countries not using Fund resources.
In this connection, we will
have the occasion to discuss methods of strengthening Fund surveillance during our upcoming Board meeting on this issue.
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Many of my comments and observations relating to this review
will be of a general nature, as are many of the points brought
out in the staff material.
Let me make clear at the outset,
therefore, our recognition that IMF conditionality must be framed
on a case-by-case basis in light of the particular circumstances
of a member. This does not preclude us, however, from drawing
certain generalizations from the empirical evidence provided us
in this review. I would also like to stress our view that IMF
conditionality is not a process of "forcing" policy change on a
member country. Without the willingness and capacity of national
authorities to support and implement policy changes, external
efforts to encourage such change are unlikely to succeed regardless of the "techniques of conditionality."
\
In this vein, one of the lessons which can be drawn from the
recent experience with Fund-supported programs is that at the
heart of economic programs to promote both balance of payments
adjustment and growth must be sound macroeconomic policies that
have strong support at home. The review of recent experience, in
fact, reinforces the need for persistent and early action in
these policy areas if imbalances are to be corrected at an early
stage and the adverse effect of such imbalances on growth minimized. This point was underscored by Secretary Baker in his
Seoul speech when he stated that:
Macroeconomic policies have been central to efforts to date
and must be strengthened to achieve greater progress. These
policies should consist of:
market-oriented exchange rate, interest rate,
wage and pricing policies to promote greater
economic efficiency and responsiveness to
growth and employment opportunities; and
sound monetary and fiscal policies focused on
reducing domestic imbalances and inflation
and on freeing up resources for the private
A
sector.
Monetary and Fiscal Policies
The theoretical basis for an emphasis on monetary and fiscal
policy is founded not only in the monetary approach to the
balance of payments, which has been central to the Fund's efforts
for many years, but also the absorption approach, which emphasizes the need to reduce absorption in the short-run in order to
promote adjustment and growth in the medium-term. Fund programs
are often implemented in circumstances characterized by excess
credit creation, large and/or growing fiscal imbalances, excess
demand and high (if not accelerating) rates of inflation. The
background paper for today's Board meeting (EBS/85/277) documents
the extent to which fiscal and monetary imbalances prevailed in
many of the countries under study. Fiscal imbalances, for
example, were a major source of difficulties in most of the coun
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tries in the sample, while related monetary imbalances also prevailed in many countries. Furthermore, such conditions often
contributed to the imposition of controls (both domestic and
external) which reduced economic efficiency.
In such circumstances, the need to restore financial stability, to reduce the overall level of absorption in the short-run,
and the need to reduce government dissavings in order to help
increase savings and investment in the economy as a whole, can be
critical to re-establishing sustainable growth with a viable
payments position in the medium-term. Not only can sound fiscal
and monetary policies directly help foster the economic climate
for such a resumption of growth, but they can strengthen confidence among both domestic and foreign investors, contributing
to a general restoration of creditworthiness which can have further positive effects on growth.
Since Fund policies have generally been centered on disciplined monetary and fiscal policies, we have developed techniques
for encouraging policy change in these areas, particularly the
use of performance criteria placing ceilings and sub-ceilings on
the net expansion of domestic credit, as well as the priority
given in many programs to the need to establish and maintain real
positive interest rates. Recent experience might suggest, however, more frequent use of performance criteria directly related
to fiscal imbalances, as well as the greater use of sub-ceilings
in areas additional to credit to the public sector. (I will
return to this later in my statement.)
A troublesome aspect of fiscal and monetary performance in
recent years has been the extent to which progress in reducing
initial imbalances has in some cases been eroded or reversed
through inadequate implementation over time, adverse exogenous
developments, or a combination of these and other factors. This
is not, of course, a phenomenon limited to developments in the
fiscal and monetary areas, but it has been particularly evident
in these areas.
When a Fund-supported program is no longer in effect,
Article IV consultations can provide a framework for a continuous
dialogue between the Fund and the member to help maintain policy
momentum. Use can also be made, as the staff paper suggests, of
the provision in all upper credit tranche arrangements for consultations during the period a member has outstanding purchases
in the upper credit tranches. We believe this would be a useful
approach, and support its use in selected cases and instances
(not necessarily limited to cases of prolonged use or to consultations around the time of the completion of a program).
Another approach which could help promote greater continuity
in economic policies, and perhaps encourage correction of policy
deficiencies at an early stage, would be to bring more efficiency
and effectiveness to the review process. One way to do this
might be to bring reviews oE existing programs to the Board
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within an agreed timeframe, regardless of whether the review has
been successfully completed. Such an approach would allow for a
discussion of issues relative to access and phasing and could
have a number of advantages. It could provide for a clear and
thoughtful discussion of a member's policies by the Board, the
staff, and the member which would:
-- maximize the potential to reduce slippages in policies or
performance that might otherwise accumulate;
reduce chances for a reversal of hard-won progress in the
first half of the program;
provide a setting that could assist the member and staff
in formulating new policies and criteria in order to
build upon an existing Fund program, or negotiate a new
program.
We believe that this approach merits consideration, and
would be interested in having the staff investigate ways to
accomplish it.
Exchange Rate Policy
Techniques have also been developed to encourage needed
policy change in another traditionally important area of Fundsupported adjustment program, referred to by Secretary Baker in
his Seoul speech--exchange rate policy. With its theoretical
foundation in both the elasticities and absorption approaches to
the balance of payments, exchange rate policy has appropriately
been a central part of most Fund-supported economic programs.
In many developing countries, the capacity of the exchange
rate to affect both domestic absorption and supply is unmatched
by any other single variable or policy instrument. In the context of the current economic problems faced by many debtor countries, an effectie exchange rate policy can be particularly
useful in promoting competitiveness and reducing absorption.
This would occur in a much more efficient manner than through
controls or restrictions. As the background staff paper points
out on page 23, "exchange rate misalignments were seen as an
important factor in the balance of payments difficulties of many
of the sample countries."
An appropriate exchange rate policy can have important positive benefits not only on adjustment of external imbalances, but
on the prospects for medium-term growth, particularly the potential for exchange rate change to stimulate aggregate supply.
Not
only can such a policy increase the overall level of economic
activity, but it can have important positive effects on the
expansion and diversification of exports and, consequently, on
external creditworthiness--which in turn can have further positive effects on growth.
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The Fund's techniques used to encourage policy changes in
these areas have often involved prior actions. While prior
actions have proved useful in bringing about needed immediate
exchange rate changes, this is sometimes a once-and-for-all
measure, whereas the real need is for a more automatic procedure
that ensures continous exchange rate flexibility. As the staff
paper points out on page 23, "mechanisms that provide for more,
continuous flexibility in exchange rate policy are preferable."
In particular, market-determined pricing of the exchange rate
might be the most effective approach in many countries and in
many instances has been.
In this regard, we look forward to the
discussion of the staff paper on "Experience with Exchange Rate
Flexibility in Developing Countries" during which we will be able
to review past experience. That discussion could provide us with
an opportunity to review the success associated with flexible
exchange rate regimes and to consider how flexible marketoriented exchange rate policies might be incorporated in Fund
programs.
I believe that we should make further efforts to incorporate
into our programs mechanisms to help ensure not only that an
appropriate exchange rate policy is in place at the onset of a
program, but that it is implemented throughout the course of the
program. Alternatively, a formal commitment in letters of intent
to a flexible exchange rate policy, bolstered by the inclusion of
consideration of exchange rate policy as a part of the program
review, can be a useful approach for securing continuity in
exchange rate adjustment.
Before leaving the subject of exchange rate policy, let me
stress the continuing importance of the Fund's role in liberalizing exchange regimes. A realistic exchange rate cannot play its
proper role if access to the exchange market is severely
restricted, with the result that the resource allocation effects
of exchange rate movement are minimized or thwarted.
Investment
that takes place in a restrictive environment is often misplaced,
therefore limiting its positive effect on growth. Efforts to
reduce exchange restrictions often need to be approached in a
broad context, not only relating to exchange rate policy, but
also to tariff reform and import liberalization, areas to which I
will turn later. The standard performance criterion in the area
of exchange restrictions has focused on the need to avoid further
intensification of existing, or imposition of new, exchange
restrictions. However, some programs do go beyond this, and take
a more active approach in encouraging the reduction or elimination of existing restrictions. We see more scope for increased
use of specific understandings to this effect incorporated into
review clauses.
Pricing Policy
Although the exchange rate may be the most important price,
the need for a comprehensive approach to prices in order to promote h.-Ilance of payments adjustment and growth is also stressed
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in the staff paper. We believe that consideration needs to be
given to ways in which appropriate pricing policy can be more
effectively encouraged through Fund programs. Pricing which is
more closely related to the relative scarcity of goods and services in an economy can have important benefits in promoting
adjustment and growth. Among them are:
-- The reduction of imbalance in government fiscal positions;
pro-- The provision of appropriate pricing signals to
ducers and consumers, thus encouraging a shift of
resources into more productive sectors and limiting
excess demand; and
-- The reduction or elimination of black markets, in some
cases leading to a reduced "effective price" on various
subsidized goods.
In fact, apprdpriate pricing policy is an essential adjunct to
exchange rate changes, because without a pass-through of these
changes to the domestic pricing system, exchange rate changes are
not likely to have a significant positive effect.
As with the exchange rate, techniques are needed which help
provide for more continuous adjustment of other prices to changing economic circumstances. A correction of a few particularly
important prices at the beginning of a program can help give the
Fund a sufficient basis for approval of the use of Fund resources
in a program, and can give important impetus to the movement of
relative prices toward a more competitive and more efficient
structure. But such gains will be short-lived, and their impact
limited, if they are not extended more generally, and more continuously, throughout the economy. This is particularly
important in an environment of high inflation. Thus, it is
important that Fund programs incorporate more consistently techniques for encouaging continuous and broadly based pricing
changes. The incorporation into review clauses of appropriate
agreements on such mechanisms could be helpful in avoiding situations where the prices of a few key goods and services, often
politically sensitive, become the focal point of discussions
between the Fund and a member country. Market-oriented
strategies may be particularly effective in this regard,
although, as the staff paper points out, other techniques can
also be envisioned.
Other Structural Policies
A review of our recent experience under Fund-supported programs also underscores the importance of other aspects of structural adjustment, particularly those that can expand the aggregate potential supply of output. The evidence suggests that
programs which are heavily oriented toward demand restraint,
without supportive pricing and structural policy changes, aro
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less likely to promote an adjustment of the balance of payments
in the context of a renewal of growth than are programs which
incorporate at an early stage measures in these areas. As the
background paper points out on page 36, "the prevailing pattern
in general was for countries to initiate the adjustment process
with emphasis on demand restraint, and to turn only gradually to
a greater emphasis" on policies more oriented toward improving
the supply capacity of the economy.
As the background paper continues on page 40, some of this
may be due to "the realization of the limits of what could be
accomplished solely with demand policies, as well as an increased
awareness of the size of imbalances." (It may also, however, be
partly a function of the design of Fund programs, with our welldeveloped staff expertise and institutional techniques to guide
demand-oriented policies, relative to other supply-oriented
policies.) Among the cases reviewed, in those in which a broadly
based adjustment strategy, including structural measures, was
implemented at i an early stage, the performance both in terms of
balance of payrrnts adjustment and growth generally exceeded the
performance of cases where the economic strategy was more heavily
focused on demand restraint.
The staff paper makes the point on page 10 that some types
of structural measures are difficult to implement quickly and
economic responses to them are often less predictable and have
longer lags than the responses elicited by more immediate demandmanagement policies. While it is true that certain types of
structural policies are difficult to implement quickly, and it
may also be true that there are longer lags involved in certain
structural policy changes, I have some difficulty with the concept that economic responses to them are less predictable.
Furthermore, I would interpret the existence of long lags, and
the difficulties in implementation as evidence of the need for
additional and earlier emphasis in these areas, if growth and
adjustment are to be realized. As Occasional Paper No. 41 on
"Fund-supported Adjustment Programs and Economic Growth" makes
clear on page 4, *notwithstanding the difficulties of implementing supply-side policies as part of an adjustment program, the
Fund has stressed their importance in improving efficiency and
the long-term rate of growth."
As Directors are aware, in his Seoul speech, Secretary Baker
stressed the importance of programs designed to promote both
adjustment and growth, and underscored the role which could be
played in facilitating the achievement of these objectives by
structural policies, supporting and enhancing the effectiveness
of needed macroeconomic policy changes (as discussed above).
This emphasis on growth was warmly received in the Executive
Board discussion referred to earlier. As the Managing Director's
Summing Up of that discussion notes, "the growth-oriented
strategy of adjustment was welcomed."
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It is from that premise, which I believe we all share, that
I approach questions related to other structural policies and
Fund-supported programs. My comments will focus on the way in
which the Fund can play an important role in promoting these
objectives, but I would like to preface these comments by a few
general points:
First, as in other policy areas, the key question is not
the role of the Fund, nor for that matter the roles of
other multilateral institutions, in promoting structural
policy changes, but rather the importance of appropriate
policies being developed and implemented by the debtor
countries.
Second, it is important that the multilateral development
banks play an increasing role in supporting needed structural policy changes in debtor countries. In many areas
of structural change, the Bank can and should take the
lead, but the Fund's role can be supportive. In other
areas, the Fund will need to play a leading role. This
may be particularly important in areas, and in countries,
where World Bank efforts to support policy changes may
take some time to become fully developed. The exact
division of labor in individual cases will, of course,
need to be worked out on a case-by-case basis in light of
the economic problems and prospects of individual members, as well as the relative strength of the two institutions.
Third, enhanced attention by the Fund to certain areas of
structural adjustment may have staffing implications for
the Fund, and it may therefore only be feasible to see
this enhanced attention develop over time. The comparative advantages of the two institutions are generally
well known and accepted, as is the need for them to work
together closely and effectively. The Fund's experience
and expertise in macroeconomic, exchange rate and financial policies and reforms, and the Bank's experience and
expertise in microeconomic, sectoral and development
policies, suggest a natural pattern of specialization and
collaboration between the two institutions in supporting
sound policies in member countries.
Fourth, increased emphasis by my authorities on early and
broadly based efforts on structural reform should not be
misinterpreted as a view that structural adjustment can
occur in a relatively brief period of time. As the following discussion of individual policy areas demonstrates, structural adjustment can often require a significant period of time for full implementation.
In his Seoul speech, Secretary Baker touched on a number of
areas in which additional emphasis in Fund programs is being
given, or is warranted.
He noted, in particular, that increasing
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attention is being paid to areas such as trade liberalization,
pricing policies and the efficiency of government-owned enterprises. Furthermore, he stated that "the Fund should give higher
prority to tax reform, market-oriented pricing, the reduction of
labor market rigidities and to opening economies to foreign trade
and investment. This will help assure that Fund-supported programs are growth oriented."
Indeed, the Fund has increasingly stressed the importance of
supply-side policies as demonstrated by the following data:
Of 93 programs, approved between 1980 and 1984:
- Public enterprise pricing was covered in 51 of these
programs;
- 26 included agreements partially or fully to privatize
public enterprises;
- 24 ihcluded efforts to reform and modernize the financial system;
- 45 promoted liberalization of the trade system;
- 36 included commitments to adopt a more flexible pricing system, with 28 committed to reviewing the price
control system; and
- 20 incorporated measures to simplify the income tax
rate structure.
As the background staff paper points out on page 63,
however, "despite the widespread attention paid to structural
issues, the reforms achieved were often of a stepwise, piecemeal
character, and there continued to be a large degree of reliance
on administrative controls in resource allocation."
A
Therefore, we must consider ways in which we can help promote more consistent and more effective structural policy action
if we are to enable the Fund to fulfill more effectively its role
in promoting growth and adjustment. This involves the development of tools and techniques which the Fund can use, on a caseby-case basis, in supporting, guiding and nurturing policy
changes in these areas.
As a guide to our future efforts, we have found past
experience helpful. Below, I outline a number of policy areas in
which we see a need for the Fund to give greater attention and to
develop greater consistency in its approach, keeping in mind that
the degree and nature of the attention given in any particular
Fund program will inevitably be a function of the economic problems and circumstances of the country, and that efforts in these
areas must be closely coordinated with the World Bank.
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Fiscal and Tax Reform
Fund work in this area has often been conducted in the context of technical assistance. In this way the Fund has played,
and should continue to play, a useful and constructive role in
facilitating policy change in member countries. But greater
integration into Fund programs of Fund efforts to promote tax
reform, and the strengthening of tax systems, may well be warranted in some cases. As the background staff paper notes on
page 21, "in most sample countries the pattern of evolution of
government revenue largely reflected structural weaknesses in the
tax system," with "narrow tax bases heavily concentrated on taxes
on external transactions and deficiencies in tax administration"
representing important aspects of fiscal imbalances. Furthermore, there has been growing awareness that high tax rates and
tax policies in many countries not only encourage tax evasion,
smuggling, and other non-productive activities, but they may even
lead to reduced government revenue over time. They can also
involve significant distortions and disincentives to investment
and job creation.
It is important that judgments be made at the outset of
Fund-supported programs regarding the importance of basic changes
in tax systems, including tax rates and the tax base, and that,
where these judgments point toward a priority need for changes in
these areas to achieve program objectives, tax reforms be part of
program design. Efforts to reduce fiscal imbalances in the context of inadequate and inefficient tax systems are likely to
focus excessively on immediate revenue-increasing measures which
can have an adverse medium-term effect on exports and/or growth,
and lead to over-emphasis on reductions in investment expendFurthermore, the effect on deficits of expenditure cuts,
iture.
if carried out, is more predictable than the effect of revenue
measures.
These comments should not be misinterpreted to suggest that
efforts to reduce fiscal imbalances should be pursued at a slower
pace. Quite the contrary. Efforts to reduce such imbalances can
often be enhanced, both by expenditure cuts and, particularly in
the medium-term, by a broadening of the tax base, which may also
allow for cuts in marginal tax rates.
There are, of course, a range of cases where tax reform has
been a part of a Fund-supported program. The 1981 Korean standby
with the Fund provides one example. Mauritius is a case where
tax reform has been pursued with IMF technical assistance.
Although commitments were not incorporated in the 1983-84 Fund
program, action was taken which was then reported in the subWhat is important is not so much that
sequent letter of intent.
tax reform be incorporated routinely into Fund programs, but that
tax reform be given appropriate consideration and priority in the
range of policy instruments needed to achieve agreed objectives. This cannot always be done in the context of technical
In some cases, it may require precise understandings
assistance.
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incorporated into review clauses if we are to be faithful to
Article V, Section 3 (a), the provision in the Articles of Agreement from which conditionality springs.
In some cases, quantitative targets may be appropriate, or at least firm understandings
regarding the timing of procedural steps needed to accomplish
changes in tax systems (e.g., submission of a tax reform plan to
a legislature).
Financial Sector Reform
Financial sector reform is another area where attention has
been given in a number of recent Fund programs.
In the program
recently agreed between Fund Management and Guinea, for example,
a prior action has been the closing of state banks and their
replacement with new banks which allow foreign participation.
Measures involving the financial public enterprises in the
Philippines have been an important part of the current Philippine
program, including plans for a broad rehabilitation and reorganization of a number of financial public enterprises.
Financial ector reform is often designed to mobilize
savings. Measures to stimulate domestic savings can be critical
to the growth and adjustment prospects of a debtor country.
Fund
efforts to foster the expansion of savings have generally focused
on increasing the rate of such savings through interest rate
policies that help to assure a positive rate of return. This is
appropriate, particularly since in almost half of the cases reviewed, the level of interest rates has been judged to be a
contributing factor in the development of imbalances.
In some cases, however, the adjustment of interest rates is
not sufficient to encourage savings adequately and to promote an
efficient allocation of resources. Further efforts may be needed
to allow for the development of private market and public financial instruments, financial institutions, and financial markets
in order that the mobilization of savings can be fostered not
only by positive real rates of interest, but by an efficient,
convenient and diverse array of liquid financial instruments and
modern financial institutions.
While the Fund has, to some extent, encouraged the development of financial markets, we should in some cases be more active
in helping to design and develop financial instruments that will
broaden and deepen financial markets, thereby enhancing the
ability of a member's economy to generate savings and investThe Central Banking Department's work in establishing and
ment.
reforming Central Banks, and in designing instruments that bring
about more efficient implementation of monetary policy, may provide a useful base for further development of our activities in
the above areas.
The most appropriate manner in which needed financial market
reforms can be incorporated into Fund programs is an issue which
reguires further attention. Our review of programs which have
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Federal Reserve Bank of St. Louis
-13--
included measures in these areas suggests that we have not advanced very far in developing methods which can be effective and
have broad applicability.
In some cases, more explicit language
incorporated into review clauses may be appropriate.
Trade Liberalization
Trade liberalization has been an increasingly important part
of Fund programs in recent years.
In many instances, it is
closely linked to the implementation of appropriate exchange rate
policy, as well as to the liberalization of domestic prices and
the exposure of domestic industries to competitive forces aimed
at promoting greater efficiency and growth.
Trade liberalization
played an important part, for example, in Mexico's extended
arrangement, but it has also been incorporated into some recent
standbys, such as those of Korea and Morocco.
As with certain other areas of structural adjustment, however, action in this area has often been delayed. This has
occurred in spite of the fact that developments leading up to the
initiation of 'Fund-supported programs in many countries in recent
years have led to the intensification of restrictions on trade,
heightening the need for early liberalization in this area, if
the output and employment losses which can temporarily be associated with reductions in absorption are to be minimized.
Delays
in action in such areas are particularly unfortunate.
In cases
where trade and payments liberalization are judged to be important to a growth-oriented adjustment process, specific
commitments regarding, for example, the shift of imports from
quantitative restrictions to tariffs perhaps could be incorporated into programs as performance criteria, or as part of a
review clause.
Let me reiterate here that the extent to which measures in
this area, as well as a number of other structural areas, will
need to be utilized in Fund programs will depend not only on the
circumstances of the member, but on the extent to which the World
Rank and other milltilateral development institutions are actively
involved in encouraging needed policy changes in these areas for
a particular country.
Labor Market Reforms
Fund programs have generally contained relatively little in
the way of targets or commitments in the labor market field.
In
fact, background information and data on labor markets, such as
wage rates, employment shifts, legislative developments and labor
practices, have been rather scarce in staff documents.
In fact,
important data may not be available even to the authorities of
some member countries.
Yet the staff background paper cites a
few interesting examples where labor rigidities have evidently
impeded economic adjustment and sustainable growth. For example,
the staff refers to a problem of internal mobility of labor in
crmnection with programs in Hungary and Guinea, to guaranteed
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Federal Reserve Bank of St. Louis
-14-
public employment commitments in Mali, Senegal and Somalia, and
to labor tenure laws in Mali and Senegal. Also, wage indexation
difficulties have been identified in Brazil, Barbados, Peru and
elsewhere.
It is not clear how far the Fund can or should go toward
addressing these problems, or exactly what priority to give to
them. But the existence of these rigidities and their adverse
effects on adjustment and growth argue for some attention by the
Fund to this area.
We might begin by looking into the adequacy
of labor market data, and linkages between labor market rigidities and impediments to growth. This could, in particular cases,
lead to the possible inclusion in Fund programs of some structural measures to deal with problems which may be identified.
This is yet another area where Fund/Bank collaboration is likely
to be important.
Public Enterprise Reform
Fund-suppcirted programs have given increasing attention to
the need to improve the efficiency of the public enterprises and
reduce their drain on government budgets. Public enterprise
pricing policies have been key in this respect, with pricing more
closely related to the scarcity of goods and services not only
strengthening the fiscal position, but promoting a more efficient
allocation of resources and providing appropriate incentives to
producers and consumers.
Various techniques have been used by the Fund to encourage
such changes. Often, specific changes in particularly important
commodities or public services have been secured as prior
actions.
In other cases (e.g., recent standbys with Yugoslavia),
public sector price liberalization has been part of a generalized
reduction in the degree of price control.
Many of the comments made in the staff paper, and earlier in
my statement concerning automatic pricing policies more generally, are applicabde to public sector pricing in particular. The
1985 standby with Uruguay embodies an approach which we believe
could be more broadly applied, and could assist member countries
in their efforts to avoid a situation where inadequate pricing
changes during an earlier stage increase the need for large pricing changes in sensitive commodities or public services at a
later stage.
In Uruguay's program, there is a commitment to
automatic adjustments of public enterprise pricing at intervals
of no more than four months in order to assure a targeted surplus
for the enterprises.
This commitment is embodied in the Memorandum of Understanding, and is specifically cited as a policy to
be reviewed.
Parastatal pricing is only one aspect of efforts by member
countries to improve the efficiency of these entities.
Various
additional efforts are called for in many cases to improve their
operational performance.
These measures can include steps tJ)
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Federal Reserve Bank of St. Louis
-1 5-
strengthen managerial capabilities directly, by case-by-case
study and implementation of measures to streamline management and
improve operating procedures. The Fund probably should not be
expected to develop detailed proposals in this regard, since the
World Bank has developed considerable expertise in this area.
Nonetheless, the Fund can play a role in encouraging managerial
reform of some public enterprises, especially in the financial
sector. Furthermore, managerial studies and reforms that are
best carried out by the World Bank, in the area of public utilities for instance, can be supported by the Fund by the inclusion
in a review clause of an expectation that a given study will be
completed or a program of reform begun by a specified date. An
example is the present arrangement with Mali, which requires the
first review to include understandings on measures pertaining to
public enterprises. The letter of intent lists actions to be
taken in individual entities and provides indications that discussions are to continue with the World Bank on a sectoral reform
program, with implementation expected around the time of the
first review.
In cases where urgent reduction of parastatal losses is
reguired, a more general approach can be to subject these firms
to market tests, thus increasing the responsiveness of management
to market signals. By working with a member to indicate to
public entities that their profitability is a key factor in
determining managerial remuneration, or even their continued
existence as public entities, the Fund can promote rapidly improved performance.
Related to this is the incentive effect of
limiting access to fiscal transfers or banking sector credit. By
reducing the capability of inefficient public enterprises to
receive outside funding, incentives are created to contain costs
by more efficient management or even reduced payrolls. Such an
approach can serve the dual purpose mentioned earlier of limiting
fiscal deficits or credit expansion, while increasing the efficiency of resource utilization in the economy.
The standby arrangement with Argentina provides such an
example, whereinlmention was made in the letter of intent of
limits on government transfers to, and the monitoring of, expenditures of the enterprises. While in this case these measures
were not specifically cited in the review clause, the review was
to focus on fiscal policy, thus encompassing transfers to the
enterprise sector.
In other arrangements, such as the present
one with Jamaica, the performance criteria included specific
limits on net domestic credit to some selected public entities.
A supplementary approach that has been utilized in a number
of Fund programs addresses the issue of parastatal efficiency by
suggesting or requiring some degree of privatization. This is an
area where, perhaps, the World Bank can provide the needed expertise in identifying those firms that appropriately could be
privately run, especially those that do not produce true public
:)r strategic goods or services. This is, naturally, a sensitive
subject, and some may view it as too microeconomic in character
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Federal Reserve Bank of St. Louis
-16-
for the Fund to become involved.
Nonetheless, there have been
several instances in which Fund programs have included as prior
actions, or in review clauses, measures on future commitments to
divest or even close specific public enterprises. This approach
appears to be taken in those cases where substantial losses can
be attributed directly to individual firms, and where the
services provided by them could be provided by a private enterprise.
In several cases, a national airline has been identified
as a major drain on public resources, and a clear case has been
made for private sector provision of the service.
These various examples serve to illustrate that, in fact,
the Fund already utilizes a variety of pragmatic methods to encourage improved performance of public enterprises. While the
World Bank can, perhaps, take the lead on micro-oriented reforms,
the Fund does have available the means of enhancing Fund/Bank
collaboration in this area and of supporting structural reforms
that the Bank may formulate.
Finally, the Fund can take a number
of steps to increase the financial viability of these firms, thus
contributing to increased efficiency of resource utilization.
Foreign Direct Investment
The reductions in net new international bank lending which
have occurred in recent years have increased the need for more
non-debt creating capital flows to debtor countries. This is a
widely held view, but policies in many debtor countries regarding
foreign direct investment remain highly restrictive, discouraging
equity flows. Secretary Baker highlighted in his Seoul speech
the need for "market-opening" measures to encourage foreign
direct investment and capital inflows.
As indicated above, he
further stated that "the Fund should give higher priority to.
opening economies to foreign trade and investment."
The Fund has historically not played a significant role in
this area, for reasons related in part to the mandate of the
Fund.
The World Bank has also not played a particularly active
role in this field", although its involvement has often been
greater than that of the Fund, and the impending establishement
of the Multilateral Investment Guarantee Agency (MIGA) should
strengthen its capacity to promote policy change in this area.
It may be that the 1980 report prepared by the Development
Committee's Task Force on Private Foreign Investment, and the
subsequent 1983 IFC Study of Investment Incentives and Performance Requirements, as well as the Fund's own study of June
1984 (SM/84/145), could be re-examined to provide some guidance
in this field.
In any case, the need for comprehensive Fund programs, and
the increasing importance which the international financial
community has placed on changes in this area, all suggest that
the Fund would be remiss if it did not consider developing -- in
support of and in conjunction with the World Bank as appropriate
-- some role in this area.
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Federal Reserve Bank of St. Louis
-1 7-
In a few recent cases, Fund programs have, in some way,
embodied some references to liberalization of foreign direct
investment.
For example, in Ecuador's program, progress in this
field is mentioned in the staff report, but not in the letter of
intent or memorandum of economic policies.
In the case of Korea,
liberalization objectives and plans are actually included in the
authorities' memorandum of understanding and progress was to be
examined as part of a program review. More generally, some of
the aspects of foreign direct investment policies which may be
worthy of review and possible modifications include restrictions
on incoming direct investment, limits on profit remittances,
local content and export performance requirements, and the potential for an increase in equity participation limits. Whatever
may prove to be the best procedure for Fund involvement in this
complex field, there is a case for a more active role in the
context of the Fund's increased emphasis on economic growth with
a sustainable external position.
Prolonged Use and Issues of Program Design
Prolonged users of IMF resources continue to be a serious
problem which threatens the revolving character of Fund resources, and which has been a factor in the arrears problems
which have developed in the Fund in recent years.
I have not
focused my statement on this issue, not because it is unimportant, but because the lessons learned from our review of programs in connection with this Board meeting -- drawn to a
significant extent from the countries that are prolonged users of
Fund resources -- are lessons with broad applicability for the
Fund's policies regarding the use of its resources, and not just
for "prolonged users."
A particular point that emerges from the cases of prolonged
use which does perhaps merit special mention is the lack of early
and comprehensive corrective policy steps on the part of many
member countries. This has posed problems regarding the achievement of the countries' economic objectives of adjustment and
growth.
It also poses major questions about whether programs
which are too heavily based on demand restraint, and are inadequately designed to support both adjustment and growth in a
medium-term horizon, are consistent with our mandate -- to adopt
policies on the use of the Fund's general resources that will
assist members to solve their balance of payments problems in a
manner consistent with the Articles of Agreement, and which will
establish adequate safeguards for the temporary use of the
general resources of the Fund.
Our experience with some cases
relating to prolonged use, in fact, reminds us that all programs
should meet a dual set of tests in order to be acceptable: that
they are adequate to help solve a member's payments problem over
the medium-term in a manner conducive to growth; and that they
provide an adequate assurance to the Fund that the policies can,
if implemented, provide a framework for the repayment of the
purchases from the Fund on schedule.
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Federal Reserve Bank of St. Louis
-18-
On the particular options put forward in the staff paper for
possible use in cases of prolonged use, I would make the following brief comments:
Shadow programs. Could have a limited role to play in
special circumstances, although it must not be seen as an
adequate substitute for a fully acceptable set of
policies;
Access. While I would agree that strict rules on access
by prolonged users are not appropriate, I continue to
stress the importance of taking into account, inter alia,
a member's past record, the strength of the proposed
program, and a member's outstanding use of Fund credit in
determining the appropriate access level.
Phasing. Backloading can be an effective and appropriate
device to help safeguard the revolving character of Fund
resources in cases of prolonged use.
Precondition and Performance Criteria.
Early action is
obviously critical in such cases, but may be equally
important in other cases.
Conclusion
The above examples and suggestions are not put forward as
immediate, definitive proposals for change which involve amendment to our guidelines for conditionality. As I indicated
earlier, I believe that the changes which need to be made in Fund
conditionality are more evolutionary than revolutionary, and I
would agree with the staff that needed changes can be accomplished within the context of the current guidelines for conditionality.
In reviewing those guidelines, one can only have
admiration for the farsightedness of our predecessors who
developed them in 1968, and amended them in 1979.
I see no need
to amend them further at this stage. But within the context of
those guidelines, Awe must remain alert to the need to adapt our
practices and procedures while remaining committed to the basic
purposes and objectives of the Fund.
Our political leaders are virtually unanimously stressing
the importance of growth.
The "Program for Sustained Growth,"
put forward by Secretary Baker, will require the active participation and cooperation of all parties if it is to succeed.
The
external financing which is clearly essential to the restoration
of sustainable growth and balance of payments adjustment cannot
be expected to materialize without clear, broad-based policy
change.
And even if it did, the economic benefits would be
short-lived, absent needed policy changes.
The Raker Initiative has helped focus the attention of the
international community on the need for growth. But the awareness of the need for policies to encourage growth in many
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Federal Reserve Bank of St. Louis
-19-
As Chairman Volcker has
countries preceded the Baker Initiative.
recently stated, a new temper of opinion has been emerging in
many debtor countries, forged out of recent adversity, in support
of growth-oriented outward looking, liberal economic policies,
along with a renewed effort to reduce inflation and fiscal deficits.
It is our challenge to help policymakers translate these
Growth for most economies must come
objectives into reality.
primarily from within -- from domestic savings, domestic investment, and domestic policies -- but it is clear that the international community must support those efforts, both with
financing and with policy advice.
This institution has a role to play in both areas, although
the financing we can and should provide is temporary and modest
in amount. It is the Fund's ability and mandate to provide
policy advice that gives it a special place in the international
financial system. The question is how best we can go fulfill
It, is not sufficient to express verbal support for
this role.
the concept of growth, and then avoid the effort to develop
mechanisms within this institution which can help our member
countries achieve this important objective. We must continuously
develop the "tools of our trade" to strengthen the effectiveness
of the Fund in promoting sustained world economic growth. It is
with that spirit in mind that I put forward the views and ideas
in this statement, and hopefully within that same spirit that
they will be received.
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON. DC 20431
ir
ex..).•--7 0
ple
o-v.7
With the Compliments of
tze,-1z71--f
Jacques de Larosiere
Managing Director
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
TELEX
DEAR MR. PRESIDENT:
I THANK YOU FOR YOUR LETTER WHICH DISCUSSED COLOMBIA'S ECONOMIC
SITUATION AND POLICIES, AND THE RELATIONSHIP BETWEEN YOUR COUNTRY
AND THE FUND.
THE ARTICLE IV CONSULTATION MISSION THAT YOU HAD REFERRED TO IN
YOUR LETTER RECENTLY PROVIDED ME WITH ITS PRELIMINARY CONCLUSIONS.
I WAS ENCOURAGED BY THE MISSIOW,S APPRAISAL OF YOUR GOVERNMENT'S
ECONOMIC POLICIES.
THE EMPHASIS GIVEN IN YOUR ECONOMIC PLANS TO
THE ACHIEVEMENT OF A SIGNIFICANT REDUCTION IN THE PUBLIC SECTOR
DEFICIT AND TO THE STRENGTHENING OF THE BALANCE OF PAYMENTS IS
CERTAINLY WELL PLACED.
THE MEASURES ALREADY ADOPTED AND IMPLE-
MENTATION OF THE PLANNED ECONOMIC POLICIES SHOULD HELP TO CREATE
THE CONDITIONS FOR SUSTAINED GROWTH.
IN MY JUDGEMENT, IT WOULD BE USEFUL AT THIS JUNCTURE TO
DEVELOP A DETAILED PRESENTATION OF THE QUANTITATIVE ASPECTS OF
COLOMBIA'S PROGRAM AND OF ITS PHASING THROUGH THE YEAR, WHICH
WOULD MAKE IT POSSIBLE TO FOLLOW CLOSELY ITS EVOLUTION.
I WISH YOU SUCCESS IN THE IMPLEMENTATION OF COLOMBIA'S
ECONOMIC PROGRAM, AND I LOOK FORWARD TO MEETING WITH YOU NEXT
WEEK TO CONTINUE OUR DISCUSSION OF THESE POLICY ISSUES.
SINCERELY YOURS.
..0
Paul A. Volcker
April 4, 1985
Jack:
As per our conversation
.
A 46404.>10-4
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Federal Reserve Bank of St. Louis
X--71/t
-c-
It
,
I appreciate the detailed description of the program
developed by the authorities of Colombia contained in your
.
letter of
In my judgment, the measures that you
have decided upon with respect ro fiscal, monetary, exchange
rate, and trade policies are fully appropriate to your
circumstances, and should work toward promoting internal and
external stability.
I understand that your plans do not envisage any use of
IMF' resources and no request has been made to us for any financial
asssistance.
However, arrangements are nearly complete to borrow
from the IBRD for certain purposes, and significant financing is
anticipated from commercial banks to help finance parts of your
program.
In that connection, you have requested that the IMF
review and monitor at roughly quarterly intervals the progress
Colombia makes toward implementing the macro-economic aspects
of your program, and that we report to the lending banks as to
your progress in conforming to the program that you have developed.
You also suggest such reviews might be closely coordinated with
reviews undertaken by the World Bank of aspects of your program
of particular interest to them.
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Federal Reserve Bank of St. Louis
-2-
I
I should say, first, that such arrangements -- monitoring
a program that has been developed without IMF participation and
which does not envisage IMF financial assistance -- would be
unique in the experience of the IMF.
However, I also believe
your program justified support, and I would like to meet your
request so long as it can be reconciled with our internal
procedures and requirements.
Specifically, I believe to
undertake such a commitment on our part, I must present your
program to my Executive Board so that its members can formally
approve the approach.
Accordingly, I am fully prepared to
present the program you have developed to the Executive Board,
recommend to it that the program be formally approved, and that
the monitoring arrangement you request be authorized.
I would
also envisage that our review would proceed in close coordination
with the World Bank.
I also believe that such approval by the Board would,
by its nature, imply that Colombia would, so long as the
program is being implemented as planned, also be eligible to
draw upon Fund resources in amounts consistent with established
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Federal Reserve Bank of St. Louis
-3-
guidelines relative to quota, should you wish at some later
--*
date to avail yourself of such a facility.
With Executive
Board approval and your agreement, I would be prepared to so
inform your bank lenders, and would be prepared to keep them
informed of your continued eligibty after each review interval.
In conclusion, Mr. Minister, I believe the program you
have developed entirely at your own volition is appropriately
designed to meet the economic needs of Colombia.
On that basis,
and with Executive Board approval, I would welcome the opportunity
tS support your efforts by participating in a regular review
procedure,
informing your bank lenders as described above as
tS your eligibility to borrow from the IMF.
Such an arrangement, which would be without precedent
fS r thestrikes me as a mutually constructive opportunity
fS r us to work with you, with the IBRD, and lending banks to
support your program intentions.
•
.1
11
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Federal Reserve Bank of St. Louis
,.
'or
'
i
.
Th
-
Paul A. Volcker
4
July 27, 1984
Dear Jacques:
Just a few editorial suggestions
in the direction of not sounding too
insistent on a complete package.
Paul
P.S.
I hope you can read this.
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON. DC 20431
,
of
,
With the Compliments of 74.
Z4
_
Jacques de Larosiere
Managing Director
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Federal Reserve Bank of St. Louis
MTD (V) 7/18/84
Dear Mr. Minister:
Thank you for your letter of
June 25, 1984, which was given to
me by Messrs. Mayobre and Marcan
o. The statement on policies tha
t it
contained is a most useful ste
p in the formulation of the Governmen
t's
economic strategy. It confirms
what has been reported to me by
Mr. Hardy, who was chief of the
recent Article IV consultation mis
sion
to Venezuela.
I was pleased to read in you
r statement that the Government
of
Venezuela is intending to carry
the process of policy formulati
on one
stage further by establishing
a quantified economic program
that would
translate the policies that hav
e been adopted ,into well define
d actions
-• ''''''' i yt7e.t/i/t0A-Z-C., /
and goals. I would suggest
that this quantified program be
complement •(
) •
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:/,
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1-1,1
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,
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,
ted by a specific plan for red
ucing reilance on measures such as
/1
multiple
exchange rates, import and
price controls, and subsidize
d interest
rates, ,giAren-the --o-bvIetts
I
fling __such practices. _The
formulation and execution of
such a program would be extrem
ely usefulv
in assuring the coordination
and coherence of economic pol
icies during
the coming period.
.,71-((e
d e(A.. u-cr.
ii
We will of course be report
ing on the general policy
stance of the
Venezuelan Government in the
forthcoming Staff Report on the
Article IV
Consultation, which will
cover_the issues included in
your statement
on policies. We could perhap
s think of issuing the sta
tement to the
Executive Directors for their
forthcoming discussion on Venezu
ela if
it could be accompanied by
the quantified set of eco
nomic goals and
targets your government is
preparing, together with a spe
cific plan for
reducing reliance on distorting
measures. Our present wor
k schedule
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Federal Reserve Bank of St. Louis
/C,e•CAA.
4A.e4.1(
2
calls for having the discussion in the Executive Board at
the end of
August, and thus we would need to present your
statement and other
policy intentions to Executive Directors no later than the
third week
of August, if they are to have the opportunity to make
use of such
material in preparing their comments on Venezuela.
In my view it
would be useful if we were to have further contac
ts at the technical
level as you are formulating your quantitative progra
m and complementary measures, particularly since the Fund staff is concer
ned that
your fiscal estimates for 1984 are somewhat overoptimist
ic and that
the preliminary monetary program assumes an unduly strong
growth in
the demand for liquidity on the part of the general public.
As I have already indicated to you on a previous occasion,
the
Fund stands ready to be of assistance to your Government in addres
sing
Venezuela's economic problems and in arranging the refina
ncing of the
external debt.
Of course, I would be happy to discuss with you the
modalities of any such assistance.
Yours sincerely,
J. de Larosiere
Dr. Manuel Azpurua Arreaza
Ministro de Hacienda
Ministerio de Hacienda
Caracas, Venezuela
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON. DC. 20431
C—
e
r
/2-7
With the Compliments of
Jacques de Larosiere
Managing Director
1.
hAt 27 ISM
RA1CTIA PREBISCH
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Federal Reserve Bank of St. Louis
26 March 1984
Mr. Jacques de Larosiere
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, D.C.
20431
Dear Mr. de Larosiere:
Let me reiterate my thanks for your cordial reception
on Friday.
As I have just told you on the phone, I am sending
enclosed a memo to pave the way for the resumption of our
conversations this coming Wednesday.
Yours sincerely,
CONFIDENTIAL
26 March 1984
To:
Mr. Jacques de Larosiere
Managing Director, International Monetary Fund
From:
Raul Prebisch
Personal Representative of the
President of Argentina
In view of the next meeting, and in order to clear the way, it may
useful
to present some reflections.
be
Let ME first explain again the philosophy behind the anti-inflationary
programme of the government.
The budget deficit is the main factor of inflation. And its
gradual reduction would bring a decline in the rate of increases in
prices and correspondingly in the rate of interest.
The decline in credit creation, due to the reduction of the deficit,
would allow for a prudent credit expansion for the working capital of
enterprises, so contributing to the reactivation of the economy.
As explained in the letter of the President of Argentina, the
average deficit will be 8% of the gross product in 1984. This average
obviously does not present the tendency for improvement in the situation.
This tendency results very clearly from the fact that, according to our
estimates, the deficit will fall from 17% in the last quarter of 1983 to
6% in the first quarter of the next year. At the same time, the payments
of the Central Bank to the banks will fall correspondingly from 10% to
5%. In this figure the capital loss is included.
In order to support this reactivation, the programme has estimated
an increase of around 12% of this year's imports in real terms.
If emphasis is put on the need to rebuild imports in a moderate way,
it is due to the fact that its readjustment has already occurred drastically.
Indeed in 1983, imports were very low in comparison with previous years,
due both to the fall in economic activities and the use of inventories.
Increase in imports envisaged in the government programme is an essential
point for the reactivation of the economy. Indeed the figures included
in the President's letter are based on a growth rate of 5%, and if this
does not happen, it would dislocate the whole programme.
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Federal Reserve Bank of St. Louis
/2..
2
Regarding wages and salaries in the public sector, the programme
envisaged it at a real increase of between 6 and 7%. However there
is a growing consciousness that the increases in real terms in the
second half of 1983, as well as the beginning of this year, would make
it extremely difficult to improve wages and salaries in the public
sector as previously estimated.
To see this matter in a proper perspective, one has to consider
the considerable deterioration that wages and salaries have had during
this decade.
Reference to indexation,it m47be agreed on the need to eliminate
it. Indeed, if adjustments have to be based on previous inflation, and
not on prospective inflation, this would contribute to perpetuate inflation.
Therefore, some corrections are necessary to introduce in this matter.
For Argentina loans to fall, by the end of this month, into the
category of "non-performing" will be not only a serious blow to the
financial community and the prestige of the country, but also internally
a very demoralizing factor that would shake the confidence of a government
that is dedicated to fight against inflation and strengthen the economy
on a basis of great potential for growth and social improvement.
An emergency solution could be found to avoid this critical development.
This emergency solution was clearly in the hands of the government a few
days ago when it decided to sell two frigates for $500 million. The
Iranian government made a firm offer with full payment in cash. However
the American Embassy suggested to the government to abstain from this
operation mentioning the possibility of finding other buyers. A high
official of the Embassy informed that Tunisia and Italy were interested.
On this basis, it may be possible to have a bridge loan between now and
the date of the filfillment of this operation. The proceeds of this loan
should be not linked necessarily to the payment of arrears, but rather
to the strengthening of the monetary reserves of the Central Bank so as
to make it possible to use these low reserves for paying these arrears.
Independently of this,
hopefully the discussions initiated on
Friday could pave the way for drafting the letter of intention. Meanwhile,
as the banks are suggesting in Punta del Este, it may be possible for the
IMF to give a preliminary sign to them that could facilitate an early
disbursement of the funds necessary to pay the arrears, so avoiding a
critical situation.
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Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
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Citation Information
Document Type: Board of Governors
Citations:
Number of Pages Removed: 11
Restricted: Paper prepared by Jacques de Larosiere for G-5 meeting, from Ted Truman to
Chairman Volcker, February 2, 1984.
Federal Reserve Bank of St. Louis
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8
are not consistent with the correction of external imbal
ances, and
therefore risk creating exchange rate insta
bility.
The flexibility of
monetary policy is also severely limited by external constr
aints.
view, it remains imperative to work toward
a greater convergence of
fiscal policies.
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Federal Reserve Bank of St. Louis
In my
INTERNATIONAL MONETARY FUND
WASHINGTON
D C
BOARD OF GOVERNORS
CF. HZ
FEDERAL RESERVE MIEN
20431
1383 MAY 25 Hi 2: 58
EXECUTIVE DIRECTOR
CABLE ADDRESS
INTERFUND
RECEIVED
OFFICE CF TliE CtIAIFi
25 May 1983
Dear Paul:
The following is the cable which we received from Wells Fargo:
"Please pass this telex to Dr. Carlos Langoni, President,
Banco Central do Brasil at the earliest possible time.
Re:
Petroleos. Bras ileiro (PETROBRAS)
Syndicated Banker Acceptance
Facility
During the period from 11 April 1983 through 23 May 1983, six tranches
under three separate banker acceptance agreements for Petrobras have
matured totalling U.S. Dlrs. 268 MM. The purpose of these facilities
was to finance the importation of crude oil and other oil by-products.
As of this date, five of these tranches are past due and the expectation
of the sixth tranche becoming past due on 23 May is a distinct possibility.
Wells Fargo Bank, as agent in these agreements, has discussed the matter
of the past due acceptances with senior officials of Petrobras and Banco
Central do Brasil with the result that Wells Fargo approached the
syndicate members in the above agreements (44 banks) on 9 May 1983 with
the proposal to extend these facilities for another 180 days. Final
responses were requested from the banks by 17 May 1983. We should point
out that the existing 44 banks represent a geographic distribution covering Japan, major countries of Western Europe and the United States.
Of critical importance to Banco Central do Brasil and Petrobras has been
the response of the banks to this proposal and it is for this purpose
that Wells Fargo Bank, as agent, is sending this telex to you.
With over 2/3 of the banks having responded, it is clear that a 100 pct
agreement to this proposal will not be forthcoming with the result that
(1) the acceptances will remain past due
(2) Petrobras will remain in default under these agreements, and
(3) cross defaults will exist under other agreements, including the
Project I New Money Agreement.
Furthermore, Petrobras has U.S. Dlrs. 200 MM of banker acceptances coming
due on 21 June 1983 under another agreement of 19 banks (Wells Fargo
Bank as Agent). However, this agreement has availability for further
re-borrowing provided no defaults exist. Clearly the existing past d
acceptances will not permit further drawdowns under this agreement
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Federal Reserve Bank of St. Louis
2
until the past due acceptances are paid. We would like to point out the
following comments from the banks in the above agreements which reflect
their concerns and reasons for not agreeing to an extension of the above
facility.
Firstly, there is the fact that Banco Central do Brasil has not made
available the foreign exchange to pay acceptances which had financed an
import critical of the needs of Brazil.
Secondly, it is known that Petrobras is receiving foreign exchange today
for oil imports at this time and in light of this, an effort to provide
for an orderly liquidation of the existing acceptances should have been
proposed by Banco Central do Brasil rather than a perceived indifference
to a repayment.
Thirdly, other acceptances created with Brazilian banks under Project III
Guidelines are being paid as agreed.
Therefore, banks find it difficult to accept the continued non-payment of
acceptances.
In summary, we believe it is in the best interest of Brazil and the Banco
Central do Brasil to immediately pay the U.S. Dlrs. 229,760,000 past due
and a U.S. Dlrs. 38,240,000 coming due on 23 May under the above agreements in an orderly and expeditious matter prior to 16 June 1983 to
(1)permit further usage under the U.S. Dlrs. 200 MM acceptance facility,
(2) to avoid a default under that agreement, (3) avoid default under
Project I Agreements. Wells Fargo Bank, as agent, is willing to assist,
however, you must be aware that under the Agreements we are bound to act
on behalf of the syndicate in a manner which reflects their intentions
from both a legal and business perspective.
Moreover, we welcome from you comments and specific proposals on the
resolution of the past due acceptances and urge you to give this matter
your immediate attention. We look forward to your response.
Regards,
Lewis Coleman, Executive Vice-President
Michael Rossi, Senior Vice-President
Int'l. Banking Group"
Kind regards,
Yours sincerely,
,
Alexandre Kafka
The Honorable
Paul Volcker, Chairman
Federal Reserve Board of Governors
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401
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Federal
Reserve Bank of St. Louis
0
To the G-10 Deputies
I am enclosing a revised draft communique'.
Aside from
some deletions, the principal changes introduced in response
to suggestions made by the Deputies are underlined.
Alternative
texts are indicated in square brackets.
Whenever the suggestions made by the Deputies were in
conflict with one another, they were not incorporated in the
revised draft.
(Lambert° Dini)
Washington D.C.
September 23, 1983
Draft Communiqpe of the Ministerial Meetiu
of the Group of Ten
(Washington, September 24, 1983)
The
Ministers
and
central
bank
Governors
of
the
ten
countries participating in the Ge'neral Arrangements to Borrow (GAB)
ret in Washington on Septcr.ber 24, 1983 under the Chairranship of Mr.
Jacques Delors, Minister of Economy, Finance, and Budget of France.
The Managing Director of the International Monetary Fund, Mr. J. De
Larosiere,
took
part
in
the
meeting, which
was
also
attended
by
Mr. F. Leutwiler, President of the Swiss National Bank, Mr. E. Van
Lennep,
Secretary-General
of
the
Organisation
for
Economic
Coop-
eration and Development (OECD), Mr. G. Schleiminger, General Manager
of the Bank for International Settlements, and Mr. F. X. Ortoli, Vice
President of the Commission of the European Communities.
2. .
The Ministers and Governors exchanged views on the world
- ic situation.
They were generally encouraged
that recovery,
which had stemmed in part from lower inflation, was under way in the
industrial
world.
Although
growth
profiles still
appeared
to
be
rather diversified, with a strong upturn in North America and more
moderate
performances
in Japan
and
in
Europe, prospects for
1984
pointed to a strenghening of the upward trend for real output growth
in
irdustrial
countries.
However, unemployment
hieh in many industrial countries.
remained
extremeiz
The Ministers and Governors felt
that the overriding objective at the present juncture was to follow
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Federal Reserve Bank of St. Louis
2.
policies
that
would
assure
sustainable
growth
non-inflationary
world-wide.
The attainment of such objectives hinged crucially upon
interest rates, whose reduction from the present very high levels
would
make
an
important
contribution
to
the
revival
of
business
To this end, they emphasized the
investment and consumer spending.
importance of the continued pursuit of monetary policies consistent
with consolidating and
extending
the
progress already made
toward
better price stability, of credible action to bring about a sustained
reduction
in fiscal deficits over
the
medium term, and
continued
attention to structural policies designed to improve the functioning
of
and
goods
labor
Such
markets.
policies
would
also
play
an
essential role in bringing about more stable conditions in foreign
exchange
markets, reducing
tensions in
the financial
system, and
facilitating adjustment in debtor countries.
The Ministers and Governors were also encouraged by the
3.
significant degree of adjustment that had already been achieved in
developing countries, and they urged continued
adjustment
efforts, as
an
perseverance in the
essential element in
the resumption of
output growth and of private capital inflows.
The Ministers and Governors were also of the view that a
renewed
effort
by
all countries
to
resist
domestic
protectionist.
pressures and to remove trade restrictions would greatly contribute
to international adjustment.
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Federal Reserve Bank of St. Louis
•
• •
3.
In addressing the world financial situation,
the Ministers
and
Governors
countries,
noted
monetary
that
the
authorities,
cooperation
international
among
borrowing
institutions
and
commercial banks had played a major role
in preserving the stability
of
the
system
in
times
of
intense
pressure.
They
persistence of strains in certain areas
and agreed
noted
the
to monitor the
situation closely and to be prepared to take
appropriate action as
necessary.
4.
The Ministers and Governors exchanged views
on policies
governing access to the Fund's resources and
situation.
They reviewed
the broad
the Fund's liquidity
principles that should govern
access policies after the entry into force of
the increased quotas.
They stressed the need for Fund policies to conti
nue to be guided by
the
principle
institution,
husbandry
of
preserving
which
in
the
Fund
of
the
the
monetary. character
present
situation
resources.
They
implied
noted
that
of
the
a
careful
the
Fund's
liquidity position had come under strain, and
stressed the urgency
for all countries to complete the statutory proce
dures for ratifying
the
proposed
quotas and
Ministers
quota
the
and
increases
enlargement
Governors
of
under
the
the
GAB.
welcomed
the
eighth
In
general
review
of
this connection, the
conclusion
of
the
borrowing
agreement between Saudi Arabia and the 2und
in association with the
GAB.
Fund's
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Federal Reserve Bank of St. Louis
[They
also 'agreed reaff
to irThe
itor
%
liquidity " and
losely
the
—readiness
evolution of
to
consider
the
such
appropriate
measures
as
may
be
needed.] \[Th'y
importance of safeguarding the Fund's liquidit
underscored
osition
that to this end additional borrowing by the Fund
the
recognized
y be necessary in
the near future.]
They
which
had
been
that
stressed
adopted
in
the
Enlarged
1981, was
a
Access
temporary
Policy (EAP),
instrument
for
dealing with an exceptional global balance of payments situation, and
emphasized their belief that the EAP should be phased out over the
Access under the Fund's special facilities should
next few years.
likewise be scaled down as a result of the new quotas.
They noted
that the world economic recovery and successful adjustment efforts
should facilitate this.
EAP,
should
be
set
by
The amounts to be made available under the
striking
an
appropriate
balance
between'
members' temporary balance of payments needs and the availability of
financing to the Fund.
reviewed
annually
and
They believed that access limits should be
be
adapted
to
changing
circumstances
and
prospects.
5.
The Ministers and Governors had a preliminary exchange of
views on the conditions necessary to improve the functioning of the
international monetary system.
[They *nstructed their Deputies to identify the areas that May he the
. —
subject of analysis and to report to them at their next meeting.]
[They instructed their Deputies t.o begin examining issues relating to
global liquidity, t.e eLiects.of exchange rate fluctuations on the
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Federal Reserve Bank of St. Louis
..
5.
world economy, and the role of the Fund, in pro11191411-g convergence and
---.---'
adjustment, and to report to them at their'next meeting.]
6.
Mr.
Giovanni
Goria, Minister
of
the
Treasury
of
the
Italian Republic was elected Chairman of the Group of Ten for the
following year.
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Federal Reserve Bank of St. Louis
-
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20SSI
PAUL A. VOLCKER
CHAIRMAN
November 10, 1983
Mr. Jacques de Larosiere
Managing Director
International Monetary Fund
Washington, D. C. 20431
Dear Jacques:
and Deputy
Just to confirm, the óinner for Chairmen
s on December 1
Chairmen of the twelve r deral Reserve Bank
er at 7:00 PM,
will start with a rec-.tion at 6:00 PM, dinn
big dining
and finish about 9:.1 PM. It is held in our
new one, where
room in the Martin building -- that is the
my dining room is.
and Deputy
Attendance will be a maximum of 24 Chairmen
maybe 40 in all.
Chairmen, plus the Board and a few staff -for 15 minutes
The proceedings are entirely informal. Talk
, and take questions
or so about what you think they should hear
for 15 minutes or so longer.
cover a rather
I'm attaching a list of the Chairmen. They
rmed and influential
broad spectrum, obviously reasonably well info
on the IMF!
in their regions or beyond, but not experts
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Federal Reserve Bank of St. Louis
reception or
Many thanks for taking the time. Skip the
than 5 or 10 minutes.
not, and you are forbidden to prepare more
Reg rds,
W
Attachment
1/10/83
CHAIRMEN AND DEPUTY CHAIRMEN OF THE FEDERAL RESERVE BANKS
1983
Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
*
Chairmen
Deputy Chairmen
Mr. Thomas I. Atkins
General Counsel
National Association for the
Advancement of Colored People
186 Remsen Street
Brooklyn, New York 11201
1/Mr. Robert P. Henderson
Chairman and
Chief Executive Officer
Itek Corporation
10 Maguire Road
Lexington, Massachusetts 02173
Mrs. Gertrude G. Michelson
Senior Vice President
R. H. Macy & Co., Inc.
New York, New York 10001
Mr. John Brademas
President
New York University
New York, New York 10012
Mr. Nevius M. Curtis
President and
Chief Executive Officer
Delmarva Power and Light Company
P.O. Box ?31
Wilmington, Delaware 19899
* Robert M. Landis, Esquire
Chairman of the Board
Office of the Secretary
Federal Reserve Bank of
Philadelphia
Box 66
Philadelphia, Pennsylvania 19105
Mr. J. L. Jackson
Executive Vice President and
President - Coal Unit
Diamond Shamrock Corporation
1200 First Security Plaza
Lexington, Kentucky 40507
'1/Mr. William H. Knoell
President and
Chief Executive Officer
Cyclops Corporation
650 Washington Road
Pittsburgh, Pennsylvania 15228
.1/Mr. Steven Muller
President
The Johns Hopkins University
Charles and 34th Streets
Baltimore, Maryland 21218
Mr. William S. Lee, III
Chairman of the Board and
Chief Executive Officer
Duke Power Company
P.O. Box 33189
Charlotte, North Carolina 28242
Mr. William A. Fickling, Jr.
Chairman and Chief Executive
Charter Medical Corporation
P.O. Box 209
Macon, Georgia 31202
(Material of a confidential nature should be marked:
TO BE OPENED BY THE ADDRESSEE ONLY)
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Federal Reserve Bank of St. Louis
John H. Weitnauer, Jr.
Chairman and
Chief Executive Officer
Pichway
P.O. Box 50359
Atlanta, Georgia 30302
1/10/83
CHAIRMEN AND DEPUTY CHAIRMEN OF THE FEDERAL RESERVE BANKS
1983
Deputy Chairmen
Chairmen
Bank
Chicago
.11/Mr. John Sagan
Vice President - Treasurer
Ford Motor Company
The American Road
Dearborn, Michigan 48121
Mr. Stanton R. Cook
President
Tribune Company
435 North Michigan Avenue
Chicago, Illinois 60611
St. Louis
4/Mr. W. L. Hadley Griffin
Chairman of the Board
Brown Group, Inc.
P.O. Box 29
St. Louis, Missouri 63166
Mrs. Mary P. Holt
President
Clothes Horse
5 Fields Building
University Avenue at "R" Street
Little Rock, Arkansas 72207
Minneapolis
?../Mr. William G. Phillips
Chairman and
Chief Executive Officer
International Multifoods
1200 Multifoods Building
Minneapolis, Minnesota 55402
Dr. John B. Davis, Jr.
President
1600 Grand Avenue
Macalester College
St. Paul, Minnesota 55105
(MAILING ADDRESS: 1644 Summit A\
St. Paul, Minnesota 55105)
Kansas City
Mr. Paul H. Henson
Chairman
United Telecommunications, Inc.
(MAILING ADDRESS: United Telecom,
Box 11315, Kansas City,
Missouri 64112)
Dr. Doris M. Drury
Professor of Economics:
Director of Public Affairs
Program - University of Denve'
10879 E. Powers Drive.
Englewood, Colorado 80111
Dallas
Mr. Gerald D. Hines
Owner
Gerald D. Hines Interests
2100 Post Oak Tower
Houston, Texas 77056
Federal
[MAILING ADDRESS
Reserve Bank of Dallas, Station K,
Dallas, Texas 75222)
Mr. John V. James
Chairman of the Board
Dresser Industries, Inc.
P.O. Box 718
Dallas, Texas 75221
San Francisco
1/
7/
7/
4-/
/Mrs. Caroline L. Ahmanson
Chairman of the Board
Caroline Leonetti, Ltd.
c/o Mrs. Howard Ahmanson
9500 Wilshire Boulevard
Beverly Hills, California
Mr. Alan C. Furth
President
Southern Pacific Company
1 Market Plaza
San Francisco, California
90212
en
Chairman, Executive Committee, Conference of Chairm
en
Chairm
of
ence
Confer
tee,
Commit
ive
Vice Chairman, Execut
an
Chairm
of
ence
Confer
tee,
Commit
ive
Member, Execut
Member, Employee Benefits Committee
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Federal Reserve Bank of St. Louis
9410'
A
INTERNATIONAL
MONETARY FUND
WASHINGTON, D. C. 20431
CABLE ADDRESS
MANAGING
DIRECTOR
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Federal Reserve Bank of St. Louis
INTERFUND
October 7, 1983
D.After the discussion on October 3 by the Ekecutive Board
of the FUnd's current liquidity problem, I thought it was advisable
to keep the G-10 Governors completely informed.
Accordingly, I
enclose a copy of a letter to Ka/1-Otto Pohl which sets out the
present state of affairs.
I look forward to being able to discuss
this matter with you in Basle next month.
Sincerely yours,
J. de Tarosiere
Enclosure
Mr. Paul A. Volcker
Chairman
Federal Reserve System
20th and Constitution Avenue, N.W.
Washington, D.C. 20551
.:TERNATIONAL MONETAPY
P.- UNE)
WASHINGTON. D. C. 203i
CABLE ADDRESS
INTERFUND
Zi;;;E:C -OP
October 7, 1983
You will be interested in the attached copy of my summing up of the
Executive Board's discussion on October 3 of possible measures to
conserve the Fund's resources in our present straitened liquidity
circumstances.
As you will have been informed by your Executive Director, and as
is apparent in my summing up, the Board essentially decided not to take
conservation measures at this time in the light of the likelihood that
financial resources will become available to the Fund in the near
future. The Board felt, however, that it should review the matter in
the light of circumstances at the end of November.
Five pending requests for new arrangements which include the use of
borrowed resources will proceed in the normal way. In addition, the
Executive Board asked me to rescind my instruction to the staff, of
September 14, to refrain from initiating any new negotiations involving
a commitment of borrowed resources. This I have now done, but the staff
are under a clear directive to caution members requesting use of Fund
resources that there is no assurance that adequate resources will in the
event be available to finance the programs being negotiated.
Executive Directors representing countries in the Basle Group were
particularly keen that negotiations should be resumed and, furthermore,
several of them confirmed that their countries would participate in a
lending operation to the Fund under agreed circumstances.
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Federal Reserve Bank of St. Louis
2
The stance taken by the Executive Board in this matter,
particularly by the Directors representing G-10 countries, seems to
imply that the immediate borrowing needs of the Fund will be met soon.
I draw comfort from that, as I do from the endorsement in the Interim
Committee Communique of my efforts to arrange additional borrowing from
official sources to cover the Fund's commitment gap.
The Executive Board has urged me to resume discussions of the
matter of a lending arrangement to the Fund with you in Basle in early
November, and I understand that this would be convenient fram your point
of view. I look forward to discussing this with you and your colleagues
and very much hope to be in a position afterwards to assure the
Executive Board that the Fund can proceed with meeting requests for
balance of payments assistance by our members in the full knowledge that
it will be able to finance such use of resources.
I am sending a copy of this letter to all other Governors of G-10
Central Banks and to the President of the Bank for International
Settlements.
Sincerely yours,
J. de Iarosiere
Mfr. Karl Otto Poehl
President
Deutsche Bundesbank
Postfach 2633
D-6000 Frankfurt 1
Federal Republic of Germany
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Federal Reserve Bank of St. Louis
DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE
October 4, 1983 - 83/254
Corrected: 10/7/83*
The Chairman's Summing Up at the Conclusion of the
Discussion on Measures to Conserve the Fund's Usable
Resources in Present Circumstances
Executive Board Meeting 83/146 - October 3, 1983
1.
A number of Directors indicated during the discussion that they felt
directly responsible for the financial policies of the Fund and they
attached great importance to the exercise of prudence in the formulation of
those policies. I am heartened by that indication, which gives even more
Importance than usual to the remarks of each individual Executive Director.
2.
All speakers recognized that the liquidity position of the Fund is at
present extremely strained and that the problem must be approached with
the prudence expected of a financial institution like the Fund. But a
number of Directors also made the point that we should not overlook the
impact of our decisions on the financial system itself, on the catalytic
role of the Fund in relation to the financial community in present circumstances, and on the adjustment role that the Fund has undertaken with a
number of countries. They noted that both the financial and the policy
credibility of this institution must be kept intact.
3.
A number of Directors said that they were reasonably confident that
the SDR 6 billion borrowing operation by the Fund would eventually be
forthcoming, and they based their judgment on a number of elements which
they saw emerging from the previous week's discussions. Those were, inter
alia, the agreement of the Interim Committee to continue the enlarged
access policy in 1984; the statement by President Reagan at the opening
of the Annual Meetings, at which he expressed an "unbreakable commitment"
to the Fund and to the quota ratification process; the language of the
Interim Committee communique regarding the immediate borrowing needs of
the Fund; and the statements of a number of Ministers and Governors to
the effect that their countries would eventually participate in a lending
operation to the Fund. In this last respect, I would like to thank those
Executive Directors who confirmed or clarified those commitments during
today's discussion, including Mr. Wicks, Mr. de Groote, Mr. Lovato, and
Mr. Joyce. I am gratified as well by the strong support for management's
effort to continue its encouragement of potential contributors, and I have
noted your desire that I participate in the forthcoming Basle group meetings
with a view to reaching an agreement on a lending operation to the Fund.
4.
While fully agreeing on the appropriateness of the steps taken by
management on September 14, all Executive Directors who spoke--including
all those whose countries are potential contributors in the SDR 3 billion
borrowing operation presently under discussion in the framework of the
Basle group--accepted that the three cases that had been already agreed
upon in principle by management before September 14 could be brought to
the Board for discussion. It is fair to say also that most Directors
who addressed the issue agreed to treat the two other cases mentioned in
the staff report (EBS/83/213) in the same way, noting that agreement had
* Page 3 added.
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Federal Reserve Bank of St. Louis
2 -
-
already been reached with the staff on the main elements of the program
before September 14, and that the letters of intent had been agreed with
the staff before the end of the Annual Meeting.
5.
The Board did not wish to take any decisions at the present stage
on the measures to conserve the Fund's usable resources described in the
staff paper. In particular, there was no strong support for what some
called "changing the rules of the game" at present to respond to a liquidity
problem that, in the view of many Directors, is temporary in character.
Rather, the Board felt that it should address the issue in the light of
the circumstances at the end of November. At that time, the matter would
be considered fully in the context of the liquidity position of the Fund
and the prospects and developments regarding the quota ratification and
borrowing arrangements.
6.
All Directors who spoke asked the management to rescind its instruction to refrain from initiating any new negotiations involving enlarged
access resources and to resume the process of discussions already begun,
even if those discussions involved borrowed resources. Most Directors
were confident that few, if any, of such cases under discussion were likely
to be brought to the Board before end-November, so that the financing of
any programs would be dealt with according to the decisions to be taken
at the end of November. However, it was also understood that all negotiations to be resumed or initiated should be conducted in a way that makes
it absolutely clear to the authorities that there remains some uncertainty
about the availability of Fund resources, so that caution will be required
in proceeding with these discussions. Thus, it is understood that, in
principle, no agreement formalizing management's acceptance of the substance
of any new program will be notified to the authorities, in order to keep
the options open for the Board. In the unlikely event that a case were to
arise in which there was a real "need" to bring it to the Board before the
end of November, management would consult with the Board before hand; and
it might then be necessary to devise a contingency clause to be inserted
in the agreement that would indicate that at least part of the resources
requested by the country would be subject to the availability of financial
resources. Such an approach was not a preferred course of action, however,
and it is to be hoped that no request will be so urgent that it calls for
the management to consult with the Board before the end-November review.
7.
With regard to the special facilities, the sense of the meeting was
that no special treatment needs to be devised before the end of November;
however, after that time, it is fair to say that all options would remain
open. A number of Directors strongly made the point that, if and when
measures to conserve the Fund's usable resources were to be taken, they
should affect all uses of Fund resources, including ordinary resources and
special facilities.
8.
I noted with great interest Mr. Wicks' suggestion that we should have
in the future a yearly assessment of the Fund's borrowing needs for the
year ahead, in light of the commitments the Fund is likely to engage in,
and to explore ways to cover these borrowing requirements.
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Finally, I wish to say that the preference of the Executive Board
9.
for resuming the process of negotiations toward "new" agreements and
dealing fully with the five cases mentioned above would not have been
my own preference. Adopting the course of action recommended by the
Board will leave less than SDR 4 billion in uncommitted ordinary resources
at the end of November, and I would have thought that prudence might
have dictated a somewhat more restrained stance. Given the fact that
Executive Directors are better placed than I to know the views of their
Governors, I would understand the approach adopted by the Executive
Board today as implying that the Executive Directors whose countries are
involved in the negotiations for lending to the Fund are reasonably
confident that the lending operation will eventually be concluded. This
is a precious indication for me, which I will keep foremost in mind
when, as Executive Directors have urged, I participate in the November
meeting of the BIS in Basle.
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
G 35
1?33 SEP 20 IT
WASHINGTON, DC. 20431
MANAGING DIRECTOR
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Federal Reserve Bank of St. Louis
Ga\1ERtibS
BONK) OF
CF
I
rESETN:
rEtIERILI
una
ADDRESS
CABLE
m cog, i NTER FUND
1VECEIVED
September 20, 1983
,
I attach the text of a telex I have today sent to the Chairmen/Chief
Executive Officers of the Advisory Group Banks for Brazil inviting them
to a meeting in the Executive Board Room of the Fund at 3:00 p.m. on
Monday 26 September.
I look forward to seeing you there as well.
Sincerely yours,
J. de Larosiere
Mr. Paul A. Volcker
Chairman
Federal Reserve System
20th & Constitution Ave. N.W.
Washington, D.C. 20551
IMF OFFICIAL MESSAGE
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WASHINGTON, D. C. 20431
Jr
START ADDRESS IN THE BOX'
23
I-4ST OF 14
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PAGE 1
AS YOU KNOW, WE HAVE JUST REACHED AGREEMENT AT STAFF
18
START TEXT HERE
DISTRIBUTION
17
AND MANAGEMENT LEVEL WITH THE AUTHORITIES OF BRAZIL ON THE
16
REVISED STABILIZATION AND STRUCTURAL ADJUSTMENT PROGRAM.
15
I CONSIDER IT OF GREAT IMPORTANCE TO BE ABLE TO PRESENT
14
DIRECTLY TO YOU THE SUBSTANCE OF THE PROGRAM AS WELL AS
13
THE MEDIUM-TERM PERSPECTIVE, TO DESCRIBE THE REQUIREMENTS
12
FOR EXTERNAL FINANCE IN ORDER FOR THIS PROGRAM TO BE
11
IMPLEMENTED SUCCESSFULLY, AND TO SEEK YOUR COOPERATION IN
10
ASSURING THAT THESE RESOURCES ARE MADE AVAILABLE.
if
REQUIRED
INITIAL
BELOW
SPECIAL INSTRUCTIONS
TELEX NO:
DRAFTED BY
NAME (TYPE)
TEXT MUST END HERE
1"
CABLE ADDRESS.
J. DE LAROSIERE
AUTHORIZED BY
NAME (TYPE)
EXT
73057
DEPT..
OMD
DATE
9/20/83
AUTHORIZED BY
NAME (TYRE)
TYPE ** ON LAST OR ONLY PAGE OF MESSAGE
Log
SEC 48 REV
ii 18-82
1
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WASHINGTON, D. C. 20431
rSTART ADDRESS IN THE BOX'
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CODE
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PAGE 2
ACCORDINGLY, I SHOULD LIKE TO INVITE YOU TO JOIN ME
START TEXT HERE
18
17
6
DISTRIBUTION
IN A MEETING NEXT MONDAY, SEPTEMBER 26, 1983 AT 3:00 P.M.
IN THE EXECUTIVE BOARD ROOM AT THE HEADQUARTERS OF THE
I AM INVITING
15
INTERNATIONAL MONETARY FUND IN WASHINGTON.
14
THE CHAIRMEN/CHIEF EXECUTIVE OFFICERS OF THE OTHER
13
ADVISORY GROUP BANKS TO ATTEND AS WELL AS THE FUND STAFF
12
WHO HAVE BEEN NEGOTIATING THE PROGRAM.
11
CHAIRMAN VOLCKER AND BIS PRESIDENT LEUTWILER ARE BEING
10
INVITED TO PARTICIPATE.
IN ADDITION,
IT
IN ORDER TO FACILITATE DISCUSSION
I BELIEVE IT WILL BE DESIRABLE TO
iF
REQUIRED
iNIT1AL
BELOW
SPECIAL INSTRUCTIONS
1'
TELEX NO.
lywnowe
TEXT MUST END HERE
CABLE ADDRESS:
73057
J. DE LAROSIERE
NAME (TYPE)
AUTHORIZED BY
NAME (TYPE)
EXT
OMD
DEPT
DATE
9/20/83
AUTHORIZED BY
NAME (TYPE)
I
TYPE ** ON LAST OR ONLY PAGE OF MESSAGE
SEC 48 REV I
ii 882
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Federal Reserve Bank of St. Louis
/
4-
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WASHINGTON, D. C. 20431
1ST OF 14
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CODE
21
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PAGE 3
START TEXT HERE
19
DISTRIBUTION
18
LIMIT THE SIZE OF THE GATHERING AND ACCORDINGLY I AM
17
INVITING PARTICIPANTS TO BRING NOT MORE THAN ONE COLLEAGUE
16
TO THE MEETING.
0
I SHOULD BE VERY GRATEFUL IF YOU WOULD CONFIRM TO ME
15
14
BY TELEX YOUR PARTICIPATION IN THE MEETING NEXT MONDAY.
13
CORDIALLY YOURS
12
J. DE LAROSIERE
11
MANAGING DIRECTOR
10
2
INITIAL
IF
REDU RED
11
SPECIAL INSTRUCTIONS
t
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CABLE ADDRESS
TELEX NO
DRAFTED BY
NAME (TYPE)
TEXT MUST END HERE
J. DE LAROSIERE
EXT
NAME (TYPE/
FOR CABLE ROOM USE ONEY
SEC 48
10 21 81
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Federal Reserve Bank of St. Louis
DEPT
OMD
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Citation Information
Document Type: Biographical profile
Citations:
Number of Pages Removed: 1
Biographical information, Jacques de Larosiere de Champfeu, undated.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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0
. ,NAT
A
INTERNATIONAL MONETARY FUND
WASHINGTON, D. C. 20431
CABLE ADDRESS
MANAGING
DIRECTOR
INTERFUND
September 14, 1983
Je...
ILJL
Following my telex of last week in which I transmitted to you my
summing up of the Executive Board discussion of September 2, 1983, on
the Fund's liquidity position and financing needs, I thought you might
also be interested to see the statement which I made this morning to the
Executive Board in the wake of the discussions of the central bank
governors of the Group of Ten at the monthly BIS meeting on Monday, 12
September 1983. I enclose a copy of my statement which I am also
circulating with a similar letter to the other central bank governors of
the Group of Ten, and to Dr. Leutwiler.
I look forward to seeing you in Washington next week and to
pursuing this matter further with you on that occasion.
With warm regards,
Yours sincerely,
J. de Tarosiere
Mr. Paul A. Volcker
Chairman of Governors
Federal Reserve System
20th and Constitution Ave., N.W.
Washington, D.C. 20551
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Federal Reserve Bank of St. Louis
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DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE
September 14, 1983 - 83/240
Statement by the Managing Director
on the Financing of Commitments Under
the Present Policy of Enlarged Access
Executive Board Meeting 83/139
September 14, 1983
I would like to inform the Executive Board of my understanding of
the outcome of the meeting of the central bank governors of the Group
of Ten at the monthly meeting of the BIS on Monday, September 12,
1983. In telephone conversations over the last two days with
Mr. Poehl, President of the Bundesbank and currently Chairman of the
G-10 Central Bank Governors Committee in the BIS, and Mr. Leutwiler,
President of the BIS, I was informed that the Governors came to the
widespread and even unanimous view not to go ahead with the project
for a further loan agreement, at least for the time being. I do not
believe it would be fruitful to go into details at this time.
The outcome of the recent meeting in Basle raises some questions
regarding the financial viability of the present policy on enlarged
access and what options we should consider regarding the working of
that policy. As Executive Directors are aware, the Fund has been
concluding new stand-by and extended arrangements under the EAR
policy involving the commitment to provide borrowed resources without
since March of this year, having available lines of credit to back
up those commitments. The so-called commitment gap is now SDR 3.5
billion as you know; and the staff has estimated it would rise to
SDR 6 billion by the end of this year or early 1984, on indications
of likely use of the Fund's resources under the policy on enlarged
access.
You will remember that I stressed in my statement of September 7,
1983 (Buff 83/234), which I had conveyed to Governors of the G-10 Group
(and it might be useful if it were in the hands of Ministers for the
forthcoming meetings in Washington), that this commitment gap needed
to be closed urgently and failure to do so would weaken the Fund's
liquidity position and its image in a very uncertain and difficult
international financial environment. I also stated at that time that
if matters regarding new credit to the Fund would prove to be more
difficult, or take longer than expected, I would appraise the Board
of all the options available, including a cutting back of any new
commitments. Given the result of the meeting on Monday, I believe it
is now necessary to consider some of those options.
First, we could, theoretically, continue our present policy and
enter into new stand-by and extended arrangements without the assurance
of financing becoming available in the next months. The commitment
gap would continue to rise and disbursements under the new, as well
as outstanding, arrangements would be made from present undisbursed
proceeds of existing loan agreements. As of the beginning of September,
the undisbursed proceeds of existing loans amounted to SDR 6.2 billion
(of which SDR 0.7 billion is under the SFF and the remainder under
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Federal Reserve Bank of St. Louis
4
2
EAR lines of credit). As the staff has indicated in the most recent
review of the Fund's liquidity position (EBS/83/170, 8/12/83), balances
under the existing lines of credit are expected to be fully disbursed
by June 1984, i.e., by June 1984 we would not have any cash resources
available under existing lines of credit, taking account of the
phasing of outstanding arrangements and new arrangements expected to
be entered into in the next few months. In short, on this count we
will have exhausted all existing lines of credit by around mid-1984.
If such a course of action were envisaged, the Fund's uncovered
commitments to supply borrowed funds would have to be met in the last
resort from the Fund's ordinary resources. I would say that this is
so by definition if we cannot arrange alternative lines of credit to
meet disbursements under arrangements. The squeeze on our usable
ordinary resources is, however, as I mentioned earlier this month,
becoming progressively tighter. The Fund's holdings of uncommitted
usable currencies and SDRs amounted to SDR 10 billion at the beginning
of September and are projected to fall to around SDR 6.7 billion by
the end of 1983 or early 1984, if we continued our present policy.
This amount would barely exceed the projected commitment gap of SDR 6
billion as of the end of 1983 or early 1984, and this would leave
virtually no margin of uncommitted resources to finance other drawings
on the Fund, including those under special facilities, first credit
tranches and in the reserve tranche. The Fund would be compelled,
under such a course of action, to cease all operations at the beginning
of 1984. This is obviously impossible.
If the Fund's liquidity position was looked at on a true cash or
disbursement basis, the following would result: the total of usable
currencies and SDRs (adjusted for working balances) plus available
lines of credit at the beginning of September was SDR 21 billion and
the total is projected to fall to SDR 14.1 billion by December and
to approximately SDR 7.5 billion by June 1984, the date by which
time it is expected that the existing lines of credit, as I said,
would be exhausted. In contrast, the Fund's commitment to disburse
resources under existing and new arrangements, while being spread
over a period of time reflecting the length of the arrangements, are
projected to amount to SDR 13.4 billion as of the end of 1983 and to
SDR 10 billion by June 1984. In addition, provision will need to be
made to accommodate drawings under the special facilities and in the
reserve tranche (reserve positions in the Fund, including loan claims,
are expected to total approximately SDR 45 billion by June 1984).
Starting in the spring of 1984 (when the total of undrawn commitments
will equal or begin to exceed the Fund's total usable assets) it will
become over time practically impossible for the Fund to meet both the
disbursements under undrawn commitments and to engage in other operations and transactions with members on the scale that might be required
in the period ahead, i.e., the Fund could be put in a position where
it would be unable to honor past commitments. The effective depletion
of the Fund's liquid resources while continuing our present enlarged
access policy would thus lead us into an impossible position.
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Federal Reserve Bank of St. Louis
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3
I do not believe that a rapidly deteriorating liquidity position
is tenable for an institution such as the Fund. Consequently, we
must now consider, inter alia, whether we can prudently let the commitment gap rise over the next few months in the absence of reasonably
firm indications on the means of financing it.
In this regard, one solution could be for the Fund to cease
entering into any new arrangements involving the enlarged access
policy--i.e., to effectively suspend the policy on enlarged access
so that the Fund would not, for the time being, enter into further
commitments involving EAR borrowed resources. We could also consider
various alternative modalities to ration access to the Fund's resources,
including ordinary resources, on an availability basis with perhaps
subsequent augmentation when resources become available. I have
asked the staff to examine urgently various alternative approaches
that could effect a slowing down of the drain on the Fund's resources.
It would be possible to consider immediately, i.e., as of today,
a change in the Fund's policy on the use of its resources, but it
might be considered as too sudden and precipitous an action to effect
a change in policy now, and I shall not recommend it. However, I
believe the Executive Board must examine, in the period immediately
after the Annual Meetings, probably October 3, 1983, a course of
action that would effect some slowdown in the use of the Fund's
resources, or at least to introduce some contingency provision making
the use of resources conditional on the availability of financing to
this institution.
I do not believe that in present circumstances it would be
appropriate for the staff to continue or engage in discussions with
members requesting the use of the Fund's resources which would involve
further commitment by the Fund of EAR borrowed resources, and I plan to
give appropriate instruction to staff missions on this matter. This
would mean that the Fund should not enter into new arrangements
which would involve the commitment of EAR borrowed resources beyond
those requests that are for consideration by the Executive Board
prior to the review that I indicated should take place immediately
after the Annual Meetings.
June 3. 1983
Dear Jacrlies
I think the letter is fine, but I have
taken the liberty of suggesting a few editorial
changes to, hopefully make it sound a little
more like a cooperative venture.
Good Luck.
Sincerely,
Mr. Jac(Ales de Larosiere
Managing Director
International Monetary Fund
19th and H Streets, N. W.
Washington, D. C. 20431
PAV:slw
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
*
WASHINGTON. D.0 20431
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With the Compliments of
Jacques de Larosiere
"
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Managing Director
2- 4.-4(
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Federal Reserve Bank of St. Louis
tap, P.
BOARD OF GOVERNORS
OF THE
SERVE SYSTEM
RE
L
RA
FEDE
40
1933 JUN -2 PM 6:
RECEIVED
ThE CRAIRr:;
OF
CE
Fi
OF
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Federal Reserve Bank of St. Louis
Draft
•
Dear Mr. Galveas:
I am writing to you to underscore the importance I attac
h to the discussions
you and your colleagues will be having with the Fund missi
on in the next few weeks.
These will be crucial meetings, with their rcsalts deter
mining whether the Brazilian
program can be put back on track and confidence
in a speedy improvement in Brazil's
economic situation can be restored; success in this
area is indispensable for a
return to growth and prosperity.
I thought we had made a promising start in the perio
d December 1982-February
1983, after weathering some very difficult situations
.
to frame a comprehensive policy package.
You were able
We
all made efforts to arrange the financing that
was needed, and at first it seemed
that we had succeeded.
our joint schedule.
The maxi-devaluation was performed without loss
of time in
Only shortly after these apparent successes, howev
er, we found
that the program was in serious trouble on both
the domestic and external .fronts.
;tee ekt
This is 4 most disappointing perfVrnanee, and I still
do not understand the factors
underlying this development.
Quick and decisive action is now essential
if a further weakening of the
domestic economic situation and anoth
er reduction in the availability of forei
gn
resources is to be averted. I think
we all agree that the adjustment effor
t will
need to be strengthened substantia
lly, on the basis of a realistic appra
isal of
the problems faced. We cannot
afford to be complacent about the
time that is
,ctytt4,27e ,
available to take the measures
needed to restore confidence and'ito
obtain the
external finance necessary for order
ly implementation of the required
adjustment.
After putting in place the appro
priate domestic measures, it will
be essential
that the program be implemented with
determination and on the basis of
monitoring arrangements that revea
l problems before they come to be
of such
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Federal Reserve Bank of St. Louis
2
magnitude that they are overwhelming.
It will also be necessary to assure that
the external financing package is more solidly constructed than the one that was
(1444
organized in late 1982 and early 1983
) But that will only be possible if the
banking community is confident that a meaningful program is being implemented.
I can assure you that the management and staff of the Fund are prepared to
assist you in re-examining the existing program and in developing the remedftl
measures needed, as-we-TT-as to make another effort to marshall the external
the Af""4-4-9,%`14/
resources necessary to support Brazilian program.r-77114m;--1-urge youtock-Ue Voldmc,
whell deciding on remat44.almeasures
nd I have instructed the mission to take
partiGulaz-eere in enspring that the modified program is credible and has every
tcril
tc,ct tcy
chance of succeeding. I am-esperielly-coneerned-atruut the continued high rate
:
of inflation. The measures adopted-Rave- to be capable of assuring a pronounced
and sustainable deceleration of inflation if a heavy long-term toll on economic
efficiency and growth is to be avoided. It is becoming increasingly evident that
success in this area cannot be achieved as long as the economy continues to be
heavily indexed.
If
OS
You will appreciate, of course, that we have to be certain about the chances
of the program succeeding this time around before presenting it to
the Executive
Board of the Fund.
Another disappointing performance would be unfortunate for
Brazil and would seriously endanger the credibility and
usefulness of the Fund.
I trust that the mission visiting Brazil will be able to reach
agreement
on policies that would satisfy the conditions I-havc etrtitrwd,
and I would urge
you to ensure that mechanisms adequate to the task of implementing the program
be put in place.
I wish you success in these endeavors.
With my warmest regards,
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BOARDOFGOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Chairman Volcker
From
Messrs. Bradfi
Ryan and Winn
Date
Subject:
Septc.nther 11
TMF 1Pgis1RJ—Lon.
Truman,
In preparation for Conference Committee consideration
of the IMF legislation, we have prepared a summary of the House
(H.R. 2957) and the Senate (S. 695) bills (at TAB A) and tables
comparing the two bills (at TAB G).
The following are our
conclusions as to Federal Reserve priorities for the Conference
legislation._/
There is only one provision, contained in the House
bill, that would prevent payment to the IMF of the U.S. quota
increase:
the requirement that IMF salaries and interest on
loans to Fund employees be reduced to U.S. government salary
levels before the U.S. can consent to its quota increase (p.
29).**/
If this amendment cannot be deleted, Treasury staff
is thinking along the lines of a substitute provision requiring
the U.S. Executive Director to work for Fund salaries to be in
line with those in the U.S. public and private sector and for
elimination of below-market interest rates on Fund loans to its
employees.
There also are several provisions -- all in the House
bill -- that are troublesome in terms of IMF operations:
1.
The Schumer amendment requires that IMF
adjustment programs include provisions to convert
short-term bank debt at high interest rates into
"long-term debt at lower interest rates" (pp. 15-16).
The substitute language that you negotiated with
Schumer is at Tab B.
*/
On a large number of other provisions, we would
that Treasury take the lead in seeking modifications.
**
Page numbers are references to tables at TAB G.
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Federal Reserve Bank of St. Louis
propose
1983
-22. If it is not deleted in Conference, the Neal
amendment on SDR allocations needs to be amended to
provide for greater flexibility (p. 7).
Treasury
appears to be willing to compromise on a provision
requiring prior Congressional consultation on future
SDR allocations and prior Congressional approval for
allocations in any basic period that would result in
an increase in allocations to the United States in
excess of 75 percent of the U.S. quota. (Treasury may
be willing to compromise at a 50 percent level.)
Draft language along these lines is at TAB C.
3.
The
provision
requiring
active
U.S.
opposition to IMF loans to countries practicing
apartheid or to communist dictatorships (p. 3) could
result in a significant politicization of the Fund.
However, given the current political dimensions of
this provision, the Administration currently is
undecided whether either an amendment or deletion of
the provision is feasible.
There
are
several
banking
supervision
and
international lending provisions that also could have
significant policy implications and which consequently need
modifying in Conference:
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Federal Reserve Bank of St. Louis
4.
The House bill specifies that the banking
agencies must require reserves against loans likely to
be restructured (p. 34).
This provision should be
deleted in view of Chairman St Germain's commitment
and the banking agencies' recent adoption of capital
adequacy guidelines for multinational bank holding
companies.
5. Both the House and Senate bills require banks
to make detailed evaluations on overseas mining
(Senate) as well as manufacturing (House) loans (p.
40).
One concern with the provision is that U.S
mining or manufacturing interests, through court
actions based on this legislation, could tie up any
U.S. bank lending in this area.
Moreover, the
provision is objectionable as a move toward credit
allocation.
However, given the tenor of the House
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Federal Reserve Bank of St. Louis
-3floor debate and the presence of this provision in
both the House and Senate bills, it is unlikely to be
TAB D has a suggested
dropped in Conference.
compromise with a limitation on its applicability only
to mining activities, a relatively high dollar
threshold for the provision to apply and a modified
list of factors to be included in the required
studies. It also would deny a legal right of action
to any person for failure of a bank to comply with the
In addition, no civil
loan evaluation requirements.
or other penalty would be applied by any government
agency for failure to comply with the requirements.
6. The House bill requires payment to Treasury
of "excessive interest" on private bank loans made
more secure or affected by the IMF quota increase (p.
26). Treasury staff is thinking of a compromise on a
substitute provision in which the U.S. Executive
Director would seek adoption of IMF policies that
banks' interest receipts be limited during Fund
We would suggest a less sweeping
programs.
modification in the provision (attached at TAB E),
that would require the Treasury to inform the IMF of
proposed interest payments so that the Fund could
ascertain whether payment of such interest is
inconsistent with the provisions of any applicable
The statutory provisions would still
Fund program.
require detailed reporting by banks to the Secretary
of the Treasury on the terms of all foreign loans and
so would not be unobjectionable to those banks.
7. The House bill contains the Dorgan amendment
prohibiting fees on restructured foreign loans in
excess of administrative costs and requiring that such
administrative fees be amortized over the life of the
credit. This amendment goes significantly beyond that
in the regulators' proposal in that it requires all
fees to be amortized and also will have the effect
that any fees other than administrative costs will
have to be covered by the interest spread on the
loan. It would be reasonable to amend the provision
to allow agency fees to be charged, since, unlike
other types of fees that could be included instead in
a higher interest spread on the loan, these fees are
paid only to the agent bank or banks. Attached at TAB
F is suggested language.
-4The House bill has more detailed capital
8.
The House
adequacy provisions than the Senate bill.
and the
Leach
by
Congressman
out
worked
was
version
We prefer the
IBAA, with OCC assistance (p. 39).
simpler Senate version as giving the banking agencies
the broad discretion to set and enforce capital levels
We suggest
that Congress initially had intended.
Conference.
in
outcome
that
for
working
We should obtain Conference report language
9.
clarifying the scope of GAO audit authority under the
international
regarding
provisions
bill
House
and
supervision
regulation,
of
coordination
assuring
language
and
42)
(p.
activities
examination
GAO
adequate protection of confidential information.
staff has indicated that they would not object to this
If a further clarification of the law is
approach.
needed, it could be done after enactment by a Federal
Reserve-GAO exchange of letters.
In view of our respective expertise and
10.
responsibilities, we suggest amending the requirement
that the Secretary of Treasury submit a report on the
G-10 countries' supervisory practices (p. 44), to
require the report be made by the Chairman of the
Federal Reserve Board and the Comptroller of the
Currency.
11. Finally, we suggest deletion of the provision
requiring that the FDIC be given representation equal
to the OCC and Federal Reserve Board on the Cooke
Committee (p. 45), as an unnecessary and inappopriate
statutory provision. We would suggest that you send a
letter to the Conferees to that effect, indicating
that steps already are being taken to obtain FDIC
representation and indicating that you will work for
satisfactory arrangements to be achieved.
Based on your judgment as to these proposed positions
on the legislation, we will work with Treasury to coordinate
our efforts on the Hill.
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Federal
Reserve Bank of St. Louis
0
TAB A
A
S.695
The Senate bill has only a few provisions additional
to or different from those in the proposed Treasury IMF
legislation and banking agencies' international lending
supervision bill. They are, briefly, as follows./
A.
Trade-Related Amendments
Requires NAC report to
1.
Surplus Commodities:
President and Congress every 90 days listing all
applications to IMF and IBRD for financing that would
enhance production of commodities for export such that
the commodity would be in surplus and U.S. producers
would be substantially injured; establishes general
policy for U.S. representatives to IMF and IBRD to
take into account effect of adjustment programs on
industrial sectors and international commodity markets
(p.21).
2. Import Restrictions: U.S. Executive Director
to make proposals for members drawing from IMF to take
steps to eliminate all import restrictions that are
inconsistent with the GATT and that have a serious
adverse impact on U.S. exports and employment; U.S.
Executive Director is to consult with Congress before
any vote inconsistent with this directive; appropriate
federal agencies are to inform U.S. Executive Director
of relevant countries and trade practices; Secretary
of Treasury to submit annual report on implementation
(p. 11).
3. IMF consultations on technical assistance to
reduce improper trade practices:
U.S. Executive
Director to initiate consultations in IMF to develop
financial and technical assistance policies to reduce
restrictions on international trade and investment (p.
11).
*
/
Page numbers refer to pages of tables at Tab G.
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Federal Reserve Bank of St. Louis
-24. Trade policies regarding
agricultural
products accompanying Fund prog
rams:
U.S. Executive Director to
propose that following
policies be adopted by Fund as
to use of Fund
resources (except reserve tranche
drawings):
drawing
member to provide list of all
direct and indirect
subsidies on agricultural expo
rts; if Fund determines
any are predatory and U.S.
determines they have
adverse impact on U.S. exports,
member must agree to
elimination of the subsidies with
in 3 years; "export
subsidy" is broadly defined (p.
12).
5.
Unfair trade practices of coun
tries receiving
financing or technical assistan
ce from IMF:
U.S.
Executive Director to work to
obtain agreement of any
country drawing on IMF or
receiving technical
assistance to eliminate unfair
trade and investment
practices, in a manner consiste
nt with any adjustment
program, and which the appropri
ate federal agencies
have determined to have a sign
ificant deleterious
effect on the international trad
ing system.
In
determining U.S position on Fund
drawings, Secretary
of the Treasury to take into acco
unt progress of
country in eliminating foregoin
g practices and must
report to Congress if U.S. supp
orts financing to
country not meeting any IMF targ
ets in this respect
(p. 22).
6.
IMF - GATT coordination:
IMF and GATT
representatives should meet regu
larly and improve
coordination (p. 38).
B.
IMF Operations
7.
Future Changes in GAB:
Prior Congressional
authorization for U.S to agree
to any significant
alteration of GAB (p. 6).
8.
Data collection on debt in IMF:
U.S. to
propose and vote for procedures
in IMF to collect and
disseminate (as appropriate) data
quarterly on
cross-border lending; Secretary
of the Treasury to
report within 6 months on implementati
on of provision
(p. 8).
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Federal Reserve Bank of St. Louis
-39.
GAB use for non-GAB participants:
U.S. can
support use of GAB for non-GAB participants only if
Secretary of the Treasury certifies to Congress that
such use is necessary to deal with international
economic conditions
which
could
threaten
the
international monetary system (p. 20).
10.
Report to Congress on IMF gold:
Within 180
days, Secretary of the Treasury to report on
feasibility of IMF gold sales to members or to market,
loans of gold to members, and report on effects on
gold and credit markets and members' gold reserves of
foregoing options (p. 13).
11. IMF and oil prices: Secretary of Treasury to
report to Congress in 60 days on impact of IMF lending
on world oil prices (p. 13).
12. Future role of IMF: Secretary of Treasury to
report within 6 months following assessments:
need
for systematic debt restructurings; role of global
recovery in easing debt crisis; whether IMF resources
are adequate; role of IMF in providing financing to
least developed countries; progress on international
coordination for improving international monetary
system (p. 13).
C.
Miscellaneous
13. Private bank lending for overseas mining:
Requires private banks to prepare an economic
feasibility evaluation before making any loan to
finance all or part of a project developing a
mining operation outside the U.S. in excess of
$25 million.
The assessment must include the
project's profit potential; its impact on world
markets and U.S. industry and employment; its
competitive effects; its effect on development in
the country; and whether the project can
reasonably be expected to be repaid over the life
of the project without a government subsidy (p.
40).
14.
BIS membership:
Federal Reserve, Treasury,
and State Departments to report to Congress within 90
days on their consideration of BIS membership (p. 10).
-4H.R. 2957
The House bill contains provisions similar or
identical to amendments 1, 2, 3, 5, 7, 8, 10 and 13 above.
In
addition to these provisions, the House bill, briefly, adds the
following provisions to the legislation:
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Federal Reserve Bank of St. Louis
A.
Economic policies
1.
General findings:
General policy findings
regarding need for economic recovery; requirement that
President encourage industrialized nations to:
pursue
coordinated
noninflationary pro-growth
policies,
develop appropriate plans for debt rescheduling in
countries where needed, promote improved supervision
of international banking, report to Congress on
foregoing (pp 1-2).
B.
IMF Operations -- Policies and Programs
2. Policies in IMF:
U.S. Executive Director to
work for adoption of Fund policies that promote:
noninflationary economic growth; low tax rates;
reduced government sector; improved environment for
foreign
private
investment;
socially
equitable
economic adjustment programs; prices reflecting market
forces; Fund programs that maintain and increase
standard of living for lower-income families (pp. 2-3).
3.
Schumer amendment:
U.S. Executive Director
is to work for IMF policies that:
convert short-term
bank debt at high interest rates to long-term debt at
lower interest rates; assure that external debt
service is a manageable percentage of projected export
earnings; economic adjustment programs take into
account aggregate effect of the programs on world
economy.
U.S. Executive Director is to vote against
any program in which annual external debt service
exceeds 85% of annual export earnings of the country
unless a number of factors are present (debt
restructurings at lower interest rates, annual debt
service is manageable, no adverse impact on world
economy) or extraordinary circumstances are present.
NAC to report annually on implementation of provisions
(pp 15-16).
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Federal Reserve Bank of St. Louis
-54.
SDRs:
Future SDR allocations require prior
Congressional authorization (p.7).
5.
Apartheid and Communist dictatorship:
U.S.
Executive Director to actively oppose IMF drawings by
countries
practicing
apartheid
or
communist
dictatorships (p.3).
6. Human needs report: Secretary of Treasury to
report within 180 days on steps taken to carry out
present "human needs" provisions in Bretton Woods
Agreements Act (p. 14).
7.
Bank bail out:
U.S. Executive Director to
vote against any IMF drawing that would principally be
for the purpose of repaying private bank credits; work
to insure Fund
encourages
rescheduling
where
appropriate (p. 19).
8.
Nuclear non-proliferation:
U.S. Executive
Director shall consider, if appropriate, a drawing
member's policies on nuclear non-proliferation (p. 23).
9. IMF salaries: U.S. may not consent to quota
increase unless IMF employees are paid no more than
Executive Level IV and IMF credit to Fund employees is
at rates no lower than rates on housing loans under
title II of the National Housing Act (p. 29).
10.
Notice of IMF dollar borrowing:
Requirement
of 60 days' prior notice to Congress for IMF to borrow
U.S. dollars from non-official sources (p. 28).
11. IMF charges and renumeration: U.S. Executive
Director to work for IMF policies by which IMF
remuneration and charges are in line with market
rates. Secretary of Treasury to report to Congress on
progress within 180 days (p. 36).
C.
IMF Quotas and GAB
12.
Consultations prior to quota negotiations.
Certification for GAB activation: Prior Congressional
consultations required for future negotiations on U.S.
quota increase; GAB resources can only be activated if
Secretary
of
Treasury
certifies
supplementary
resources are needed to forestall or cope with an
impairment of international monetary system and Fund
has fully explored other means of funding (p. 6).
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Federal Reserve Bank of St. Louis
-613.
Countries drawing from IMF:
Secretary of
Treasury to report to Congress on countries that will
receive loans as a result of quota increase (p. 7).
14. Payment of
Executive Director
Articles to provide
DM, francs, yen, or
D.
quotas in "hard currencies":
U.S
to work on amendment to IMF
for payment of quotas in dollars,
sterling (p. 30).
Exchange Rate Stability
15. IMF to improve exchange rate stability: U.S.
Executive Director shall propose that:
IMF programs
support policies that reduce need for abrupt or
damaging
exchange
rate
changes;
in
Art. IV
consultations, IMF recommend and encourage adoption of
policy changes where needed to better promote greater
economic, price
and
exchange
rate
stability.
Secretary of the Treasury to report semiannually on
implementation (p. 4).
16. Report to Congress on exchange rate problems,
IMF role: Within 90 days, the President is to report
to Congress on role of IMF and U.S in maintaining
realistic market-related exchange rates among major
currencies and recommendations for avoiding exchange
manipulation.
rate
Should
particularly examine
policies of countries with substantial trade surplus
with U.S. that encourage capital export. Secretary of
Treasury shall propose in IMF:
a comprehensive study
of exchange rate problems and steps to correct
structural
imbalances;
strengthening
Art.
IV
consultations (pp. 4-5).
17.
Report on reform of floating rate system:
Secretaries of Treasury and State and the STR to
discuss with other countries economic dislocations
resulting from structural exchange rate imbalances.
Secretary of Treasury to report within 180 days on
proposals to reform the floating exchange rate system
(p.5).
E.
Trade-related amendments
18.
Steel subsidies: In addition to those cited
above contained in the Senate bill, the House bill
requires NAC study on impact on U.S. steel industry of
steel subsidies by nations that borrow from IMF.
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-7F.
Banking
19.
Reserving against restructured loans:
Requirement that federal banking agencies prescribe
reserves against foreign loans where there is a
substantial likelihood that the debt cannot reasonably
be expected to be repaid in accordance with its
original terms and conditions without additional
borrowing or a major restructuring (p. 34).
20. Amortization of fees: Prohibition on fees on
restructured
international
loans
exceeding
administrative costs unless such fees are amortized
(p. 35).
21.
Prohibition on fees in restructurings;
amortization of administrative fees:
Prohibition on
fees on restructured international loans in excess of
administrative costs and requirement that these
administrative fees be amortized (p. 36).
22.
"Excessive interest" on foreign loans:
Secretary of the Treasury to determine all foreign
loans by U.S. banks on which interest charged exceeds
the rate that would be charged a corporate borrower
with an AAA rating on a loan of similar maturity.
Such "excessive" interest is to be paid to Treasury
for loans that the Secretary determines have been
extended, refinanced, or made more secure, or in any
manner affected by the increased U.S. quota in the IMF
(p. 26).
23. Excessive foreign lending:
Federal banking
agencies are to implement following provisions until
January 1, 1986:
no banking institution having
foreign loans in any country exceeding the bank's
primary capital on or after June 30, 1983 can make any
new loans to borrowers in such countries if the result
would be for the growth rate of aggregate foreign
loans of the bank to exceed one-half the growth rate
of aggregate foreign loans during January 1, 1980
through January 30, 1982.
However, this limit does
not apply if the annual growth rate of the bank's
domestic loans exceeds the foregoing limit. Secretary
of Treasury and Chairman of Federal Reserve need not
enforce this section if they determine the domestic
economy would be adversely affected or President
determines enforcement would be detrimental to the
national interest (pp. 17-18).
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-824. Capital adequacy:
In addition to enforcement
of prescribed capital adequacy levels through cease
and desist orders under authority to prescribe safe
and sound banking practices, federal banking agencies
may require compliance with prescribed capital levels
by order specifically issued for this purpose under
authority of this law (p. 39).
House bill also
contains provision allowing minimum capital level to
be set by appropriate federal banking agency, as it
deems "necessary or appropriate in light of the
particular circumstances of the institution."
25.
GAO audit authority:
GAO audit authority
confirmed as to international banking supervision
activities of federal banking agencies (p. 42).
26.
Report on G-10 supervisory practices:
Secretary of Treasury to report to Congress within 120
days on banking supervisory practices of G-10
countries (p. 44).
27.
FDIC on Cooke Committee:
FDIC to be given
equal representation with Federal Reserve Board and
OCC on Cooke Committee (p. 45).
TAB B
Schumer Amendment
Sec. 48(b)(2)(A)(i) should read:
. Unless
the
Secretary
of
the
Treasury
first
determines and provides written documentation to the Committee
on Banking, Housing, and Urban Affairs of the Senate and the
Committee on Banking, Finance, and Urban Affairs of the House
of Representatives that --
(i)
the
economic
adjustment
program
works
toward
converting short-term bank debt which was made at high interest
rates into longer term debt at moderate interest rate spreads.
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Federal Reserve Bank of St. Louis
TAB C
SDR Allocations
Section 6 of the Special Drawing Rights Act (22 U.S.C.
286q) is amended to read as follows:
"Sec. 6.
Neither
the President
nor
agency shall on behalf of the United States
any
person
or
vote to allocate
Special Drawing Rights under article XVIII, sections 2 and 3,
of
the
Articles
of
Agreement
of
the
Fund:
(a)
consultations, at least 90 days prior to any such
without
vote, with
the Chairmen and ranking minority members of the Committees on
Foreign Relations and Banking, Housing and Urban Affairs of the
U.S. Senate and the Committee on Banking, Finance
and
Urban
Affairs of the House of Representatives, and any appropriate
subcommittees
thereof
and
(b)
without
prior
Congressional
authorization where such allocation to the United States in any
basic
period
would
exceed
an
amount
equal
to
percent of the United States quota in the Fund."
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Federal Reserve Bank of St. Louis
seventy-five
TAB D
Loan Evaluations
Sec.
x. (a)
No
banking
institution
shall
extend
credit, whether by loan, lease, guarantee, or otherwise, which
individually
or
in
the
aggregate
exceeds
$10,000,000,
to
finance all or any portion of any project, which project:
(1)
has as its principal objective the construction,
establishment, or major expansion of any mining operation, or
any
metal or
mineral processing
or
fabricating
facility
or
operation, located outside the United States or its territories
or possessions, and
(2)
can reasonably be expected
to require aggregate
development expenditures (including all costs of construction
and establishment) in excess of $25,000,000, unless a written
economic
feasibility
prepared
by or for such banking
evaluation
of
such
foreign
institution and
project
approved
is
in
writing by a senior official of such banking institution; or if
such loan is made as part of a bank consortium loan, prepared
by or for a banking institution managing such consortium and
approved
in
writing
by
a
senior
official
of
such
managing
banking institution.
(b)
Such economic feasibility evaluation shall take
into account the profit potential of the foreign project, the
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-2-
impact
of
the
project
on
world
markets,
the
competitive
advantages and disadvantages of the project, the likely effect
of the project on the overall long-term economic development of
the country in which the project is located, and
whether the
extension of credit can reasonably be repaid over the life of
the project without the government of the country in which the
project is located
engaging
in any
unfair
or
discriminatory
trade practices with respect to export of the product involved
in
the
mining,
operation.
processing
Such
or
evaluation
fabricating
shall
be
facility
available
or
to
the
appropriate Federal banking agency.
(c)
any
person
No action in law or in equity may be brought by
claiming
to be
affected
in
any
manner
by
any
extension of credit described in paragraph (a) of this section,
or
any decision
failure
by
requirements
any
of
not to extend
person
this
to
such
comply
section
for
credit,
notwithstanding
in
any
an
economic
way
with
the
feasibility
evaluation of such credit, nor shall any such failure result in
any penalty being imposed or any civil or other legal action
being brought by any federal banking agency or other agency or
authority of the United States government.
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Federal Reserve Bank of St. Louis
TAB
E
Interest on Loans
Amend proposed section 54(e)(2) of the Bretton Woods
Agreements Act to read as follows:
With respect to loans identified in subsection (e)(1),
the proposed interest payments on such loans shall be reported
to the Fund by the U.S. Executive Director to ascertain whether
such
sums
are
inconsistent
with
any
external
financing
limitations or other provisions contained in any Fund program
of the debtor country concerned.
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Federal Reserve Bank of St. Louis
TAB F
Restructuring Fees
Amend section 319(a) of House bill to read:
Sec. 319. (a)(1)
Notwithstanding any other provision
of law (including any other provision of this title), in order
to avoid excessive debt service burdens on debtor countries, no
banking
institution
shall
charge,
in
connection
with
the
restructuring of an international loan, any fee exceeding the
administrative costs associated with the restructuring.
(2)
Notwithstanding
any
other
provision
of
law
(including any other provision of this title), any fee which
is authorized to be charged under paragraph (1), including any
agency fee, shall be amortized over the effective life of the
loan involved.
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Federal Reserve Bank of St. Louis
INDEX
HOUSE BILL
SECTION
SENATE BILL
SECTION
SUBJECT
SPONSOR OF HOUSE PROVISION
PAGE
TITLE II INTERNATIONAL ECONOMIC RECOVERY
201
Findings
1
202
President to promote int'l, cooperation for economic growth; supervision of
international lending
2
TITLE III INTERNATIONAL MONETARY FUND
Promoting in IMF economic growth, low
taxation, decreased gov't. reg,. and ex-
301
Kemp
(proponent)
2,4
change rate stability
302
101
Quota increase; GAB authorization
102
Use of GAB only for GAB participants
101
Collection of information on debt by IMF
101
Study on BIS membership
6-7
20
302
Sen. For. Rel's. Comm.
8
10
303
Special Drawing Rights
Neal
7
304
Opposition to apartheid and communist
dictatorships
Gramm
3
305
102
IMF policies to eliminate import re-
11
strictions and unfair export subsidies
306
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Federal Reserve Bank of St. Louis
Report to Congress on promotion of exchange
rate stability, avoid, of rate manipulation
4
-2INDEX
HOUSE BILL
SENATE BILL
SECTION
SECTION
307
102
Elimination of agricultural export subsidies
308
103
Report on Fund policies
(promoting recovery;
private market borrowing; gold sales;
supplementary financing)
105
Report on effect of Fund policies on energy
and oil prices
SUBJECT
SPONSOR OF HOUSE PROVISION
PAGE
12
13
13
309
Sustaining economic growth
310
17
311
Banks' excessive foreign lending
relative to domestic lending
Prohibition of front-end fees in restructurings in excess of admin. costs unless
amortized
312
Opposing Fund bailouts of banks
19
313
Report on reform of floating exchange rate
system
314
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r
Federal Reserve Bank of St. Louis
Schumer
15
35
5
101
Surplus commodities report and minimizing
adverse impact on industrial sectors and
internat'l. commod's. markets of IMF and
IBRD loans.
21
102
Elim. of unfair trade and investment practices
in connection with IMF drawings.
22
-3INDEX
HOUSE BILL
SECTION
SENATE BILL
SECTION
SUBJECT
SPONSOR OF HOUSE PROVISION
PAGE
TITLE IV INTERNATIONAL LENDING SUPERVISION
315
Human needs report
316
Non-proliferation of nuclear weapons
317
318
208
14
Panetta, Stark
24
IMF policies on international lending in
connection with Art. IV consultations,
Fund programs, World Econ. Outlook
Study of impact on U.S. steel
of steel subsidies in IMF borrowing coun-
23
Ritter
25
Dorgan
36
tries
319
Prohibition in restructurings on fees in
excess of admin. costs and required amortization of those fees.
320
Rates of remuneration and Fund charges to
be market-related
321
Excessive interest on loans made more
secure by IMF
322
Prior notice to Congress of Fund private borrowing
in U.S. dollars
28
323
Reducing salaries of employees of the Fund
29
324
Listing beneficiaries of the quota increase
325
Payment of quota increases by members in
"hard currencies"
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Federal Reserve Bank of St. Louis
36
Bethune
26
7
30
-4INDEX
HOUSE BILL
SENATE BILL
SECTION
SECTION
401
201
Title
31
202
Findings
31
402
203
Definitions
31
403
204
Strengthened supervision of international
lending
33
404
205
Reserves (including House bill requirement
of reserves against debts likely to be rescheduled)
34
405
206
Accounting for fees on international loans
(banking agencies' proposal)
35
406
207
Collection and disclosure of certain
international lending data by banking
37
SUBJECT
SPONSOR OF HOUSE PROVISION
PAGE
agencies
407
104,
208
International co-operation and study of
international lending supervision
408
209
Capital adequacy standards
Leach
39
409
211
Foreign loan evaluations (overseas
mining operations)
Oakar
40
410
210
General authorities
41
GAO audit authority
42
411
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Federal Reserve Bank of St. Louis
38
-5INDEX
HOUSE BILL
SENATE BILL
SECTION
SECTION
412
210
413
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Federal Reserve Bank of St. Louis
SUBJECT
SPONSOR OF HOUSE PROVISION
Reports to Congress on: G-10 countries'
banking supervision; actions taken to
implement Act.
Equal representation for the
FDIC on Cooke Committee
Carper
PAGE
44
45
S b3ex.+
om se_
nal n55
Ver5iorl
TITLE II—INTERNATIONAL ECONOMIC
RECOVERY
nootNos
Sm. 201. The Congress hereby finds
that—
(1) efforts by one nation to improve its
economic well-being without regard to that
of other nations are ultimately sell-defeating:
IL __
(2) the well-being of all United States citizens depends on world economic growth and
prosperity; and
(3) world economic recovery is being impeded—
(A) by high interest rates, particularly in
the United States:
by the enormous magnitude and short
maturity of the foreign oebt of some nations; and
(C) by the risk and uncertainty associated
with a competitive international banking
system in which bank regulatory programs.
which differ markedly from nation to
nation—
(I) were designed to meet national rather
than international safety and soundness
concerns:
(ID may have contributed significantly to
the international debt problem; and
(iii) are not adequate to address potential
future threats to international bank gaiety
and souncinpc.c.
(4) millions of American Jobs have been
lost through the worldwide recession; and
(5) a substantial portion of the decline In
the United States gross national product in
recent years was due to a sharp Orop in exports;
(6) renewed growth In the developing
countries v:ould help to restore United
States export markets and millions of
American Jobs.;
(7) the financial resources within the developing countries could be turned to renewed growth; and
(8) the international debt crisis would substantially ease If the time allowed for debt
repayment were lengthened for those nations most severely burdened by foreign
debt.
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Federal Reserve Bank of St. Louis
r&
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.
ECONOMIC GROWTH; SUPERVISION Of
INTERNATIONAL LENDING
Sac. 202. (a) The President shall encourage the industrialized nations—
(1) to take aciions on a cooperative, multilateral basis to adopt fiscal and monetary
policies which will result in sustainable.
noninflationary economic growth and increased employment on a worldwide basis:
(2) to develop plans for reducing the financial pressures on nations whose growth
Is being constrained by the size and short
maturity of their foreign debt by extending.
where appropriate, the maturity of such
debt; and
(3) to begin immediately to promote the
effectiveness and the consistency of the regulation arid supervision of international
banking.
(b) Not later than one year after the date
of the enactment of this A:1.. the President
shall transmit a report to the Congress—
(1) regarding actions te.J:en to =rry out
the provisionr of subsection (a): arid
(2. wt-.;:h includes suen recornrdendations
as tnt Presi6ent considers advisable for lege ac*.ior_s bteded to are sustainable
and noninflationary ecor.onlic growth on a
worldwide basis.
House version acceptabl
ktb'ec.t ; Economic 9ro vrt4, - IOJ
on
TITLE III-1NTE.RNATIONAL
MONETARY FUND
PROMOTING ECONOMIC Ga07.-rH LND
3
CONDITIONS FOR EXCHI_NCE RATE STABILITY
SEC. 301. The Bretton Woods Agreements
Act (22 U.S.C. 286 et sea.) is amended by
adding at the end thereof the following-.
"PPOMOTING ECONOMIC ctoi.rrti AND THE
CONDITIONS FOR EXCHANGE RATE STABILITY
"Sr:. 42. (a) In order to help assure that
the resources provided under section 40 are
used to support progrowth policies which
will help establish the economic conditions
necessary for greater financial and exchange rate stability. It is the sense of Con-
gress that the Secretary of the Treasury
shall instruct the United States Executive
Director of the Fund to work for adoption
of policies in the Fund, both within the
framework of article IV consultations and
with respect to the conditions associated
with Fund -supported balance of payments
adjustments programs, that—
"(1) promote sustained noninflationary
economic growth, monetary stability, and
higher leveLs of productive employment:
"(2) support the evolution of broadly
based, nondiscriminatory, low-rate tax syst‘..ms which will encourage private sector
Digitizedsavings
for FRASER
and provide incentives for produc.1•r. r•trt,1,1••,••no
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
House version acceptablr
S"Sjjec--+ :
Vio•Ase_
&orcr1c.
poli cies
Ver5i0
enctte—
V42-15 i •DeN
Subsi-tanlive
Q_renc
Re_c_ormrrmula_cci,
Pos
"(3) encourage the establishment of sound
monetary and fiscal policies which limit
Government preemption of real and financial resources and which are conducive to
sustainable economic recovery and growth.
full employment, arid price and exchange
rate stability;
"(4) discourage Government regulation
and Government allocation of real and financial resources; .
"(5) encourage international capitalflows
and investment by providing a predictable
economic and legal climate based on sanctity of contracts with, and property rights of.
foreign investors;
"(6) ensure that policies adopted by Third
World countries pursuant to their borrowing from the Fund are fair and equitable to
all strata of their economy and society; and
"(7) would allow prices- to better reflect
underlying market forces.
"(b) In negotiating with Third World
countries. the United States Executive Director of the Fund shall work through the
Fund for policies which assist low- and moderate-income families to maintain and increase their level and standard of living, and
which provide for and foster the creation of
democratic institutions.
.; Orresii-ion
Syblec.i
CApari4m)-44
cvNek C.offinumm's+ tVciekto(sh;f
INSTRUCTIONS TO THE LALLuil%g. DIRECTOR RECARDENG TILE ECONOMIC INTACT Or APARTHEED AND COMMUNIST DICTATORSHIPS
Sec. 304. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) Is amended by
adding at the end thereof the following:
"Sec. 43. The Congress hereby finds that
the practices of apartheid and Communist
dictatorship result in severe constraints on
labor and capital mobility and other highly
Inefficient labor and capiuLl supply rigidities
which contribute to balance of payments
deficits in direct contradiction of the goals
of the International Monetary Fund. There-
Administration
should
assess
whether
an
amendment or deletion
is feasible.
fore. the President shall instruct the United
States Executive Direc:or of the Fund to actively oppose any credit drawings on the
Fund or any of its facilities by any country
which practices apartheid or Communist
dictatorship.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
So.b
%3e-C.-+
VIokA se_
prorncrii ern
versio(
S 14A. Of 1%4 eta% ftc*_
"(c) The Secretary shall also Instruct the
United States Executive Director of the
Fund to propose and work for the adoption
of policies by the Fund that would strengthen efforts to promote conditions contributing to greater stability of exchange rates.
Among other steps. the United States Executive Director of the Fund shall propose
that—
"(1) Fund-approved economic adjustment
programs seek to promote greater exchange
• rate stability by supporting policies which
would reduce the need for abrupt or damaging exchange rate changes:
"(2) as part of the article IV consultation
process. the Fund review the efforts of each
Fund member to collaborate with the Fund
to promote stable exchange rates. lf as a
result of such review, it is determined by the
Fund that a member is not pursuing policies
which promote a stable system cf exchange
rates, the Fund shall recommend and encourage the adoption of policy changes to
better promote greater economic, price, and
exchange rate stability.
-(d) The Secretary of the Treasury. as the
United States Governor of the Fund, shall
report to the Committee on Banking. Mousmg. and Urban Affairs and the Committee
on Foreign Relations of the Senate and to
the Committee on Banking. Finance and
Urban Affairs of the House of Representatives on a semiannual basis concerning the
above directives to the United States Executi‘e Director of the Fund.".
oc
eicchoLny
enocVe._
ve_rs i or.%
Subs-ban-I-hie
Pois
;{(e_AQnc c
'301 - coni.•
••
.•
••
••
••
.•
••
••
••
!i!
•
•
Suc. 306. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) Is Emended by
adding at the end thereof the following:
"Sec. 45.(a) Within ninety days of enactment of this section. the President shall
report to the appropriate committees of
Congress outlining the role of the International Monetary Fund and the United
States Government with regard to maintaining realistic, market-related exchange
rates with other major currencies and
making recommendations as to what can be
done to avoid exchange rate manipulation.
In Particular, such report shall examine the
policies of major trading partners which (1)
maintain a substantial trade surplus with
the United States. and (2) encourage export
of capital to such an extent that exchange
rates do not appear to reflect adjustments
based on trade patterns alone. Such report
shall also include the status of the proposals
set
in etity-ci ion (bi of this section.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
House version acceptabli ,
;
House version acceptabl(
14
II
SkA&jec—+
e,,c.c.V.No-fv3e
VerSi0r1
rck..13.a.
e next-c_
2Vaxs i oeN
Subsbarctive 1, exenc
Re_cormrm."
Pos +;
-(b) The President shall instruct the Secretary of the Treasury to propose and work
for the adoption of proposals by the Fund
to promote conditions contriliuting to the
stability .of exchange rates and avoid the
manipulation of exchange rates between
major currencies. Among other initiatives.
the Secretary or his designee shall propose:
(1) a comprehensive study by the Fund of
exchange rate problems with recommendations as to steps that can be taken to correct
any structural imbalances identified and (2)
strengthening the article IV consultation
procedures of the Fund to attempt to
ensure that countries which are arta:daily
maintaining undervalued or overvalued
rates of exchange agree to adopt realistic,
market-related exchange rates.
"(c) The Secretary of the Treasury shall
take into account in determining his vote
whether a country's policies are consistent
with the requirements of article IV.".
ILOATUIC EXCHANGE RATES
SEG 313. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the following:
"rwATING EXCHANGE RATES
"Six. 51. (a) The Secretary of the Treasury shall, in consultation with the Secretary
of State and the United States Trade Representative. initiate discussions with other
countries regarding the economic dislocations which result from structural exchange
rate imbalances.
"ft)) Not later than one hundred and
eighty days after the date of the enactment
ol this section. the Secretary of the Treasury shall transmit a report to the committee
on banking. housing. and Urban affairs and
the Committee on Foreign Relations of the
Senate and the Committee on Banking. Finance and Urban Affairs of the House of
Representatives regarding proposals to
reform the floating exchange rate system.
Such report shall contain such recommendations for legislative or administrative actions as the Secretary of the Treasury considers advisable.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Amend
delete
to
reference to preform"
of floating exchange
rate system.
e.c-+
1-10%Ase_
IS4.karto%
increase.
ckrui & A a
Se nc(tt_
V42-fS OeN
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oaeh3lori2(441051%
SubsiAniive "b;((e_rerNct.
Re_cormArm"
Pds
io
QUOTA INCREASE
Six. 302. That the Bretton Woods Agreements Act (22 U.S.C. 286 et seq.) is amended—
(1) in section 17(a)—
(A) by striking out "decision of January 5.
1962. and inserting in lieu thereof "decisions
of January 5. 1962, and February 24. 1983.
as amended in accordance with their
terms."; and
(B) by striking out "not to exceed
$2.000,000.000 outstanding at any one time,"
and inserting in lieu thereof "in an amount
not to exceed the equivalent of 4.250.000.000
Special Drawing Rights, limited to such
amounts as are appropriated in advance in
appropriation Acts, except that prior to activation the Secretary of the Treasury shall
certify that supplementary resources are
needed to forestall or cope with an impairment of the international monetary system
and that the Fund has fully explored other
means of funding.":
(2) in section 17(b), by striking out
"$2,000.000,000." and inserting in lieu thereof "4.250.000.000 Special Drawing Rights,
except that prior to activation the Secretary
of the Treasury shall certify that supplementary resources are needed to forestaLl or
cope with an impairment of the International monetary system and that the Fund has
fully explored other means of funding.";
(3) by adding at the end of section 17 the
followinr.
"(d) Unless the Congress by law so authorizes, neither the President, the Secretary of
the Treasury, nor any other person acting
on behalf of the United States, may instruct
the United States Executive Director to the
Fund to consent to any amendment to the
Decision of February 24. 1983. of the Executive Directors of the Fund, if the adoption
of such amendment would significantly
alter the amount, terms, or conditions of
participation by the United States in the
General Arrangements to Borrow."; and
(4) by adding at the end thereof the following
"SEC. 40.(a) The United States Governor
of the Fund is authorized to consent to an
increase in the quota of the United States in
the Fund equivalent to 5.310.8 million Special Drawing Rights, limited to such
amounts as are provided in advance in appropriation Acts.
"(b) The Secretary of the Treasury shall
consult with the chairman and the ranking
minority member of—
"(1) the Committee on Banking. Finance
and Urban Affairs and the Committee on
Appropriations of the House of. Representatives. and any appropriate subcommittee of
each such committee; and
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(b) Section 17 of the Bretton WOOCIN
Agreements Act(22 U.S.C. 286e-2) is amended—
(1) by striking out in subsection (a)"decision of January 5, 1962" and inserting in
lieu thereof "decisions of January 5, 1962,
and February 24, 1983. as amended in accordance with their terms,";
(2) by striking out in subsection (a) "not
to exceed $2,000,000,003 outstanding at any
one time." and inserting in lieu thereof "in
an amount not to exct,:d the equivalent of
4.250 million Special Drawing Rights, limited to such amounts as are appropriated in
advance in appropriation Acts.";
(3) by striking out in subsection (b)
"S2,000.000.000" and inserting in lieu thereof ."an amount equivalent to 4.250 million
Special Drawing Rights"; and
(4) by adding at the end thereof the followinr
"(di Unless the Congress by liTv so authorizes. the President. the Secretary of the
Treasury, or any other person acting on
behalf of the United States, may not instruct the United States Executive Director
to the Fund to consent to any amendment
to the Decision of February 24, 1983, of the
Executive Directors of the Fund if the adoption of such amendment would significantly
alter the amount, terms. or conditions of
participation by the United States in the
General Arrangements to Borrow.".
—T-cl The Bretton Woods Agreements Act
(22 U.S.C. 286 et seq.) is 'mended by adding
at the end thereof the following new sections:
'.'Src. 40. The United states Governor of
the Fund Is authorized to consent to an increase in the quota of the United States in
the Fund equivalent to 5.310.8 million Special Drawing Rights. -limited to such
amounts as are appropriated in advance in
appropriation Acts.
1. House version requires
,certification by Secretary
'of Treasury before GAB is
activated that the Fund has
fully explored other means
of funding.
2. House version specifies
the Congressional
consultations required
before future quota
increases are negotiated or
agreed by Executive branch.
Senate should recede to the
House.
S
Viomse_
ecis
CNAAot.c., int-feta/LA
.4'• aencd-e
ver5ion
VQfSOf
sub
"b;{(ere....nc t
Re_c4)m.mincik.ck
.
s1+1IN.
"(2) the Committee on Foreign Relations.
the Committee on Appropriations. and the
Committee on Banking. Housing. and Urban
Affairs of the Senate. and any appropriate
subcommittee of each such committee.
for purposes of discussing the position of
the executive branch and the views of the
Congress with respect to any international
negotiations being held to consider any
future quota incretse for the Interr.atiorad
Monetary Fund which may involve an Increased contribution, subscription, or loan
by the United States. Such consultation
shall be made(A) not later than thirty days
before the intitiation of such international
negotiations.(B) during the period in which
such negotiations are being held, in a frequent and timely manner. and (C) before a
session of such negotiations is held at which
the United States representatives may agree
to such quota increase.
4AV)eck
51)$Z.
occOi on5
SPECIAL DRAWING RIGHTS SEC. 303. Section 6 of the Special
Drawing
Rights Act (22 U.S.C. 2136q) is amended
to
read as follows:
"Sec. 8. Unless Congress by law
authorizes
such action, neither the President
nor any
person or agency shall on behalf
United States rote to approve any of the
new allocation of Special Drawing Rights:.
5Mb3V-A"
r
eenCfiti 04(;t
c4 (Eck
c4
Senate should recede to
House with an amendment to
make provisions less rigid.
cir4Ao4 4/
14
•IPM=a111.
BENEFICIARIES Or THE QUOTA ERCREASE
Sec. 324. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the following
"SEICEFICIARIES OF TEX QUOTA mcikrAsz
"Scc. 55. The Secretary of the Treasury
shall transmit a report to the Congress
specifying—
(1) the total amount of new funding
which will be provided by the Fund as a
result of the United States quota increase
specified in section 40; and
"(2) the countries which will receive loans
as a result of such quota increase.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
House version acceptable.
7
Sv4b
,
s3ec-+
Vi(3%.45t-
Cott/Lc-Hon
Ver510r1
$501"Scc. 41.(a)It is the sense of the Congress
that—
"(1) the lack of sufficient information currently available to allow lenilers to make
sound and prudent decisions concerning
their international lending threatens the
stability of the international monetary
system: and
"(2) in recognition of the Fund's duties, as
provided particularly by Article VIII of the
Articles of Agreement of the nin& to act as
a center for the collection and exchange of
Information on monetary arid financial
problems, the Fund should adopt such
measures as are necessary and appropriate
to ensure that more complete and timely financial information will be available.
"(b) To this end. the Secretary of the
Treasury shall instruct the United States
executive Director to the Fund—
"(1) to initiate relevant discussions with
other directors of the Fund and with the
Fund management and
"(2) to propose, and vote for the adoption
of. procedures. within the Fund—
"(A) to collect and disseminate information, on a quarterly basis, from and to Fund
members. and to such other persons as the
Fund deems appropriate, concerning the extension of credit by banks or nonbanks LO
private and public entitles, where such
banks or nonbanks are not principally estab1Lshed within the borders of the member
country to which the credits are extended;
and
"(B) to publicly disseminate information
which Ls developed in the course of the
Fund's collection efforts and which the
Fund determines would serve to enhance
the informational base upon which international borrowing and lending decisions are
made.
"(c) The President is authorized to use the
• authority provided under section 8 of this
Act to require any person (as defined in
such section) who is subject to the Jurisdiction of the United States to provide such information as the Fund determines to be necessary in order to carry out the provisions of
this section.
e "(d) Within one year after the date of the
enactment of this section. the Secretary of
the Treasury shall prepare and transmit to
the Committee on Foreign Relations and
the Committee on -Bulking. Rousing. and
Urban Affairs of the Senate and the Committee on Banking. Finance and Urban Affairs of the House of Representatives, a
report regarding the progress made toward
establi.shing collection, review, comment,
and reporting procedures within the Fund:
as provided by this section.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
of ir+r rn
n
V3-4I mF
VQ-CsiorN
Sencicte_
514" "Src. 41.(a)It is the sense of the Congres
that-(1) the lack of sufficient information cr
rently available to allow members of the
Fund to make sound and prudent decisior.s
concerning their public and private sector
international borrowing, and to allow lenders to make sound and prudent decisions
concerning their international lending,
threatens the stability of the international
monetary system: and
"(2) in recognition of the Fund's duties, as
provided particularly by article VII of the
Articles of Agreement of the Fund. to act as
a center for the collection and exchange of
information on monetary and financial
problems. the Fund should adopt necessary
and appropriate measures to ensure tnat
more complete and tirfiely financial information will be available.
"(b) To this end. the Secretary of the
Trtasury shall instruct the United States
,:ecutive Director to the Fund to in.tiate
E.
d...scussions sdth other directors of the Fund
and tith Fund manavement. and to propose
and vote for, the adoption of procedures,
within the Fund—
"(1) to collect and disseminate inforrna•
tion on a quarterly basis, from and to Fund
members, and to any other persons as the
Fund deems appropriate, concerning—
"(A) the extension of credit by banks or
nonbanks to private and public entities, including all government entities, instrumentalities. and central banks of member countries: and
"(B) the receipt of such credit by those
private and public entities of member countries, where such banks or nonbanks are not
principally established within the borders of
the member country to which the credits
are extended;
"(2) to review and comment, on a timely
basis, on such contemplated receipt of credit
by any member as the_Fund determines to
be of significant monetary value given the
current state and size of that member's
economy-, and
"(3) to disseminate publicly information
which Is developed in the course of the
Fund's collection, review, and corrunent efforts and .which the Fund determines would
serve to enhance the informational base
upon which international borrowing and
lending decisions are taken.
"(c) As used in this section, the term
'credit' includes—
"(1) outstanding loans to private and
public entities including government entities, instrumentalities, and central banks of
any member, and
"(2).unused lines of credit which have
been made available to those private and
public entities of any member,
where such loans or lines of credit are repayable in freely convertible currency.
SubS#cnh
House version gives one year
rather than 6 months for
Secretary of the Treasury to
report under paragraph (e).
Senate version in paragraph
(1) considers "information
gap" as a problem affecting
both borrowing countries and
lenders. House version
generally is better drafted.
Re..cor
ck
Po's 1+;Ir
Senate can recede to the
House.
4'3
S'o,
Viom se_
eci-
CU eckfcr"
ver5i0(1
"(e) For purposes of this section, the term
'credit' Includes—
"(I) outstanding loans to private and
public entities,• Including government entities. Instrumentalities, and central banks of
any member and
"(2) unused lines of credit which
been made available to such private have
and
public entities of any member,
where such loans or lines of credit are repayable in freely converible currency.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(Nfarry‘cki-fesseNb
enckkc
TrYNP
e•
Vo-f
The President si authorized to use
the authority provided wider section 8 of
this Act to require any derson (as defined by
that section) subject to the jurisdiction of
the United States to provide such information as the Fund determines to be necessary
In order to carry out tne provisions of this
section.
"(e) Within six months after the date of
enactment of this section, the Secretary of
the Treasury shall prenare and transmit to
the Committee on Foreign Relations and
the Committee on Banking. Housing, and
Urban Affairs of the Senate and the Corn•
mittee on Banking, Finance, and Urban Affairs of the House of Representatives, a
report on the progress made toward establishing collection, review, comment, and re•
porting procedures within the Fund, as provided by this section.
SubshkeAive
•
;{(esenc
RtC.Cterk.togcl—_ck
iN t
Pd! tl
eI5
1 VI0%.‘se_
version
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
merfJou-s1...1-p
enc(te_
Ve-rs i orN
StAtisbarftive .b;i(e.realcC.
Re...C.Ornendun
&Ad
Pcis
N;11\"1
S 101
"Sic. 42. It is the sense of Congress that
the Chairman of the Federal Reserve. the
Secretary of the Treasury, and the Secretary of State should consider United States
membership in the Bank for International
Settlements and report to Congress within
ninety days of the enactement of this legislation on their findings.".
Senate version acceptable
10
71-40042.
L_
VerSiorl
Subs ecA-
Senoctt
V424'S i OvN
Subsbaniive
""b ;((exerN c t
Re_cormsr&A &sick
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rest-e.tchtftS
/CLIMINATION or IMPORT RESTRICTIONS
SEC. 305. The Bretton Wodkis Agreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the following:
-Sec. 44. (a)(1) The Secretary of the
Treasury shall instruct the United States
Executive Director of the Fund to present
proposals to the Executive Board of the
Fund for the purpose of ensuring that each
member country using Fund resources takes
steps to eliminate expeditiously all import
restrictions and unfair export subsidies
which have been determined to be inconsistent with the General Agreement on Tariff
and Trade, or other international agreements, and which have a serious adverse
Impact on United States, or any other member's. exports or employment.
"(2) If the Fund does not adopt such proposals. the Secretary of the Treasury shall
consult with the appropriate committees of
the Congress prior to instructing the United
States Executive Director to vote to provide
Fund resources for a country whose policies
are inconsistent with the above instructions.
"(b) As part of this effort, the United
States Trade Representative. the Secretary
of Labor, and the Secretary of Commerce
shall inform the Secretary of the Treasury
and the Congress of all Import restrictions
and export subsidies by member countries
which have been determined to be inconsistent with the General Agreement on Tariffs
and Trade or other multilateral agreements
and which have a serious adverse impact on
exports from, or employment in. the United
States.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
praosicmn3
Sec. 102. The Bretton Woods Agreements
Act Is amended by adding at the end thereof
the following
"Sec. 43. (a) The Secretary of the Treasury shall instruct the United States Executive Director to the Fund to present proposals to the Executive Board of the Fund for
the purpose of ensuring that each member
country using fund resources takes steps to
eliminate expeditiously all import restrictions which are inconsistent with the General Agreement on Tariffs and Trade, or
other international agreements, and which
have a serious adverse impact on United
States exports or employment. The United
States Executive Director shall consult, with
the appropriate Committees of Congress
prior to voting for any program which
would be inconsistent with the above
Instructions.
"(b) As part of this effort, the United
States Trade Representative, the Secretary
of Labor, and the Secretary of Commerce
shall infOrrn the United States Executive
Director to the International Monetary
Fund and the Congress of all import restrictions and export subsidies maintained by
member countries of the Fund which have a
serious adverse impact on exports from or
employment in the United States.
"(c) The Secretary of the Treasury shall
transmit to the appropriate committees of
Congress an annual report on the success in
reducing or eliminating the restrictions referred to in subsection (a).
"Sec. 44. The Secretary of the Treasury
shall instruct the United States Executive
Director to the Fund to initiate a wide consultation with the managing director of the
fund and the other directors of the Fund
with regard to the development of financial
and technical assistance policies v. hich. to
the maximum feasible extent, reduce obstacles to and restrictions upon international
trade and investment, eliminate unfair trade
and investment practices and promote mutually advantageous economic relations.
1. House version imposes
requirements as to Secretary
of the Treasury rather than
U.S. Executive Director of
IMF.
House version preferable.
2. Senate version requires
annual report to Congress on
success in reducing
specified trade restrictions
3. Senate version imposes
requirement of consultations
in the IMF regarding
financial and technical
assistance policies.
II
S bjicc*
I;res i(No;ticir"
Vefor
ELIMINATION OP AGRICULTURAL EXPORT
SUBSIDIES
Sec. 307. The Bretton Woods Agreements
Act (22 U.S.C.-286 et seq.) is amended by
adding at the end thereof the following
'Sec. 46. The Secretary of the Treasury
shall instruct the United States Executive
Director to the Fund to propose and work
for the adoption of a policy requiring that
prior to receiving any International Monetary Fund assistance Fund borrowers must
eliminate all predatory agricultural export
subsidies which might result in the reduc,tion of other member countries' exports.
The Secretary shall report to the relevant
committees of Congress within one hundred
and eighty days of enactment of this provision as to the progress achieved in reaching
this goal.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a_5ricA.4%tt.A./0-x
enckkt
e,yopor--r
suoos icyc S
Ve-CS OeN
"Sic. 45. (a) In order to contribute to
global economic stability through a cooperative framework for the conduct of a free and
market oriented system of world trade in agricultural commodities and products thereof. the Secretary of the Treasury shall instruct the United States Executive Director
to the Fund to propose and to vote for the
adoption by the Fund of the following policies with respect to any purchases, drawings. or other use of Fund resources (including loans under the General Arrangements
to Borrow), by members, except for purchases or drawings within a member's reserve tranche:
"(I) That prior to receiving Fund resources. a member must present to the fund
Information describing all direct or indirect
export subsidies, including among other
things the use of special tax incentves and
subsidized financing for,exports, employed
by such member in connection with the exporting of agricultural commodities and
products thereof to foreign countries.
"(2) Prior to receiving Fund resources; if it
is determined by the Fund that the export
subsidies being employed by such member
are predatory export subsidies and the U.S.
Executive Director to the Fund has been advised by the Secretary of Agriculture, after
consultation with the United States Trade
, Representative, that such subsidies have an
adverse impact on United States exports of
agricultural commodities and products
thereof, such member must agree to a specific program of steps to eliminate expeditiously such predatory export subsidies over
a period of time not to exceed three years.
'(b) For purposes of subsection (a) of this
section. the term 'predatory export subsidies' means the provision by any country or
organization of countries, or instrumentali•
ty thereof, of any finsncial assistance
through loans, payments, or comparable
means (including the use of special tax incentives or subsidized financing for exports)
to any person in connection with the export
sale to a third country of agricultural corn•
modities and products thereof produced in
such country or organization of countries.
that has the effect of lowering the export
price, directly or indirectly, of such commodities and products thereof to less than
the highest comparable price that a lile
commodity or product thereof produced and
proceed in the United States could be ex•
ported to the same third country in the ordinary course of trade.
'(c) Not later than January 1, I9C5. the
President shall prepare and transmit a
report to Congress setting forth his determination on whether the Fund has adopted
and fully implemented the policies set forth
In subsection (a) of this section..
Sub sbarci-iVe -b;((eterNc e.
1. House version requires
U.S. to propose and work for
adoption of policy requiring
elimination by IMF member of
all predatory agricultural
export subsidies before
receiving IMF funding;
Senate version requires
similar actions by U.S. but
as to IMF member agreeing to
steps to eliminate
expeditiously such subsidies.
2. Senate provision defines
"predatory (agricultural)
export subsidies, and
definition is broad.
3. Senate requires report
to Congress on progress in
implementing the provision
by Jan. 1, 1985, whereas
House gives a full 6 months.
Re_cco-rmysa."cliA
. .
vas1411.1\•
Senate should recede to
House.
.
ec_+
Re po
4rtt
V10%Ase_ ver5ior
REPORT ON FUND POLICIES
SEC. 308. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) Is amended by
adding at the end thereof the fo4lowing:
-Sec. 47. (a) Not later than one hundred
arid eighty days after the date of the enactment of this section. the Secretary of the
Treasury shall transmit to the Congress a
report containing a thorough review and detailed analysis of the policies of the International Monetary Fund regarding—
"(1) the ability of the Fund to promote •
real economic growth and sustained, noninflationary recovery, pursuant to its mandate
in article I of the Articles of Agreement, in
countries which enter into stabilization programs with the Fund;
-(2) the feasibility of the Fund issuing securities In the private capital markets as a
means of increasing Its resources, either in
lieu of, or in addition to, future quota increases, together with an evaluation of how
such borrowing would affect the credit markets of the United States;
"(3) the feasibility of returning all or part
of the Fund's gold reserves to Fund members or of selling the Fund's gold reserves in
the private markets, together with an evaluation of how such sales would affect the
credit markets of the United States:
-(4) the feasibility of establishing temporary, supplemental financing facilities at
the Fund; and
-(5) recommendations for amendments to
the Fund's Articles of Agreement, if any, to
improve the role of the Fund in the international monetary system.
-(b) Such report on the policies of the
Fund shall be referred to the Committee on
Banking. Finance and Urban Affairs of the
House of Representatives, and to the Committee on Banking. Housing. and Urban Affairs and the Committee on Foreign Relations of the Senate.".
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Federal Reserve Bank of St. Louis
cornre5.5 13.6
Senate_
Vet
ter....nabx:a
i OseN
) Not later than one hundret..
Sec. 103.-(a.
enactar.d eighty days after the date of the
the
rr.ent of this section, the Secretary of
Treasury shall transmit to the Congress a
.lort containir.g a thorou;h review and dere.
analysis of the policies of the Intermitreferred
tic -a! Monetary Fund (hercLnafter
Fund's
to as the "Fund") relating to the
include an
shall
report
Such
reserves.
Ccld
L7.alYSiS of—
U) the'leasibility
of returning all or part
memof the Fund's gold reserves to Fund
Fund's
(2) the feasibility of selling the
in
gc1.1 reserves in the private markets in
effor: to raise capital; and
(3) the feasibility of establishing a Gold
would
Izirdirig Facility whereby the Fund
in
lend gold to Fund members who would
such gold as collateral for commer)0E-r1S.
it) In addition
to the matters referred to
the report shall analyze—
(a),
sutsection
In
of gold
(1) the effect on the market price
actions ds-a result of taking any of the
subscr!bed n parazraph (1). (2). or (3) of
(a);
t;on
_.
st-,
- (2) the effect on countriei whose centr,
banks maintain reserves in the form of gold
as a result of taking any of the actions described in paragraph (1), (2), or (3) of subsection (a): and
(3) the effect on the credit markets of the
United States as a result of taking any of
the actions described in paragraph (1). (2),
or(3)of subsection (a).
SEC. 105. The Secretary of the Treasury,
in cooperation with the Secretaries of State
and Energy, is required to undertake a
study and report to Congress no later than
sixty days after enactment of this legislation on the past and potential impact of international Monetary Fund loan quota extensions on world oil prices.
Sac. 106. In order to permit the Congress
to evaluate what further actions may be
necessary concerning the International
Monetary Fund, the Secretary of the Treasury shall transmit to the Congress not later
than six months after the date of enactment of this Act a written report assessing—
(1) whether under present circumstances a
systematic restructuring and stretching out
of developing country debt should be conducted:
(2) the role global recovery will play in
solving the debt crisis and what interim financing measures may have to be taken for
those countries which have no possibility of
continuing to service their debts even in the
event of a vigorous economic recovery'.
Or
po to cies
SubshAritige
;Kexenc
1. Senate version requires
study on IMF gold
disposition to include
feasibility of gold loans to
members as well as study of
impact of gold disposition
not only on credit markets
but also on price of gold
and members' gold reserves.
Re_c_per•-marlPdS 14;
Both House and Senate
versions are acceptable.
Senate could recede to House
as to Sec. 103 of Senate
version and House recede to
Senate on Secs. 105 and 106.
2. House bill requires:
study of IMF ability to meet
goal of economic growth
under stabilization
programs; study of
feasibility of temporary
supplemental financing
facilities at the Fund;
recommendations for
amendments to IMF Articles
to improve Fund's role in
the system.
3. Senate version requires
report on potential impact
on IMF quota increases on
world oil prices; whether
LDC debt should be
restructured systematically;
how global economic recovery
will affect LDC debt
service; whether IMF
resources will be adequate;
role of IMF in LDC financing
needs; role of IMF in
improving the system.
•
e.c_+
ti0 se-
54ior fo.rg_s
e nAkc_
version
V
‘Ab ject
vkurn0." ,us.&4s
H1774.1011 W10E:D11 REPORT
SEC. 315. Section 33 of the Bretton
Wooc
Agreements Act (22 U.S.C. 2116s)
is arnende
by adding at the end thereof
the followin
"(d) Not later than one
hundred an
eighty days after the date of the
enactrnet
of this subsection. the
Secretary of tt
Treasury shall transmit a
report to tt
Commiare on Banking, Housing
, and Urbg
Affairs and the Committee on
Foreign Rdl
tions of the Senate and
the.Committee c
Banking. Finance, and Urban
Affairs of tt
House of Representatives
specifying the a
tions which have been taken
tilt provisions of this section. to carry at
".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
rtporle• a
,
Vexs i oeN
Sub stckni-ive
;((ex _ ct.
Re—COentr4un Citick
POS
—1
(3) whether the International Monetary
Fund, which is increasingly being used es a
source of credit to finance balance of payments deficits, has adequate resources LO
cover all conceivable requests for credit extensions taking into account the quota increase consented to under this Act;
(4) what role the United States Government sees for the International Monetary
Fund in providing finance and credit to the
least developed countries who have such a
limited capacity to borrow to finance pay.
ments deficits; and
(5) pursuant to the agreement at the Williamsburg EUMMit, what progress haS been
made in the consultations among finance
ministers and the managing director of the
International Monetary Fund on the conditions for improving the international monetary system.
a.a.ferr-.
House version acceptable.
bjec-i•
tslf,Az 41(130.1Si°
ver5ion
1
41,
..44- OA_
arnik-"A-rf/
enckc
ve-cs
oeN
8c4^1.441" C.:41te
ex44•41-"c0-1-41
.
SubsfcuNtiNie
;((exerIc
Re_cormsra."
ck
s
PO
'
SUSTAINING ECONOMIC GROWTPI
SEC. 309. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the following:
'SUSTAINING ECONOMIC 0.11lOWTH
"Sm. 48. (a)(1) The President shall instruct the Secretary of the Treasury, the
Secretary of State, and other appropriate
Federal officials. including the Chairman of
the Board of Governors of the Federal Reserve System, to use all appropriate means
to encourage countries to formulate economic adjustment programs to deal with
their balance of payment difficulties and external debt owed to private banks.
"(2) Such economic adjustment programs
should be designed to safeguard. to the
maximum extent feasible, international economic growth, world trade, employment,
and the long-term solvency of banks, and to
minimize the likelihood of civil disturbances
In countries needing economic adjustment
programs.
"(b)To ensure the effectivenes of econornk adjustment programs supported by Fund
TESOUTCes—
Oppose requirement thai
IMF adjustment program!
provide that short-terr
bank
debt
at
high
interest
rates
be
converted
into
"long-term
debt
at
lower interest rates."
Recommend
language
providing that program:
"work
toward"
conversion of such debt
into "longer-term debt
at moderate interest
rate spreads."
'
•
"(1) the United States Executive Director
of the Fund shall recommend and shall
work for changes in Fund guidelines, policies, and decisions which would—
"(A) convert short-term bank debt which
was made at high interest rates into longterm debt at lower rates of interest:
"(B) assure that the annual external debt
service, which shall include principal, interest. points, fees, and other charges required
of the country involved, Is a manageable
and prudent percentage of the projected
appeal expect earnings of such country: and
"(C) provide that in approving any economic adjustment program the Fund shall •
take into account the number of countries
applying to the Fund for economic adjustment programs and the aggregate effects
that such programs will have on international economic growth, v:orld trade, exports and employment of other member
countries, and the long-term solvency of
banks.
"(2)(A) Except as provided in subparagraph (S). the United States Executive Director of the Fund shall oppose and vote
against providing assistance from the Fund
for any economic adjustment program for a
country in which the annual external debt
service exceeds 85 per centurn of the annual
export earnings of such country unless the
United States Executive Director of the
Fund first determines and provides written
documentation to the Committee on Banking. Housing. and Urban Affairs and the
Committee on Foreign Relations of the
Senate and the Committee on Banking, Fi.
nance and Urban Affairs of the House of
that—
Representatives
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.5
v.b'
Jeck ••
Ok45t-
versio
"(I) the economic adjustment pr,
.•irrsm
converts short-term bank debt which wes
made at high interest rates into long-term
debt at lower rates of interests: o
"(ii) the annual external debt service required of the country involved Is a manageable and prudent percentage of the projected annual export earnings of such country:
and
"(III) the economic adjustment program
will not have an adverse impact on international economic growth, world trade, exports, and employment of other member
countries, and the long-term solvency of
banks.
"(B) The provisions of subparagraph (A)
shall not apply in any case In which the
United States Execttive Director of the
Fund first determines and provides written
documentation to the Committee cn Banking, Housing. and Urban Affairs and the
Committee on Foretell Relations of the
Senate and the Committee on Banking. H.
nance and Urban Affatrs of the House of
Representatives that—
"(I) an emeigcncy exicts in a nation that
has Applied to the Fund for aas:st.ance that
reouires an immediate short-terra loan to
avoid disrupting orderly financial markets:
"(h) a sudden decrease In exnort earnings
In the country applying to the Pund for Pssistance has Increased the ratio o: annual
external debt service to snr..,:al export earnIngt. to greater than 85 per centuri !or a
period projected to be no more than one
year: or
-flit) other Cr
eY11;t ah. n
waiting the
of sub;:p.ragraph (A).
"(c) The 1s4trinal Advisory Council or. International Monetary i.nd Financitl Policies
shail incluoe in each of its ti,nuol tetc:Is to
the Congress copies of the analyses and any
writtcri doeumentatton prepared by
United States Executive Director of tile
Fund burstmnt to paragra
phs (2)(A) or
(.:)(B) of subsection lb) and a
statenv•nt cir1:h;.• the actions and procress made
In carryni.: out the requirements of
subsectlons
la) and (o).".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Senckie...
VQ-CS 0e1
Sub
%lc "b;f(e.scrIce
Re...CJDn\fr4."
POS 1+11N.
S
ec-+
(
)
corn04-k fur
V -(or
PROMOTING DOMMST1C ECONOMIC GROWTH AND
MIPLOYMENT
Sco4A+N n
encid-c.
U.S. et.00NOrvNy
vexs ov-%
AssLk( i
.
*
Girt at
subsitkrkive
FtNe
skCriN1
/
411..Sil‘c
;{(ex
ct
Re_commk
"
r, • •
ros -11
House version acceptable.
Sec. 310. The Bretton Woods Agreemtnts
Act (22 U.S.C. 236 et seq.) * amended by
adding at the end thereof the follow inr.
..PROMOTING DOMESTIC ECONOMIC GROWTR AND
EUPLOYMENT
"Sec. 49. (1)(1) The cornerstone of a
healthy world economy and international
trading and financial system is a growing
domestic economy in the United States with
price stability and low interest rates.
"(2) Sustained noninflationary economic
(Mouth in the United States. full employment in United States basic industnes. and
a robust economy are essential to avoiding
the imposition of protectionist barriers that
would inhibit the free flosa• of trade and undermine the economic arid financial stability of countries using the Fund.
"(3) Provision of adequate credit at affordable rates of interest to the United States
economy by the United. States banking
System is essential to promoting a growing
domestic economy.
"(b) To that end, and especially to provide
working capital to promote the expansion of
domestic industries, the appropriate Federal
banking agencies, as defined in section 402
of the international Lending Supervision
Act of 1983, are directed to develop regulations to implement subsections (c) through
(f) within thirty days of the date of the enactment of this section.
"(c) This section shall apply to all banking
institutions which have foreign loans which
are excessive. A banking institution's loans
shall be considered excessive if the aggregate of such loans to public and private
sector borrowers in a foreign country de'scribed in section 404 of such Act exceeded
such banking institution's primary capital
on June 30, 1983. or on any date thereafter
untll January 1. 1986.
"(dX1) Except as provided In subsections
(e) and (1), from the date of the enactment
of this section until January 1. 1986, no
banking institution having excessive loans
under subsection (c) shall make any new
loarts to foreign countries described in section 404 of such Act If such loans shall
cause the growth rate of such banking instltution's aggregate loans to all such foreign
countries to exceed one-half of the growth
rate of such banking institution's aggregate
loans to all such foreign countries during
the period of January 1. 1980, through June
30.1982.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
17
•
bo.S'
Jec_t •
ViokAse_
'
,S
ver5iorl
-(2) Notwithstanding the provisions of
this section, banking institutions may honor
binding commitments. which were effective
before July 30. 1983. to lend,in such countries.
"(OW Any banking institution having excessive loans under subsection Cc) may
exceed the limits set forth in subsection (d)
if the annual rate of growth of such banking institution's domestic lending exceeds
the limit so specified.
'12) In such cases, the rate of growth of
aggregate loans to all foreign countries described in section 404 of such Act shall not
exceed the rate of growth of domestic lending.
This section shall not be enforced if—
"(I) the Secretary of the Treasury and the
Chairman of the Board of Governors of the
Federal Reserve System find that such enforcement would adversely affect the domestic economy; or
"t2) the President determines that enforcement of this section would be detrimental to the national interest.,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
econ o
Senc(
-Jr
•±_
VgrsIOv%
.
Subs-baritige .b;{(eiferNc t
Re_cory•sysculd-iLck
tiosti,
S
ck
0epos;ra_F_tra
rio%.45e_. versi0(1
OPPOSING FUND SALLOITTS OF BANNS
SEC. 312. The Bretton Woods Arreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the followlnr
"orrosrric RIND ZATLOUTS Or BANKS
"Su 50. Except as provided in section 48
(a section entitled 'Sustaining Economic
Growth'). the Secretary of the Treasury
shall instruct the United States Executive
Director of the Fund—
"(1) to oppose and vote against any Fund
drawing by a member country where. in his
Judgment. the Fund resources would be
drawn principally for the purpose of repaying loans which have been imprudently
made by banking institutions to the member
country. and
"(2) to work to Insure that the Fund encourages borrowing countries and banking
Institutions to negotiate, where appropriate.
a rescheduling of debt which is consistent
with safe and sound banking practices and •
the country's ability to pay.-.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i1LotAts
sencd-c.
o-f
VQfS%OV
bArOCS
SubsiArri-ive
; exe_nc e.
Re_coemrymi"
Po
'
.
House version acceptable
bjje-c-+ : Log:1,AS
Imo
cor\'‘-r-; buki
Senate_
Viot. versio
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
°My
courkir e 5
VQ-f i0teN
Sox,sftwaige
;{(eterNc c
Re_cc•mera.n cl-ALA
r0s -t-1
Senate version acceptable.
V
c. 47. The Secretary of the Treasury
shall instruct the United States Executive
Director to the International Monetary
Fund to oppose the u.se of any funds in the
General Arrangements to Borrow facility
for loans to countries other than those sho
have contributed to the General Arrangements to Borrow facility, unless the Secrettry determines, and so notifies the Congress in writing together with his reasons
for such determination, that the commitment of any part of such funds is necessary ,
to deal with International economic conditions which could threaten the international monetary system".
ao
:
'Trade-
e ov is i 0A5
encictv..
versio
5Utietk
.
••
s•
1;
fl
•
Sub
;i(e.ifexlc e.
Re_ciDervsyNkis
POs
9e‘
4%
SUIlILDS COUMODITIES IMPORT
•
•
VQ..CStOVs
Src. 314. (a) Section 4(b) of the Bretton
Woods Agreements Act (22 U.S.C. 286b) is
amended—
(1) in paragaph (5)—
(A)by Inserting "(A)" after "(5)"; and
(B) by adding at the end thereof the following:
"(B) Beginning one hundred and eighty
days after the date of the enactment of this
paragraph, and at intervals of one hundred
arid eighty days thereafter for the next
*three years, the Council shall prepare and
transmit to the President and to the Congress a report listing all applications which
have been filed during the preceding one
hundred and eighty days with the Fund and
with the Bank for project assistance which
would establish or enhance the capacity o
any country to produce a commodity to:
export, if— _
"(i) such commodity Is In surplus on wort(
markets or is likeiy to be in surplus on worh
markets at the tine the resulting productivi
capacity is expected to become operative
and
-(ii) such project assistance will cause sub
stantial injury to the United States produc
ers of the sarne. similar, or competing corn
modity."; and
(2) by adding at the end thereof the 101
"(8) The general policy objectives for th
guidance of the United States Executive LT
rector of the Fund and the Bank shall tak
into account the effect that country adjust
ment programs have upon individual indw
try sectors and international cornmodit
markets.-"(A) to eninire projected adverse in
pacts; and
"(B) to avoid. wherever possible, coven
ment subsidization of production and e)
ports of international commodities withot
'regard to economic conditions In the
ma:
keu for such commodities..".
.1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
TITLE I—BRETTON WOODS
AGREEMENTS ACT AMENDMENTS
Src. lei. (a) Section 4(b) of the Bretton
Woods Agreements Act (22 U.S.C. 286b) is
amended—
(1) by amending subparagraph (5) to read
as follows:
"(5)(A) The Council shall transmit to the
President and to the Congress an annual
report with respect to the participation of
the United States in the Fund and in the
Bank.
"(B) Beginning ninety days alter the date
of er.actment of this Act, and at intervals of
ninety days thereafter for the next three
years. the Council shall prepare and transmit to the President and to the Congress a
report listing all applications which have
been filed during the preceding ninety days
with the Fund and with the Bank for assistance which would establish or enhance the
capacity of any country to produce a commodity for export. Ii—
"(I) such commodity is in surplus on world
markets or is likely to be in surplus on world
markets at the time the resulting productive
capacity Is expected to become operative;
and
-(ii) such assistance will cause substantial
injury to United States producers of the
same. similar, or competing commodity.".
(2) by Inserting a new subparagraph (8) to
read as follows:
"(8) The general policy objectives for the
guidance of representatives of the United
States on the Pimd and the Bank shall take
into account the effect that country adjustment programs have upon individual Indus-try sectors and international commodity
markets (I) to minimize any projected adverse impacts; and (11) to avoid wherever
possible government subsidization of production and exports of international commodities without regard to economic conditions in the markets for such commodities.".
Identical provisions
except that House provision
requires reports every 180
days rather than every 90
days.
House version could be
accepted with amendment
to
make
provision
applicable to IBRD but
not
IMF.
•
ec-+
tiomse-
'Troaik. p rcsNASi0(NS
ver5iorN
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Senoctc..
r•3
el;cy%;ncktuA
Vexs of%
10a.
SEC. 46.(a)The Secretary of the Treasury
shall instruct the United States Executive
Director to the Fund, prior to the extension
to r-ny country of financial or technical assistance by the Fund, to work to obtain the
agreement of such country to eliminate, in a
manner consistent with its balanced payments adjustment program, unfair trade
End investment practices, such as those
which are inconsistent with the General
Agreement on TEriffs and Trade or other
international agreements, including the provision of export subsidies such as government subsidized below-me_rket interest rate
financing for commodities or manufactured
goods, the maintenance of unreasonable
import restrictions, or the imposition of
trade-related performance requirements on
foreign investment, which the Secretary of
the Treasury, after consultation with the
United States Trade Representative, the
Secretary of Commerce, and the Secretary
of Labor, has determined to have a signiflcant deleterious effect on the international
trading system.
"(b) In determining the United States position on requests for periodic drawings
under Fund programs, the Secretary of the
Treasury shall take full account of the progress countries have made in achieving targets for eliminating or phasing out the
unfair trade practices referred to in subsection (a) of this section. In the event that the
United States supports a request for drawErg by a country that has not achieved the
Fund targets relating to such practices specified in its program, the Secretary shall
report to the appropriate committees of
Congress the reasons for the United States
position.
u.nftki r
+ratt-it
rachue
and
Subsfckni-igt • ;{(exerNce.
Similar but not identical
issues covered in House
version Sec. 305 and Senate
version Sec. 102.
3tAb5
J.., •
Re_cornsm"(Lick
.
0
1 s
Senate version acceptable.
rNorN- efo‘ifexo.ii civN
Viokoe... version
NON-PROLITERATION OF YUCLLAR WEAPONS
Stc. 116. The Bretton Wood's Agreemen
Act (22 U.S.C. 2E6 et sea.) Is amended 1
adding at the end thereof the following:
-NON-PROW-I:NATION Or NOCLEAN WEAPONS
Sec. 52. The United States Executive I
rector of the Fund shall consider, if spot
priate. m carrying out his duties, whether
recipient country has detonated a nucle
device. whether the country Is not a St.
Party to the Treaty on Non-Proliferation
Nuclear Weapons, and whetrier the count
Is not a State Party to the Treaty Bannt
Nuclear Weapon Tests in the Atmosphe:
In Outer Space, and Under Water.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
enexte_
vexs orN
SLOosftkesiive ebi cue/Ice.
Re_cory.rodun ci-t_ck
Pos
House version acceptable.
1
po tI CA s
Viomse_
versiorl
POLICIIII ON INTERNATIONAL LIMING
Svc. 317. The Secretary of the Treasury
shall instruct the United States Executive
Director of the International 'Monetary
Fund to propose that the Fund adopt the
following policies with respect to international lending-.
(1) in its consultations with a member government on its economic policies pursuant
to Article IV of the Fund Articles of Agreement. the Fund should intensify its examination of the trend and volume of external
indebtedness of private and public borrowers in the member country and comment as
appropriate In its report to the Executive
Board from the viewpoint of the contribution of such borrowings to the economic stability of the borrower, and the Fund should
consider the extent that and form in which
these comments should be made available to
appropriate national bank regulatory authorities. the international banking community. and the public;
(2) as pert of any Fund-approved stabilization program the Fund should rive consideration to placing limits on public sector external short- and long-term borrowing. and
(3) as a part of Its annual report, and at
such other times as it may consider desirable. the Fund should publish its evaluation
of the trend and volume of International
lending as they affect the economic situation of lenders and borrowers, and the
. smooth funciloning of the International
monetary system.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
or)
enexVc.
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C4&nct-
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INTERNATIONAL COOPERATION
SEC. 208. (a) The Secretary of the Treasury shall instruct the United States Executive Director to the International Monetary
Fund to propose that the Fund adopt the
following policies with respect to international lending
(1) In its consultations with a member
government on Its economic policies pursuant to Article IV of the Fund Articles of
Agreement, the fluid should intensify its
examination of the trend and volume of ex-.
ternal indebtedness of private and public
borrowers in the member country and comment as appropriate in its report to the Executive Board from the viewpoint of the
contribution of such borrowings to the economic stability of the borrower, and, the
Fund should consider the extent and form
that these comments might be made available to the international banking community
and the public.
(2) As part of any Fund-approved stabilization program, the Fund should give consideration to placing limits on public sector
external short- and long-term borrowing.
(3) As a part of its Annual Report. and at
such times as it may consider desirable. the
Fund should publish its evaluation of the
trend and volume of international lending
as it affects the economic situation of lenders, borrowers, and the smooth functioning
of the international monetary system.
Subs•han*ViV
1;fçerce
Re.cormrean&ALA
.
Pa's 4-11*"..
Provision acceptable
at-4
S
ViokAst_
tc-4
6-t WIN/
versio(1
rnmT
Src. 318. Section 4 of the Britton Woods
Agreements Act is amended by adding at
the end thereof the followinr
-(d)(1) The National Advisory Council on
International Monetary and Financial Policies shall conduct a study of the impact on
the United States steel industry of steel subsidies by nations who are borrowers from
the Fund.
"121 Not later than twelve months after
the date of the enactment of this subsection. the Council shall transmit a report to
the President and both Houses of the Congress regarding the Council's findir.gs and
recommendations for appropriate action.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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RETISSURSENIENT moat RENITICIARIES OF
QUOTA INCREASES
SEC. 321. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) if amended by
adding st the end thereof the following:
-REISILURSEMENT FROM BEWETICIARIES or
QUOTA INCREASES
-SEC. 54. (a) The Congress hereby finds-(1) depository institutions have charged
excessive rates of interest on loans made to
foreign countries:
-(2) such excessive rates of interest were
often imposed in order to compensate for
the declared high-risk rate of lending to
such countries:
-(3) the United States Government, by Increasing its quota contribution to the International Monetary Fund, has substantially
reduced the risk of lending to those foreign
countries which benefit from the increased
resources of the International Monetary
Fund:
-(4) such quota contribution by the
United States Government will result in a
considerable financial burden to the American taxpayer*, and
sencd-c_
ber.efi'ci a r ie5
ve_rs i or%
ck-uo+cs,
increa5e3
StAbsi-cknii.it 10;{(exerNc
Re_cckerx.frs1LA
Po•s
Requirement
that
"excessive interest" be
paid to Treasury should
be modified.
Recommend
a
requirement
that
Treasury inform the IMF
of "excessive interest"
payments so that Fund
can determine whether
payment
of
such
interest violates any
applicable Fund program
provision.
"(5) permitting depository Institutions to
retain the profits earned from the excessive
interest rates charged to such foreign countries results in unjust enrichment to such
depository institutions in light of the increase in the United States quota contribution.
"(b) Each depository institution shall
transmit a report to the Secretary of the
Treasury specifying—
"(1) all loans made by such depository institution to any foreign country;
"(2) with respect to each such loan—
"(A) the rate of interest charged on such
loan:
"(B) all service fees imposed on such loan:
"(C)the unpaid balance on such loan:
"(D)the total amount of interest collected
on such loan; and
"(E) such other information u may be requested by the Secretary.
"(c)(1) The Secretary may examine the
books and records of any depository institution in order to insure compliance with the
provisions of this section.
"(2) The Secretary shall consult with the
Board of Governors of the Federal Reserve
System. the Board of Directors of the Federal Deposit Insurance Corporation, and
other appropriate Federal and State regulatory agencies in order to obtain information
on foreign loans by depository institutions
which may have been reported to such
agencies.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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"(dX1) The Secretary shall determine
which loans made by depository institutions
or subsidiaries thereof have been extended.
refinanced, or made more secure, or in any
other manner affected by the Increased
United States Quota contribution to the International Monetary Fund made pursuant
to section 40.
"(2) The Secretary shall determine the lnterest rate charged, and the interest rate
earned, on such loans. All such interest
rates shall be determined in accordance
with provisions of the Truth in Lending Act
and the regulations issued pursuant to such
Act.
":0(1) With respect to loans identified in
subsection (d). the Secretary shall determine which loans have earned for the de-pository institution involved a rate of return
which is greater than the rate of return
which would have been earned by such depository institution if the principal amount
Involved had been lent in the United States
to a corporate borrower with a rating of
AAA for a similar maturity.
"(2)The amount determined by the Secretary to have been earned in excess of the
amount which would have been earned from
a domestic loan (as determined under paragraph (1)) shall be paid to the Treasury as a
reimbursement for the increased quota contribution made pursuant to section 40 of
this Act.
"(f) For purposes of this section—
'(1) the term 'depository institution' shall
have the same meaning given such term In
section 19(bX1XA) of the Federal Reserve
Act;
"(2) the term 'loan' means any extension
Of credit to—
"(A) a foreign government or any agency
or instrumentality thereof:
"(B) any entity owned in whole or In part
by a foreign government unless United
States persons own at least 10 per centum of
such entity:
"IC) any entity which Is not more than 10
per centum owned by United States perm".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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NOTICE TO CONGRESS REGARDING sovivtownic flI
UNITED STATES CREDIT MARIIETS
SEC. 322. Section 5 of the Bretton Woods
Agreements Act (22 U.S.C. 286c) is amended
enoctc.
vets i on
Subsktkr*igt
(et_erNct
.
Re_COCIN.relk."
rosti-v",,
House version acceptable.
by adding at the end
-Neither the Presidenthereof the following:
t
agency shall. on behalf nor any person or •
of the United Stat
consent to any borr
es.
ov:i
rowing from a foreign ng (other than borgov
ern
men
t
or
other
official public source)
by
denominated in United the Fund of funds
Stat
es
doll
ars
the Secretary of the
unless
notice of such prop Treasury transmits a
osed borrowing to
Houses of the Con
both
gre
prior to the date on ss at least sixty days
whi
ch
suc
h
borrowing is
scheduled to occur.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Q5
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VerSiOrl
SALARIES Or antonms Or THE rt/KD
SEC. 323. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) is varnended by
adding at the end thereof the following:
"SALARIES or EMTLOTEES Or THE flTXD
"Sac. 55. Notwithstanding section 40 of
this Act, the United States Governor of the
Fund may not consent to the increase in the
United States quota In the Fund which is
described in such section unless the United
States Governor of the Fund is satisfied
that the Fund - has established, and sill
maintain, requirements that,—
"(1) employees of the Fund (including the
Managing Director, Executive Directors. Alternate Executive Directors, arid the staff of
the Fund) may not be paid at a rate in
excess of the rate payable for an individual
occupying a position at level IV of the Executive Schedule under section 5315 of title
5. United States Code; and
"(2) advances on salaries and other loans
to employees may not be made at a rate of
interest which is less than the rate of interest charged on loans (for one-to four-family
dwellings) insured under title II of the National Housing Act on the date on which
such advance or loan is made.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ofSenc6c.
cr,fac9r _A.3_
Ve_fs i OvN
Subsitkr44 e
exenc t
Re—COMM4."
ri •
.
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House should recede to
Senate.
cre st.
ViokAseS%415.
)
Ver5ion
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•TATUTYT OF QUOTA INCREASE
SEC. 325. The Bretton Woods Agre
emen
Act (22 U.S.C. 286 et seq.) Is amended t
by
adding at the end thereof the follo
wing.
"PAYMENT Or QUOTA ENC1ILLASE
SEC. 57. The Secretary of the Treas
shall instruct the United States Execu ury(
Director of the Fund to propose and tive
work
for the adoption of an amendment to
article
III of the Articles of Agreement of the
Fund
to provide that the balance of any quota
increme shall be paid by member count
United States dollars. German ries in
marks.
French francs. British pounds. or
Japanese
yen.".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
enc(tc_
vexs oeN
firAcktt. n t
Sub sfarft-i
e.rN c e.
(ZS
Re_c.L)eiNsra"ctitizk
—
Senate should recede to
House with amendment that
U.S. work for adoption of
IMF policies to provide that
all members' currencies
should be useable in
operations based on uniform
criteria.
30
cc*
ons Ord finck:k(\55 cc ifv4e-r nctii c.r-1)
Ve.r5ioc
TITLE IV—INTERNATIONAL LENDING
SUPERVISION
Scc. 401. This title may be cited as the
"International Lending Supervision Act of
1983".
DEFINITIONS
SEC. 402.(a)The terrn "appropriate Federal banking agency" has the same meaning
assigned to the term in section 3(q) of the
Federal Deposit Insurance Act (12 U.S.C.
1813(q)), and, for purposes of this title, the
"appropriate Federal banking agency" for
bank holding companies and any nonbank
subsidiary thereof, Edge Act corporations
'75Tganized under section 25(a) of
the Federal
Reserve Act (12 U.S.C. 611-631),
and agreement corporations operating
subject to section 25 of the Federal
Reserve Act (12
U.S.C. 801-604(a)) is the Board
of Governors of the Federal Reserve
System.
(b) The term "banking Institu
tion", for
purposes of this title, means
any "insured
bank", as that term is used
in section 3(h) of
the Federal Deposit Insura
nce Act (12
U.S.C. 1813(h)) or any subsidi
ary of an in.
lured bank: any Edge Act
corpora
nized under section 25(a) of the tion orgaFederal Reserve Act(12 U.S.C. 611-631);
and any agreernent corporation operating
subject to section 25 of the Federal
Reserve Act (12
U.S.C. 801-604(a)). To the
extent determined by the appropriate
Federal banking
agency, the term "banking institution"
shall
also include any agency or
branch of a foreiCT1 bank, and any commercial
lending company owned or controlled by
one
foreign banks or companies that or more
foreign bank as those terms are control a
defined in
the International Banking
Act of
U.S.C. 3101). The term "banki 1978 (12
tion" shall not include a foreign ng institubank.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
encd-c.
Ve-rs 0,9N
TITLE II—INTERNATIONAL LENDING
SUPERVISION
Sec. 201. This title may be cited as the
"International Lending Supervision Act of
1983".
FINDINGS; DSCLARATION Or POLICY
SEC. 202.(a) The Congress recognizes that
prudent international ler.ling plays an important role In growth of world trade and
the health of the United States and world
economy. that United Staves banking institutions are important participants in this
process, r_nd that from Um:. to time external
financial imbalances will develop as countries pursue differing economic policies
suited to their individual circumstances.
The Congress finds, howe‘er. that in recent
years banking institutions have extended
large amounts of credit to borrowers in
some forieign countries which, as a result of
strained economic conditions worldwide,
have been unable to acquire foreign exchange for the payment of their external
debts.
(b)In these circumstances, It Is the policy
of the Congress to assure that the eccnomit
health and stability of the United States
banking system is not adversely affected in.
the future by concentrat'ons of credit
to
borrowers which may experience serious external peyments problems, and to maintain
International lending to support world
trade. United States exports, arid the required economic adjustments in countries
where adequate stabilization programs are
in place. The Congress finds that these concerns should be addressed by strengthening
the banking regulatory framework to encourage prudent private decisionmaking on
international lending, by enhancing international cooperation among banking regulatory authorities, and by encouraging the
early adoption of sound adjustment policies
by borrowing countries.
DETINITIONS
Stc. 203. For purposes of this title—
(1) the term -appropriate Federal banking
agency" has the same meaning as in section
3(0 of the Federal Deposi' Insurance Act
(12 U.S.C. 1813(q));
(2) the "appropriate Federal banking
agency" for bank holding companies and
nonbank subsidiaries therecf, Edge Act corporations organized under section 25(a) of
the Federal Reserve Act(12 U.S.C. 611-631),
and agreement corporations operating subject to section 25 of the Federal Reserve Act
(12 U.S.C. 601-604(a)) Is thr Board of Governors of the Federal Reserve System:
Sub
"b;f(e_rerNct
Definitions are the same.
Senate version has
"findings."
RecormtmAl
POsIi-;
House could recede to the
Senate.
atfir;0•Dr13
Senc(tc_
%Jams,- versio
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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StAbsitkraiNit -b
esenc
Re_corf.fran
(3) the term "banking "uutltution" means
any insured bank as defitied in section 3(h)
of the Federal Deposit Insurance Act (12
U.S.C. 1813(h)) or any subsidiary of an insured bank, any Edge Act corporation organized under section 25(a) of the Federal Reserve Act(12 U.S.C. 611-631). and any agreement corporation operating subject to section 25 of the Federal Reserve Act (12
U.S.C. 601-604(a)); and
(4) the term -banking institution" Ow Includes, to the extent determined by tbe ap-.
propriate Federal bz.-tking agency, any
agency or branch of a foreign bank, and any
commercial lending company owned or controUed by one or more foreign banks or
companies that control a foreign bank u
, those terms are defined in the International
Banking Act of 1978 (12 U.S.C. 3101). but
such term does not include a foreign bank..
a
.."."
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STRENGTHENED surravistoir Or
INTERNATIONAL LENDING
Svc. 403. Each appropriate Federal banking agency shall evaluate banking institution foreign country exposure and transfer
risk for use In banking institution examination and supervision. Each such agency
shall establish examination and supervisory
procedures to assure that factors such as
foreign country exposure and transfer risk are taken into account in evaluating the
adequacy of the capital of banking institutions.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SA-PILL(
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STRENGTHENED SUPERVISION OT
INTIRNATIONAL LENDING
Src. 204. Each appropriate Federal banking agency shall evaluate banking institution foreign country exposure and transfer
risk for use in banking institution examination and supervision. Each such agency
shall establish examination and supervisory
procedures to assure that factors such as
foreign country exposure and transfer risk
are taken into accourt in evaluating the
adequacy of the capita: of banking institutions.
Supix)rt
33
ReSerOES
ver5io(1
tncd-c_
Ve.X3i0eN
Subsin4it l;(fc!Aerc e.
Recomsrsinci-iick
05 ti";'
9
RESERVES
MMMITS
Svc. 404. (a) Each appropriate Federal
banking agency shall require, by regulation.
a banking Institution to establish and maintain a special reserve whenever in the judgment of such agency:
(1) the quality of such institution's assets
has been impaired by a protracted inability
1
of public or private borrowers in a foreign
country to make payments on their external
indebtedness as indicated by such factors,
among others, as a failure by such public or
private borrowers to make full interest payments on external indebtedness, or to
• comply with the terms of any restructured
indebtedness, or a failure by the foreign
country to comply with any International
Monetary Fund or other suitable adjust=tent program. or where no definite pros:ects exist for the orderlyi restoration of
:eat service: or
(2) there is a substantial likelihood that
Lich debt cannot reasonably be expected to •
:e repaid in accordance with its original
:arms and conditions without additional
borrowing or a major restructuring.
(b) The appropriate Federal banking
agency shall have the discretion to grant
reastrutble time periods to a banking institution required to establish such a special
reserve to come into compliance with the retJirerntrit. If such action is taken to avoid
t:srupting orderly international lending.
It) Special reserves established pursuant
:a this si-ciion shall be charged against current income and snall not be considered as
:art of capital and surplus or allowances for
ssi We loan losses for bank regulatory or
visory purposes.
'cll The appropriate Federal banking
tiericies shall promulgate regulations or
•.•cier% nttestary to implement this section
•.thin one hundred and twenty day% after
• ••
of enactment of this title.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sec. 205. Each appropriate Federal tank:
Inc agency shail'require a bank:rig irstitution to establish and maintain a special reserve whenever in the judgment of such
agency the quality of such institution's
assets has been unpaired by a protracted in
of public or pri-ate borrowers in a
foreign country to make payments on their
external indebtedness as indicated by such
factors. among others, as a failure by such
public or private borrowers to make full in:
terest payments on external indebte:iness.
or to comply with the terms of any restructured indebtedness, or a failure by tte foreign country to comply with any International Monetary Fund or other suitable ad-
House bill requires banks to
maintain reserves if there
is "substantial likelihood'
that the debt will not be
repaid in accordance with
original terms. House bill
'also requires issuance of
implementing regulations
within 120 days.
House should recede tc
the Senate and delete
provision that require
reserves against loan:
likely
to
be
restructured.
justment program, or where no definite
prospects exist for the orderly restoration
of debt service. Such reserves shall be
charged against currLnt income and shall
not be ccrtsidered as part of capital and surplus or allowances for possible loan losses
for regulatory supervisory, or disclosure
Purposes.
a
t-ee s
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ViamSe-
StAb)cck
StAbSilariiiVe -b;Ke.terIct
ACCOUNTING POP P"MS ON INTLNNATIONAL
LOANS
House bill requires agencies
to promulgate rules within
120 days from enactment.
Senate bill refers to
accounting treatment of fees
for regulatory and
disclosure purposes - House
refers to regulatory and
supervisory purposes.
Re.c.ocmert4."(Lick
.
Pas
AccotAnii
ACCOUNTING TOP TIMS OF DM:PVTIONAL
LOANS
Sec. 405. (a) The appropriate Federal
banking agencies shall promulgate regalia, tiOrLS for accounting for agency. commitment, management and other fees charged
by a banking institution_in connection with
an international loam Such regulations
shall establish the accounting treatment of
; such fees for regulatory and supervisory
purposes to assure that the appropriate portion of such fees Is accrued in Income over
the effective life of each such loan.
(b) The appropriate Federal banking
agencies shall promulgate regulations or
orders necessary to implement this section
within one hundred and twenty days after
the date of the enactment of this title.
1%.Abject:
VQ-Cs i )eN
Sertc(tt
Ve_r5jorN
Fronk enck
Six. 206. Each appropriate Federal banking agency shall establish rules or regulations for accounting for agency, commitment, management, and other fees charged
by a banking institution In connection with
international lending. Such rules or rerulations shall establish the accounting treatment of such fees for regulatory and disclosure purposes, to assure that the appropriate portion of such fees is accrued in income
over the effective life of the loans.
Senate may defer to the
House. .
(4.*
PPOP:111770/1 01 now? END MS
Ste. 311. (a) In order to avoid excessive
debt service burdens on debtor countries, no
banking institution shall chargee, in connection with the restructuring of an International loan, any fee exceeding the administrative cost of. the restructuring unless it
amortizes such fee over the effective Ille of
each such loan.
(b) The requirement of subsection (a)
shall take effect on the date of the enactment of this section. Each appropriate Federal banking agency shall promulgate such
regulations u are necessary to further carry
out the provisions of this sectlm.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
House version acceptable.
Sec. 311 could be combined
with section 405 to avoid
repetition.
A
36—
fe
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Re_con.rm."
.,
Pd. ,4r..
fees
PROHISMON ON PLINtGOTIATION 1EE3
Ste. 319.(aX1) Notwithstanding any other
Provision of law (including any other provision of this title), in order to avoid excessive
debt service burdens on deptor countries, no
banking institution shall charge, in connection with the restructuring of an international loan. any fee exceeding the administrztive cost of the restructuring.
(2) Notwithstanding any other provision
of law (Including any other provision of this
title), any fee which Is authorized to be
charged under paragraph (1) shall be arnorWed over the effective life of the loan involved.
(b) The requirements of subsection (a)
shall take effect on the date of the enactment of this section. Each appropriate Federal banking agency shall promulgate such
regulations as are necessary to further carry
out the provisions of this section.
Sac. 320. The Bretton Woods Agreements
Act (22 U.S.C. 286 et seq.) is amended by
adding at the end thereof the followinr.
53. The Secretary of the Treasury
shall instruct the United States Executive
Director to the Fund to propose and work
for the adoption of Fund policies regarding
the rate of remuneration paid on use of
member's quota subscriptions and the rate
of charges on Fund drawings to bring those
rates in line with market rates. The Secretary of the 11-tuury shall report to the appropriate Committees of Congress within
one hundred and eighty days of enactment
.the progress made In Implementing this pro-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Vexs of•
Provision
should
be
amended to allow agency
fees.
4
•
C.o11c0-ion and
bu,Sj
HOM5e...
versiorl
DISCLOSIMUC OP CERTAIN
INTERNATIONAL LENDINO DATA
SEC. 406. (a) Each appropriate Federal
banking agency shall require, by regulation.
each banking institution with lbreign country exposure to submit, no fewer than four
times each calendar year. such Information
regarding that exposure in a format prescribed by such regulations.
(b) Each appropriate Federal banking
agency shall require, by regulation, banking
Institutions to disclose to the public information regarding matenal foreign country
exposure in relation to assets and to capital.
(c) The appropriate Federal banking agencies shall promulgate regulations or orders
necessary to implement this section within
one hundred and twenty days after the date
of the enactment of this title.
COLLCTIOW AND
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
disclow-ft
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end,
Ve-rS i OseN
cotismosammmcsostmroramTms
INTERNATIONAL LENDING DATA
Sec. 207. (a) Each appropriate Federal
be.nking agency Is authorized to require
each banking institution with foreign country exposure to submit, no fewer than four
times each calendar year, such information
regarding that exposure in such format as
the agency shall prescribe.
(b) Each appropriate Federal banking
agency shall require banking institutions to
disclose to the public information regarding
material foreign country exposure in relation to assets and to capital in such forni as
is deemed necessary or appropriate in the
public interest.
_.
Subsbaniive -6;fference,
Senate version gives each
agency authority to collect
information from banks at
least 4 times a year, while
House version is mandatory.
House bill requires
regulations within 120 days.
PCA
Senate can defer to House.
a
3
b
ject-
Mc(' ckkio c•Ji
NokAse... versio
INTERNATIONAL COOPERATION AND STUDY OT
INTERNATIONAL SUPERVISION
Sm. 407. The Federal banking agencies
shall consult with the banking supervisory
authorities of other countries to reach understandings aimed at achieving the adoption of effective and consistent supervisory
policies and practices with respect to international lending.. _
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
co -oesu(Al sur
Senate_
Ve_rs oeN
Sec. 104. It is the sense of the Congress
that there should be meetings on a regular
basis between representatives of the International Monetary Fund and of the Contracting Parties to the General Agreement
on Tariffs and Trade to ensure closer cooperation and more frequent sharing of information on the monetary-trade link.
S
Subs.VAntiVe. ‘b;f(exe.nct
House versicn does not have
provision for 114F - GATT
cooperation.
Re_comirmiN
PO'S t
Use
Senate version acceptable.
131L
(13) The Federal banking agencies shall
consult with the banking supervisory authorities of other countries to each understandings aimed at achieving the adoption
of consistent supervisory policies and practices with respect to international lending.
3'
So,b,, ec-+
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C0.91.4-0.1
odeqruckctir
Ver5i0(
cittmLitorAvum
Svc. 408. (aXI) Each appropriate Federal
banking agency shall cause banking Institutions to achieve and maintain adequate capital by establishing minirnumlevels of capital for such institutions and by using such
other methods as the agency deems appropriate.
(2) Each appropriate Federal banking
agency shall have the authority to establish
such minimum level of capital for an institution as the agency. in its discretion, deems
to be necessary or appropriate in light of
the particular circumstances of the institution.
(b)(1) Failure of a banking institution to
maintain capital at or above its minimum
level as established pursuant to subsection
(a) may be deemed by the appropriate Federal banking agency, in its discretion, to
constitute an unsafe and unsound practice
within the meaning of section 8 of the Federal Deposit Insurance Act.
(2xA) In addition to. Or in lieu Of. any
other action authorized by law, including
subsection (b)(1). the appropriate Federal
banking agency may issue a directive to a
banking institution that fails to maintain
capital at or above its required level as established pursuant to subsection (a).
(B)(i) Such directive may require the Institution to submit and adhere to a plan acceptable to the agency describing the means
and timing by which the institution shall
achieve Its required capital level.
(ii) Any such directive issued pursuant to
this paragraph. including plans submitted
pursuant thereto, shall be enforceable
under the provisinns of section 8(1) of the
Federal Depostt Insurance Act to the same
extent as an effective and outstanding order
Issued pursuant to section 11(b) of such Act
which has become final.
(3)(A) Each appropriate Federal banking
agency may consider such institution's progress-in adhering to any plan required under
this subsection whenever such institution,
or an affiliate thereof, or the holding cornpany which controls such Institution, seeks
the requisite approval of such agency for
any proposal which would divert earnings,
diminish capital, or otherwise impede such
institution's progress in achieving its minimum capital leveL
(B) Such agency may deny.such approval
where it determines that such proposal
would adversely affect the ability of the institution to comply with such plan:
(C)The Chairman of the Board of Governors of the Federal Reserve System and the
Secretary of the Treasury shall encourage
governments, central banks, and regulatory
authorities of other major banking counDigitizedtries
for FRASER
to work toward maintaining and, where
atepnorthenine the(MOW bases
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encase_
Vexs i oes
CAT:T&L ILDEQUACT
Sec. 209. Each appropriate Federal banking agency shall require banking institu•
tions to rr.aintam adequate levels of capital.
Each such ager.cy may establish reasonable
time periods for a banking institution to
comply with such capital requirements.
Subst.b;((exe-nc
House bill is more detailed
regarding banking agencies'
authority to enforce capital
adequacy guidelines and
adopts new procedure for
issuing orders to increase
capital levels. House bill
also directs the Fed
Chairman and Treasury
Secretary to encourage
foreign banking authorities
to strengthen bank's capital
levels.
Rtorrri'*jL&
PO'S
House should defer tc
simpler Senate versiol
which
gives
the
agencies
broad
discretion to set and
enforce capital levels
a
39
StC1:
%-tok4se-
-1b
Ve_rsior
FOREIGN LOAN EVALUATIONS
SEC. 409. (aX1) No banking institution
shall extend credit, whether by loan, lease,
guarantee, or otherwise, which individually
or in the aggregate exceeds 51,000,000. to finance any project involving the construction or operation of any mining, processing
or manufacturing facility located outside
the United States or its territories and possessions unless a written economic feasibility evaluation of such foreign project is prepared and approved in v.-riting by a senior
official of such banking institution.
(2)Such evaluation shall—
(A) take into account the profit potential
of the project, the impact of the project on
world markets, the inherent competitive advantages and disadvantages of the project
over the entire life of the project, and the
likely effect of the project upon the overall
long term economic development of the
country in which the project is located:
(B) document that the extension of credit
can reasonably be expected to be repaid
from revenues generated by such foreign
project without regard to any subsidy or
guarantee provided by the government involved, any instrumentality of any country,
or by any international organization: and
(C) shall be available to representatives of
the appropriate Federal banking agency and
such other individuals and entities as have
lawful access to such information.
(b) Such economic feasibility evaluations
shall be reviewed by representatives of the
appropriate Federal banking agencies whenever an examination by such appropriate
Federal banking agency is conducted.
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Federal Reserve Bank of St. Louis
Out/sects
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Sm. 211. (a)-No banking institution shall
extend credit, whether by loan, lease, guarantee, or otherwise, to finance all or any
portion of any project, which project:
(1) has as its principal objective the construction, establishment, or major expansion of any mining operation, or any metal
or mineral processing or fabricating facility
or operation, located outside the United
States or its territories or possessions. and
(2) can reasonably be expected to require
aggregate development expenditures (Including all costs of construction and establishment) in excess of $25.000,000, unless a
written economic feasibility evaluation of
such foreign project is prepared by or for
such banking institution and approved in
writing by a senior official of such banking
Institution; or if such loan is made as a part
of a bank consortium loan, prepared by or
for a banking institution managing such
consortium and approved in writing by a
senior official of such managIng banking institution.
(b) Such economic feasibility evaluation
shall take into account the profit potential
of the foreign project, the impact of the
project on world markets, the impact on
United States industry and employment,
the inherent competitive advantages and
Subsbariiive .b;f(egenc t
Senate version has higher
threshold triggering
requirement of written
feasibility study ($25
million project rather than
any loan above $1 million);
slight differences in
factors to be included in
feasibility study; House
version requires feasibility
studies be available to bank
examiners.
Rel.onr&iaA4
POs
VN.
Conference
could
compromise at a higher
threshold and on some
of factors in study;
add
provision
a
private
allowing
no
cause of action and no
civil or other penalty
any
by
applied
government agency for
failure of a bank to
the
with
comply
provisions.
disadvantages of the project, the likely
effect of the project upon the overall longterm economic development of the country
in which the project would be located,, and
whether the extension of credit can reasonably be expected to be repaid over the life of
the project without regard to any subsidy
including but not limited to those listed in
the Annex of the Agreement on Interpretation and Application of Articles VI. XVI.
and =II of the General Agreement on
Tariffs and Trade provided by the government of the country in which the project
would be located, or by any instrumentality
of that goverrunent.
LO
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VerSiOr1
CEPtERAL AUTHORITIES
SEC. 410. (a) The appropriate Federal
banking agencies are authorized to interpret
and define the terms used in tliis title, and
each appropriate Federal banking agency
shall prescribe rules or regulations or issue
orders as necessary to effectuate the purposes of this title and to pre‘ent evasions
thereof. The appropriate Federal banking
agency is authorized to app:y the provisions
of this title to any affiliate of an insured
bank, but only to affiliates for hich it is
the appropriate Federal banking agency, in
order to promote uniform a;.,plicatior. of
this Act or to prevent evasions thereof. For
purposes of this section. the term -affiliate"
shall have the same mearing as in section
23A of the Federal Reserve Act (12 U.S.C.
311c(b)) except that the term -member
bank" in such section shall be deemed to
refer to "insured bank", as that term Is used
In section 402(1)) of this title.
(b) The appropriate Federal banking
agencies shall establish uniform syste.-ns to
implement the authorities provided under
this title.
(c) The powers and authorities granted in
this title shall be supplemental to and shall
not be deemed in any mariner to derogate
from or restrict the authority of each -appropriate Federal banking agency under section 8 of the Federal Deposit Insurance Act
(12 13.S.C. 1818) or any other law including
the authority to require additional capital
or reserves. Any such authority may be used
by an agency to ensure compliance by a
banking institution with the provisions of
this title and all rules, regulations, or orders
issued pursuant thereto.
(d) Any banking institution which violates. or any officer, director, employee,
agent, or other person participating in the
conduct of the affairs of such banking institution. who violates any provision of this
title, or any rule, regulation, or order, issued
under this title, shall forfeit and pay a civil
penalty of not more then $1.000 per day for
each day during which such violation continues. Such violations shall be deemed to
be a violation of a final order under section
8(1)(2) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(0(2)) and the penalty shall
be assessed and collected by the appropriate
Federal banking agency under the procedures established by, and subject to the
rights afforded to parties, provided in said
section.
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Federal Reserve Bank of St. Louis
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GENCR.AL AUTHORITIES
S.210.(a) F-ch Federal banking agency
is authorized to interpret and define the
terms used in this title, and shall prescribe
-rules or regulatios or issue orders as necessary to effectuate the purposes of this title
and to prevent evasions thereof. The appropriate Federal banking agency is authorized
to apply the provisions of this title to any
affiliate of an insured bank, but only to affiliates for which it is the appropriate Federal banking agency, in order to Promott
uniform application of this title or to prevent evasions thereof. For purposes of this
section, the term "affiliate" has the same
meaning as In section 23A of the Federal
Reserve Act (12 U.S.C. 371c(b)), except that
the term "member bank" in such section
shall be deemed to refer to "insured bank".
(b) The Federl banking agencies shall establish uniform systems to implement the
authorities provided under this title.
(c) The powers and authorities granted by
this title shall be supplemental and shall
not be deemed in any manner to derogate
from or restrict the authority of each appropriate Federal banking agency under any
other law or under section 8 of the Federal
Deposit Insurance Act (12 U.S.C. 1818), including the authority to require additional
capital or reserves. Any such authority may
be used by an agency to ensure compliance
by a banking institution with the provisions
of this title and all rules, regulations or
orders issued pursuant thereto.
(d) The issuance of regulations, requirement of reports, and collection of information pursuant to this Act shell be exempt
from the requirements of chapter 35 of title
44, United St-ates Code and chapter 6 of title
5, United States Code.
t"Y.;n,
)C4Nc-4t S
0
SuA0541aniiVe -b4(excilce.
House bill provides for
civil penalties for
violations by banks,
employees or others. Senate
bill includes no penalties
provision. Senate bill
provides exemption from
Paperwork Reduction Act and
Regulatory Flexibility Act
and House bill does not.
Re_commt.nci-tst
—
fl •
•
rOs
Senate should defer to
House, but work on
conference language re
Paperwork Reduction &
Regulatory Flexibility Act
exemptions.
Soese.c_+ :
tiovse._
G-110
wAck.A.1-
ver5ior
GAO AUDIT AUTHORITY
Sec. 41L (a) Under regulations of the
Comptroller General. the Comptroller General shall audit the appropriAte Federal
banking agencies (as defined in section
4C2(a) of this Act), but may carry out an
onsite examination Of an op= insured bank
or bank holding company only if the I.PPropriate Federal banking agency has consent,
ed in writing. An audit under thiz subsection
may include a review or evaluation of the
international regulation. supervision. and
exzmination activities of the appropriate
Federal banking agency, includuig the coordination of such ac.tivities with similar activities of regulatory authorities of a foreign
government or international organization.
Audits of the Federal Reserve Board and
Federal Reserve banks may not include—
(1) transactions for or with a foreign central bz..r. ik. government of a foreign country,
or nonprivate international financing organizatiort
(2) deliberations, tIecisions, or actions on
monetary policy matters, including discount
v."_ndow- operations, reserves of member
barks. serurties =•edit, in:erest on deposits,
arc oper.rnartlet operations:
trarc.ar.tions made uncer the direction
Of the Fecieral Open Market Committee: or
(4) a part of a dis.ciission or communication among or between members of the
Board of Governors and officers and employees of the Federal Reserve System relazed to varagraphs (1) through (3) of this
subsection.
ib)(1) Except as provided in .this subsection, an officer or employee cf the General
Accounting Office may not disclose information identifying an open hank- an open bank
ht,lcling company, or a customer of an open
Or closed bank or bank holding company.
The Comptroller General may disclose information related to the affairs of a closed
bank or closed bank hold;ng company identifying a customer of the closed bank or
closed bank holding company only If the
Cornptroller General believes the customer
had a controlling influence in the management of the closed bnnk or closed bank
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Federal Reserve Bank of St. Louis
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i
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ferc e.
Re...come...and-lick
. .
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House
version
acceptable.
Work for
Conference
Committee
language
report
clarifying the scope o
GAO audit authority an
adequate
assuring
of
protection
confidential
information.
Sso.
Cr 0
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versior
holding company or was related to or affiliated with a person or group haring • con•
trolling influence.
(2) An officer or employee of the General
Accounting Office may discuss a customer.
bank, or bank holding company with an official of an appropriate Federal banking
.agency and may report an apparent criminal violation to an appropriate law enforcement authority of the United States Government or a State.
(3) This subsection does not authorize an
officer or employee of an appropriate Federal banking agency to withhold information
from a committee of Congress authorized to
have the information.
(c)(1) To carry out this section, all records
and property of or used by an appropriate
Federal banking agency, including samples
of reports of examinations of a bank or
bank holding company the Comptroller
General considers stalistically meaningful
and workpapers and correspondence related
to the reports shall be made available to the
Comptroller General. including s-uch records
and property pertaining to the coordination
of international regulation, supervision arid
examination activities of an appropriate
Federal banking agency. The Comptroller
General shall give each appropriate Federal
banking agency a current llst of officers and
employees to whom. with proper identification, records and property may be made
available, and who may make notes or
copies necessary to carry out an audit. Each
appropriate Federal baiaking agency shall
give the Comptroller General suitable and
lockable offices and furniture telephones,
and access to copying fac:lities.
• (2) Expept for the temporary removal of
w•orkpapers of the Comptroller General
that do not identify a customer of an open
or dosed bank or bank holding company, an
open bank, or an open bank holding company, all wortpapers of the Comptroller General and records and property of or used by
an appropriate Federal banking agency that
the Comptroller General possesses during
an audit, shall remain In such agency. The
Comptroller General shall prevent unauthotized access to records or property.
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Federal Reserve Bank of St. Louis
encki-c_
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AR EPORTS TO CON GRESS
Sm. 412. (a) Within one hundred and
twenty days after the date of the enactment
of this title, -the Secretary of the Treasury
shall report to the Committee on Banking.
Housing, and Urban Affairs of the Senate
and the Committee on Banking. Finance
and Urban Affairs of the House of Repreaentatives on the sta.tutes. regulations, and
examination and supervisory procedures
and practices, governing international banking in each of the Group of Ten Nations
and Switzerland with particular attention to
sur_h matters bearing on -capital requirements lenriing limas. reserves. disclosure,
eialrarner access, and lender of last resort resources.
(b) Nut later than one bundred
and
twenty days after the date of the enactment
of this title, the Chairman of the Board
of
Governors of the Federal Reserve System
and the Secretary of the Treasury
shall
transmit a report to the Committee
on
Banking. Housing, and Urban Affairs of
the
Senate and the Committee on Banking.
Finance and Urban ALf2_11-S of the House
of
Representatives on the progress made in
reaching the goal specified in section 408(c).
(c)(1) Within one year alter the date
of
the enactment of this title and for each
of
the two succeeding years, the appropri
ate
Federal banking agencies shall report to
the
Committee on Banking. Housing, and Urban
Affairs of the Senate and the Committee on
Banking. Finance and Urban Affairs of the
House of Representatives on actions taken
to implement the provisons of this title.
(2) The report shall include a
of the actions taken in carrying description
out the objectives of the title, and any
actions Laken
by any appropriate Federal
banking agency
that are inconsistent with the
uniform irnplementation by the appropriate
Federal
banking agencies of their
respective au•
thorities under this title, and
any recommendations for amendments to
this or other
legislation.
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Federal Reserve Bank of St. Louis
sencd-c_
Vo-rsioeN
%IO
(e) Within one year after the date of enactment of this title and for each of the two
succeeding years. the Federal banking agencies shall report to the Committee on Banking. Housing, and Urban Affairs of the
Senate and the Committee on Banking, Finance and Urban Affairs of the House of
Representatives on actions taken to implement the provisions of this title. The report
shall include a description of the actions
taken in carrying out the objectives of the
title, and any actions taken by any Federal
banking agency that are inconsistent with
the uniform implementation by the Federal
banking agencies of their respective authorities under this title, and any recommendations for amendments to this title or
any other provision of law.
Subshhni-i
{{er
c
House bill requires Treasury
Secretary to report after 4
months on foreign laws and
supervisory procedures.
Re.c.coryv-04,1d-tick
Po
'
Senate can recede to the
House.
Vlou5t_
versi011
s.
fatIAL REPRESENTATION PON TRI rtvtaa
DEPOSIT ENSTrNANCIC CORPORATION
enocte
ve-rs i oes
Subsbarkivt
;{(exerNc t
RtyzrcL&c
Delete this provision
as unnecessary.
l bank
Ste. 413. As one of the three Pledera
as
regulatory and supervisory agencies. and
inthe insurer of the United States banks
l
volved in international lending. the Federa
be
Deposit Insurance Corporation shall
l
given equal representation with the Federa
Reserve Board and the Office of the Combtroller of the Currency on the Committee
isory
on Banking Regulations and Superv
Practices of the Group of Ten Countries
and Switzerland.
•
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Federal Reserve Bank of St. Louis
Posii-itt•.,
I
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to internal or confidential information.
Citation Information
Document Type: Board of Governors
Citations:
Number of Pages Removed: 6
Restricted-Controlled: "De LaRosiere's Note on Surveillance for G-5 Meeting," Ray Lubitz and
Larry Promisel, April 20, 1983.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
•
r
•
4_
INTERNATIONAL MONETARY FUND
WASHINGTON, D. C. 20431
‹sz.i•
CArlE ADDRESS
MANAGING DIRECTOR
INTER FUND
PERSONAL AND CONFIDENTIAL
April 1, 1983
Dear Beryl,
I attach a copy of the paper that I have
prepared for the meeting
of the G-5 in Washington later this
month.
Yours sincerely,
J. de Larosisere
Dr. Beryl W. Sprinkel
Under Secretary of the Treasury
U.S. Treasury
Room 3312
Washington, D.C. 20220
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Federal Reserve Bank of St. Louis
April 1, 1983
Note for G-5 Surveillance
We all agree on the importance of promoting a durable recovery,
for which the consolidation of the gains achieved in the fight against
inflation is a necessary condition.
There are now clear signs of an
upturn in the largest economies, although we do not know how strong
nor, more important, how lasting it will be.
The recent weakening of
the international market for oil can be expected to strengthen this
Incipient recovery.
Its implications for prices, incomes, and production
in the oil importing countries are distinctly favorable.
A 15 per cent
decline in the price of crude oil, approximately what has taken place so
far, could by itself reduce the price level in the oil ir.-,porting countries
as a group by more than 1 per cent in 1983.
The magnitude of the asso—
ciated stimulus to output is more uncertain, but the direction is clear.
In the present circumstances, it is essential to maintain the resolve
to keep down inflation.
The experiences of the 1970s suggest that a
weakening of the commitment to enduring price stability could only erode
the successes already achieved and endanger the recovery.
In this note
I review developments and policies in three interrelated areas since our
last meeting, and discuss the conditions for a lasting recovery.
1.
Cautious monetary policies have contributed substantially to lowering
the rate of inflation.
Since September 1982
inflation has decelerated
sharply, particularly in the United States where the consumer price
Index has shown virtually no change over this period.
The considerably
lower inflation rates that have now been reached in Japan, Germany, and
the United States and, to some extent, in the United Kingdom, are also
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Federal Reserve Bank of St. Louis
more uniform than at any time in recent history.
France, by contrast,
remains out of line with the other countries, although to
a comewbat
lesser extent than a year ago.
During the past six months, the main monetary aggregates
in the
United States and Germany have been allowed to grow at rates exceeding
the upper ends of official target ranges.
In the United States, inter-
pretation of these movements is complicated by changes in financial
structure and a rise in the propensity to hold monetary
balances.
The
recent acceleration in monetary growth in Germany is largely related
to exchange market intervention within the EMS.
In Japan, the United
Kingdom, and France, growth in the money aggregates has been held
within target ranges and there has, in fact, been a tendenc
y for these
rates to decline in the most recent period.
In the case of France, this
is directly attributed to reserve losses, while for Japan
exchange rate
considerations have been relevant.
Interest rates have declined markedly in nominal terms, particu
larly
at the short end of the market, but in most countries they remain high
in real terms for this stage of the business cycle.
In the United States,
in particular, the high real rates reflect the large borrowing needs of
the public sector.
Long-term interest rates also seem to include a
sizable risk premium incorporating expectations of a possible resurgence
of inflation and concerns about the monetization of government
debt.
This suggests that the process of dampening inflationary expectations is
not yet complete and that attempts to push down interest rates could
be
counterproductive.
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Federal Reserve Bank of St. Louis
-3
Most major countries have announced growth ranges for the monetary
aggregates in 1983 which are similar to or lower than those set
for 1982.
In the United States, the target ranges for MI and 1.12 have been raised;
however, the Federal Reserve has stressed that the new ranges are consistent with a slowdown in monetary expansion from 1982 to
1983, after
adjusting for shifts in the demand for money.
In view of the decline in
inflation, the official monetary targets in the United States
and Germany
are consistent with the expected recovery in economic activity and there
is no scope for a relaxation of monetary policy in these
countries.
Indeed, the recent rates of monetary growth in these two countries,
unless brought back within the target ranges, would raise question
s
about their compatibility with enduring price stability.
In Japan, although inflation has fallen to a low level, there
is
no room for an easing of monetary policy as long as the exchange rate
of the yen is not well established at an adequate level.
The lowering
of monetary targets in the United Kingdom, in line with medium-term
objectives, does not imply a tightening of monetary conditions.
Indeed,
In view of the rapid decline in inflation, monetary expansion well within
the target range would be adequate to acca=odate the expected recovery
.
In France, given the.balance of payments difficulties, greater restraint
on domestic credit expansion is, in my view, required.
By persevering with steady monetary policies Which avoid triggering
a renewed inflationary impulse, the prospects not only for lower but also
for more stable interest rites ,:ould be markedly improved.
2.
This brings me to the second point.
where need to be strengthened.
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Federal Reserve Bank of St. Louis
Public finances almost every-
The large deficits that confront =ost
-4
governments today reflect expenditure patterns established
in previous
periods of rapid economic growth.
effects of the recession.
To these trends have been cdded the
In all countries public expenditures have
become larger in relation to GNP although this
reflects, in part,
cyclical developments.
This has been particularly evident in France,
even on a cyclically adjusted basis, and
in the United States.
While
the cyclical portion of the deficit will shrink with the recov
ery,
fiscal policy changes are still required
to ensure that structural
deficits do decline.
The time frame over which adjustment must be sought
will depend, of course, on the particular
circumstances of each country.
Concerns about the size of budget deficits stem from
the demands
they make on domestic savings and from their
consequences for price and
growth objectives.
By contributing to the persistence of relatively high
interest rates, they discourage productive capita
l formation without
which the recovery is not sustainable.
Although there is much unutilized
productive capacity in most industrial countr
ies, changes in economic
structure and in comparative advantage will make some
of it difficult to
mobilize.
New capital formation will then be needed
to meet the recovery
of demand and to avoid bottlenecks, particularly after the
relatively
prolonged period of low investment activity.
An important medium-term
objective for fiscal policy should be to make room for the volume
of
Investment needed to support an adequate rate
of growth.
In considering
alternative ways of reducing budget deficits, their impact
on private
savings must be taken into acco-,gt.
weight on expenditure reductions.
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Federal Reserve Bank of St. Louis
This argues for placing greater
In implementing these reductions,
countries should consider the composition of expenditures, and the need
to reduce the share of transfer payments.
Since we last met, efforts have been initiated to restrain or reduce
budget deficits and the growth of public spending.
These ha-;e found
expression in the budgets for fiscal years beginning in 1983.
In Japan,
the budget aims at a reduction in both government expenditure and in the
deficit in relation to GDP.
However, in view of the constraints on mone—
tary policy the government needs to demonstrate the same flexibility in
implementing the budget as was evident last year.
In Germany, as in
Japan, fiscal restructuring is best pursued as a medium term process
requiring a careful assessment of the short—term implications of a reduc—
tion in expenditures or an increase in taxes.
In other countries, there
is no alternative to renewed efforts to reduce government budget deficits,
particularly through expenditure cuts.
In France, this is especially
necessary to restore external balance.
Substantial success has already
been achieved in the United Kingdom and the recently presented budget
appears to provide the basis for further gradual consolidation in line
with medium—term objectives.
Concerns about the size of the budget deficit are greatest for the
United States, where deficits are large in relation to private savings
and are likely to remain large even assuming implementation of the recent
budget proposals.
Host calculations suggest- a substantial deficit will
remain even as the economy returns to a high level of resource utiliza—
tion.
This highlights the need for urgent and decisive action by the
authorities to reduce the struural fiscal deficit.
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•
-6
3.
A revival of activity and vorld trade will be facilitated by
exchange rate relationships that better reflect underlying economic
conditions.
Some movement in this direction has already taken place
since c,.e last met.
The dollar has weakened somewhat against some of
the rain currencies especially the yen, and this should exert a favorable
impact on the current account position of the United States.
The yen's
appreciation over this period has broadly restored its nominal effective
exchange rate to the end-1981 level, but only partly offset the gains in
competitiveness realized in recent years.
The steep depreciation of
sterling, partly related to oil market developments, has eased the
competitive constraints on economic expansion in the United Kingdom.
Finally, the recent ES realignment has also resulted in a set of
exchange rates more in line with relative economic and competitive
strengths.
In the period ahead, countries must continue to strive for convergence in economic policies toward the achievement of sustained and noninflationary growth.
Such convergence is desirable in itself and also
for the effect it would have on improving the prospects for reduced
exchange rate volatility.
Disruptive exchange rate movements have often
resulted from shifts in policies and expectations regarding disparities
in inflation rates.
Already the lower and more uniform inflation rates
in the largest economies provide an'opportunity for greater exchange
rate stability.
In the process of achieving greater stability in the medium term;
Increased cooperation between the major countries will be required.
conducting their financial policies, countries should seek to avoid
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
In
- 7 -
effects on exchange rates that are clearly inconsistent vith underlying
economic conditions.
In particular, countries should watch carefully
the impact of their monetary policies, including the effects on interest
rate differentials, and of their policies toward capital flows.
I have not, on this occasion, talked again about the need for
specific actions to improve the functioning of markets, though these
remain essential.
In particular, structural unemployment is unlikely to
shrink significantly unless the upward trend in labor costs is reversed
and other disincentives to productive employment removed.
I also continue
to be seriously concerned by the spread of protectionism.
Although a
revival of activity and more realistic and stable exchange rates hopefully
will ease protectionist pressures, an initiative by some of the major
countries toward dismantling the barriers to trade that have recently
been introduced or strengthened might be appropriate at this time.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON. DC 20431
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With the Compliments of
Jacques de Larosiere
Managing Director
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
j
.er
DRAFT
VERSION 2
BRAZIL MEETING: 9/26/83
VERSION FOR BANK CHIEF EXECUTIVE OFFICERS
AS YOU KNOW, WE HAVE JUST REACHED AGREEMENT AT STAFF AND MANAGEMENT
LEVEL WITH THE AUTHORITIES OF BRAZIL ON THE REVISED STABILIZATION AND
STRUCTURAL ADJUSTMENT PROGRAM.
I CONSIDER IT OF GREAT IMPORTANCE TO BE
ABLE TO PRESENT DIRECTLY TO YOU THE SUBSTANCE OF THE PROGRAM AS WELL
AS THE MEDIUM-TERM PERSPECTIVE, TO DESCRIBE THE REQUIREMENTS FOR
EXTERNAL FINANCE IN ORDER FOR THIS PROGRAM TO BE IMPLEMENTED
SUCCESSFULLY, AND TO SEEK YOUR COOPERATION IN ASSURING THAT THESE
RESOURCES ARE MADE AVAILABLE.
ACCORDINGLY, I SHOULD LIKE TO INVITE YOU TO JOIN ME IN A MEETING
NEXT MONDAY, SEPTEMBER 26, 1983 AT 3:00 P.M. IN THE EXECUTIVE BOARD ROOM
AT THE HEADQUARTERS OF THE INTERNATIONAL MONETARY FUND IN WASHINGTON.
CHAIR110,/
I AM INVITING THE/CHIEF EXECUTIVE OFFICERS OF THE OTHER ADVISORY GROUP
BANKS TO ATTEND AS WELL AS THE FUND STAFF WHO HAVE BEEN NEGOTIATING THE
PROGRAM.
IN ADDITION SECRETARY REGAN, CHAIRMAN VOLCKER, AND BIS
PRESIDENT LEMWILER ARE BEING INVITED TO PARTICIPATE.
IN ORDER TO
FACILITATE DISCUSSIONS I BELIEVE IT WILL BE DESIRABLE TO LIMIT THE SIZE
OF THE GATHERING AND ACCORDINGLY I AM INVITING PARTICIPANTS TO BRING NOT
MORE THAN ONE COLLEAGUE TO THE MEETING.
I SHOULD BE VERY GRATEFUL IF YOU WOULD CONFIRM TO ME BY TELEX YOUR
PARTICIPATION IN THE MEETING NEXT MONDAY.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
CORDIALLY YOURS,
1
\INTERNATIONAL MONETARY FUND
'
, WASHINGTON. D.C. 20431
Jacques de Larosiere
--c.
)
Managing Director 1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3. e-1-
a
41i
•
IMF OFFICIAL MESSAGE
DO NO1 SOFT ROLL EXCLP1
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----,
WASHINGTON, D. C. 20431
23
FAR
22
C/O ALFRED MUDGE
21
SHEARMAN AND STERLING
20
CITICORP CENTER
19
153 EAST 53RD STREET, NEW YORK, NY
18
I WISH TO INFORM YOU ABOUT THE MEXICAN ECONOMIC PROGRAM,
17
WHICH IS IN SUPPORT OF A REQUEST FOR A THREE-YEAR EXTENDED N
m
ARRANGEMENT FROM THE INTERNATIONAL MONETARY FUND, AND ON
is
THE DISCUSSIONS HELD WITH MR. RHODES, MR. BENNETT, AND
14
MR. MUDGE ON THE FINANCING REQUIREMENTS OF THAT PROGRAM
13
FOR THE PERIOD THROUGH THE END OF 1983.
12
AS I EXPLAINED IN MY PRESENTATION TO THE ADVISORY GROUP
11
AT THE FEDERAL RESERVE BANK OF NEW YORK ON NOVEMBER 16,
10
THE MEXICAN PROGRAM CALLS FOR A MAJOR ADJUSTMENT OF THE
9
PUBLIC FINANCES, WITH THE PUBLIC SECTOR DEFICIT SCHEDULED
RHODES, BENNETT AND MUDGE
START TEXT HERE
START ADDRESS IN THE BOX
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DISTRIBUTION
L
^
TO BE REDUCED FROM AN ESTIMATED SIXTEEN AND ONE HALF PER
CENT OF GDP IN 1982 TO EIGHT AND ONE HALF PER CENT OF GDP
7
IN 1983, FIVE AND ONE HALF PER CENT OF GDP IN 1984, AND
ON THIS BASIS,
THREE AND ONE HALF PER CENT OF GDP IN 1985.
^
THE PROGRAM SHOULD MAKE POSSIBLE A LOWERING OF PRESSURES
ON PRICES WHILE AT THE SAME TIME PERMITTING A REDUCTION IN
THE RELIANCE ON EXTERNAL FINANCING, MAKING PROVISION FOR
2
NIT AL
PEOURE—
D1
1
1
A REASONABLE VOLUME OF CREDIT TO THE PRIVATE SECTOR, AND
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-2-
19
-
18
ENSURING A REBUILDING OF FOREIGN RESERVES.
THE CURRENT
ACCOUNT DEFICIT OF THE BALANCE OF PAYMENTS IS EXPECTED TO
COME DOWN FROM U.S. DOLLARS THIRTEEN BILLION IN 1981 TO
0
U.S. DOLLARS SIX AND ONE HALF BILLION IN 1982 AND TO
14
U.S. DOLLARS FOUR AND ONE QUARTER BILLION IN 1983, WITH
13
FURTHER REDUCTIONS TO TAKE PLACE IN 1984 AND 1985.
12
THE AREA OF MONETARY AND CREDIT POLICY, THE OPERATIONS
IN
OF THE BANK C4 MEXICO WILL BE SUBJECT TO LIMITS CONSISTENT
_ 16
WITH THE ANTI-INFLATION AND BALANCE OF PAYMENTS AIMS OF
9
THE PROGRAM, AND INTEREST RATES ARE EXPECTED TO PLAY THEIR
8 ,
CUSTOMARY ROLE IN ALLOCATING CREDIT AMONG COMPETING USERS
7
AND IN PROMOTING FINANCIAL SAVINGS.
EXCHANGE RATE POLICY
WILL BE MANAGED FLEXIBLY OVER THE PROGRAM PERIOD, WITH A
RESERVE TARGET BEING USED TO HELP GUIDE EXCHANGE RATE
MANAGEMENT.
WAGE POLICY WILL BE FORWARD LOOKING, AVOIDING
INDEXATION TO PAST INFLATION, AND PRICE CONTROLS ARE TO BE E
2
INITIAL
IF
REQUIRED
I
MANAGED FLEXIBLY.
AS PROGRESS IS MADE IN IMPLEMENTING THE
I,
' PROGRAM, THE IMPORT PROTECTIVE SYSTEM WILL BE REVISED WITH
I' TEXT MUST END HERE t
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II
FOR RHODES ...
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A VIEW TO REDUCING THE SCOPE AND WEIGHT OF THE RESTRICTION
EXTERNAL TRANSACTIONS.
E517]
m -- THAT CURRENTLY APPLY TO
IN REGARD TO MEXICO'S FINANCIAL NEEDS IN 1983, OUR
PROJECTIONS ARE AS FOLLOWS:
1- 15
0
A CURRENT ACCOUNT DEFICIT OF
U.S. DOLLARS FOUR AND ONE QUARTER BILLION, INCLUDING
13
INTEREST PAYMENTS ABROAD OF SOME U.S. DOLLARS TWELVE
12
BILLION; AN ENTRY OF PRIVATE CAPITAL (INCLUDING REINVESTED
EARNINGS) OF SOME U.S. DOLLARS ONE BILLION; NONDEFERRABLE
-1
10
PUBLIC DEBT REPAYMENTS NETTED AGAINST CURRENTLY EXPECTED
9
OFFICIAL CAPITAL INFLOWS RESULTING IN AN OUTFLOW OF SOME
U.S. DOLLARS ONE BILLION; PROVISION FOR
^
A MODEST IMPROVE-
MENT OF GROSS FOREIGN RESERVES OF THE ORDER OF U.S. DOLLAR
ONE AND ONE HALF BILLION (WHICH WOULD PROVIDE ONLY A VERY
THIN CUSHION, EQUIVALENT TO SOME TWO WEEKS OF CURRENT
PAYMENTS); AND THE SCHEDULED REPAYMENT OF BALANCE OF
3
PAYMENTS BRIDGING LOANS OF MORE THAN U.S. DOLLARS TWO AND
2
ONE HALF BILLION.
INIT AL
IF
REDUIREC
THESE PROJECTIONS INDICATE A TOTAL OF
U.S. DOLLARS 8.3 BILLION THAT REMAINS TO BE FINANCED.
t___TEXT MUST END HERE
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Federal Reserve Bank of St. Louis
SIGNATURE
(PLEASE KEEP SIGNATURE IN SPACE ALLOWED)
SIGNATURE
DRAFT - Dec. 3/82
INSERT p.4
If you were to work on a basis of a smaller initial figure, for
example, US dollar 4.5 billion, it would have to be clearly understood
that the amount to be provided by the banks would have to be raised
up to US dollar 5 billion if it should prove not possible to raise
financing from official so
keep you informed of my
ces above US dollar 2 billion.
I will
d cussions on the financing from official
sources.
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Reserve Bank of St. Louis
0
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IMF OFFICIAL MESSAGE
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-DISTRIBUTION
THE FUND WOULD COVER U.S. DOLLARS 1.3 BILLION OF THIS
I HAVE
TOTAL, LEAVING U.S. DOLLARS 7 BILLION TO BE FOUND.
SUGGESTED THAT U.S. DOLLARS 2 BILLION OF NET NEW MONEY
COME FROM
0
OFFICIAL SOURCES AND U.S. DOLLARS 5 BILLION
14
FROM THE BANKS, TO BE DISBURSED IN PARALLEL WITH THE
1 :I
RELEASE OF FUND RESOURCES.
12
TO MEXICO IN 1983 WOULD INCREASE BY AN ESTIMATED 8 PER
11
CENT AS COMPARED TO 46 PER CENT IN 1981 AND 14 PER CENT
10
ON AVERAGE IN THE THREE PRECEDING YEARS.
9
I HAVE INDICATED MY WILLINGNESS TO SEEK TO INCREASE SOME—
ON THIS BASIS, BANKS
EXPOSURE
WHAT THE PROPORTION OF FINANCING FROM OFFICIAL SOURCES
7
FOR 1983, AND TO REDUCE PRO TANTO THE AMOUNT REQUESTED
6
FROM THE BANKS, BUT I WOULD CAUTION THAT ANY SUCH SHIFT
5
WOULD, AT MOST, BE QUITE SMALL, AND I HAVE NO INDICATION
4
THAT IT IS IN FACT POSSIBLE.
THUS, I THINK IT ADVISABLE
TO WORK PROVISIONALLY ON THE BASIS OF U.S. DOLLAR 5
2
E--
(jAistg.))
BILLION FROM THE BANKS IN 1983.
R
!NIT AL
IF
REQUIRED
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IMF OFFICIAL MESSAGE
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START ADDRESS IN THE BOX
23
--iIr OR RHODES
...
MARK XX FOR CODE
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r----- DISTRIBUTION
r
., IT IS MY UNDERSTANDING THAT THE PROBLEM OF MEXICAN PRIVATE
INTEREST PAYMENTS TO FOREIGN BANKS THAT ARE IN ARREARS
N _
WILL NEED TO BE DEALT WITH TO PROVIDE THE BASIS FOR BANK
0
LENDING TO MEXICO.
I HAVE BEEN IN CONTACT WITH THE
T
14
MEXICAN AUTHORITIES ON THIS MATTER, AND THEY HAVE ASSURED
13
ME THAT THEY WILL BE WORKING TOWARD A RESOLUTION OF THIS
12
PROBLEM.
11
ARE READY TO ASSIST THE MEXICAN AUTHORITIES IN THE DEVELOP
10
MENT OF THE FINANCIAL ARRANGEMENTS REQUIRED TO DEAL WITH
IT IS ALSO MY UNDERSTANDING THAT FOREIGN BANKS
INTEREST PAYMENTS IN ARREARS.
(Ao_rt i O
I WOULD ADD ATHAT THERE APPEAR
7
E
TO BE OTHER ARREARS THAT
HAVE DEVELOPED IN RECENT MONTHS, PERHAPS OF AS MUCH AS
(A4Ata44441
U.S. DOLLARS ONE HALF BILLION OR MORE, AND IT WOULD BE
DESIRABLE TO ASSURE THEIR ORDERLY FINANCING.
4
AS THESE
Fir
OTHER ARREARS ARE QUANTIFIED, THE ASSISTANCE OF THE BANKS
AtS-0— AA4—PROVE NECESSARY.
2
INITIAL
IF
REQUIRED
-1
A
SINCE THE FINANCING REFERRED TO ABOVE FROM THE BANKS
RELATES TO NET NEW MONEY, AGREEMENT ON SUCH FINANCING
-
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Federal Reserve Bank of St. Louis
SIGNATURE
(PLEASE KEEP SIGNATURE IN SPACE ALLOWED)
SIGNATURE
..
INSERT p. 6
I understand that you wish to have from me assurances by
December 15 on financing from official sources.
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Federal Reserve Bank of St. Louis
IMF OFFICIAL MESSAGE
DO NOT son ROLL EXCEPT
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WASHINGTON, D. C. 20431
FOR RHODES ...
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23
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(CODE
22
21
20
- 6 -
19
DISTRIBUTION
WOULD NEED TO BE ACCOMPANIED BY ARRANGEMENTS TO DEAL WITH
THE SHORT-TERM AND MEDIUM- TO LONG-TERM DEBT OF MEXICO
THAT WILL BE COMING DUE.
or
THE RESTRUCTURING OF THE DEBT
WOULD NEED TO BE ON REALISTIC TERMS, TAKING INTO ACCOUNT
14
THE EXISTING DEBT REPAYMENT OBLIGATIONS AND BALANCE OF
13
PAYMENTS PROSPECTS OF THE COUNTRY IN THE YEARS AFTER 1983.
12
IN ADDITION, BANK DEPOSITS IN MEXICAN AGENCIES WILL HAVE
11
TO BE MAINTAINED AT THEIR PRESENT LEVELS.
lC' I
WISH TO EMPHASIZE THAT I NEED BY DECEMBER 15, 1982
WRITTEN ASSURANCES FROM THE BANKS ABOUT THEIR PARTICIPATIO
ALONG THE LINES INDICATED ABOVE, IN MEETING MEXICO'S
FINANCING REQUIREMENTS, IN ORDER TO BE IN A POSITION TO GO
TO THE EXECUTIVE BOARD OF THE FUND ON DECEMBER 23, 1982
I
kr)
WITH THE MEXICAN REQUEST FOR AN EXTENDED ARRANGEMENT. (A/
4
I AM SURE YOU APPRECIATE THAT I CANNOT TAKE TO THE
3
EXECUTIVE BOARD A PROGRAM THAT IS NOT FULLY FINANCED.
2
THIS IS THE APPLICATION OF OUR NORMAL RULES AND PRACTICES.
(NIT AL
IF
REOU RED
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I WISH TO ADD THAT I HAVE ALSO MADE THE ABOVE PRESENTATION
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P
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FR RHODES ...
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CREDITOR COUNTRIES AND
OF THE M
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ACTIVELY THIS COOPERATIVE
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I HAVE DISCUSSED THE
MODALITIES OF ASSURANCES FROM THE BANKS WITH MR. RHODES,
IN VIEW OF THE SHORT TIME
13
MR. BENNETT, AND MR. MUDGE.
12
AVAILABLE, I STRESSED THE NEED FOR THE ADVISORY GROUP
11
TO ISSUE TELEXES TO BANKS AT THE LATEST BY FRIDAY THE
10
THIRD OF DECEMBER.
9
REGARDS
E ft
8
DE LAROSIERE
MANAGING DIRECTOR
INTERNATIONAL MONETARY FUND
4
2
INITIAL
IF
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1
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1
-
DOCUMENT OF INTERNATIONAL MONETAR
C USE
FOR PUB&
-(:=27.FUND AND NOT --)71-
October 14, 1982 - 82/183
The Chairman's Summing Up at the Conclusion of the
Discussion on Sweden - Change in Exchange Rate
Executive Board Meeting 82/135
October 13, 1982
A number of Executive Directors referred to the 10 per' cent
devaluation of the krona in September 1981, which, it was calculated
at that time, and so indicated in the Board, had restored competitiveness
to its 1973 level. But they noted that since the fourth quarter of that
year, there had been, on the basis of available indicators, a renewed
erosion of competitiveness agalnst partner countries amounting to some
4-5 per cent.
In view of the continued weakness in the current account and the
speculative pressures in the exchange markets that had become apparent
in September, the new Swedish Government had implemented an exchange rate
devaluation. Most Executive Directors noted that the available indicators
showed that there was a case for a devaluation by Sweden, but on the
evidence in front of them, they found no ground for concluding that a
devaluation of the size introduced, i.e., 16 per cent, was justified.
The view was expressed that the magnitude of the devaluation could, and
had, given rise to undue problems for partner countries, and strong
concern was expressed on the possible dangers of consequent reactions in
such a very delicate domain.
It was noted that in the recently announced package several measures
aimed at promoting a more viable industrial structure and medium-term
growth had been decided on, but a number of Directors wondered whether
the measures, especially in the fiscal and monetary fields, were sufficiently supportive of the devaluation and some doubts were expressed on
the adequacy of some of the measures decided on. Directors emphasized
the importance of taking the available opportunity to abolish subsidies
to ailing industries.
Many Directors asked that the exchange rate policies of Sweden and
supporting
measures that were being introduced should be the subject
the
of further special consultation between the staff and the Swedish
authorities in the near future, so that Directors could shortly have an
opportunity for a further discussion of those matters on the basis of a
comprehensive analysis of the situation. I shall, therefore, contact
the Swedish authorities to see how such consultations can be conducted.
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Federal Reserve Bank of St. Louis
J
.
INTERNATIONAL MONETARY FUND
WASHINGTON. D.C. 20431
/Mr. Paul Volcker, Chairman, Federal
Reserve Board
Mr. Robert McNamar, Deputy Secretary
of Treasury
For your information, I attach
the textf my preliminary communication
to the President of the Central Bank
of Argentina.
Lr
•
C7,
-14/
- ith the Compliments of
t,
Jacques de Larosiere
Managing Director
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
•
Senor Julio Gonzalez del Solar
President
Central Bank of the Argentine Republic
Buenos Aires, Argentina
The Management of the Fund has agreed with the framework and objectives
of the economic program of the Argentine Government discussed with the
recent Fund mission in Buenos Aires in connection with a request for a
stand-by arrangement by the Argentine Government.
Within this framework
and objectives, there remain certain issues related to the implementation
of a wage formula and of an interest rate policy consistent with the
objectives of such a program.
We expect that during the course of the
next week consultations will be held in Washington with representatives of
the Argentine Government and of the Fund with a view to reaching final
agreement on these two issues.
On this basis and once the Argentine
Government implements other agreed measures necessary for the initiation
of the program as from January 1, 1983, Management will be prepared to
support the requested stand-by arrangement and submit it to the consideration of the Executive Directors.
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Federal Reserve Bank of St. Louis
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Citation Information
Document Type: Board of Governors
Citations:
Number of Pages Removed: 2
Restricted: "Financing of the Proposed IMF Borrowing Arrangement," November 4, 1982.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Secretary George Shultz on October 6, 1982.
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Federal Reserve Bank of St. Louis
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Document Type: Board of Governors
Citations:
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Restricted: "The IMF Quota Negotiations," October 6, 1982.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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k
•••••..
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
.•',00V
1:
DIVISION OF INTERNATIONAL FINANCE
DATE
9/17/82
RALRt.stc':••
• •..• • *
TO
FROM
Chairman Volcker
TED TRUMAN
Attached for your information and reaction
is a copy of the current draft outline of the
suggested new IMF borrowing arrangement.
Attachment
cc:
Governor Wallich
Messrs. Axilrod, Siegman, Gemmill, Promisel,
Pizer, Leimone, Dod, Cross and Ms. Brown
UNCLASSIFIED
CONFIDENTIAL ATTACHMENT
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Document Type: Board of Governors
Citations:
Number of Pages Removed: 5
Confidential: Discussion Outline of Provisions of New IMF Borrowing Arrangement,
September 16, 1982.
Federal Reserve Bank of St. Louis
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-
.Ar
;
INTERNATIONAL MONETARY FUND
1%
\
07
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40;
WASHINGTON
EXECUT , VE D.REC,OR
D C
20431
May 5, 1982
United States
To:
Secretary Regan
Chairman Volcker
Thru:
Beryl Sprinkel (Initialed) BINS
From:
Richard D. Erb 44).
Subject:
and Size of the Fund
IMF Conditionality and the Financial Role
:<PLE AZ:PEEE
N
'N
t on the areas of conditionThis memorandum provides a status repor
year, the progress made
past
ality we have concentrated on during the
t, and the areas which
vemen
to date, the areas that need further impro
ssed in the final
discu
As
raise some important policy questions.
tionality are also
condi
to
section of this report, issues relating
of the Fund, subjects
size
central to views on the financial role and
w.
Revie
which are at the heart of the Eighth Quota
section outlines the
To serve as a starting point, the following
on individual proents
conditionality guidelines which shape our judgm
IMF Articles of
the
in
ded
grams. These guidelines, which are groun
of the Fund.
role
financial
Agreement, also shape our views on the
IF CONDITIONALITY GUIDELINES
al framework for our
The following guidelines provide a gener
arrangements:
evaluations of individual IMF financial
balance of payments need.
I. There should exist a demonstrable
a significant effort
This means that a country should have made
ding, where appropriate,
to obtain alternative financing inclu
does not mean however
development assistance financing. This
or alternative sources
that a country must exhaust its reserves
utilize IMF financial
of financing before being eligible to
resources.
ment policy measures conII. The borrowing member should imple
payments position by the
sistent with a sustainable balance of
the planned financial
end or shortly after the conclusion of
e balance of payments
arrangement(s) with the Fund. A sustainabl
l fluctuations) that can
means a current account (including norma
r development assisbe financed over time with commercial and/o
that a current account
tance financial flows. This does not mean
general current account
balance is necessary or that there is some
of countries. In
norm applicable to all countries or groups
a current account
in
susta
to
practice, the ability of a country
foreign resources) and the
deficit (i.e. remain a net borrower of
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CONFIDENTIAL
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- 2 -
magnitude of that deficit will depend on how effectively the
country's economy is allocating resources to productive uses.
III. The adjustment treasures adopted must be in accord with the
broader principles of the IMF Articles. In short, this means
policies which are consistent with promoting domestic economic
growth and a more open market-oriented international economic
system.
IV. To establish adequate safeguards for the temporary use of its
resources the Fund must assure itself that a member using Fund resources will be in a strong enough financial position to repay
the Fund without incurring arrears in its other obligations and
without being forced to adopt measures inimicable to the broader
principles of the IMF Articles.
Given these general guidelines, our approach to each borrowing
arrangement is empirical and analytical. Since economies differ, it is
not presumed that some fixed set of policy measures is automatically
necessary or appropriate in each country faced with a balance of payments
adjustment problem. Although we have to depend on the Fund staff for
the data, analysis, and judgments regarding the policies necessary within
each country to achieve the balance of payments adjustment objective,
the Fund staff needs general guidelines from the management and the
Executive Board on how to approach Fund financial arrangements with
member countries.
POLICY MEASURES REQUIRED IN FUND PROGRAMS
Because there had been a serious erosion in the adjustment measures
required by the Fund, we have been giving primary emphasis to strengthening
this dimension of IMF conditionality. Other member countries including
some developing countries and the IMF management had come to a similar
judgment by early 1981. As a consequence, and as outlined below, considerable improvements have been made. At the same time, there are areas
in which differences in view and approach remain.
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(i)
The adjustment objective: Fund programs had deteriorated in part
because of a tendency to specify a number of adjustment objectives
without giving priorities. Thus, performance became difficult to
monitor since it became too easy to find some objective that
was being met. More importantly, by accepting many adjustment
objectives--however laudable each objective might have been--Fund
financial arrangements gave insufficient emphasis to economic
policy changes that would lead to a sustainable balance of payments position within a short to medium term period.
Although more emphasis is being given by the Fund staff
to the balance of payments adjustment objective, the objectives
adopted under Fund programs remain too diffuse. This is a
controversial issue. Other members of the Board and many outside critics of the Fund believe the use of multiple objectives
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CONFIDENTIAL
- 3 -
is a favorable development. In their view, if an economy
is faced with the need to make a number of economic adjustments,
each of which may be desirable per se, the Fund
should be more relaxed about what specific adjustments are
achieved as long as a country is accomplishing some adjustment.
In addition it is argued that such an approach reduces the
prospects of later balance of payments problems.
Although broadly defined adjustment objectives can be justified, such an approach has significant implications for the Fund.
The more broadly one defines the adjustment objectives of Fund
financing, the broader the scope of Fund lending and the larger
the Fund's financial resource requirements. Since this issue
also is central to differences over the financial role and
size of the Fund, I will return to it later.
(ii) Policy commitments: Fund programs also had weakened because
there was a tendency for the Fund to accept a government's
promises to "find" appropriate policy measures in lieu of
requiring a government to be specific regarding the policies
to be adopted. In particular, this was a problem with three
year Extended Fund Facility (EFF) programs and with multiyear stand-by programs. Partly in response to this problem,
the Fund has been negotiating fewer programs involving explicit
multi-year commitments. Instead, the Fund will make an explicit commitment for a one-year program that is framed in
a multi-year context. In such cases, there is an understanding
that a series of one year programs is possible but only if
the country continues to adjust as planned. In the remaining
multi-year programs, the Fund is phasing potential drawings
and reviews in a manner that gives it more leverage.
(iii) Policy implementation: Another area of weakness in Fund programs stemmed from the tendency of some borrowing countries
not to implement agreed policy measures. There has been
considerable improvement in this regard:
- prior actions: The Fund management has returned to the practice
that requires a country to take a number of policy actions
prior to presenting a program to the Executive Board,
especially in countries which failed to implement agreed
policies under past programs;
- better monitoring systems: In a number of programs, the
Fund has established systems for monitoring government
economic policies on a more timely basis;
- more frequent reviews: Even in one year programs, more frequent
performance reviews during the program period now are required
in order to insure that agreed policies are being implemented;
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—4--
- better phasing of drawings: Instead of front—end—loading
potential drawings, the Fund is phasing drawings so as to
link dra.'ings with implementation;
— limited waivers and modifications: If a country does not
meet its policy targets, the Fund is willing to grant waivers
and modifications only when conditions justify relatively
minor program adjustments; when more significant adjustments
are necessary, the Fund requires a new negotiation;
— more technical assistance: In some countries, failure to
implement agreed policies was caused by management deficien—
cies The Fund has been providing more technical assistance
in such cases. (This is an activity of the Fund that we
have been strongly encouraging.)
BALANCE OF PAYMENTS NEED TEST
According to the Articles of Agreement, a member using Fund resources
must have a balance of payments "need." As traditionally interpreted by
the Fund, and as we continue to interpret the concept, this roans that a
country should have made a significant effort to obtain alternative
financing, including, where appropriate, development assistance financing.
Under this view, a Fund program is important to a country not so much
because of the financial resources that are made available directly by
the Fund, but because a Fund program gives confidence to other sources
of finance. To the extent that a Fund program in fact serves as a
catalyst for other financial sources, the need to actually draw from
the Fund is thus reduced or eliminated.
During the latter half of the seventies, the Fund's approach to
lending was significantly modified. In short, there emerged a view
that the Fund should be able to provide a critical mass of resources to
induce countries to use IMF financial resources early on and thus enable
the Fund to promote economic adjustment broadly defined (this issue is
thus related to the discussion of objectives in the previous section).
This philosophy was articulated in the 1978 Report of the Executive
Board to the Board of Governors on the Seventh General Review of Quotas:
"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 need to use those resources and to
pursue economic policies and programs which the Fund is able to support.
In a 1979 revision of the Fund's guidelines on conditionality, the
Executive Board established what has come to be known as its policy of
early access." According to this policy, "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. Although the
word "could" implies uncertainty, in practice the promise of significant
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CONFIDENTIAL
••
CONFIDENTIAL
- 5 Fund resources became the carrot used to induce members to borrow from
the Fund. In 1980, and consistent with the notion that a critical mass
of financing was needed to induce members to borrow, the Executive
Board adopted a policy of "enlarged access." This policy allows the
Fund "to provide balance of payments assistance to members facing
serious payments imbalances that are large in relation to their quotas."
Currently this means amounts up to 150% a year and 45-% over a three
year period under the credit trenches or under an Extended Fund
Facility (EFF) program. Over time, use of Fund resources (net of
repayments) under those facilities may cumulate to 600% of quota.
Prior to the adoption of expanded access, a member country could draw
up to a maximum of 100% of quota under the credit tranches or 165%
under the EFF.
The shift in the philosophy underlying Fund lending activities in
the late seventies was motivated by a number of factors. In the past
some countries delayed seeking Fund assistance until their balance of
payments situation was so severe that draconian adjustment measures
were then necessary. When the Fund finally became involved in such
cases, the Fund too often was blamed for the policy adjustments that
were required. In addition, there emerged a belief that by dealing
with a country's economic problems early on, balance of payments problems
could be avoided. During the period from 1977 to early 1979, when few
countries borrowed from the Fund, many also argued that Fund conditionality
was too tough. The most severe critics of Fund conditionality were the
developing countries and their representatives and advocates. In 1979
the re-emergence of a large OPEC surplus fed the preception that a more
active financial role for the Fund was necessary. Among the supporters
of this shift in philosophy was the U.S. government.
Although the policy changes of the late seventies were motivated
in part by laudable objectives, they open the door for a high level of
Fund lending if not carefully constrained. In practice, efforts to
induce countries to seek IMF financing early on can stretch the balance
of payments need test and weaken the adjustments called for under Fund
programs. The emphasis on encouraging countries to use Fund resources
also leads countries negotiating with the Fund to expect the full
amounts permitted under enlarged access. In addition, once a program
is approved, countries expect to use the full amount provided
rather than treating Fund resources as stand-by resources that could be
drawn if unforseen developments have a detrimental impact on the country's
balance of payments position. (Note: In the past, there was a greater
tendency for countries to use Fund resources on a truly stand-by basis.)
In part, the surge in IMF lending in 1980 and 1981 was propelled
by too loose an application of the policies of early access and expanded
access (this was a major problem with the India loan). Although we
have not called for a revision of these policies,
we have sought to constrain them:
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(i) Regarding early access
- we have stated that member countries have a responsibility to
CONFIDENTIAL
CONFIDENTIAL
- 6 work with the Fund under the Fund's surveillance procedures
in order to identify and undertake adjustment measures and thus
avoid balance of payments difficulties
- we also have stated that if a country seeks access to Fund
resources in an early stage of an emerging balance of payments
problem, it should do so on a true stand-by basis and not treat
IF financial resources as simply another (less expensive) means
of financing a balance of payments deficit
- we have said that if a me,nber seeks access to Fund resources
at an early stage, it should not be granted enlarged access
amounts
(ii)
Regarding expanded access
- we have stated that the limits allowed under expanded access
should be treated as ceilings and not targets
- we have also stated that the ceilings (150%; 450%, 600%)
could be reduced over time if balance of payments deficits
and surpluses declined or became more evenly distributed
Regarding the latter efforts to constrain the policies of early
access and enlarged access, we have had success in getting agreement
that the limits under expanded access are not targets but mixed support
and some opposition on the other approaches. However, because of a
desire to concentrate on the adjustment measures required in Fund programs, we have not pressed these issues too hard. In my judgment, and
as discussed below, these are issues that we can deal with in the context
of the Eighth Quota Review negotiations.
ESTABLISHING ADEQUATE SAFEGUARDS FOR THE TEMPORARY USE OF ITS RESOURCES
(Guideline IV).
In my judgment this is an aspect of IMF conditionality that deserves
more attention, especially if Fund lending were to continue to grow rapidly.
The Fund has resources committed in some countries with balance of
payments adjustments so severe that they are not able or are unlikely
to be able to repurchase from the Fund within the normal short to
medium terms repurchase period. In effect, the Fund may find itself
in some situations (like Sudan) where it must provide a new loan in
order to be repaid. To a large extent, the potential for such situations
arise primarily in low income countries which depend on development
assistance to finance their current account deficits. Although such
countries can usually meet even a strict test of balance of payments
need, the adjustment problems confronting such countries are of a
nature requiring long term development assistance and not of a temporary
character suitable for IMF financing. In addition, there is a danger
that the Fund will be caught up in the game-theory type behavior such
countries engage in in order to maximize aid flows and debt rescheduling.
(Examples of such behavior include pursuing policies which result in a
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CONFIDENTIAL
CO1;FIDENTIAL
— 7 —
perpetual balance of payments crisis as part of the bargaining process
with creditors and donor countries.)
I should note that the industrial countries, including the United
States, have been requiring such countries to obtain an IMF program in
order to qualify for debt rescheduling and bilateral assistance. Thus,
the Fund has been under more than a little pressure in recent years to
come up with financial programs--including expanded access--for such
countries. In turn, bilateral development agencies have come to view
IMF financial resources as another means for reducing the balance of
payments gap that must be filled with development assistance. Although
the Fund plays a positive role in such countries, I am concerned about
the long run financial consequences for the Fund. This is another
subject area for further thinking within the U.S. government.
CONDITIONALITY AND THE EIGHTH QUOTA REVIEW
The Executive Board has had a number of discussions on the
appropriate magnitude of the Eighth Quota increase. Those who favor a
large increase in Fund quotas (100 to 200 percent) generally support
the direction in which Fund lending policies have moved in recent years.
In short, they believe that the Fund should have sufficient financial
resources in order to induce borrowing countries to promote economic
adjustment broadly defined. While they expect the Fund to demand
economic adjustments as a condition for using Fund resources (many in
this group criticized 1977-80 Fund lending for being too lax), they
believe that such adjustments may require larger Fund resources and
longer Fund programs. They would also favor a continuation of enlarged
access (although with lower percentage ceilings since the quota levels
would be higher) and a continued policy of early access to the use of
Fund resources.
In Board discussions, I have not specified any numbers, but have
indicated that some of the increases being discussed were unrealistic
and implied a much broader and more active financial role for the Fund.
In addition, my statements regarding the financial role of the Fund
have clearly emphasized the more traditional financial role of the Fund
as a source of temporary balance of payments financing for countries
faced with a balance of payments need and willing to undertake economic
adjustments designed to achieve a sustainable balance of payments
position within the short to medium run.
During the next few months we will continue to work within the
International Monetary Group (1MG) to develop our positions on issues
connected with the Eighth Quota Review.
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CONFIDENTIAL
III
•
•._L_ •
7
INTERNATIONAL MONETARY FUND
\
0
WASHINGTON. D C 2043;
`'ZtUri
PERSONAL AND CONFIDENTIA:
CABLE/ XODRESs
MANAGING DIRECTOR
INTERFUND
August 18, 1982
Dear Beryl,
I attach a copy of the paper that I have prepared for
the Toronto meeting of the G-5.
Yours sincerely,
J. de Larosiere
Mr. Beryl W. Sprinkel
Under Secretary
U.S. Treasury
Room 3312
Washington, D.C. 20220
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•
Our goal is clear: the re-establishment of a noninflationary
environment conducive to sustained growth of output and employment.
Its attainment has become all the more urgent in view of the weakness of
world demand, record levels of unemployment, and growing protectionist
tendencies. Until it is reached greater exchange rate stability will be
difficult to achieve. To best achieve our goal policy actions in each
of the G-5 must be consistent not only with each country's particular
objectives but also with the common goals of the G-5. From an international point of view, it is essential that the efforts of individual
countries are reinforcing and not conflicting. Policies need to be kept
on a steady course to carry conviction to markets.
This note sets out some thoughts centered around three inter-related
questions: (1) the policies necessary to achieve a continuing deceleration of inflation and the extent to which inflation rates in individual
countries have converged and are converging; (2) the problems stemming
from an inadequate containment of government deficits with resulting
consequences for financial markets; and (3) the actions that could
improve the flexibility of economies including a reduction in the size
of public sectors and more rapid cost and price adjustment.
1.
On the first point, a continuing decline in inflation inescapably
depends in large part on pursuit of cautious monetary policies. Restraint
characterizes monetary policies, at present, though the movement of the
aggregates is difficult to interpret during a period of transition.
There are, however, apparent differences in the willingness of countries
to pursue a policy of reducing inflation and there are differences between
countries in the costs that must be borne in order to achieve a significant success. A reduction in inflation has been achieved though to
substantially differing degrees in each country. However, convergence
on an acceptable range of price increase is not yet in prospect with
consumer prices in France continuing to rise, until the imposition of
the freeze, at an annual rate of 14 per cent, whereas at the same time
they had decelerated to a rate of 2 1/2 per cent in Japan. In my view
it would be acceptable if price increases for individual members of the
G-5 were to settle within a range of, say, 3-5 per cent provided they
remained there.
It would seem that currently French price performance is most
noticeably out of line and without a substantial shift of policies it is
doubtful whether this will be much changed during the next two years.
In the United Kingdom wage restraint will have to be pursued even more
vigorously if the deceleration of prices that has been achieved thus far
is not to come to an end. The fight against inflation was begun from an
unfavorable starting point in both the United Kingdom and France, and in
both countries a reduction in inflation to an acceptable level in the
short- to medium-term appears much more uncertain than in Germany or
than in the United States, where marked progress has been made. The
achievement of the Japanese authorities in this area stands on its own.
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2
The reduction of inflation in the major countries has been associated
with a period of considerable economic slack, however
, and we cannot yet
be confident about the durability of the progress made. I would strongl
y
counsel against a relaxation of policies.
2.
This brings me to the second issue. Might different policies
accelerate the adjustment process? I have in mind particularly
the need
to move toward substantially smaller government deficits, and with
them,
reduced pressures on financial markets. A weakening fiscal positio
n,
even if associated with slack in activity, cannot be tolerated when as a
result the public sector pre—empts an undue proportion of savings
and
thus undermines an expected recovery. High rates of growth of public
debt have contributed to levels of interest rates which inhibit
productive
investment and harm the prospects for further growth; unless restrictive
monetary policy is supported by measures to curb deficits, interes
t
payments on a steadily rising public debt may lead to a situation where
government deficits threaten to get out of control. The present
state
of public finances is in part reflected in the historically large gap
which has developed between interest rates and the ongoing rate
of infla—
tion. These pressures from budgetary imbalances are contributing to the
financial difficulties of companies. They also have adverse implica
tions
for the international financial system by affecting the availability of
credit and its cost to other countries. All of this argues for moving
quickly and effectively to deal with the problem of budget deficits.
Only in Japan has adjustment gone so far that it could allow the
adoption
of a somewhat different stance of fiscal policy in the short term. But
a fall in Japanese interest rates is constrained by high rates of
interest
abroad and thus by the potential effect on the exchange rate. The current
weakness of the yen is now feeding protectionist tendencies.
The budget deficit problem and the pressures generated on financial
markets are not unique to any one country, and they may be muted
to some
extent by the continuing weakness of domestic demand. However, most
countries feel that, on an individual basis, action on their part
to
reduce deficits might do little to improve world financial conditions.
This underscores the need both for generalized action in this area,
and
especially for action by the United States which is the dominant economy,
if financial resources are to be made available to the private sector
to
facilitate the needed strengthening in investment in the medium term.
It may well be that the high fiscal deficit in the United States
is
not the only cause of interest rate pressures in that country, and some
argue that in the present state of low capacity utilization the
"crowding
out" problem is not that acute; but it remains true that there is a
pervasive belief in the U.S. markets that, barring a substantial
fiscal
effort, the Federal deficit will remain high over the medium term, even
should there be a considerable economic recovery. This belief, in
turn,
feeds inflationary expectations and undermines confidence in the
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3
authorities' determination to pursue an anti-inflationary policy. The
level of interest rates is clearly influenced by the strength of demand
for credit but the danger is that, even if a weakness in private demand
for credit fosters a fall in interest rates in the near term, there could
be a threat that they may surge again, choking off an upswing in activity,
if the government demand for credit were to remain high. I recognize
that measures to bring about a substantial reduction of the U.S. fiscal
deficit could lead to some decline in economic activity in the short
run. Unless significant action is taken to reduce the borrowing needs
of the U.S. Government, however, the chances of improving economic
conditions over the medium term will be diminished.
But two further points must be stressed in this connection.
Firstly, a reduction of the U.S. fiscal deficit would only have its
desired international impact if other countries did not take advantage
of it to relax their own fiscal stances. I assume that this will not
occur. As I mentioned earlier, the reduction of the deficit financing
is a task for most governments. Secondly, a reduction in U.S. interest
rates should not necessarily entail a pani passu fall in the interest
rates of the other members of the G-5. The degree to which interest
rates in those countries can fall depends essentially on domestic
conditions.
1,
The third issue is the need to increase the flexibility of economies
to adjust to changes id circumstances, and thus to speed the recovery in
economic activity. Sharp increases in public sector expenditures-considerably in excess of those due to cyclical weakness--have been a
feature over the last decade in each of the G-5. Further, the absolute
size of the public sector--particularly in the three European members—is
a cause of concern in itself. In my view, these developments have
reduced the flexibility of economies to adjust by distorting relative
factor costs and by reducing the resources available to the productive
sector. They have also had adverse consequences for growth and employment
in the medium term. I believe that in each of the G-5, but particularly
in the European countries, there remains a need to dampen the all too
apparent dynamics of public expenditure growth, especially in the social
security field. I am aware that it is extremely difficult to do this at
a time of pronounced weakness in economic activity but I do not think
there is any escape from the conclusion that I have drawn.
The need to finance rising public expenditures has posed pressures
on the financial resources of companies at a time when profits have
already been compressed partly on account of weak demand but also because
of an excessive increase in labor costs over a long period. The most
evident expressions of this difficulty are the low rates of return on
corporate capital and the surge in bankruptcies. This problem is compounded by institutional arrangements, particularly indexation, which
reduce the flexibility of real wages. The level of real wages remains a
central problem. Unless the financial burdens imposed by the public
sector can be contained and moderate wage settlements secured, the
Investment on which sustainable noninflationary growth and a reduction
in unemployment must depend, will not be forthcoming. It is fashionable
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NNW
4
to assert that the pressures for government financial assist
ance to weak
industries and the pressures for protectionis
m have been reasonably
resisted. Personally, I suspect that this is significantl
y less than
the whole truth and I am perturbed at what
I perceive to be a growing
tendency to give in to such pressures. Such action flies
in the face of
adjustment requirements.
In conclusion I would stress that:
(1) the continuing divergencies in economic perfor
mance between
the G-5 are such that one cannot yet see diminishing pressu
res on
exchange markets. It is essential that greater progre
ss be made in
France and the United Kingdom. The United States must contin
ue to pursue
a cautious monetary policy;
(2) these policy recommendations will not of themse
lves lead to
the revival of high levels of employment and activity.
But reduced
government demand for world savings can contribute to an
improvement in
the financial position of enterprises which is one precondition
for
renewed investment activity; and
(1) -- must have in mind developments in the rest of the
world and the
implications of the policies of the G-5 on these developments
. Conditions
are extremely difficult. The problems are certai
nly not only external
in origin but they have been compounded by slow growth and high
interest
rates in the G-5. At the present time there are risks
for the stability
of these countries and of the international banking system.
If growth
in the G-5 were to continue to prove elusive
and interest rates were to
remain high, these dangers would be heightened. This is
a separate
subject but one which I think must be discussed soon.
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INTERNATIONAL MONETARY FUND
%
WASHINGTON
D C
20431
EXECUTIVE DIRECTOR
CABLE ADDRESS
April 7, 1982
United States
INTERFUND
Paul Volcker
From:
Richard D. Erb
Subject:
World Economic Outlook - Main Issues
Although your staff has received the attached paper, I
want to bring it directly to your attention since I think
you will find it useful and interesting. The paper was prepared in conjunction with the IMF World Economic Outlook
exercise. The latter will result in a published document
to be issued in May. The attached paper, which will not be
published and is classified confidential, will serve as the
basis for an IMF Executive Board discussion on April 19 and
the Helsinki Interim Committee discussion of the economic
policy issues involving the major industrial countries.
Since the paper focuses on the big seven, it may also serve
as a useful background for the summit process. Although
you may not agree with all of the staff's analysis and conclusions, I think you will find the paper quite valuable in
that it examines the economic linkages and policy issues
among the major industrial countries in a comprehensive,
systematic and analytical mapner.
In preparation for the April 19 Board discussion I will
be seeking guidance from your staff on how I should approach
the discussion. The attached paper and the outcome of the
Board discussion will then be used when planning Secretary
Regan's approach to the May Interim Committee discussion of
economic policy issues.
Attachment
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DOCUMENT OF INTERNATIONAL MONETARY FUND
AND NOT FOR PUBLIC USE
FOR
AGENDA
1D/82/1
cow,
-t
CONFIDENTIAL
March 29, 1982
To:
Members of the Executive Board
From:
The Secretary
Subject:
World Economic Outlook - Main Issues
The attached paper dealing with the main issues of the World
Economic Outlook has been scheduled for Executive Board discussion on
Monday, April 19, 1982.
As with previous papers on the world economic outlook, this
document is being given limited distribution.
Att:
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Federal Reserve Bank of St. Louis
(1)
t
CONFIDENTIAL
March 29, 1982
World Economic Outlook--Main Issues 1/
The purpose of this paper is to set forth several topics to which,
it is suggested, Executive Directors should address themselves in the
forthcoming discussion of the World Economic Outlook.
--The first topic covers policies in the major industrial countries.
The Managing Director has proposed that Executive Directors should make
a single intervention on this topic, and that the discussion of it should
occupy the first day, April 19.
--As will be seen, three other topics are presented in this paper.
These relate to the global economic setting, the situation of developing
countries, and the role of international cooperation. Executive Directors
would be expected to make a second intervention on April 21, discussing
any or all of these three topics.
--The conclusion of the WE0 discussion, including the Managing
Director's summing up, is scheduled for the morning of April 22.
In outlining these four topics, and suggesting materials that might
form a basis for discussing them, this paper frequently draws on specified
sections of the draft report on the World Economic Outlook that is scheduled for publication in May, and that is being circulated separately to
Directors. But in connection with the first topic, as explained below,
it has been necessary to prepare some special material, which constitutes
most of the present paper.
The paper also contains a statistical appendix. This consists of
a selection of key tables from among the approximately 60 tables to be
included in the published WE0 report, but which are not yet ready in their
entirety for circulation to Directors.
I.
1.
Policies of the Major Industrial Countries
Conduct of national economic policies to combat "stagflation"
As a principal basis for the discussion of this topic, Executive
Directors are referred to two sections of Chapter II ("General Survey")
of the draft WE0 report for publication. One is the industrial-country
part of the section on "Key Issues of Policy". In addition, as will be
seen, parts of the section on "Medium-Term Scenarios" are also relevant
in this context. In essence, these materials represent a reconsideration,
1/ Prepared by the Research Department in collaboration with the Area
_
Departments, as well as the Exchange and Trade Relations and Fiscal Affairs
Departments.
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-2 -
and an elaboration, of the multipronged or integrated type of medium-term
policy approach that was briefly described in the Fund's 1981 Annual
Report (page 37) and endorsed by the Interim Committee at its late
September meeting.
2.
Interaction of policies and developments among the major
industrial countries
In the preceding topic (I-1), the concern was with key issues
involved in the general conduct of national economic policies by the major
industrial countries. Now, attention is turned more specifically to policies and developments on an individual country basis, and the principal
focus is on the interactions among them.
The "country notes" for the major industrial countries provided in
Appendix A-1 of the draft publication on the World Economic Outlook may
prove useful to Executive Directors by way of background information for
discussing the subject of "interactions". In large degree, however, the
issues that fall under this subject are too sensitive for treatment in
a publication, and the main basis for discussion of it is provided in a
specially-prepared series of notes and comments--actually, an annotated
agenda--that follows immediately.
The main purpose here is to provide the basis for a Board discussion
that might contribute to a better understanding of the international
aspects of policies and conditions prevailing in the major industrial
countries. In order to promote that discussion, the staff advances many
analytic judgments; these often relate to matters that are both complex
and controversial, and in some cases may have been put too crptically in
the interest of brevity. At any rate, it must be stressed that identification of instances in which policy aims or actions of one or more
countries seem to clash (or harmonize) with those of other countries is
not intended to assign blame (or credit) for that result, but only to
throw light on its causes--and thereby to provide the essential framework for a Board discussion that falls within the compass of the Fund's
responsibility for surveillance over members' exchange rate policies.
The annotated agenda that follows is divided into three parts.
First, there is a section on the United States, which assesses the stance
of demand management policies in that country and discusses the question
of why U.S. interest rates have become so high, as well as the general
effects of fluctuations in U.S. interest rates and exchange rates. The
second section focuses on the other major industrial countries individually, with the purpose of judging both the impact of U.S. policies on them
and the extent to which their own policies may have been destabilizing
in an international context. The third section draws some conclusions,
pointed toward the general question of how international differences in
policy stance and viewpoint might be reconciled or narrowed.
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3
a.
United States
In light of the WEO-report draft sections on "Key Issues of Policy"
and "Medium-Term Scenarios," it should come as no surprise that the staff
attaches great importance to the U.S. objective of achieving a reduction
of inflation and inflationary expectations.
To this end, there is no question that monetary policy in the United
States must stay on the track that has been established by the Federal
Reserve in order to avoid any setback in the anti-inflation effort. To
be sure, in the period of transition to a reduced rate of inflation,
pursuit of a tight monetary policy almost certainly implies a continuation of relatively high interest rates, and this is likely to result in
sluggish growth of output and employment for some time. Such a result-already evident in developments over the past two years--may be viewed
in part as a legacy of past policies that led to the spread and entrenchment of inflationary behavior among individuals, firms, and governments.
Although recently there have been encouraging signs of a turnaround in
inflation, the gains achieved in this area need to be consolidated through
continuing policies of demand restraint. An upward adjustment of the
groP1th paths of the monetary aggregates would provoke a worsening of
expectations about inflation that could thwart the positive effects
on output sought from a relaxation of monetary policy. The experience
of the past two decades, when policy i•n general was eased substantially
in recessions and inflationary pressures were soon reignited, demonstrates the importance of avoiding a premature reversal of policy.
The main issue that arises about U.S. policies has to do with the
stance of fiscal policy. It is generally recognized that the United
States is confronting a serious fiscal problem, with the federal deficit
on a cyclically adjusted basis being projected to increase this year and
the next. Large and persistent deficits affect the credibility of monetary policy and cast doubts on the Government's commitment to bring down
inflation. The needed adjustment of inflationary expectations is very
likely to be delayed, thereby raising the cost of moving toward a noninflationary economy. Moreover, financing of large deficits means that
resources are absorbed that otherwise would be available for private
capital formation, thus making it more difficult to achieve sustained
growth in the medium to longer run.
For all these
•
reasons, it is of the utmost importance for the United
States to take remedial action on the fiscal front. In order to avoid
adverse effects on saving and investment, the emphasis of corrective
measures should be on the containment of government spending. However,
h1
action on the side of revenue may well be necessary. In this regard,
there would seem to be scope for reducing tax expenditures and raising
revenue in other ways without damaging incentives to work, save, and
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4
invest. A point worth making is that a shift of fiscal policy toward
restraint might result in a more sluggish economy for a while, at least
until inflationary expectations become adjusted, but the objective of
such a shift would be to bring about a fundamental improvement in the
conditions for sustained growth.
The change in the policy mix of the United States that would result
from a tightening of fiscal policy, while monetary policy remained unchanged, would tend to lower (nominal and real) interest rates. Although
there seems to be little question about the direction of the response of
interest rates to such a change in the policy mix, the size of the effects
cannot be quantified with any confidence. It may be noted that there is
an international dimension to the level of the real rate of interest, as
this would seem to be influenced by developments in the saving-investment
balance on a worldwide scale. Of course, there are many factors affecting
this balance, including fiscal positions throughout the world.
There are questions about how a decline in U.S. interest rates stemming from a tighter fiscal policy would affect the exchange rate for the
U.S. dollar. The initial direct impact of such a decline in U.S. interest
rates (not accompanied by a corresponding move in other countries) would
tend to lower the external value of the U.S. dollar, since it would induce
a shift in the composition of investors' portfolios away from U.S. dollar
assets. Such capital flows (and the attendant downward pressure on the
U.S. dollar) would largely cease once investors had achieved the desired
portfolio reallocation; the flows might even be reversed if exchange rate
expectations were affected by the prospective improvement in the relative
cost-price situation of the United States resulting from the shift toward
a more restrictive fiscal policy. The tightening of fiscal policy also
would result in an initial improvement in the current account, which in
itself would tend to raise the external value of the U.S. dollar. On
balance, it would seem that these influences arising from a shift toward
fiscal restraint would not have a significant lasting effect on the
exchange rate. On a different plane, improvement of the fiscal position
would increase confidence in U.S. economic management and reduce uncertainty in general, and could have some independent influence on the U.S.
dollar.
Following these comments on the stance of demand management policies,
attention is now turned to the question of why U.S. interest rates are
so high at present. This invites the further question of whether the
situation of high interest rates is likely to last for a prolonged period
of time.
The high interest rates that currently prevail in the United States
are in large part attributable to the high inflation that has been experienced for some time and that apparently is still being expected by
the general public. Although price indicators suggest that inflation
recently has been moderating, expectations about inflation might well
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5
be responding only sluggishly to actual price developments because of
the past experience with inflation and because of concern about the
course of government policies. Certain other factors also are relevant
to an explanation of high interest rates. High inflation and interest
rate variability in the past few years have undoubtedly added to uncertainty, and thus have increased the risk premium attaching to interest
rates, particularly long-term rates. Also, in the earlier stages of an
anti-inflation effort, monetary restraint tends to result in a rise in
nominal and real interest rates. Finally, the large federal financing
requirements that are in prospect will be competing with private borrowers for the resources available, thereby giving rise to the expectation
that long-term interest rates will remain high.
There is no ready answer to the question of how long these high
interest rates may last. But it is obvious from the above considerations
that a durable reduction in interest rates will not be possible until
expectations about inflation are effectively brought down--which in
present circumstances could require that inflation be reduced substantially and kept low for some time. Price expectations also are affected
by the public's view about government policies. For this reason, it is
crucial that the Government be firmly committed--and be seen to be so
committed--to anti-inflation policies. A strengthening of the fiscal
position would be helpful in this regard, and it would also contribute
to a reduction of interest rates by relieving credit market pressures.
Finally, questions arise about the effects of fluctuations in U.S.
interest rates and exchange rates and the conditions under which the
amplitude of these fluctuations might be reduced.
It is clear that day-to-day and week-to-week variability of U.S.
interest rates has increased in the past two to three years, to some
extent in reflection of the introduction by the Federal Reserve in
October 1979 of new operating procedures that place more emphasis on
the provision of reserves and less emphasis on limiting changes in the
Federal funds rate. However, it is questionable whether interest rate
variability of this kind has affected the average level of interest
rates or the economy at large in any significant way, either directly
or through its effect on exchange rates. The same, in all likelihood,
cannot be said of the sizable swings in interest rates, lasting for
months, that have occurred in this period. It would seem that these
interest rate swings--which have been wider than those observed in the
past and have been compressed into unusually short periods of time--have
heightened the risk of holding long-term bonds and increased uncertainty
in general, thus pushing up interest rates (particularly long-term rates).
Broad interest rate swings in the past few years also have been associated
with increased fluctuations in exchange rates. It is quite conceivable
that these fluctuations have led to misallocation of resources and have
had adverse effects on international trade and capital flows, although
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6
such views must be judgmental in the absence of clear-cut evidence to
support (or contradict) them. (The question of the effects of U.S.
interest rate fluctuations on economic policies and conditions in other
countries will be considered presently.)
An answer to the question of how U.S. interest rate swings might be
reduced requires an understanding of their causes, which unfortunately
are not known with any certainty. These swings have perhaps been the
result of the sharp fluctuations in economic activity that have taken
place in the past few years, but a question may legitimately be asked
about the direction of causality between the two phenomena. It may be
noted that certain other factors--namely, the second wave of oil price
increases, volatile inflationary expectations, the lack of credibility
of government policies, and the temporary imposition of credit controls
in the spring of 1980--probably have contributed at various times to
fluctuations in both interest rates and economic activity. More generally, it should be recognized that the process of adjustment to lower
inflation set in motion by a tightening of demand policies is not well
known, and therefore it should not be surprising that government actions
in response to the evolving situation have contributed at times to
variations in economic and financial conditions.
Some have argued that the main cause of U.S. interest rate oscillations is the inability of the Federal Reserve to achieve a stable growth
path for the money supply, and the Federal Reserve has been considering
measures to improve monetary control. It is a fact that wider swings
in interest rates since October 1979 have gone hand in hand with a
greater degree of volatility in rates of monetary growth, and it is
possible that greater stability in monetary growth would in time bring
about less variation in interest rates. However, it should be borne
in mind that the overall stance of monetary policy has been more
appropriate since October 1979 than in the preceding several years,
and it is of the utmost importance that any steps that may be taken to
reduce interest rate or monetary growth variations should not result in
a loosening of monetary policy.
b.
Other major industrial countries
The persistence of exceptionally high and volatile real interest
rates in the United States during a period of general stagflation throughout the industrial world has undoubtedly created problems and dilemmas
for the authorities of other industrial countries. At the same time,
it should be recognized that some of the adverse international effects
impinging on those countries have been generated or compounded in
considerable part by actions and reactions of their own authorities.
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Federal Reserve Bank of St. Louis
7
As a matter of general principle, countries that operate with floating
exchange rates obviously need not have followed the United States in tightening credit conditions. The risks of not following the United States in
this regard would have been least in those countries where inflation and
inflationary expectation have been kept most effectively under control. In
the event, given the policies chosen, the high interest rates in the United
States have led to widespread upward pressure on interest rates elsewhere,
and such rates (together with the quantitative restraints on growth of money
and credit that accompanied them) have tended to dampen the expansion of
demand, especially for investment purposes. In the few countries where
inflation had already been brought under relatively adequate control, a
further restrictive influence on economic activity was both unwelcome and
undesirable. In a good many industrial countries, however, there were
already pressing domestic reasons for tighter restraint on expansion of
aggregate nominal demand, and some of the countries whose interest rates
were raised to defend their external positions against unfavorable international differentials in yields on financial assets may not have gone as
far in the tightening of domestic monetary conditions as would have been
desirable to combat domestic inflation. Real interest rates in these
countries, although rising during the course of 1981, remain below below
the average in other industrial countries.
The two major industrial countries with relatively low rates of inflation--Japan and the Federal Republic of Germany--have perhaps been in
position to react more independently than the other countries in the group
to an international environment featuring both exceptionally high interest
rates and slack utilization of capacity. To some extent, the Japanese
authorities have, in fact, used this freedom to pursue an independent line
of action. Their pursuit of such a course, however, has been limited in
scope by constraints--discussed below--inherent in the particular combination of domestic priorities adopted and international conditions faced.
From the point of view of the low-inflation countries, of course, a
major source of destabilizing influences has been the inability or unwillingness of a number of their trading partners to adopt and implement on a
sustained basis policies designed to control inflation. Persisting differentials in rates of inflation, although not necessarily a dominant influence in exchange markets during any given short period of time, make the
maintenance of stable international payments balances and stable exchange
rates very difficult, if not impossible, over more extended periods.
Inconsistencies in rates of inflation are sometimes offset by other factors
temporarily, but their influence is all too likely to become apparent if the
offsetting factors disappear, and especially if reinforcing factors should
emerge instead--a not uncommon occurrence. Moreover, partly because of
the rather long lags with which the interactions between exchange rate
changes and current account balances take place, a substantial tendency
toward -overshooting" of exchange rate adjustments among major currencies
seems to have developed.
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Federal Reserve Bank of St. Louis
8
Clearly, the whole system of international trade and payments could
function a great deal more smoothly if the excessive rates of inflation
could be corrected at source through an appropriate mix of policies in
each major industrial country. Although the EMS experience to date has
demonstrated that it is possible to "live with" wide differences in rates
of inflation through a combination of externally defensive monetary policies, exchange market interventions, and occasional adjustments of basic
exchange rate relationships themselves, some of the techniques applied
within the EMS are not currently feasible on a wider scale involving all
or most of the key currencies in a global frame of reference. Both in the
latter context and within the EMS, reduction of the higher rates of inflation would probably contribute more than any other single development to a
smoother and more orderly evolution of exchange rates. Such an evolution,
in turn, would remove or mitigate some of the erratic influences with which
monetary policies in most of the industrial countries have had to deal.
With reduced volatility of exchange rates and interest rates, uncertainties
and costs that might well have been inhibiting trade and investment--e.g.,
the cost of, and need for, forward cover on external transactions--would
be lowered.
More specific comments on problems confronting individual major industrial countries follow.
Japan
The current setting for policy formulation in Japan differs importantly
from that in most other industrial countries, chiefly in that inflation has
been brought convincingly under control. Moreover, the threat of renewed
inflation is low, for a combination of reasons that is unique in the industrial world: expectations do not favor it; monetary policy is viewed as
a credible instrument against it; excess capacity exists in most sectors
of the economy; and there is little, if any, carryover of past inflation
in the form of indexation of wages or prices. On purely domestic grounds,
the Japanese authorities are freer to pursue an expansionary economic
policy than are the authorities of other industrial countries. They have,
however, attached the highest priority to the medium-term objective of
eliminating deficit financing of current government expenditures by fiscal
year 1984. Given this priority, which is fully understandable from a
medium-term, structural point of view, the only instrument of general
demand management currently available to provide any new stimulus to the
private sector has been monetary policy.
To some extent, monetary policy has been used for that purpose since
mid-1980. Japanese monetary conditions, as reflected in credit availability and the growth of monetary aggregates, were clearly eased during
the course of 1981. However, under prevailing international conditions,
the tendency of the yen to depreciate in response to widening interest rate
differentials against yen-denominated assets eventually proved a serious
constraint, leading the authorities to forego a reduction of domestic
interest rates to the extent that might otherwise have been considered in
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Federal Reserve Bank of St. Louis
9
accord with the needs of the domestic economy. Interest rates remained
unusually high in real terms, and the degree of monetary ease was
insufficient to offset the unexpectedly severe depressive effects of the
decline in real disposable income (resulting from the 1979-80 oil price
increases, tax bracket creep, and increased social security contributions)
and from the withdrawal of fiscal stimulus under the deficit reduction
program.
Japan appears to some of its trading partners to have been following
unnecessarily restrictive policies. Although Japan's GNP growth rate has
been good by comparison with theirs, the same cannot be said of domestic
demand. In 1980, more than four fifths of Japan's real GNP growth stemmed
from improvement of its external balance, and the proportion remained
almost as high in the first three quarters of 1981 (after which even that
stimulus effectively disappeared, leading to a decline in real GNP). Real
domestic demand grew by less than 1 per cent in 1980 and in 1981. This
overwhelming dependence on foreign demand for maintenance of growth in
overall expenditures for Japanese output during the two years reflected
both the strong competitiveness of Japanese exports, resulting in part from
the depreciation of the real effective exchange rate during 1979 and early
1980, and the absence of an effective stimulus to domestic demand through
fiscal and monetary policies.
This lack of stimulus stemmed partly, to be sure, from the constraint
imposed on monetary policy by the need to avoid the trade frictions and
renewed inflationary pressures threatened by further downward movement of
the exchange rate for the yen. It also stemmed importantly, however, from
the constraint imposed on fiscal policy by the priority assigned to reduction
of the govenment deficit. Whatever the domestic merits of that priority,
questions arise in an international context about its implications for
demand management. In combination with the unexpectedly strong external
constraint resulting from the somewhat surprising weakness of the yen,
it has left the growth of the Japanese economy heavily dependent on foreign
demand, and has done so in a fashion that--in a recessionary international
environment, and in a situation in which structural adjustment in other
countries has lagged behind that in Japan--has generated trade tensions.
It thus appears that the recent efforts of the Japanese authorities to
reduce the fiscal deficit have posed problems for some of Japan's major
trading partners.
Japan's rising trade surplus with some of its major trading partners
has heightened concern over commercial policy. Japan has responded by
taking various actions to enlarge access to its markets, including the
relaxation of certain nontariff barriers faced by foreign exporters.
It also has chosen voluntarily to restrict certain exports. At the same
time, Japan has noted that foreign exporters need to increase their own
efforts to sell in Japanese markets. Strengthening of the yen, a hope
frequently expressed by Japanese authorities, would contribute greatly
to the easing of trade problems. Maximum access by foreign investors to
Japan's capital markets should be assured to facilitate this strenthening.
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- 10 -
Federal Republic of Germany
The only major industrial country whose situation bears any appreciable resemblance to that of Japan is Germany. There, too, inflation has
been kept far below the average elsewhere--although not as low, during the
past year or two, as in Japan. Germany's external balance on goods and
services, while strengthened by cyclical developments, likewise appears to
have been highly responsive during 1981 to a depreciation of the exchange
rate--although again not to the degree evident in the case of Japan.
However, the current rate of inflation in Germany is rather high by that
country's standards, and the priority attached to curbing it is very strong.
The desire to limit the effects of a decline in the external value of the
deutsche mark on domestic prices has been a consideration in the management
of monetary policy, constraining to some extent the scope for reduction of
German interest rates during much of 1981 and early 1982. However, the
scope that might be provided by a different U.S. policy mix featuring
lower U.S. interest rates should not be exaggerated. The level of interest
rates in Germany is also a reflection of heavy public sector borrowing,
the impact of national and international political considerations on
expectations regarding the exchange rate, and the continuing high (by
German standards) rate of domestic inflation. It is possible that there
may be a problem of some "crowding out" of private borrowers by public
sector borrowing, although the staff does not have a firm judgment on
this issue. In any case, a change in the U.S. policy mix might only
modestly increase the scope for an easing of monetary policy without
adverse exchange rate effects.
It sometimes has been argued, from the standpoint of EMS countries
with high unemployment and relatively weak external positions, that German
policies have been unnecessarily restrictive--that Germany should capitalize
on its relatively low rate of inflation and comparatively strong external
position by lowering its interest rates to levels more appropriate to existing domestic economic conditions. According to this argument, such action
by Germany would allow a general decline in EMS interest rates, to the
benefit of the employment situation throughout the area. Benefits would
be expected to accrue especially to some of Germany's smaller EMS partners,
which entered into the EMS arrangements with relatively weak competitive
positions and have undergone considerable strain in the effort to avoid or
tolerate the increasing competitive disadvantages emanating from Germany's
relatively successful resistance to inflationary pressures. The effective
depreciation of EMS exchange rates against overseas currencies, together
with its adverse impact on European efforts to control inflation, would be
regarded as a moderate--and possibly temporary--sacrifice in the interest
of stronger real growth. It might also help to ward off pressures for
trade restrictions. Some of those to whom this argument appeals would
hope that even temporary sacrifices on the inflation front might be
averted or minimized through judicious activation of incomes policies in
some form. But without a relaxation of restrictive financial policies
in Germany, the pursuit of actively expansionary policies by its European
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Federal Reserve Bank of St. Louis
trading partners would pose severe difficulties for exchange rate management. Against this line of argument, however, the staff is of the view-discussed later in this paper--that there is little, if any, room for
relaxation of financial policies in Germany at the present time.
France
The French authorities, unlike those of the other major industrial
countries with relatively high rates of inflation in 1981, are seeking a
more or less immediate revival of demand, relying on a tight incomes policy
and deceleration of wage cost increases to improve the mix of volume and
price changes in the desired expansion of nominal demand. This strategy,
however, is exposed to several hazards that are heightened by the prevalence
of high interest rates abroad. On the one hand, failure to maintain adequate interest rate differentials could lead to depreciation of the effective exchange rate and frustration of the effort to reduce inflation. On
the other hand, adjustment of monetary policy to minimize that risk might
bring domestic interest rates so high as to discourage the desired improvement in prospects for aggregate demand and profitability of investment.
The current French effort to expand demand and output without accelerating inflation depends crucially on successful implementation of an
incomes policy intended to produce a deceleration of the rise in wage
costs. If such a deceleration is achieved in combination with appropriate
monetary restraint, then the stimulation of demand induced by a larger
public sector deficit, stronger incentives to invest, and increased confidence will be beneficial not only to the French economy but internationally. Stronger output expansion in France, if combined with reasonable
balance in the external current account and a deceleration of inflation,
would help to expand markets for France's trading partners without
unsettling changes in exchange rate relationships.
A far less satisfactory result might emerge, however, if the crucial
incomes policy should prove unsuccessful in slowing wage increases in
France. In that event, deterioration of the country's public finances and
external current account would create an imbalance within the European
monetary system, obliging France and perhaps other members of the group to
maintain higher interest rates than they would desire for domestic purposes.
There is also room for concern that the prospect of an increased public
sector deficit might sustain inflationary expectations and absorb a sizable
share of domestic saving. Further, it may be asked whether the publicsector financing requirement may not put in doubt the consistency of the
growth target and monetary restraint, and whether it would permit a reduction of interest rates in France even if international rates moved lower.
Italy
In Italy, monetary policy has been tightened markedly over the past
two years, and interest rates have been raised appreciably, especially
since May 1981. Although it is true that high international interest rates
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- 12 -
contributed to the upward pressure behind this movement, it is also true
that domestic inflation, weakness of the lira on the exchange markets, and
high interest rates have all been mainly attributable to domestic factors,
rather than transmitted from abroad. The financing requirements generated
by large fiscal deficits have been particularly important in this context.
During 1981, for the first time in a number of years, both long- and
short-term interest rates in Italy exceeded the rate of inflation, and
this change in real interest rates was itself a significant factor in the
reduction of the inflation rate in 1981 after two years of sharp acceleration. Of course, a decline in international interest rates would make it
easier, strictly in terms of interest parity considerations, for Italian
interest rates to be lowered; but only greater fiscal discipline and
a further subsidence of domestic inflation would seem to provide grounds
for reduction of nominal interest rates which are offering positive real
returns on saving for the first time in many years. Even those returns
remained on average lower in 1981 than the average for other major industrial countries, though by considerably smaller margins than in most
other years since 1976.
United Kingdom
In the United Kingdom, too, the higher real interest rates that
emerged in 1981 were not--up to a point--inconsistent with the strict antiinflation stance of policy. Moreover, the emergence of somewhat higher
real interest rates than might otherwise have been necessary for the success of the authorities' anti-inflation strategy stemmed in considerable
part from a fiscal outcome, especially in the 1980/81 fiscal year, that
represented a de facto relaxation of policy by comparison with the original
intentions of the authorities. (Practical problems in implementing those
intentions, such as a sharp boost in the public sector wage bill through
comparability awards to civil service employees and overruns of planned
expenditures in many areas, were largely responsible for the slippage in
the fiscal results; and the civil service pay increases had a strong influence on wage settlements in the private sector, as well as on the budget.)
In considerable part, the levels of U.K. interest rates were thus geared
essentially to domestic realities.
The U.K. authorities, however, were also among those faced by policy
dilemmas associated with the high level and variability of U.S. interest
rates. Although they permitted the effective exchange rate for sterling to
depreciate by 12 per cent during the first three quarters of 1981, viewing
this movement as a welcome adjustment of the substantial real appreciation
that had occurred during the previous two years, they moved during the last
quarter of 1981 to raise domestic interest rates sharply in order to counter
pressure on the exchange rate caused by adverse international interest differentials. Substantial further depreciation of the exchange rate at that
stage might have threatened the attainment of the pre-eminent anti-inflation
aims. Although the U.K. authorities have succeeded since late 1981 in
holding the exchange rate broadly stable while permitting some easing of
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- 13 -
domestic interest rates, their ability to reduce those rates further without
danger on the domestic price front (via the exchange rate and import prices)
has been constrained by the persistence of high interest rates abroad. The
U.K. authorities continue to face a very delicate balancing of aims and
policy actions. They may feel obliged, unless international interest rates
ease appreciably in the months ahead, to tighten their monetary policy and
thus risk undermining the fragile economic recovery that they now believe to
be under way.
Canada
The rate of monetary expansion in Canada has been brought down considerably since the second half of 1980, and interest rates have risen
sharply. The increase in interest rates undoubtedly has been warranted
by the intensification of domestic inflationary pressures. However, the
timing of interest rate movements also has reflected developments in the
foreign exchange market. Indeed, the Bank of Canada has sought to relieve
downward pressures on the Canadian dollar in the face of rising U.S.
interest rates because of concern that in the present environment any
depreciation of the currency would exacerbate the inflationary problem.
The Canadian-U.S. interest rate differentials needed to protect the
external value of the Canadian dollar have been larger in the last
18 months than in the previous two years or so, as the deficit in the
current account of the balance of payments increased, the inflation
differential between Canada and the United States widened, and capital
inflows were adversely affected by Canada's energy policy.
Thus, although interest rates in Canada have been affected by the
international situation, their level has been largely a reflection of
domestic conditions. Given the overriding importance for Canada of
curbing inflation, it would be difficult to argue that the level of
Canadian interest rates in the recent past--particularly after their
decline in the latter part of 1981--has been too high from the standpoint of domestic requirements. To be sure, M-1 has been below the
lower limit of the Bank of Canada's target range for some time, but
to a large extent the shortfall has reflected a downward shift in the
demand for money as well as certain statistical problems. Moreover,
real interest rates at present do not appear to be high by historical
standards, particularly when account is taken of the size of the fiscal
deficit. Although the fiscal deficit has been reduced somewhat in the
past few years, it is still large; further reductions would help relieve
pressures on interest rates and make room for private investment and
growth over the medium and longer run.
c.
Conclusions
Any early relaxation of U.S. monetary policy for the purpose of lowering interest rates in international markets and domestic rates in other industrial countries must be ruled out, for reasons already set forth in
Section I-2(a). Otherwise, there would be serious danger of a setback in
the effort to reduce inflation and dampen expectations about it, not only
in the United States but throughout the industrial world.
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But this is not to say that escape from the difficulties and dilemmas
created for other countries by recent levels of U.S. interest rates must
depend exclusively on actions of those countries. There remains ample
scope for adjustment of U.S. fiscal policy, which in its present orientation seems to pose serious problems.
It offers, at a time when the deficit
of the U.S. Federal Government is already large, a prospect of further
increases in that deficit during the next few years. Because of the effect
of such a prospect on the credibility of monetary policy and of the government's anti-inflation commitment more generally, remedial action by the
United States on the fiscal front is of the utmost importance. It would
greatly improve the basis for sustained growth over the longer term; and,
with monetary policy unchanged (in terms of growth of monetary aggregates),
it would also tend to lower interest rates, thus relieving some of the
pressures that have been so disturbing to other countries. At a minimum,
those countries would be afforded wider scope--without transgressing the
bounds of prudent regard for international interest-parity considerations-for discretion in their own monetary and exchange rate management.
Japan presents another case in which a shift in the present mix of
fiscal and monetary policies could be helpful in reconciling international
objectives, easing constraints, and eliminating or mitigating major difficulties. As noted above, Japan's generally satisfactory economic performance over the past two years has depended vitally on an expansion of
external demand for Japanese products. However, export expansion has
recently decelerated because of the lagged effects of the earlier appreciation of the yen against most major currencies other than the U.S.
dollar, the weakness of demand abroad, and the restraint shown by Japanese
exporters in the face of increasing trade frictions. The Japanese authorities cannot utilize a substantial easing of monetary policy to replace
the fading expansion of foreign demand without weakening the exchange rate
for the yen at an inopportune time and intensifying the frictions in
trading relationships. Such a course might also renew upward pressures
on domestic prices. One significant alternative would appear to be a
modification of fiscal policy--instead of simply accepting a sluggish or
stagnant economy, which itself might call into question the achievement
of the authorities' ultimate fiscal goals, and would not in any event be
desirable from the point of view of domestic employment and productivity.
A modified approach to the goal of reducing the government deficit could
permit a more gradual withdrawal of the support given to domestic demand
through the fiscal deficit in recent years. Such an approach might be
reconciled with the medium-term objectives of the authorities by viewing
it as an expedient stretching out of the desired budgetary achievement,
rather than a change in objectives.
Meanwhile, both maintenance of a tolerable economic performance
and greater scope for management of the exchange rate in such fashion
as to avoid additional trade frictions would represent some compensation
to the Japanese authorities for the deferment of progress toward their
ultimate fiscal objective. From the standpoint of Japan's industrial
trading partners, the stronger yen that could result from a shift in the
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•
- 15 -
Japanese policy mix along the lines just discussed would be helpful in
fending off unwelcome pressures in those partner countries for protectionist solutions of competitive problems. At the same time, maintenance
of adequate growth of domestic demand in Japan would help to provide
markets for the rest of the world, and particularly for the developing
countries, during a period of weakness in world trade.
Although Japan is perhaps uniquely placed, because of the degree to
which its inflation has been brought under control, to undertake an initiative toward expansion of demand at the present juncture, it is important
that other countries with relatively low rates of inflation avoid undue
severity in the application of financial restraint. This consideration applies especially to Germany, although its rate of saving may leave
less room than in Japan for postponement of steps to reduce the fiscal
deficit. In any case, no relaxation of German monetary restraint should
be contemplated. Apart from the consideration that further depreciation
of the deutsche mark against the U.S. dollar would be a destabilizing
influence on international trade, the rate of inflation in Germany is not
yet so low or so securely under control that the risks inherent in any
substantial easing of monetary policy would be justified.
In the majority of the industrial countries, however, every precaution
must be taken to avoid premature relaxation of restraint over the growth of
nominal demand. What is truly important in the search for convergence of
inflation rates is that they converge toward a lower level that is acceptable for the longer term, and not merely that they converge. The main objectives of international harmonization are most likely to be attained in this
way--through independent pursuit of sound policies in each country, but with
the important qualification that these policies should be assessed in light
of international discussions of their probable interactions and mutual
compatibility.
A particular area in which a wide body of opinion favors closer harmonization through cooperative official actions is that of exchange rate
policies. It is often suggested that coordinated intervention in exchange
markets by national authorities--and especially by those of the largest
countries--could go far toward dampening short-term fluctuations of exchange
rates for major currencies. It is also widely recognized that successful
operations of this sort would require a considerable degree of coordination
of various policies affecting exchange rates, and particularly of national
monetary and interest rate policies. Despite the evident lack of agreement
among the major countries on the international aspects of their policies,
the Executive Directors may wish to discuss the general desirability or
feasibility of cooperative arrangements for exchange rate management.
Consideration of policy interactions among the major industrial countries would be incomplete without reference to the need for these countries--in the interests of both themselves and other countries--to eschew
protectionism and promote an open environment for international trade.
This important issue is raised for discussion under Topic 11-3, below.
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II.
Other Topics
As mentioned earlier, topics other than "Policies of the Major
Industrial Countries" are to be taken up on April 21, the second day of
the scheduled WEO discussion. Background documentation for discussion
of the three proposed topics can be cited quite briefly, inasmuch as it
may be drawn from various sections of the draft WEO report for publication. That is, it has not been necessary, as in the case of the industrial-country topic, to prepare additional, special material for discussion of these other topics.
1.
Global economic setting
Coverage of this important topic is provided by the first section-"Current Situation and Short-Term Prospects"--of Chapter II of the draft
WEO report for publication. In reviewing this section, with the aid of
the statistical tables appended to the present paper, Directors may wish
to comment on specific features of the world economic picture. Such a
discussion would doubtless be helpful to the Managing Director in connection with his statements to the Interim Committee in Helsinki, as well as
to the staff in connection with the WEO publication.
2.
Situation of the developing countries
It is suggested that, in discussing this topic, Directors give particular attention to the relevant parts of "Key Policy Issues," a section
of Chapter II of the draft WEO report, and to the section of that chapter
on "Medium-Term Scenarios." In this discussion, Directors may also wish
to draw on Chapters IV and V of the draft WEO report, which for the oil
exporting countries and the non-oil developing countries, respectively,
cover the current stance of policies and developments and prospects
(both domestic and external).
3.
Role of international cooperation
International cooperation is unquestionably of vital significance
in the current state of the world economy. In the draft of "Current
Situation and Short-Term Prospects" (referred to above), the staff noted
that, in essence, international cooperation means that each country should
take account of the interests of other countries in the formulation and
conduct of its own economic policies; and the avoidance or rescinding of
protectionist trade measures was cited as an extremely important form of
such cooperation. (See the special note on "Developments in Trade Policies,
in Appendix A-8 of the draft WEO report for publication.) In addition,
member countries' support for the activities of the Fund (discussed in
the last section--"Role of the Fund"--of Chapter II of the draft WEO
publication) was also singled out in this regard.
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These thoughts are certainly not new. But, with the Helsinki meeting
in mind, Directors may wish to address the subject of international cooperation again in order to signify their acute concern about protectionism and
their continuing strong support for the evolving role of the Fund, as well
as to contribute some additional points, perhaps arising in connection with
the discussions of the policies of industrial and developing countries
under Topics I and 11-2. Better international cooperation could make for
a significant improvement in the situation of the world economy; loss or
serious erosion of international cooperation could be catastrophic.
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Table 1.
Industrial Countries:
Changes in Output and Prices, 1963-82 1/
(In per cent)
Average
1963-72 _
2/
Average
1973-77 .._
2/
1978
Change from Preceding Year
1981
1982
1979
1980
1983
Real GNP
Canada
United States
Japan
5.5
4.0
9.8
4.0
3.0
4.1
3.7
4.8
5.1
3.0
3.2
5.2
--0.2
4.2
3.0
2.0
2.9
-0.5
-1.0
3.5
1.6
1.8
4.0
France 3/
Germany, Fed. Rep. of
Italy 3/
United Kingdom 3/
5.5
4.5
4.6
3.0
3.4
2.3
3.0
1.8
3.7
3.6
2.7
3.6
3.5
4.4
4.9
2.0
1.2
1.8
4.0
-1.6
0.8
-0.3
-1.0
-2.1
2.1
1.0
1.4
0.8
3.2
3.0
2.7
1.6
Other industrial countries 4/ 5.0
3.0
2.1
3.0
1.9
0.3
1.6
2.4
All industrial countries
4.7
3.0
4.0
3.6
1.3
1.2
0.8
2.5
Of which:
Seven larger countries above
European countries
4.7
4.5
3.0
2.7
4.3
3.0
3.7
3.5
1.1
1.4
1.3
-0.3
0.6
1.4
2.5
2.6
Canada
United States
Japan
3.6
3.5
5.5
10.3
6.9
10.3
6.3
7.3
4.6
10.4
8.5
2.5
10.6
9.0
3.0
10.0
9.2
2.7
9.8
7.5
2.3
7.4
6.1
2.3
France 3/
Germany, Fed. Rep. of
Italy 3/
United Kingdom 3/
4.8
4.0
5.0
5.3
10.2
5.3
17.0
15.3
9.5
3.8
13.9
10.9
10.1
3.7
15.7
15.1
11.6
4.9
20.3
18.9
11.0
4.1
15.8
12.5
13.7
4.5
18.2
10.0
12.5
4.0
17.0
8.0
Other industrial countries 4/ 5.4
11.0
9.0
7.7
8.6
8.8
9.0
8.3
GNP deflator
All industrial countries
4.2
9.1
7.5
7.8
8.9
8.3
7.9
6.9
Of which:
Seven larger countries above
European countries
4.0
4.9
8.7
10.6
7.2
8.7
7.9
8.8
9.0
10.8
8.2
9.4
7.8
10.0
6.7
9.1
1/ Composites for the country groups are averages of percentage changes for individual countries
weighted by the average U.S. dollar value of their respective GNPs over the previous three years.
2/ Compound annual rates of change.
3/ GDP at market prices.
4/ Australia, Austria, Belgium, Denmark, Finland, Iceland, Ireland, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, and Switzerland.
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Table 2.
Developing Countries:
Changes in Output, 1968-82 1/
(In per cent)
Average
1968-72 2/
Oil exporting countries 3/ 4/
Oil sector
Other sectors
9.0
•••
••
Average
1973-77 2/
1978
Change From Preceding Year
1979
1981
1980
1982
6.0
1.8
2.9
-2.8
-4.5
2.9
11.0
-4.2
5.8
-3.0
2.8
-12.7
4.6
-15.3
5,0
-7.3
5.3
Non-oil developing countries 3/
Weighted average 3/
Excluding China
6.0
5.3
6.4
5.5
5.0
4.7
4.8
4.4
2.5
2.5
3.8
3.9
Median
4.9
4.9
5.6
4.7
4.0
3.0
4.0
7.0
6.0
000
000
5.8
5.2
6.2
6.4
5.3
7.2
4.7
4.2
7.3
4.4
3.9
6.6
1.9
1.7
5.1
3.6
3.7
8.1
...
3.4
5.5
6.2
...
4.0
4.8
4.9
8.8
5.9
5.5
6.3
3.4
0.1
3.6
4.4
5.2
3.4
3.1
-0.2
3.6
4.3
3.3
3.5
3.9
4.3
3.5
5.4
4.8
6.0
4.6
6.2
5.5
5.5
4.5
7.0
3.5
5.1
2.7
4.7
3.7
8.5
3.9
4.9
6.8
3.7
5.0
6.7
5.1
6.0
6.8
4.1
4.8
5.5
4.0
3.0
4.1
2.9
2.5
4.0
3.8
3.5
4.9
...
4.5
6.2
7.5
7.6
3.8
...
5.6
5.3
4.6
5.8
2.4
9.6
8.1
5.4
6.8
4.4
2.6
4.6
3.1
4.1
5.0
6.7
4.6
4.8
3.4
1.7
6.1
6.0
2.6
4.7
5.7
2.7
4.7
-0.1
2.0
4.8
5.6
2.8
6.8
3.5
4.2
4.9
6.7
6.4
5.0
3.9
5.1
5.9
5.8
5.1
3.5
6.2
6.8
7.2
6.0
4.2
6.1
7.0
5.2
4.8
3.0
5.8
3.0
6.5
3.5
2.0
5.0
2.2
5.4
2.0
3.8
4.3
3.0
5.3
2.1
By analytical group
Weighted averages 3/
Net oil e,
.porters 5/
Net oil importers
Excluding China
Major exporters of
manufactures 6/
Low-income countries 7/
Excluding China
Other net oil importers
Medians
Net oil exporters 5/
Net oil importers
Major exporters of
manufactures 6/
Low-income countries 7/
Other net oil importers
By area
Weighted averages 3/
Africa
Asia
Excluding China
Europe
Middle East
Western Hemisphere
Medians
Africa
-Asia
Europe
Middle East
Western Hemisphere
1/ Data in this table cover all Fund members except those listed in Table 1, together with a few
territories for which balance of payments statistics are readily available.
2/ Compound annual rates of change.
-5/ Arithmetic averages of country gtowth rates weighted by the average U.S. dollar value of CDPs
ove-r the previous three years.
4/ These groups, and each of the regional subgroups of non-oil developing countries, conform to
the classification now used in the International Financial Statistics.
5/ Comprise Bahrain, Bolivia, Congo, Ecuador, Egypt, Gabon, Malaysia, Mexico, Peru, Syrian Arab
Republic, Trinidad and Tobago, and Tunisia.
6/ Include Argentina, Brazil, Greece, Hong Kong, Israel, Korea, Portugal, Singapore, South Africa,
and Yugoslavia.
7/ Comprise 40 countries whose per capita COP, as estimated by the World Bank, did not exceed the
equ-ivalent of USS350 in 1978.
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Table 3.
Developing Countries: Changes in Consumer Prices, 1968-82 1/
(In per cent)
Average
1968-72 2/
Average
1973-77 2/
Change from Preceding Year
1978
1979
1980
1981
1982
Oil exporting countries
Weighted average 3/
8.0
15.9
10.2
10.5
12.6
11.8
10.5
...
9.1
4.2
...
26.5
13.0
20.0
23.6
9.4
24.7
29.0
12.2
32.1
36.9
14.9
31.4
37.2
13.8
29.4
34.5
12.0
4.1
...
10.0
16.7
...
28.3
17.7
20.3
24.8
17.7
25.8
31.2
24.2
33.3
39.3
24.6
32.4
39.7
36.6
28.1
34.0
14.1
...
6.5
8.4
36.0
...
14.5
28.1
37.3
3.7
6.5
19.3
44.6
6.8
11.5
24.6
54.3
11.6
15.9
32.9
62.2
9.6
17.6
20.2
51.0
8.0
14.4
20.0
3.8
4.2
13.6
12.9
10.5
9.3
9.0
12.2
15.1
14.9
14.7
13.4
13.0
12.0
7.6
4.3
3.9
16.5
13.0
12.5
14.4
9.3
8.6
19.0
11.9
12.2
24.9
13.1
14.8
23.3
13.5
12.5
19.0
12.0
10.0
4.6
...
6.5
6.1
4.3
15.3
14.9
...
13.5
14.7
18.8
47.4
15.2
3.7
5.7
21.1
21.1
42.4
19.2
6.5
9.4
27.5
25.8
49.6
19.3
12.6
16.0
40.5
42.7
58.3
22.7
9.9
15.4
25.9
32.8
65.7
24.3
7.7
11.5
21.2
31.8
61.1
4.2
3.8
3.8
4.4
4.3
12.8
12.3
13.2
15.9
14.3
9.9
6.1
12.5
11.9
10.4
12.2
8.2
19.0
12.1
15.6
12.0
15.0
16.6
17.1
18.1
13.0
12.5
19.5
9.0
15.0
12.0
10.9
19.0
10.0
10.0
Non-oil developing countries
Weighted average 3/
Excluding China
Median
By analytical group
Weighted averages 3/
Net oil exporters
Net oil importers
Excluding China
Major exporters of
manufactures
Low-income countries
Excluding China
Other net oil importers
Medians
Net oil exporters
Net oil importers
Major exporters of
manufactures
Low-income countries
Other net oil importers
By area
Weighted averages 3/
Africa
Asia
Excluding China
Europe
Middle East
Western Hemisphere
Medians
Africa
Asia
Europe
Middle East
Western Hemisphere
1/ For classification of countries in groups shown here, see Table 2.
2/ Compound annual rates of change.
3/ Geometric averages of country indices weighted by the average U.S. dollar value of
GDPs over the previous three years.
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Federal Reserve Bank of St. Louis
Table 4.
Major Industrial Countries:
Average
1963-72
Unemployment Rates, 1963-82 1/
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
Canada
United States
Japan
4.7
4.7
1.2
5.5
4.9
1.3
5.3
5.6
1.4
6.9
8.5
1.9
7.1
7.7
2.0
8.1
7.0
2.0
8.4
6.0
2.2
7.5
5.8
2.1
7.5
7.1
2.1
7.6
7.6
2.2
9.2
9.1
2.1
France
Germany, Fed. Rep. of
Italy 2/
United Kingdom
1.9
0.9
6.4
2.4
2.6
1.0
6.5
2.6
2.8
2.2
5.9
2.6
4.1
4.1
6.3
3.9
4.4
4.1
6.7
5.3
4.7
4.0
7.2
5.8
5.2
3.8
7.2
5.7
5.9
3.3
7.7
5.4
6.3
3.4
7.6
6.9
8.1
4.8
8.5
10.6
8.8
6.4
9.3
12.0
3.2
3.4
3.8
5.5
5.5
5.4
5.1
5.0
5.7
6.5
7.6
All seven countries 3/
1/
labor
2/
force
3/
The figures shown in this table are not comparable among countries since they are based on the differing
force definitions and concepts used by the respective national statistical agencies.
Figures for 1963 to 1976 have been adjusted by the staff to allow for a discontinuity in Italian labor
statistics.
Weighted average, with weights proportionate to labor force.
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Federal Reserve Bank of St. Louis
- 22 -
World Trade Summary, 1963-82 1/
Table 5.
(Percentage changes)
Average
1963-72 2/
Average
1973-77 2/
1978
1979
1980
1981
1982 3/
World Trade 3/4/
Volume
Unit value (U.S. dollar terms)
(SDR terms) 5/
8.5
3.0
2.0
5.5
15.5
13.5
5.5
10.0
2.5
6.5
18.5
15.0
2.0
20.0
19.5
-0.5
10.0
2.0
3.0
5.5
8.8
6.3
6.1
6.7
4.7
2.8
2.0
9.2
2.7
-4.0
3.0
-12.8
-16.3
-7.0
6.7
5.8
9.4
9.4
5.6
3.1
7.0
9.1
4.2
5.2
8.4
-1.3
-2.3
2.0
8.4
26.6
4.8
-12.3
14.9
19.8
7.0
6.2
5.1
8.3
11.2
3.5
2.5
3.0
2.1
10.9
5.3
12.1
11.8
6.1
6.0
2.6
37.2
-6.3
42.1
58.2
22.0
1.2
15.7
-1.7
13.9
18.8
13.0
6.0
1.8
14.1
2.6
15.2
21.0
6.9
4.0
2.1
12.3
4.9
10.5
11.7
8.7
5.5
1.1
14.8
2.5
14.2
24.3
15.0
7.5
Volume of trade
Exports
Industrial countries
Developing countries
Oil exporting countries
Non-oil developing
countries
Imports
Industrial countries
Developing countries
Oil exporting countries
Non-oil developing
countries
Unit value of trade
(in SDR terms) 5/
Exports
Industrial countries
Developing countries
Oil exporting countries
Non-oil developing
countries
Imports
Industrial countries
Developing countries
Oil exporting countries
Non-oil developing
countries
1/ For classification of countries in groups shown here, see Tables 1 and 2. Excludes data
for the People's Republic of China prior to 1978.
2/ Compound annual rates of change.
Figures are rounded to the nearest 0.5 per cent.
47 Averages based on data for the three groups of countries shown separately below and on partly
estimated data for other countries (mainly the Union of Soviet Socialist Republics and other
nonmember countries of Eastern Europe).
5/ For years prior to 1970, an imputed value of US$1.00 has been assigned to the SDR.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 23 -
Table 6.
Terms of Trade Developments, 1963-82 1/
(Percentage changes)
Average
1963-72 2/
Industrial countries
Developing countries
Oil exporting countries
Non-oil developing
countries
Average
1973-77 2/ 1978
1979
1980
1981
1982 3/
0.3
-2.7
2.6
-2.7
-7.6
-0.7
1.5
0.5
19.1
-10.7
28.7
41.7
12.2
-5.5
0.8
-4.1
-0.2
-4.4
-1.7
-1.0
3.0
3.0
11.9
41.1
14.7
0.1
14.5
48.7
11.0
62.0
-5.0
11.0
5.0
-3.0
2.5
17.0
-4.6
16.5
9.7
-14.7
1.0
Memorandum item
World trade prices (in U.S.
dollar terms) for major
commodity groups 4/
Manufactures
Oil
Non-oil primary commodities
(market prices)
1/ Based on foreign trade unit values except where indicated. For classification of countries in groups shown here, see Tables 1 and 2. Excludes data for the People's Republic of
China prior to 1978.
2/ Compound annual rates of change.
3/ Figures are rounded to the nearest 0.5 per cent.
4/ As represented, respectively, by (a) the United Nations' export unit value index for the
manu- factures of the developed countries; (b) the oil export unit values of the oil exporting
countries; and (c) the International Financial Statistics index of market quotations for nonoil primary commodities.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-24-
Table 7.
ID/82/1
Corrected:
3/31/82
Summary of Payments Balances on Current Account, 1977-82 1/
(In billions of U.S. dollars)
Industrial countries
Canada
United States
Japan
France
Germany. Fed. Rep. of
Italy
United Kingdom
Other industrial countries
1977
1978
1979
1980
1981
1982 2/
-5.6
30.5
-10.1
-44.8
-3.9
14.0
-4.0
-11.3
11.2
-4.0
-10.9
18.0
-4.3
5.0
-8.0
-1.9
8.4
-9.5
-5.8
11.0
6.1
-5.0
2.0
16.5
-1.6
8.5
3.1
1.5
5.2
13.6
7.9
4.5
3.0
0.9
6.4
0.7
-6.3
-9.0
-9.4
11.5
-6.6
-1.2
-7.4
19.8
-6.5
10.5
-3.5
12.5
-12.9
-3.6
-13.7
-28.7
-20.0
-12.5
30.8
2.9
69.8
115.0
70.8
25.0
-28.3
-38.9
-58.8
-85.6
-102.0
-100.0
-6.5
-7.9
-8.5
-11.0
-20.6
-23.0
-21.8
-31.0
-50.3
-74.6
-81.5
-77.0
-7.9
-2.6
-11.3
-9.9
-7.9
-13.2
-21.5
-11.5
-17.4
-32.4
-16.4
-25.8
-36.0
-15.3
-30.2
-32.5
-16.0
-28.5
-6.6
-0.6
-7.6
-5.2
-8.7
-9.0
-6.5
-5.2
-6.5
-13.2
-9.7
-14.1
-8.5
-8.5
-21.3
-12.7
-24.4
-10.9
-7.8
-33.1
-13.3
-25.8
-7.9
-9.0
-41.5
-13.0
-29.0
-6.5
-12.5
-36.0
-3.1
-5.5
0.9
-15.4
-35.1
-61.0
Developing countries
Oil exporting countries
Non-oil developing countries
By analytical group:
Net oil exporters
Net oil importers
Major exporters of manufactures
Low-income countries
Other net oil importers
By area:
Africa 3/
Asia
Europe
Middle East
Western Hemisphere
Total 4/
1/ Goods, services, and private transfers. For classification of countries in
groups shown here, see Tables 1 and 2.
2/ Figures are rounded to the nearest $0.5 billion.
3/ Excluding South Africa.
4/ Reflects errors, omissions, and asymmetries in reported balance of payments
statistics, plus balance of listed groups with other countries (mainly the Union of
Soviet Socialist Republics and other nonmember countries of Eastern Europe).
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ID/82/1
Corrected:
-25-
Table 8.
3/31/82
Industrial Countries: Balances on Current Account,
Including Official Transfers, 1977-82 1/
(In billions of U.S. dollars)
1977
1978
1979
1980
1981
1982 2/
-4.1
-14.1
10.9
-4.3
-14.1
17.6
-4.2
1.4
-8.8
-1.6
3.7
-10.7
-5.5
6.6
4.7
-5.0
-3.0
15.0
-3.0
4.1
2.5
-0.5
3.7
9.2
6.4
1.2
1.3
-5.3
5.5
-3.7
-7.9
-16.4
-9.8
7.2
-7.9
-7.8
-8.0
16.2
-7.5
4.0
-4.0
9.0
Other industrial countries -14.5
-5.6
-16.0
-31.7
-23.9
-17.0
All industrial countries -18.7
Of which:
Seven larger coun-4.2
tries
14.1
-29.7
-67.2
-25.5
-8.5
19.7
13.8
-35.5
-1.6
8.5
Canada
United States
Japan
France
Germany, Fed. Rep. of
Italy
United Kingdom
1/ The balances shown in this table cover goods, services, and all
(private and official) current transfers. For country classification,
see Table 1.
2/ Figures are rounded to the nearest $0.5 billion.
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Federal Reserve Bank of St. Louis
- 26 -
Table 9.
Non-Oil Developing Countries: Current Account Balances as
Percentage of Exports of Goods and Services, 1967-82 1/
Average
1967-72
1973_
1974
1975
1976
1977
1978
1979
1980
1981
1982
Non-oil developing countries
...
-17.8
-19.7
...
-10.6
-19.2
...
-24.8
-22.7
...
-30.9
-31.6
...
-18.1
-23.6
-12.9
-13.9
-21.8
-15.0
-15.5
-31.6
-17.7
-18.1
-30.0
-20.4
-21.0
-36.8
-22.7
-23.7
-41.1
-1(
.;.9
-20.8
-36.0
-19.6
...
-17.6
-17.3
...
-9.6
-21.8
...
-25.4
-42.1
...
-28.9
-27.6
...
-16.3
-19.6
-11.7
-12.8
-20.2
-14.1
-14.7
-15.5
-18.1
-18.7
-14.8
-21.6
-22.3
-25.7
-22.0
-23.2
-26.9
-18.5
-19.5
-13.1
...
-34.8
-15.5
-7.0
...
-35.7
-4.3
-27.9
...
-53.5
-12.2
-28.1
...
-50.4
-22.5
-14.6
...
-23.8
-16.7
-7.7
-8.9
-17.4
-20.7
-8.0
-23.6
-33.1
-21.2
-13.7
-26.9
-37.2
-22.3
-16.3
-31.8
-46.9
-26.9
-16.6
-28.5
-47.3
-30.3
-13.4
-26.8
-45.1
-25.0
-19.1
-19.5
-12.9
-19.8
-24.9
-21.2
-31.8
-21.3
-23.1
-20.4
-21.3
-23.0
-32.5
-14.1
-31.7
-5.7
-44.3
-14.8
-42.0
-21.6
-40.5
-12.2
-26.8
-16.2
-0.8
-27.7
-13.6
-19.0
-56.3
-16.6
-24.3
-71.6
-25.7
-5.7
-38.0
-14.1
-1.6
-38.9
-19.3
-5.5
-62.1
-23.5
-5.2
-61.4
-25.4
-15.8
-72.2
-28.5
-17.8
-69.6
-34.0
-14.3
-60.5
-29.0
Africa
Asia
Excluding China
-16.9
-17.9
...
-19.8
-34.2
...
-18.0
-27.5
-12.1
-10.6
...
-7.4
-4.1
-17.7
-0.7
-2.1
-19.0
-6.2
-6.5
-12.6
-10.4
-10.5
-14.8
-14.4
-15.2
-31.8
-13.8
-15.4
-28.5
-13.6
-15.0
Europe
Middle East
Western Hemisphere
-6.9
-27.0
-20.3
1.9
-40.0
-16.1
-20.7
-42.8
-32.8
-21.8
-63.7
-40.5
-16.4
-42.3
-25.5
-28.1
-33.2
-15.3
-16.4
-34.7
-20.7
-21.7
-36.6
-25.5
-22.8
-24.1
-30.7
-14.3
-26.5
-35.1
-10.0
-33.5
-27.4
-21.0
-16.7
-5.7
-14.6
-20.1
-23.8
-10.0
5.5
-28.1
-16.5
-29.3
-12.1
-21.9
-55.5
-23.5
-44.0
-27.6
-20.2
-42.7
-26.6
-29.4
-12.5
-6.4
-39.9
-10.8
-23.6
-15.6
-19.4
-26.8
-20.2
-45.3
-24.0
-15.1
-37.8
-13.4
-47.0
-22.9
-20.4
-38.5
-20.7
-60.2
-31.5
-18.0
-27.6
-25.9
-55.3
-31.0
-11.1
-40.9
-31.1
-54.7
-29.7
-5.8
-40.1
-27.5
Weighted average 3/
Excluding China
Median
By analytical group
Weighted averages 3/
Net oil exporters
Net oil importers
Excluding China
Major exporters of manufactures
Low-income countries
Excluding China
Other net oil importers
Medians
Net oil exporters
Net oil importers
Major exporters of manufactures
Low-income countries
Other net oil importers
By area
Weighted averages 2/
Medians
Africa
Asia
Europe
Middle East
Western Hemisphere
1/ For classification of countries in groups shown here, see Table 2.
27 Ratios of current account balances to exports of goods and services for individual countries, averaged on the basis of
current exports of goods and services weights. Such estimates correspond exactly to those obtained through calculation for
any particular grouping of countries of the ratio of the sum of the current account balances to the corresponding sum of
exports of goods and services values.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 27 -
Table 10.
Non-Oil Developing Countries:
Current Account Financing, 1973-82 1/
(In billions of U.S. dollars)
Current account deficit 2/
Financing through transactions that do not
affect net debt positions
Net unrequited transfers received by governments of non-oil developing countries
SDR allocations, valuation adjustments, and
gold monetization
Direct investment flows, net
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
10.7
36.5
45.5
29.4
28.3
38.9
58.8
85.6
102.0
100.0
10.1
13.0 3/ 11.8
12.0
14.9
17.2
23.0
24.1
26.3
27.8
7.0
7.3
8.3
8.2
10.9
12.3
12.9
13.6
-0.6
5.4
-0.2
4.8
1.3
5.3
2.1
6.9
2.8
9.2
1.8
10.0
-0.2
13.6
14.1
23.5 3/ 33.7
1.3
-2.9
26.4 3/ 32.4
17.4
-13.8
31.2
13.4
-12.4
25.8
21.7
-15.7
37.4
35.9
-12.5
48.3
61.6
-3.7
65.3
75.8
-0.8
76.6
72.1
-3.2
75.3
56.9
22.1
39.4
38.4
1.0
-4.6
5.4
6.9 3/
0.4
4.3
0.7
5.4
Net borrowing and use of reserves 4/
0.6
Reduction of reserve assets (accumulation -) -10.2
Net external borrowing 5/
10.8
Long-term borrowing
From official sources
From private sources
From financial institutions
From other lenders
Residual flows, net 6/
12.2
5.5
8.4
7.2
1.2
-1.6
Use of reserve-related credit facilities 7/ 0.2
Other short-term borrowing, net
0.2
Residual errors and omissions 8/
-1.7
20.5 3/
9.5 37
13.8 12.7
1.1
-2.8
27.5
11.5
15.4
13.8
1.5
0.6
28.8
10.9
19.4
17.0
2.4
-1.5
26.5
12.6
23.0
19.4
3.6
-9.2
35.3
14.2
27.9
23.9
4.0
-6.9
39.0
15.4
33.1
32.4
0.8
-9.5
46.2
20.5
31.4
30.1
1.3
-5.8
55.4
20.6
39.0
38.0
1.0
-4.1
1.7
5.2
-0.9
2.5
6.4
-4.1
4.4
12.2
-14.2
-0.1
0.8
-1.1
0.5
4.3
-2.5
-0.6
9.4
0.5
4.4
19.9)
-4.7)
8.9
7.3
12.3
11.1
1/ Excludes data for the People's Republic of China prior to 1977. For country classification, see Table 2.
27 Net total of balances on goods, services, and private transfers, as defined for the Fund's Balance of Payments
Yearbook purposes (with sign reversed).
3/ Excludes the effect of a revision of the terms of the disposition of economic assistance loans made by the
United States to India and repayable in rupees, and of rupees already acquired by the U.S. Government in repayment of
such loans. The revision has the effect of increasing government transfers by about US$2 billion, with an offset in
net official loans.
4/ That is, financing through changes in net debt positions (net borrowing, less net accumulation--or plus net
liquidation--of official reserve assets).
5/ Includes any net use of nonreserve claims on nonresidents, errors and omissions in reported balance of payments
sta-tements for individual countries, and minor deficiencies in coverage.
6/ These residual flows comprise two elements: (1) net changes in long-term external assets on non-oil developing
countries and (2) residuals and discrepances that arise from the mismatching of creditor-source data taken from debt
records, with capital flow data taken from national balance of payments records.
7/ Comprises use of Fund credit and short-term borrowing by monetary authorities from other monetary authorities.
8-/ Errors and omissions in reported balance of payments statements for individual countries, and minor omissions in
coverage.
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Federal Reserve Bank of St. Louis
1
- 28 -
Table 11.
Non-Oil Developing Countries: Distribution of Financing Flows for Current Account Deficits
and Reserve Accretions, 1973-82 1/
(In per cent)
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
58
21
37
-16
51
18
30
1
35
33
43
-11
33
26
63
-22
45
50
57
-52
44
36
50
-29
54
21
36
-11
40
24
32
4
35
15
35
15
35
15
40
10
Net oil exporters
Nondebt-creating flows, net
Official long-term capital, net
Private long-term capital, net
Other financing flows, net 2/
Net oil importers
3/
Nondebt creating flows, net
Official long-term capital, net
Private long-term capital, net
Other financing flows, net 2/
45
27
28
--
30 4/
25 _
4/
24
21
24
23
32
21
25
24
32
19
35
26
29
10
29
25
36
10
28
22
32
18
25
23
28
24
24
22
33
21
25
22
33
20
40
17
43
26
10
40
24
17
12
44
27
20
13
39
28
35
17
46
2
31
19
60
-9
26
16
37
23
24
12
29
35
21
9
47
24
23
10
40
27
35
51
1
13
40
56
2
2
51
51
-12
10
41
45
-6
20
33
33
24
10
34
45
18
3
30
42
18
10
29
43
16
12
30
23
32
15
25
22
39
14
26
23
30
22
22
20
32
27
28
22
32
18
21
23
33
24
23
27
25
25
26
28
31
15
Major exporters of manufactures
Nondebt creating flows, net
Official long-term capital, net
Private long-term capital, net
Other financing flows, net 2/
Low-income countries
Nondebt creating flows, net
Official long-term capital, net
Private long-term capital, net
Other financing flows, net 2/
52
38
8
43 4/
57 47
-12
12
Other net oil importers
Nondebt creating flows, net
Official long-term capital, net
Private long-term capital, net
Other financing flows, net 2/
48
38
14
--
24
24
32
20
1/ For classification of countries in groups shown here, see the introduction to this appendix.
2/ Including, in addition to recorded short-term capital flows, net use of Fund credit plus net errors and
omissions.
3/ Excludes data for the People's Republic of China prior to 1977.
4/ Excludes the effect of a revision of the terms of the disposition of economic assistance loans made by the
United States to India and repayable in rupees, and of rupees already acquired by the U.S. Government in
repayment of such loans. The revision has the effect of increasing government transfers by about US$2 billion,
with an offset in net official loans.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
Mr. Volcker
With the Compliments of
Jacques de Larosiere
Managing Director
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON. D.C. 20431
CABLE ADDRESS
:NTERFUND
MANAGING D,RECTOR
May 20, 1981
Dear Mr. Secretary:
I write to you in order to clarify the way in which matters have developed concerning the chairmanship of the Interim
Committee.
I am prompted to do so in particular by a telephone
call which I received last night from Mr. McNamar, who expressed
great concern on this question. I feel it is especially important
because of the most constructive way in which the U.S. Treasury
has been cooperating with the Fund, and the great value I set on
continuing this working relationship and preserving excellent
personal relations.
I have provided Mr. McNamar with a resum4 of my relevant
contacts with member countries on the question of the Interim
Committee chairmanship, including particularly records of my two
meetings with Executive Directors on Thursday, May 14, and my
conversation with Mr. Leimone, of the U.S. office in the Fund,
the following day.
I will not trouble you therefore with the
details of these contacts; the substance of the matter is
straightforward.
On learning of the resignation of Mr. Monory as Chairman of
the Interim Committee, I informed the Executive Board without
delay.
I judged that in view of the limited time available it
might be constructive also to try to identify the name of a possible candidate, to facilitate the process whereby members of the
Committee would select to chair their meeting a person of wide
acceptability.
I met with the Fund's Executive Directors or their Alternates
in the morning of Thursday, May 14.
Initial reactions to the possible candidacy of Mr. MacEachen, given on a personal and tentative
basis, were in gerieral very favorable.
There were no warnings of
concern abott.the procedure adopted, nor the substance of what I
said.
After speaking, in most cautious terms, to Mr. MacEachen
I asked Executive Directors to join me again on the Thursday afternoon when I informed them of Mr. MacEachen's readiness to be proposed.
The general reception of this information was appreciative.
The U.K. Executive Director, however, noted that Sir Geoffrey Howe
had been approached by some Ministers about the possibility of
offering himself as a candidate for the chairmanshilp; he emphasized
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2-
that this had not been an initiative by Sir Geoffrey Howe, whose
decision was not yet known.
On Friday morning, I received telephone calls from Mr. Schulmann in Bonn, who informed me that
Germany's preference was for Sir Geoffrey Howe, and from
Mr. Monory, who informed me that his own preference remained for
Mr. MacEachen.
I conveyed these reactions to the Canadian authorities.
That afternoon I asked Mr. Leimone, of the U.S. office in
the Fund, to join me so that I could inform him fully of developments up to that time.
He undertook to arrange for this account
to be conveyed to you and Mr. Sprinkel, and promised also to
mention real concern that I had not been made aware at an earlier
stage of the reported strong preference in the G-5 countries for
Sir Geoffrey Howe to succeed Mr. Monory.
Mr. Leimone informed
me that the U.S. Treasury in Washington did not yet have a full
report of the G-5 Deputies' meeting in Paris.
Apart from the contacts described above, I have had no
direct communication from the U.S. Treasury, nor any request to
contact the U.S. Treasury, since Thursday morning of last week.
In light of this you will understand that I was very surprised
that Mr. McNamar should believe I had failed to respond to
several telephone calls from senior members of the U.S. Treasury.
Throughout these events I have acted completely openly and never
failed to respond to any requests for information.
On the substance, I remain convinced that convening the
Executive Directors before taking any initiative was a correct
course of action.
I deeply regret that the strong views of the
United States were not conveyed to me at an earlier stage and
that I was not taken into your confidence at an appropriate time.
It is my sincere hope that this letter will set the record straight
about my own actions, and I would ask you to understand that I
have not in any way sought to withhold information from or avoid
the fullest consultation with the U.S. Treasury.
With kind regards,
Sincerely yours,
(S G.Are
J. de Larosiere
Attachment:
Copy of McNamar letter with resume only.
The Honorable
Donald T. Regan
Secretary of the Treasury
Washington, D.C.
cc:
Managing Director
Deputy Managing Director
Mr. Van Hou>4.Mr. Watson
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
WASHINGTON, D.C. 20431
CAB_E *DOPES5
iNTEPFUND
MANAG:NG D:RECTOR
Private and Confidential
May 20, 1981
Dear Mr. McNamar:
Following our conversation yesterday evening, I thought you might
be interested to read the attached records which were kept of relevant
contacts with member countries, in connexion with the question of the
Interim Committee Chairmanship. If you or your colleagues have any
further questions about the handling of this matter, I should be very
happy to respond.
May I add that, having spoken with the staff of my office, there
appear to have been no incoming telephone calls or other communications
from the United States Treasury last Thursday and Friday (May 14 and
15) apart from my contacts with Mr. Leimone of which records are
attached. On Sunday (May 18) I was told that Mr. Leddy had obtained
from my wife, in Washington the previous day, the number on which I
could be contacted in Paris on Sunday (Sofitel Bourbon Hotel); my
wife has confirmed that she was told I would be contacted rather than
the reverse. However, I received no call from the Treasury. Monday
evening, on arriving in Cameroon, I was told that my number in Yaounde'
had been given to Secretary Regan at his request but I received no
message. On Tuesday, my personal assistant spoke routinely with the
Deputy Managing Director, who was already in Libreville; Mr. Dale
mentioned that he had spent a few minutes talking to Mr. Leddy,
but specifically stated that Mr. Leddy made no mention of any message
to me.
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I have acted completely openly and never failed to respond
to any request for information. On the substance, I remain convinced
that convening the Executive Directors,.before taking any initiative
was a correct course of action. I deeply regret that your strong
views on the Chairmanship were not conveyed to me at an early stage,
which would have been a sound course of action, and that I was not
taken into your confidence at an appropriate time.
I am sending a similar letter to Secretary Regan in order to
keep him informed.
Yours sincerely,
(It
P.S.
Mr. MacEachen has been kept informed of developments.
Attachments:
Memo for Files: Chairman of Interim CommitteeInformal Discussion between the Managing Director
and Executive Directors - 5/15 (May 14 - 10:15)
Memo for Files: 5/15 (May 14 - 4:15)
The Honorable
R. Timothy McNamar
Deputy Secretary of the
Treasury
CC:
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Federal Reserve Bank of St. Louis
C
Managing Director
Deputy Managing Director
Mr. Van Houtven
Mr. Watson
Chairmanship of the Interim Committee
R6sum6 of Relevant Contacts with Member Countries
Thursday, May 14
10.15 am
-
Meeting with Executive Directors (record attached)
12.00 noon
-
Telephone conversation with Mr. MacEachen (recorded
as part of 4.15 pm meeting).
-
Meeting with Executive Directors (record attached)
4.15 pm
Friday, May 15
a.m.
4. 15 pm
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Federal Reserve Bank of St. Louis
-
Telephone call from Mr. Schulmann, who stated that
Germany would prefer Sir Geoffrey Howe to be Chairman
and mentioned that some other industrialized countries
shared this preference.
-
Telephone call from Mr. Monory, who told me that his
preference had been and remained that Mr. MacEachen
should chair the meeting.
-
Meeting with Mr. Leimohe
(record attached).
MEMORANDUM FOR FILES
Subject:
May 15, 1981
Chairman of Interim Committee--Informal Discussion Between
the Managing Director and Executive Directors
The Managing Director met with Executive Directors at 10:15 a.m.
Interim
on May 14, 1981 to discuss informally the Chairmanship of the
1.
Attachment
in
shown
is
meeting
the
at
Attendance
Committee.
The Managing Director began by explaining that Mr. Monory had
decided to resign as Chairman. After considering the list of Ministers
who were members of the Interim Committee and would be present in Libreville,
the Managing Director indicated that it seemed to him that a suitable
name could be Mr. MacEachen. He indicated briefly the reasons why he
thought Mr. MacEachen would be a good choice. He asked Executive Directors
for their views, pointing out that he had not yet been in touch with
Mr. MacEachen and therefore did not know whether he would be willing to be
proposed for the Chairmanship.
Mr. Kafka, speaking first, said that he personally supported the
suggestion of Mr. MacEachen. He thought that he would make a good Chairman
and it was always useful to have a Canadian or a Swede in such positions.
However, he wished to register the view that the present informal arrangements whereby the Chairman of the Interim Committee was always from a
developed country and the Chairman of the Development Committee was always
from a developing country should be reviewed.
Mr. Buira warmly supported Mr. MacEachen but expressed agreement with
the point made by Mr. Kafka. He added that this aspect had been discussed
in the G-9, where there was general agreement that in future the Chairmanships of the Development and the Interim Committees should not be reserved
for any particular groups of countries. He also thought that in future
there should be symmetry between the Development and the Interim Committees
as to the terms for which the Chairmen should serve; in other words, the
Chairman of the Interim Committee should serve for the same fixed term as
the Chairman of the Development Committee.
Mr. Laske indicated support for Mr. MacEachen.
Mr. MacEachen seemed to be the obvious choice.
He said that
Mr. Polak, Mr. Lovato and Mr. Hirao indicated support for Mr. MacEachen,
and Mr. Mentre said that he seemed to be a good choice.
Mr. 'Price saidthat before coming to the meeting he had taken the
precaution of looking at the list of those who would be attending the
Libreville Meeting and Mr. MacEachen's name had stood out as an obvious
choice. He was speaking personally and indicated that he would contact his
authorities.
Mr. Sigurdsson supported Mr. MacEachen. Later in the discussion he
added that he supported Mr. Buira's comments regarding the chairmanship
and suggested that the Executive Board should look into the matter.
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Federal Reserve Bank of St. Louis
2
Mr. Finaish said that he could support Mr. MacEachen but he felt that
it was not healthy to give the impression that one committee was a rich
countries' club and the other a poor countries' club. He felt that the
pattern should be broken soon.
M. Kabbaj indicated that he could personally support Mr. MacEachen
and endorsed the views expressed by Mr. Finaish.
Mr. Narasimham said that he personally could support Mr. MacEachen.
Mr. Al-Hegelan (Saudi Arabia), Mr. Supinit, Mr. Coene, and Miss Carcovic
indicated that they personally could support Mr. MacEachen.
Mr. Leimone said that his authorities would need some time to consider
the matter.
Mr. Tai said that he would need to consult his authorities.
Mr. Kiingi said that he could go along with the consensus.
Mr. Prowse indicated that he could support Mr. MacEachen.
The Managing Director said that he would get in touch with Mr. MacEachen
as soon as possible and report back to Executive Directors.
Attachment
cc:
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Federal Reserve Bank of St. Louis
The
The
Mr.
Mr.
Managing Director
Deputy Managing Director
Nicoletopoulos
Watson
Mr. Van Houtven
Mr. Wright .
Alan Wright
Acting Secretary
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Federal Reserve Bank of St. Louis
May 14, 1981
(Informal Meeting an ChairmanshiD for Interim Committee)
J. de Larosiere, Chairman
W. B. Dale, Deputy Managing Director
Executive Directors
Alternate Executive Directors
0. Kabbaj
L. D. D. Price
A. Buira
J. E. Leimone, Temporary
L. E. J. Coene, Temporary
M. Casey
M. Finaish
T. Hirao
M. V. CarkoviE, Temporary
S. Al-Hegelan, Temporary
A. Kafka
V. Supinit
S.
G.
G.
P.
Kiingi
Laske
Lovato
Mentre de Loye
M.
J.
A.
J.
Narasimham
J. Polak
R. G. Prowse
Sigurdsson
T. Aulagnon
Tai Q.
A. Wright, Acting Secretary
Also Present:
G. Nicoletopoulos
May 15, 1981
MEMORANDUM FOR FILES
Subject:
Chairman of the Interim Committee--Informal Discussion
between the Managing Director and Executive Directors
, The Managing Director met informally with Executive
Directors at 4:15 p.m. on May 14, 1981, to inform them of his
conversation with Mr. MacEachen regarding the chairmanship of
Attendance at the meeting is shown in
the Interim Committee.
the attachment.
The Managing Director said that he had informed
Mr. MacEachen of the soundings he was taking and of the
personal and tentative.reactions of Executive Directors.
Mr. MacEachen had indicated that he would be willing to accept
The Managing Director had informed him about
the chairmanship.
the procedures for appointing a new Chairman and had also mentioned that during his consultations with Executive Directors on
this matter, there had been considerable support for the idea
that the term of office for the Chairman should be limited.
Mr. MacEachen had indicated that he would not have any difficulty if in some form a limit on his term of office should become
appropriate.
Several Executive Directors indicated their pleasure
that Mr. MacEachen would be willing to accept the chairmanship.
They indicated that they would be contacting their authorities.
Mr. Polak added that the question of the term of office for the
Chairman was not an easy one, and he hoped that it would not be
prejudged.
In a response to a question from Mr. Polak, the Managing
Director confirmed that the matter would not be brought up when
Mr. MacEachen was nominated for the chairmanship in Libreville.
He had simply warned Mr. MacEachen that the matter could come
He would certainly want to discuss the matter in the
up later.
Executive Board in order to see whether any formal proposals
should be made to the Interim Committee.
.Mr: Anson then said that some Ministers had approached
This had
Sir Geoffrey Howe about the possibility of standing.
not been the Chancellor's idea, and there had not yet been any
When Mr. Anson received a reply he would
response from him.
communicate it.
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Federal Reserve Bank of St. Louis
Ni
o
••
,..
-2-
Mr. Prowse suggested that the question of
Vice-Chairman should also be considered.
Alan Wright
Acting Secretary
Attachment
CC:
Managing Director
Deputy Managing Director
Mr. Nicoletopoulos
Mr. Watson
Mr. Van Houtven
Mr. Wright
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Federal Reserve Bank of St. Louis
having a
•••
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Federal Reserve Bank of St. Louis
Attendance at Managing Director's Xecting
May 14, 1981 - 4.15 p.m
J. de Larosiere, Chairman
W. B. Dale, Deputy Maniging Director
Executive Directors
Alternate Executive Directors
0. Kabbaj
J. Anson
A. Buira
J. E. Leimone, Temporary
L. E. J. Coene, Temporary
M. Casey
M. Finaish
A. Nagashima
M. V. Carkovie:, Temporary
S. Al-Hegelan, Temporary
A. Kafka
V. Supinit
S. Kiingi
J. U. Hoist, Temporary
G. Lovato
P. Mentre de Loye
A. B. Diao, Temporary
M.
J.
A.
J.
Narasimham
J. Polak
R. G. Prowse
Sigurdsson
A. Wright, Acting Secretary
Also Present: G. Nicoletopoulos, Director, Legal Department.
C. M. Watson, Personal Assistant to the Managing Director
May 20,
1981
MEMORANDUM FOR FILES
Subject:
Meeting with Mr. Leimone, 4:15 p.m., Friday, May 15
The Managing Director asked Mr. Leimone to join him at
4:15 p.m. on Friday, May 15, 1981; the Deputy Managing Director
and Mr. Watson were also present.
The Managing Director told Mr. Leimone that he wanted to
put him fully in the picture about the procedural aspects and
substance of his contacts concerning the chairmanship of the
Interim Committee during the preceding day and a half.
Following the resignation of Minister Monory, his first
reaction had been to call a meeting of Executive Directors to
inform them of the situation and ask them to be in touch with
their authorities.
He had floated the name of Minister MacEachen
at this meeting, suggesting that he had the right profile to
gain wide acceptability in the circumstances which limited the
time available for agreement to be reached.
As Mr. Leimone knew,
the personal and tentative reactions of Executive Directors had
been very favorable; there had been no hints that other candidates
might be considered desirable or possible.
After the meeting the Managing Director had telephoned
Minister MacEachen to give him the flavor of the discussion,
emphasizing that the Executive Directors' reactions were given
only on a personal basis and that they would now be in contact
with their authorities.
Subsequently he called a further meeting
of Executive Directors in which Mr. Leimone had again participated,
and conveyed Mr. MacEachen's favorable reaction on the question
of being a candidate for the chairmanship.
The Managing Director then continued that he had learned
that the G-5 had concluded that Sir Geoffrey Howe would be
preferable as Chairman of the Committee. This was their view,
and naturally he bad himself no problem at all with that.
However
he noted a possible problem, which was that this preference might
cause difficulties on the side of developing countries.
However,
he himself had now stood back from the question and would be
happy to learn of subsequent initiatives and reactions.
In this
connection he menticned, inter alia, that Minister Monory had
telephoned him; the Minister was not aware of the G-5's conclusion and
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Federal Reserve Bank of St. Louis
-2-
confirmed that he retained his preference for Minister MacEachen.
Thus the situation was perhaps a little hazy.
Mr. Schulmann had
telephoned him to express the preference of Germany for
Sir Geoffrey Howe, after which the Managing Director had asked
Mr. Casey to convey the German position to Minister MacEachen.
The Managing Director concluded by saying that he hoped
this question could be resolved in a smooth fashion.
He was
somewhat unhappy that he had not been made aware of a strong
preference for Sir Geoffrey
Howe amongst the authorities of the
G-5 countries at an earlier stage.
He asked Mr. Leimone to
convey this unhappiness to his authorities; he felt that matters
might have developed more smoothly if he had been kept directly
in the picture.
But his own suggestion had been an attempt to
identify a possible candidate with a "middle-of-the-road" profile.
He asked Mr. Leimone to indicate clearly to Secretary Regan and
Mr. Sprinkel that he had learned of the G-5 reaction only after
sounding out Executive Directors.
He had felt obliged to make
some move on this question the previous day because today,
Friday, was his last day in the Fund before traveling to Europe
and Africa, and the last day of the Board quorum in Washington.
Mr. Leimone thanked the Managing Director for explaining
matters so fully; undertook to convey this as soon as possible
to his authorities; and mentioned that the U.S. Treasury officials
in Washington still did not have a full report of the G-5 meeting.
C.M. Watson
cc:
Managing Director
Deputy Managing Director
Mr. Van Houtven'
Mr. Watson' •
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Federal Reserve Bank of St. Louis
INTERNATIONAL MONETARY FUND
August 19, 1981
TO
Mr. Volcker
FROM:
Richard D. Erb
Attached is the statement I made at
the opening of a two-day IMF Executive Board
examination of U.S. economic policies.
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Federal Reserve Bank of St. Louis
aims, .
' DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE
August 3, 1981 - 81/150
Statement by Mr. Richard D. Erb
on
The United States
1981 Article IV Consultations
Executive Board Meeting 81/109
July 31, 1981
The United States has been a leading supporter of effective
IMF surveillance as an essential complement to the Fund's
balance-of-payments financing activities. We continue to
believe that surveillance should play an important role in
promoting a sound, stable global economy. Consequently, I
welcome the first formal IMF consultation on U.S. economic
policies and performance under the Reagan Administration and
hope that a full and frank discussion will allay some of the
concerns that have been expressed about the impact of the new
U.S. economic program on the world economy.
I would also like to take this opportunity to express my
appreciation to the staff for the comprehensive and balanced
report prepared for this consultation and to thank them for
the very useful discussions held with the U.S. authorities in
June. Many of my colleagues who had not Participated in
Article IV discussions before were impressed with the Fund
Team's knowledge of the U.S. economy and U.S. policies--current
and historical.
Recent Economic Developments
The staff report describes the serious adverse developments
in the U.S. economy during the past decade including low economic
growth, high unemployment, and rising inflation.
In setting the stage for the discussion of current U.S.
economic policies, however, attention must also be given to
broader sectoral and institutional developments over the past
decade. Longer-term micro, macro, and institutional developments
have had far more influence on the thinking and decisions of the
Reagan Administration than macroeconomic fluctuations over the
last year or so. These longer-term economic and economic policy
develolments have also influenced the attitudes of the American
public toward the role of government and the traditional economic
policies pursued by successive administrations. The public's
recognition of the need.. for a fundamental change is reflected
in the broad public sl.:2Dort for the Reagan Administration's
economic program.
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Federal Reserve Bank of St. Louis
a•
- 2 A review of developments points to the following central
policy errors of the past which the President's economic program
seeks to correct:
--Frequent shifts in fiscal and monetary policies geared
to stimulating or braking short-run demand too often
behaved procyclically rather than countercyclically
and have curtailed longer-run growth in the economy by
exacerbating uncertainties for private investors.
--Pressures from the Congress and the Executive Branch
too often induced the monetary authorities to lean
against rising interest rates by printing more money.
More money, however, fueled inflation and inflationary
expectations which in turn increased interest rates
even further.
--Personal and business tax policies ignored the impact
of taxes on the nature and magnitudes of saving, investment, and work effort.
--An often capricious regulatory system failed to explicitly
and adequately weigh the benefits of a regulation with
the costs. In addition, regulatory policies relied
primarily on administrative directive rather than priceoriented incentives for influencing undesirable social
and economic behavior.
--Selected price controls and interest rate ceilings have
distorted the allocation of resources and delayed necessary adjustments in the U.S. economy. Energy producers,
auto producers, banking institutions and the savings and
loans industry are examples of industries whose long-run
strategic position have been hurt by such controls.
--Foreign exchange market intervention policies:
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(i)
delayed necessary domestic policy adjustments,
(ii)
created uncertainty about the timing and
magnitudes of intervention which contributed to
instability in the foreign exchange markets,
(iii)
delayed necessary exchange rate adjustments,
thus precipitating market instability when
the exchange rates were ultimately allowed
to adjust,
(iv)
inhibited the development of market institutions geared to providing (directly or indirectly) stabilizing speculation.
Mau.
- 3 U.S. Economic Policies and Prospects
Turning now to U.S. economic policies and prospects, the
staff has done a good job of describing the economic aims and
policies of the U.S. Government and the technical features of
the various components of the economic program.
There has been a tendency for many commentators at home
and abroad to attach labels to the economic program of the
Reagan Administration. "Monetarist" and "Supply Side" are
the terms most frequently used, but the analytical framework
underlying the Administration's economic program is not captured
by any one theory or school of economic thought. As Under
Secretary of the Treasury for Monetary Affairs Sprinkel explained
to this group last week, the economic policies of the Administration are formed by a consensus process involving members of the
Administration, the Congress and the private sector. Although
it is a diverse group, a number of central concepts emerged
which have shaped the U.S. economic program.
First, and reflecting a growing national mood, the
economic policies of the Reagan Administration are based
on a belief that economic growth is necessary for increasing
social welfare, political stability and international
security. The various no-growth, zero risk arguments
voiced during the last decade have not prevailed, and
greater emphasis is being given to work, saving, investment,
and risk taking.
Second, there exists a commonly shared view that
economic decisions should be decentralized and made by
the individuals and institutions which are in the best
position to make the decisions affecting their economic
welfare. In this regard, well functioning markets in
which prices accurately reflect demand and supply are of
critical importance.
Third, given the pervasive impact of government policies
on the decisions of workers, consumers, and producers, there
is a strongly held belief that government has a responsibility
to manage those policies in a stable and predictable manner
rather than attempting to fine tune policies. There is a
high degree of respect for what is not known about the inner
workings of the U.S. economy, its dynamics over time, and
its interaction with other economies.
Fourth, there is a strongly held view within the
Administration that the United States economy must once again
become a source of international economic growth and stability. The dollar remains the central international currency and the U.S. economy remains the largest, most open
economy in the world. Thus, price stability and stable but
vigorous economic growth in the United States will benefit
other countries in a variety of ways including the following:
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Federal Reserve Bank of St. Louis
- 4 -
--Monetary and price stability on the domestic front
will go a long way towards permanently restoring
confidence in the dollar.
--Monetary and price stability in the U.S. will con
tribute to stability in international as well
as domestic financial markets.
--A more stable domestic growth rate will reduce the
volatility of UoS. import flows and thus contribute
to economic stability in other countries, especially
developing countries.
--A higher domestic growth rate will provide larger
market opportunities for foreign producers.
--A more dynamic and innovative U.S. economy will
provide more diversified market opportunities for
foreign producers and better domestic job opportunities
for those whose jobs are affected by foreign competi
tion, thus easing protectionist pressures.
--Price stability will eliminate the erosion in the real
value of development assistance caused by inflation.
--Higher domestic economic growth will increase the
economic base underpinning development assistance
programs.
Appraisal of U.S. Policies
Since the specific elements of the President's economic
program are examined in detail in the staff's report, I will
not describe them. As noted in the report, and as frequently
stated by U.S. officials, all of the elements are interrelated
and mutually reinforcing. This approach recognizes that the
problems of inflation, unemployment and declining productivity
growth also are interrelated and mutually reinforcing.
Without tax cuts to encourage investment, without personal
tax cuts to encourage total personal savings and a shift in
savings from unproductive tax hedges towards productive invest
ments, without a reduction in the relative size of government
and the budget deficit over time, without regulatory reform,
and without the elimination of price controls and interest rate
ceilings, continued unemployment and declining productivity
growth would ultimately undermine the efforts to reduce in
flation. In short, the Administration's program is based on
the premise that the fight against inflation not only requires
a reduction in money growth but also a simultaneous increase in
investment and a reallocation of resources within the economy
from non-productive to productive sectors. In this important
sense, the program is a significant break from past efforts to
reduce inflation and increase employment and productivity.
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Federal Reserve Bank of St. Louis
- 5 In the past, the usual recipe for fighting inflation
called for fiscal and monetary demand restraint sufficient to
induce slack in the economy to ease wage and price pressures
but not so much slack as to undermine the program politically.
This strategy that became known as "gradualism" required a
degree of control over the level and time path of aggregate
demand that eludes most governments. More importantly, by
relying on reductions in aggregate demand, the "gradualist"
approach discourages investment and also does nothing to encourage shifts in the allocation of labor and capital among
sectors of the economy. Lower levels of investment and
rigidities in the allocation of labor and capital among sectors
of the economy in turn depress productivity growth and employment growth. The lack of productivity growth makes it more
difficult to reduce inflation and the lack of employment growth
generates social and political problems.
The Fund staff report seems to be suggesting a third
approach. The staff begins with the premise that "Because inflationary expectations have become firmly entrenched, visible
progress in reducing price and wage inflation is likely to
require, for a time, a significant degree of slack in product
and labor market." While endorsing the policy of monetary
restraint, and the proposals for reductions in government expenditure and tax cuts to improve incentives, the staff would
like to see the budget deficit cut more rapidly, possibly by
introducing a consumption tax.
The staff's concern about the size of the budget deficit
apparently reflects the view that the deficit will create
pressures for still higher interest rates and/or demands for
an easing of monetary policy. I can assure you that the U.S.
is determined to reduce the budget deficit and takes the goal
of a balanced budget by 1984 very seriously. Nor will the
Administration press for higher money growth.
However, we do not believe that a more rapid reduction is
feasible or desirable. Experience strongly suggests that increased tax revenues (from deferring the tax cut or imposing a
consumption tax) would be spent. The end result would be that
we would have sacrificed the needed incentives to work, save
and invest while contributing little to reducing the deficit.
Thus, a more rapid reduction in the deficit is likely to result
in an even lower economic growth rate over the next year or
two than the Fund staff forecasts for the Administration's
program, which in turn is lower than the Administration's own
real output forecast.
The Reagan Administration strategy thus differs fundamentally
from the traditional "gradualist" and Fund approaches, both of
which emphasize, in varying degrees, restraints on effective
The Reagan strategy, while limiting money growth,
demand.
places equal emphasis on reallocation of resources to productive
sectors to increase productivity, lower production costs, and
increase factor supplies, including labor. Such shifts will
augment monetary policy by contributing to a reduction in inflation.
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Federal Reserve Bank of St. Louis
- 6 Many foreign critics of U.S. economic policies seem to
be closer to the Fund staff's policy alternative. As the staff
paper notes, "the questions other countries have raised on the
mix of U.S. financial policies have appropriately focused on
whether fiscal policy should be tightened rather than on whether
monetary policy should be eased." Underlying this view is a
perception that a more rapid decline in the budget deficit would
lower current and future interest rate levels, and thus reduce
the exchange market pressures which allegedly force other countries to pursue higher interest rate policies.
However, suppose the U.S. budget deficit could be reduced
more quickly. The effect on interest rates would depend on the
impact of the deficit reduction on savings rates, the demand
for credit, and inflationary expectations. If tax rate increases
caused savings rates to fall, interest rates would tend to remain
high. If overall credit demand and employment declined sharply,
inflationary expectations and interest rates would probably remain
high if it were thought that political pressures would result in
a policy reversal. On the other hand, if inflationary expectations
did decline and thus further contribute to a decline in interest
rates, other countries would probably find little relief on the
exchange market front and real interest rates would be unaffected.
In short, the relationship between the budget deficit and
the level of interest rates is not straightforward. Nor is
there a straightforward relation between interest rates and
exchange rates--a subject I had better leave to another time.
At the same time, most foreign advocates of tax increases fail
to take into account the detrimental impact such increases will
have on U.S. growth and in turn the world economy.
With all the attention that has been focused on the impact
of current U.S. interest rates on other countries, the advocates
of a tighter fiscal policy have lost sight of the fact that
other countries are linked to the U.S. economy through the flows
of goods, services, and raw materials. Thus, if the budget deficit
were more quickly reduced with tax increases, lower U.S. economic
growth would result in lower export growth in the industrial and
developing world during the near term. In such circumstances,
I am sure that focus of the debate on economic policies would
be quite different.
In closing, I would like to turn to the final conclusions
of the staff's appraisal,
which I believe best summarizes the
situation all of us are in:
"It has to be recognized that pursuit by the United States
of policies to cope with an inflation that has gathered great
momentum inevitably will have effects--for example, on interest
rates and aggregate demand--that may be regarded as undesirable
by other countries. Of course, the degree to which other countries
will be disturbed will vary, depending on their views about the
pace at which inflation ought to be reduced and the policies best
employed for that purpose. What other countries should be able
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-7
to expect from the United States is a steadfast and consistent
application of its anti-inflation program, which would enable
them to develop their own policies with some certainty about
the external environment."
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Restricted: Memorandum from Ted Truman to Chairman Volcker, "Background Material for
November 7 Session with Mr. de Larosiere, et.al.," November 6, 1980.
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THE FIRST NATIONAL BANK OF BOSTON
RICHARD D. HILL
Chairman of the Board
September 20, 1978
Honorable G. William Miller, Chairman
Board of Governors
of the Federal Reserve System
21st and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Bill:
I am delighted to know that you will join us for cocktails
prior to dinner Sunday evening. As you know, we will
gather in the Chandelier Room of the Sheraton Carlton Hotel
at 7:30 and I wOulorguess that most of our guests will have
arrived by 7:45.
Kindest regards.
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Federal Reserve Bank of St. Louis
Sincerely
BOSTON, MASSACHUSETTS 02110 • TEL. (617) 434-2180
A Subsidiary of First National Boston Corporation
THE FIRST NATIONAL BANK OF BOSTON
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RICHARD D. HILL
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The Honorable G. William Miller
Chairman
Board of Governors of the Federal Reserve System
21st and Constitution Avenue, N.W.
Washington, D.C. 20051
Dear Bill:
For your convenience, I am reconfirming arrangements for our
Pinner during the IMF Meetings in Washington on Sunday evening,
September 24. Dinner will be in the Chandelier Room of the
Shera
(not to be confused with the
heraton-Park Hotel) beginning with Cocktails at 7:30 p.m.
Transportation to the Sheraton-Carlton Hotel will be provided,
for those wishing it, following the Reception given annually by
the Chairman of the IMF Meetings at the Shoreham Americana
Hotel. Drivers with limousines identified in the name of The
First National Bank of Boston will be standing by the main
entrance of the Shoreham Americana Hotel between the hours of
7:15 p.m. and 7:45 p.m.
Should you have any questions, we can be reached at our
Headquarters Suite No. 1-140 located in the Wardman Tower of
the Sheraton-Park, by phoning 265-2000.
We look forward with much pleasure to having you with us.
Very truly yours
-1c22
)
P. S. I thought you would be interested in having a list of those °\\
who will be joining us for dinner.
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BOSTON, MASSACHUSETTS 02110 • TEL. (617) 434-2180
A Subsidiary of First National Boston Corporation
The First National Bank of Boston
Dinner, Sunday, September 24, 1978
Sheraton-Carlton Hotel
Washington, D.C.
Guest List - Preliminary
AUSTRALIA
Mr. Mac Brunckhorst
Managing Director
Australia and New Zealand Banking Group, Ltd.
351 Collins Street
Melbourne
Mr. D. N. Sanders
Deputy Governor
Reserve Bank of Australia
65 Martin Place
Sydney
BOTSWANA
Mr. Baledzi Gaolathe
Permanent Secretary Finance and Development Planning
Private Bag 008
Gaborone
Mr. Brenton C. Leavitt
Governor
Bank of Botswana
P.O. Box 712
Gaborone
Mr. Quet K. J. Masire
The Vice President and Minister of Finance
Office of the Vice President
Gaborone
CANADA
Mr. William Mulholland
President
Bank of Montreal
129 St. James Street
Montreal
COLOMBIA
Dr. Jorge Mejia Salazar
President
Banco de Bogota
Carrera 10a No. 14-33
Bogota
COSTA RICA
Mr. Herman Saenz Jimenez
Ministro de Hacienda
Gobierno de la Republica de Costa Rica
San Jose
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EGYPT
Mr. Addel Moneim Roushdy
Chairman
National Bank of Egypt
24 Sherif Pasha Street
Cairo
FRANCE
Mr. Marc Vienot
General Manager
Societe Generale
29 Blvd. Haussmann
75009 Paris
FEDERAL REPUBLIC OF GERMANY
Mr. F. Wilhelm Christians
Board of Management
Deutsche Bank A.G.
Duesseldorf
Dr. H. Fridrichs
Chairman
Dresdner Bank
Frankfurt/Main
Dr. Hans Ludwig Hennemann
Board of Management
Bank fur Gemeinwirtschaft
Frankfurt/Main
HONG KONG
Mr. Philip Haddon-Cave, Financial Secretary
Government of Hong Kong
Colonial Secretariat
Central Government Offices
Main and East Wings
Lower Albert Road
IVORY COAST
Dr. K. D. Fordwor
President
African Development Bank
B.P. 1387
Abidjan
Mr. Leon Naka
Director General
Caisse Autonome D'Amortissement
Abidjan
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_J
JAPAN
Mr. Masaru Hayami
Executive Director
The Bank of Japan
2-2-1 Nihonbashi HongoKucho
Chuo-Ku, Tokyo
Mr. Joji Itakura
President
Mitsui Bank Ltd.
1-2 Yurakucho, 1-chome
Chiyoda-ku, Tokyo 100
JORDAN
Dr. Mohammed Nabulsi
Governor
Central Bank of Jordan
P.O. Box 37
Amman
Mr. Abdel-Majid Shoman
Chairman
Arab Bank Ltd.
P.O. Box 68
Amman
KOREA
Mr. Byong-Hyun Shin
Governor
Bank of Korea
110-3 Ku Namdaemonn-ro
ChoongKu, Seoul
LIBERIA
Mr. Charles Greene
Governor
National Bank of Liberia
P.O. Box 2048
Monrovia
MALAYSIA
Ismail bin Mohamed Ali
Governor
Bank Negara Malaysia
P.O. Box 922
Kuala Lumpur, 01-02
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NIGERIA
Mr. 0. Vincent
Governor
Central Bank of Nigeria
Tinubu Square
P.M.B. 12194
Lagos
PANAMA
Dr. Nicolas Ardito Barletta
Minister of Planning & Economic Policy
Republic of Panama
Panama City
THE PHILIPPINES
Gregorio S. Licaros
Governor
Central Bank of The Philippines
Roxas Boulevard
Manila
SENEGAL
Mr. Louis Alexandrenne
Minister of Planning & Cooperation
Dakar
SINGAPORE
Mr. Michael Wong Pakshong
Managing Director
The Monetary Authority of Singapore
SIA Building
77 Robinson Road
SWEDEN
Mr. Alf Akerman
Managing Director
Skandinaviska Enskilda Banken
Gothenberg
SWITZERLAND
Mr. R.T.P. Hall
General Manager
Bank of International Settlements
Basle
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4
TOGO
Mr. Edouard Johnson
President
Administrateur de Societies
Sotogel, Johnson Brothers, Ltd.
Lomo
UNITED STATES
The Honorable G. William Miller
Chairman
Board of Governors of the Federal Reserve System
21st and Constitution Avenue, N.W.
Washington, D.C. 20051
Mr. Festus G. Mogae
Alternate Executive Director
International Monetary Fund
Room 804
700 19th Street, N. W.
Washington, D.C. 20431
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ITT World Communications
BOARD OF GOVERNNS
OF THE_
FEDERAL. RESERVE s
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1HANr YOU FOR YOUR INVITATION TO LUNCH ON iWi\IDAY 25Th
I MUCH Lut)A FORWARD TO SEEING YOU
IND REGARDS
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Federal Reserve Bank of St. Louis
EPTEi.ibER
.4.11.11.11
.L
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Date
September 21, 1978
To
Chairman Miller
Subject: Background Material for Visits
From
Charles J. Siegman
by Foreign Officials during 1978 IMF/IBRD
Meetings
The attached Tabs, itemized below, contain brief staff notes
that you may find useful in connection with the visits by foreign
officials during this period of international meetings.
Biographic
sketches of the visitors are also included.
DATE
OFFICIAL VISITOR
TAB
Friday, September 22
Luncheon
Yugoslavia's Finance Minister Petar Kostic,
National Bank of Yugoslavia Governor Ksente
Bogoev, and Ambassador Dimce Belovski
3:00 p.m.
Republic of China's Finance Minister
Philip C.C. Chang and Central Bank of
Republic of China Governor Kuo-hua
4:00 p.m.
Chiaki Nishiyama
Japan
Sunday, September 24
10:00 a.m.
Japan's Minister of Finance Tatsuo Murayama
(joining Secretary Blumenthal at Sheraton
Park)
Monday, September 25
Luncheon
Governor Gordon Richardson
3:30 p.m.
Mexico's Secretary of Finance and Public
Credit David IBARRA Munoz and Bank of
Mexico Director General Gustano ROMERO
Kolbeck (joining Secretary Blumenthal
at Sheraton Park)
4:30 p.m.
Saudi Arabia's Minister of Finance and
National Economy Muhammad ibn 'Ali Aba
al-Khayl (joining Secretary Blumenthal
at Sheraton Park)
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A
-2
Tuesday, September 26
Luncheon
Italy's Minister of Treasury Filippo Maria
Pandolfi, Bank of Italy Governor Baffi and
Ambassador Paolo PANSA CEDRONIO
4:00 p.m.
Israel's Minister of Finance Simcha Ehrlich
and Bank of Israel Governor Arnon Gafni
4:30 p.m.
Australia's Minister of Finance Eric Robinson
J
OECD Secretary General Emile van Lennep
K
Wednesday, September 27
4:45 p.m.
Thursday, September 28
10:00 a.m.
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Federal Reserve Bank of St. Louis
EC Vice President Francois-Xavier Ortoli
*
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Confidential: Telegram to G.W. Miller from Goesta Bohman, September 11, 1978.
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August 2, 1978
Dear Minister Bohman:
Thank you for advising ma of the proposed
meeting of the Group of Ten Finance Minis
ters sod
Central Bank Governors prior to the forthcomin
g
Interim Committee meeting in Washington.
1 shall
be pleased to attend the meeting on Satur
day
afternoon, September 23.
Best wishes.
Sincerely,
The lkmarmble Goesta Behman
Chairman of the Group of Ten
Ministry of Economic Affairs
Stockholm, Sweden
GWM:NB:ja
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Confidential: Telegram to G.W. Miller from Goesta Bohman, July 21, 1978.
Confidential: Telegram to G.W. Miller from Goesta Bohman, September 11, 1978.
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°GARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Corresicoondence
To
Members
From
Charles J. Siegman
f the Board
Date
September 22, 1978
,
Subject: Bac grouneMaterial for
September 25 Luncheon with Bank of England
Governor Richardson
Attached is a brief note on the current economic situation
in the United Kingdom that you may find useful in connection with the
I uncheon that the Chairman is hosting on Monday for Bank of England
Governor Gordon Richardson.
is also enclosed.
Attachments 2.
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Truman
A biographic profile of Governor Richardson
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Confidential: Biographical profile, Gordon William Richardson, September 9, 1977.
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SOARD OF GOVERNORS
or THE
FEDERAL RESERVE SYSTEM
Office Correspondence
TO
Mr. Promisel
From
David Howard
Date September 19, 1978
Subject: The Economic Situation in the
United Kingdom
There has been a pickup in economic activity in the United
Kingdom in recent months.
In the second quarter of 1978, industrial
production was about 4 per cent (s.a.a.r.) higher than in the final
quarter of 1977.
GDP in the first quarter of 1978 was 3.3 per cent
(s.a.a.r.) higher than in the previous quarter.
Consumption spending
has been particularly strong.
British inflation rates -- as measured by 12-month comparisons
are in single digits.
Wages, on the other hand, increased
by over 15 per cent between June 1977 and June 1978
roughly double
the rate of increase in consumer prices during that period.
In July,
the U.K. government announced its policy on wages for the subsequent
12 months.
The policy calls for a limit of 5 per cent on wage increases
during the period, with some provision for flexibility.
The policy is
nonstatutory and will be enforced primarily through the government's
influence in public sector wage increases and its ability to withhold
government contracts and assistance from private sector firms that do
not adhere to the policy.
(The policy is similar to the one in effect
during the previous 12-month period except that the wage norm is 5 per
cent rather than 10 per cent.)
The British current account has fluctuated sharply this year
and recorded a slight deficit (s.a.) during the first 8 months of the
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Federal Reserve Bank of St. Louis
Mr. Promisel
year.
2
Recently British authorities have been engaged in a program of
both early repayment and new borrowing in order to smooth out the public sector's external repayment schedule.
Since late 1977, some $3.5
billion in early repayments have been either made or announced, with
$2 billion going to the IMF.
($1 billion was repaid to the IMF in
April 1978; an additional $1 billion repayment has been announced, but
the repayment date has not yet been determined.)
During the same time
period, about $1.2 billion in new borrowings have been undertaken, including a $350 million New York bond issue.
The United Kingdom remains
eligible to draw under the IMF standby arrangement, but no further
drawings are expected.
In August, the Bank of England announced an extension of its
supplementary special deposit scheme (the "corset"), which specifies a
limit on the growth of banks' interest-bearing liabilities.
imposes penalties on individual banks that exceed the limit.
The scheme
This
measure is intended to keep monetary growth within the official target
range of 8-12 per cent for sterling-denominated M3 for the year ending
in April 1979.
Between April 1978 and August 1978, sterling M3 rose 3.8
per cent (s.a.a.r.).
(For the previous 12-month period, the target was
9-13 per cent, but actual sterling M3 growth was nearly 16 per cent.)
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S•
BOARD
GOVERNORS
OF
OF THE
FEDERAL
RESERVE SYSTEM
S 4
September 25, 1978
To:
Chairman Miller
From:
C. Siegman
The attached note by Yves Maroni,
who has just returned from a study visit
to Mexico, reports on some impressions he
gathered on looming problems in the Mexican
economy.
You may want to note the points
raised by Mr. Maroni in connection with
this afternoon's appointment with Mexican
officials.
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Mr. Truman
From
Yves Maroni
Dee September 2,l978
Subject:
ay
Difficulties Looming
in Mexico
While in Mexico, last week, I heard disturbing comments
about the country's situation and short-term prospects.
There is a strong likelihood that some of the performance
targets specified in Mexico's agreement with the IMF for the end
of the year will not be met.
The limit on the public sector deficit
will almost certainly be breached, perhaps by a wide margin.
The
target for net international reserves will probably be missed as
well.
There has apparently been some capital flight, and dollarization of the banking system is again increasing.
Wage increases have
been exceeding the guidelines set early this year.
Economic recovery
is surpassing expectations and bottlenecks are becoming widespread.
Within the Mexican Government, internal battles are being
waged on fiscal policy and wage policy, and the outcome, as between
austerity and expansion, is uncertain.
On exchange rate policy, a
minority believes that a crawling peg would not unsettle confidence,
but the majority fears that the slightest movement in the peso-dollar
rate would have damaging psychological effects.
The only bright spot is that external borrowings will be held
below the ceiling permitted by the IMF agreement.
The U.S. banks operating
in Mexico are aware of the economic and financial difficulties looming
ahead for the country, but they do not appear to be worried about them.
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Citations:
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Limited Official Use: Briefing Paper, "Meeting with Finance Ministers on Improving the
International Arrangement on Export Credits," Murray Ryss, September 25, 1978.
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A.
A
THI" FU. C.PLTArtY OF TIFF: TRITASURY
WASHINGTON
20220
.ti t. 0 07
Dear Er. Ministr:
On several occasions I have tried to ripphasi...e the
importance of taking o,ction this year to avoid the escalation
of competition with respoct to official export credits. An
export credit race can only be wa-FAeful and lead to un6osirahle
tensions between our governi.lonts. I cannot stress too
ronly
the need to act.
To facilitate negotiations on this important subject,
I would like to offer specific proposals desicined to reduce
the subsidy aspects in the provision of .officially suo:ported
export credits. As you know, the experts will meet in October
to review the International Arrangement on Guidelines for
Officially Supported Export Credits. Our experience in earlier
negotiations clearly indicates that expertF, cannot roake the
political decisions necessary to achieve substantial improvement
in the Arrangement. For this reason, I am raising the key issues
with you, the 112:nisi:ors of Finance o Canaoa and Japan, the
Minister of Economy of France, the Chancellor of the Exchecucr.
and the Vice President for External Relations of the Commission
of the European Communities.
My proposals to help achieve greater discipline and equitable
terms in our official export credit financing practices are:
1. (a) Revise the interest rate matrix in paragraph 3
of the Arrangement (which has been in effect since July 1, 1976)
by increasing interest rates by one-half to three-fourths of
a percentage point. The new matrix of minimum interest rates
would then read:
Number of Years in Maxi6m Repayment Term
Classification
of Country
Relatively Rich
Intermediate
Relatively Poor
2-5 years
8.25%
8.00%
7.75%
Over 5 to
.8.5
_ _._years
_ _.
8.25%
8.00%
Over 8.5 to
10 years
not applicable
not applicable
8.25%
(b) Where a guarantee and/or insurance is provided
for a transaction together with exchange risk insurance, the
financing package must conform to the terms of the Arrangement.
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Federal Reserve Bank of St. Louis
-22. Revise paragraph 5 of the Arrangement to
read:
Participants will not finance, guarantee or
insure local
costs related to those export credits to which
this Arrangement
applies.
3. .Pncorporate the rectors presently excludk .
the Arrangement as follows:
from
(a) Agricultural Comihojities - the provisions
of the Arrangement would apply where the repay
yent terri is
more than three years. All eounl_rins would
attempt to avoid
non-aid financing of agricultural comE-.odity
exports with
repayinent terms in excess of present pract
ices. If a Grains
Agreemc,.nt is negotiated, the terms of that
Agreement would take
precedence over this Arrangement with respe
ct to the financing
of reserve stocks.
(b) Aircraft - the provisions of the Arran
gement
would apply to officially supported sales
and lease transactions
except that:
The maximum repayment term shall be 10 years
for the sale or
lease of large commercial turbo-jet aircraft
with a minimum cash
payment of 15 percent and a minimum interest
rate of 8.50 percent.
Furthermore, Participants will not provide
special inducements,
such as landing rights, in connection with
the sale or lease
of aircraft.
(c) Nuclear Power Plants - the provisions
of the Arrangement would apply except as follo
ws:
(1) The maximum Repayment Term shall be 10
years for relatively rich countries, 12
years for intermediate countries and 15 years
for relatively poor countries;
(2) the minimum Interest Rate on credits to
relatively rich and intermediate countries
where the Repayment Term is over 8.5 years
shall be 8.50 percent; and
(3) the minimum Interest Rate on credits to
relatively poor countries where the Repayment
Term is over 10 years shall be 8.50 percent.
(d) Ships - the maximum Repayment Term for LNG
tankers shall be 15 years. Otherwise, the terms
of the Arrangement
would apply, except to those Participants that
have adopted the
OECD Understanding on Export Credits for Ships.
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Federal Reserve Bank of St. Louis
3
4. The use of mixed credit or parallel financincj
practices would be moderated by the following changes:
(a) Partiei),ants will not provide a tif.,(1 did
credit (or a mixed cr(;dit) with a grant element of less
than 25 percent to rrslatively rich countrios, intermediate
countries, or to advanced developin4 countries. (Adva)ced
developing countries include such countries as 1;razil,
Mexico, Algeria, Taiwan, Korea 'gc-ind Malaysia.)
(b) If a Participant intends to support a tied
aid credit (or a mixed credit) with a grant cler,nt of less
than 25 percent to any relatively poor country other than
advanced developing countries, the Participant shall give prior
notification in accordance with the procedure set forth in
paragraph 9(b)(1).
I hope it will be possible for us to discuss the basic
thrust of this proposal and reach a common understanding
during the Bank/Fund meetings at the end of September en what
might form the basis of an improved Arrant,tement.
May I have your views?
Best regards,
Sincerely,
W. Michael Blumenthal
His Excellency
Hans Matthofer
Minister of Finance
Bonn, Germany
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Document Type: Treasury
Citations:
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Limited Official Use: Issue Paper, Bank/Fund Meeting 1978, "International Arrangement
on Officially Supported Export Credits," Murray Ryss, September 18, 1978.
Limited Official Use: 1978 IMF/IBRD Annual Meetings, Consolidated Schedule for
Secretary Blumenthal, September 20, 1978.
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September 15, 1978
Talking Points on the International Monetary Fund
1.
The IMF is an international financial organization with
134 members including all of the major western countries (except
Switzerland) and two East European countries (Yugoslavia and Romania).
a.
Its purposes include the promotion of international
monetary cooperation, the facilitation of the expansion and balanced
growth of international trade, the promotion of high levels of employment, and the promotion of exchange stability.
b.
In accomplishing these objectives it makes loans
(generally 3-5 years) to members with balance-of-payments problems to
assist them in financing their deficits while the necessary corrective
measures are taken.
c.
It also advises countries on appropriate policies
conducive to domestic and global economic stability.
2.
In effect the IMF operates like a rudimentary world
central bank.
3.
One sensitive issue in Congress is the IMF's record on
human rights.
a.
The stabilization policies recommended by the IMF in
connection with its loans almost invariably impose hardship over the
short run on some within the borrowing country.
reality of adjustment programs.
This is the harsh
In fact, without the IMF's financial
assistance, the measures adopted by the country involved would have
to be even tougher.
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-2-
b.
Because the IMF's funds are drawn from all of its
members it is not feasible to control which countries might use the
dollars in the U.S. subscription.
c.
Because the objective of the IMF is international
monetary cooperation it is essentially self-defeating to try to deny
funds to countries whose record on human rights is less than laudatory.
4.
The resources of the IMF come from subscriptions (quotas)
of members.
a.
The U.S. quota is SDR 8405 million (about $10.5 billion.)
b.
Total IMF quotas are SDR 39 billion (about $49 billion).
c.
Consideration is now being given to an expansion of
IMF quotas to enable the IMF to have adequate resources to fulfill its
role over the next 5-7 years.
(Quota reviews normally occur every five
years; once completed, they may take 1-2 years to be ratified.)
d.
The IMF sometimes augments its resources by borrowing,
e.g., the General Arrangements to Borrow (to help finance loans to the
G-10 countries), the Oil Facility (drawing funds from OPEC primarily
to help finance the large deficits in the first several years after
the sharp increase in the price of oil) and the Witteveen Facility (to
assist countries with severe balance-of-payments problems).
e.
The IMF has also been selling gold (25 million ounces
over four years) and using the profits (the difference between the market
price and SDR 35 per ounce) to make low interest loans to its poorest
member countries.
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Federal Reserve Bank of St. Louis
-35.
In connection with Congressional approval of U.S. partic-
ipation in the Witteveen Facility, a question has arisen about
the
budgetary treatment of U.S. contributions (loans) to the Witteveen
Facility and of U.S. quota subscriptions.
It would be desirable to
handle such transactions outside of the budget, since they
are an
exchange of assets. (When we make a loan to the IMF we acquir
e an asset
that adds to our international reserves and that we can use if we
need
to borrow foreign currencies from the Fund.)
Opposition to this approach
stems from a number of sources: (a) aid opponents, (b) propon
ents of
comprehensive budgets, (c) proponents of tighter Congressiona
l control.
Each of these points can be argued, but the Administration
appears to
have lost them with regard to the Witteveen Facility legisl
ation.
How-
ever, the issue as far as future quota subscriptions has been
left open
for the moment.
6.
It should be noted that the United States has drawn on
(borrowed from) the IMF and might do so again as a bridgi
ng action to
strengthen the dollar.
7.
The IMF also has a role in the functioning of the inter-
national monetary system, trying to ensure that countries do
not adopt
predatory policies and do follow generally accepted standa
rds of international financial behavior.
8.
In connection with the IMF's responsibility with regard to
international liquidity, its members can decide to alloca
te SDR that can
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-4be used to finance payments imbalances.
given to a resumption of SDR allocations.
SDR 9.3 billion in 1970-72.
Consideration is now being
The only allocations were
The United States holds SDR 2.3 billion
(about $2.8 billion).
9.
At a time when the Europeans are thinking of setting up a
new "European Monetary System" that may diminish the role and importance
of the IMF, it is important that the IMF remain a strong global institution.
10.
It is useful to note that the weighted voting procedure
in the IMF has contributed to its strength as an international organization and to an effective U.S. role in the IMF. (The U.S. voting share
is just under 20 per cent which means we can block most major decisions.)
11.
The IMF is not, and should not be, designed to bail out
banks (with official funds) -- a frequent concern of some Senators,
e.g., Church.
12.
The IMF is also not an aid institution, which leads to
some of the criticism of it on human rights gounds.
13.
salaries.
Congress has been concerned about relatively high IMF
They are relatively high by Washington standards, but the
IMF argues that such salaries are necessary to attract the right international cross-section of staff members.
This whole issue is now under
intensive discussion in the IMF and IBRD (World Bank).
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Federal Reserve Bank of St. Louis
Nio
September 23, 197;1
Suggested Talking Points on the Euro-Currency Market Proposals
I. Proposal to reaffirm the standstill on placements by G-10 countries
of official reserves in Euro-markets
1. This is primarily a matter for the central banks and governments
of the other G-10 countries. (Note: we should not be put in a position
of telling countries where they can or cannot put their dollar holdings.)
2. We understand that the question of reaffirming the standstill
is under active discussion among the central banks represented at the BIS.
We are prepared to leave this matter in the hands of this group.
3. Reaffirmation of the standstill agreement would have a marginal
official
effect on the dollar to the extent that it led to some shifting of/dollar
deposits from the Euro-market to the U.S. market and this led to an increase
in Euro-dollar rates.
The action would be consistent with the Federal
Reserve 9oard's recent action reducing to zero the reserve requirement
on member banks' borrowings in the Euro-market.
4. Reaffirmation of the standstill agreement would have a marginal
effect on the size of the Euro-market to the extent that a withdrawal of
official dollar deposits was not matched by a reflow from other sources;
this might be cosmetically advantageous -- G-10 countries would seen as
more responsible in their reserve management not pursuing higher yields
at all costs. (Note: this fear of a shrinking of the Euro-market has been
the reason why the lank of England traditionally has opposed a reaffirmation
of the standstill agreement.)
5. We should realize that the amounts involved are relatively small.
(Note: we do not know how much of G-10 countries reserves are held in the
Euro-market, but such activity is
probably not widespread aside
from the
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Federal Reserve Bank of St. Louis
page 2
Unite,i Kingdom, Italy and France -- these countries borrow in the Euro-market
and this leads them to hold some of their reserves there.
The growth
of official deposits in the Euro-market in redent years has been primarily
the result of the activities of the non-G-10 countries, especially OPEC,
who are attracted both by the somewhat higher yields and the anonymity of
the market.)
II. Proposals to increase the "transparency" of the Euro-market
1. As far as proposals to increase the scope of reports on Euro-currency
assets and liabilities,
a. the PIS is actively pursuing efforts to increase the
coverage of its quarterly statistics to include (non-U.S.) banks in
off-shore banking centers; All br-inches of U.S. banks are now covered;
;J)/)
(e4
b. banks in the Cayman Islands are now ca*red; Hong Kong is
A
expected soon to supply such data; Singapore will then follow; it is
expected that the Bahamas will also; next Panama and Bahrain can be
approached; (See attached notes by 3ob Gemmill.)
c. national banking authorities should be encouraged to collect
information on their banks' worldwide activities, following the example of
U.S. authorities.
2. As far as the prudential r,spects of Euro-banking are concerned,
a. there may be scope for further discus:-,ions among bank
supervisors regarding ways to prevent excessive leveraging by banks
such discussions are
underway under the auspices of the
IS;
b. we are skeptical of the feasibility or usefulness of
setting up an elaborate system for the recording of Euro-credits borrower
by borrower.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
•
Office Correspondence
ro
Governor Wallich
From
Robert F. Gemmill
94A ,
Date
September 14, 1978
Subject: Conversation with Dealtry
concerning expanded coverage of quarterly
BIS figures on assets and liabilities
I asked Dealtry for an update on the status of the efforts to
expand coverage of the quarterly BIS figures.
He reported that the BIS will very shortly be publishing figures
for the first quarter of 1978.
haul of the French data.
These have been delayed because of an over-
The first quarter will also include figures for
Austria, Denmark and Ireland.
Dealtry has heard nothing more from Hong Kong.
The latest word
MEM=
he had was that they were expecting to collect data as of year-end 1978.
He said he might check with them to confirm that this was still the plan,
and I encouraged him in this.
If data for Hong Kong are available, Singapore
will also supply data (which are already being collected, but will not be
released to the BIS before Hong Kong data).
The Bahamas will not fall into line so long as the Far Eastern
centers are not supplying data, but Dealtry expects that Bahamas would
cooperate once Hong Kong and Singapore do.
cc:
Messrs. Truman, Mills, Dahl, Ms. Auerback
I.B. Section
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Federal Reserve Bank of St. Louis
BMW
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to internal or confidential information.
Citation Information
Document Type: Board of Governors
Citations:
Number of Pages Removed: 2
Confidential: Memorandum from Robert F. Gemmill to Under Secretary Solomon, "Prospects
for expanded coverage of BIS data on international lending," June 22, 1978.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
20220
OFFICE OF
ASSISTANT SECRETARY
FOR INTERNATIONAL AFFAIRS
September 18, 1978
MEMORANDUM FOR:
FROM:
SUBJECT:
11/p
Chairman G. William Miller (Alt. Gov. Designee)
Under Secretary Richard N. Cooper
Administrator John J. Gilligan
Under Secretary Sidney Harman
President and Chairman John L. Moore, Jr.
Chairman Charles L. Schultze
Special Representative Robert S. Strauss
President Paul A. Volcker
NI tlf
William C. Grant
Secretary, U.S. Delegation
1978 Annual Meetings of the IMF and IBRD
This is to inform you that Secretary Blumenthal requests
your participation as a member of the U.S. Delegation to the
1978 Annual Meetings of the Bank and Fund being held from
September 25 to September 28 at the Sheraton Park Hotel in
Washington. Other members of the Delegation whom the Secretary
has selected, including those from your agency, are shown in
the attached Delegation List.
The U.S. Delegation will again occupy the "C" Wing of
the 4th floor of the Sheraton Park Hotel (plan attached).
Private offices are available for the U.S. Governor, the
Alternate Governors, the Under Secretary of the Treasury
for Monetary Affairs, and the Assistant Secretary for International Affairs and their secretaries. Other offices may be
used by the other U.S. delegates as needed. Support will
again be provided by a small secretariat to handle documents,
mail, invitations and inquiries and provide other services.
The Delegation suite will be open from Sunday noon
until the close of the meetings. Unless badges have been
distributed earlier, they can be picked up at the Delegation
suite.
Secretary Blumenthal will brief the entire Delegation
Monday, September 25, at 9:00 a.m. in Meeting Room No. 2
of the Sheraton Park Hotel. The meetings begin at 10:00 a.m.
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Federal Reserve Bank of St. Louis
2
Delegation handbooks will be distributed to all members,
and copies of briefing material on Multilateral Issues
will be distributed to each participating agency before
the meetings.
The U.S. Governor will host a reception on Tuesday,
September 26 from 6:30 to 8:30 p.m. in the National
Gallery of Art East Wing for delegates and special
guests. The Chairman of the Annual Meetings, Finance
Minister Tengku Razaleigh Hamzah of Malaysia, will host
a reception for Governors and other participants on
Sunday, September 24 from 7:00 p.m. to 9:00 p.m. at
the Shoreham Americana Hotel.
Please get in touch with me (566-5378) or the
Secretariat (566-2182) if you have any questions.
Attachments
(1) Delegation List
(2) Floorplan
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Federal Reserve Bank of St. Louis
U.S. Delegation
IMF • IBRD - IFC - IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
UNITED STATES DELEGATION
"
GOVERNOR
*W. Michael Blumenthal, Secretary of the Treasury
ALTERNATE GOVERNORS
Richard N. Cooper, Under Secretary of State for
Economic Affairs (IBRD)
TEMPORARY ALTERNATE GOVERNORS
*Anthony M. Solomon, Under Secretary of the Treasury for
Monetary Affairs
*C. Fred Bergsten, Assistant Secretary of the Treasury
for International Affairs
*Sam Y. Cross, U.S. Executive Director, International
Monetary Fund
*Edward R. Fried, Executive Director, International Bank
for Reconstruction and Development
*John J. Gilligan, Administrator, Agency for International
Development
*Henry C. Wallich, Member, Board of Governors, Federal
Reserve System
CONGRESSIONAL ADVISERS
*James J. Blanchard, Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*Elford A. Cederberg, Member, House Committee on Appropriations
*Married
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secreta-p for Internationa; Affa -c
COOGRESSIUNAL ADVISERS (Cont'd)
*David W. Evans, Member, Subcommittee on International Trade,
Investment and Monetary Policy, House Committee on Banking,
Finance and Urban Affairs
*Henry B. Gonzalez, Chairman, Subcommittee on International
Development Institutions and Finance, House Committee on
Banking, Finance and Urban Affair.s
*Harold C. Hollenbeck, Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*John J. LaFalce, Member, Subcommittee on International
Development Institutions and Finance, House Committee
on Banking, Finance and Urban Affairs
*Matthew F. McHugh, Member, Subcommittee on Foreign Operations
House Committee on Appropriations
*Joseph G. Minish, Member, Subcommittee on International
Development Institutions and Finance, House Committee
on Banking, Finance and Urban Affairs
*Stephen L. Neal, Chairman, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*Jerry N. Patterson, Member, Subcommittee on International
Development Institutions and. Finance, House Cornittee
on Banking, Finance and Urban Affairs
*Henry S. Reuss, Chairman, House Committee on Banking, Finance
and Urban Affairs
*Edward R. Roybal, Member, Subcommittee on Foreign Ooerations,
House Committee on Appropriations
J.
lliam Stanton, Member, Subcommittee on Internacional
Trade, Investment and Monetary Policy, House Committee
on Banking, Finance and Urban Affairs
*Newton I. Steers, Jr., Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee
on Banking, Finance and Urban Affairs
*Louis Stokes, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
*C. W. Bill Young, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
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Federal Reserve Bank of St. Louis
3
ADVISERS
*H. K. Allen, First Vice President and Vice Chairman of the
Board, Export-Import Bank of the United States
*Robert B. Anderson, Former Secretary of the Treasury
*Joseph V.. Barr, Former Secretary of the Treasury
*Daniel E. Brill, Assistant Secretary of the Treasury for
Economic Policy
David Bronheim, Assistant Administrator, Aaency for
International Development
*John B. Connally, Former Secretary of the Treasury
*William P. Dixon, Alternate U.S. Executive Director,
International Bank for Reconstruction and Develop,7ent
*Henry H. Fowler, Former Secretary of the Treasury
Sidney Har7an, Uner qecrtarv of
*John G. Heimann, Comptroller of the Currency, Treasury Decart7ert
*Alan R. HolTes, Executive Vice President, Federal Reserve
of New York
B77'
*Robert D. Hormats, Deputy Assistant Secretary of State
for Economic and Business Affairs
*Gary C. Hufbauer, Deputy Assistant Secretary of the Treasury for
Trade and Investment Policy
Helen B. Junz, Deputy Assistant Secretary of the Treasury for
Commodities and Natural Resources
*Julius L. Katz, Assistant Secretary of State for Economic and
Business Affairs
*David M. Kennedy, Former Secretary of the Treasury
*Thomas Leddy, U.S. Alternate Executive Director, International
Monetary Fund
*Charles F. Meissner, Deputy Assistant Secretary of State for
International Finance and Development
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Federal Reserve Bank of St. Louis
MNIIIIMMEL
4
ADVISERS (Cont'd)
*John L. Moore, Jr., President and Chairman of the Board,
Export-Import Bank of the United States
*Arnold Nachmanoff, Deputy Assistant. Secretary of the Treasury
for Developing Nations
*William D. Nordhaus, Member, Council on Economic Advisors
*Henry Owen, Special Representative of the President for
Economic Summits
*Charles L. Schultze, Chairman, Council of Economic Advisors
*George P. Shultz, Former Secretary of the Treasury
*William E. Simon, Former Secretary of the Treasury
John W. Snyder, Former Secretary of the Treasury
*Robert S. Strauss, Special Representative for Trade Negotiations
*Edwin M. Truman, Director, Division of International Finance,
Board of Governors, Federal Reserve System
*Paul A. Volcker, President, Federal Reserve Bank of New York
*Frank A. Weil, Assistant Secretary of Commerce for Industry
and Trade
*F. Lisle Widman, Deputy Assistant Secretary of the Treasury for
International Monetary Affairs
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
C
WING
U.S Delegation Offices
4th Floor, Sheraton Park Hotel
C-442
Secretary Blumenthal
C-441
U/S Solomon
C-440
Secretary's Conference Room
C-444
Support Staff for:
40q0 adv_11. fli
Vf3
•
Secretary Blumenthal
U/S Solomon
C-443
Support Staff for:
A/S Bergsten
Chairman Killer
elm••11
'VIP
C-445
Chairmsr Miller
C-446
A/S Bergsten
C-447
Advisers
11 Z-446
State
Z-449
Advisers
C-450
Secretarial Support
C-451
Supplies/Copy Service/Mail
C-452
I.A. Secretariat
C-453
Reception
-454
Administration
M-477
Public Affairs
.06-1
S to ra 9e
•
THE SECRETARY OF THE TREASURY
WASHINGTON
20220
September 20, 1978
C:)
m
Dear Bill:
;NJ
I would like for you to feel free to join me in f\,)
my bilateral meetings during the Bank/Fund week. The
schedule is as follows:
Friday, September 22, 1978
3:00 p.m., Secretary's Office, Treasury
Meeting with Chancellor Healey, United Kingdom
4:30 p.m., Room A-403, Sheraton Park Hotel
Meeting with Chairman Razaleigh, Malaysia
VA
V
\/
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Federal Reserve Bank of St. Louis
Monday, September 25, 1978
3:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Ibarra Munoz, Mexico
4:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Abalkhail, Saudi Arabia
Tuesday, September 26, 1978
3:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister El Sayeh, Egypt
4:00 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Yeganeh, Iran
4:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Commissioner of Finance Oluleye, Nigeria
Wednesday, September 27, 1978
2:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Simonsen, Brazil
2
Wednesday, September 27, 1978 (Cont.)
4:00 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Meuzzinouglu, Turkey
4:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Silva, Peru
Thursday, September 28, 1978
2:30 p.m., Secretary's Suite, Sheraton Park Hotel
Meeting with Finance Minister Erlich, Israel
(tentative)
Would you please have someone in your office let my
assistant, Richard Fisher, 566-2335, know which meetings
you are likely to attend.
Best regards,
W. Michael Blumenthal
The Honorable
G. William Miller
Chairman
Board of Governors of the
Federal Reserve System
Constitution Avenue and 20th Street
Washington, D.C.
20551
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Of, THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Board of Gp_vernor3_
Froxn_
Edwin M. Truma_p_
Date
S_e_p_t leiter 21, 1978
Subject:
Attached for your information as background for the
IMF Annual Meeting next week is a paper prepared by Tom Connors
on recent IMF activities.
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Federal Reserve Bank of St. Louis
•
Thomas A. Connors
September 21, 1978
Recent Activities of the IMF
This note reviews some of the activities of the EgF since
the last Annual Meetings, one year ago.
Part I examines the recent
experience of EgF members with EMF stabilization programs.
Part II
reports on a number of developments over the past year that have
affected favorably the Fund's liquidity, and hence its ability to
lend.
I.
IMF Stabilization Programs
1.
Objectives of Negotiations.
IMF stabilization programs
are designed to restore domestic and external balance to a country
that is experiencing severe balance-of-payments adjustment problems.
A country that wishes to draw on Fund resources must usually negotiate
lj
an acceptable program with the Fund.
The program generally calls for
increased restraint on monetary and fiscal policies, and sometimes exchange rate depreciation.
The overall objective is to cut back domestic
demand so that resources can be reallocated toward net exports, without
resorting to selective restrictions and subsidies on trade and payments.
1/ The Fund offers some types of financing to members without the requirement of a satisfactory stabilization program--for example, compensatory financing for export shortfalls. However, the non-conditional
forms of ITIF financing have declined substantially as a share of total
IMF loan operations during the past two years.
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Federal Reserve Bank of St. Louis
-2
By successfully negotiating a program with the IMF, a
country becomes eligible, subject to certain conditions, to draw
specified installments of IMF resources over a period of one to three
years.
The conditions require that a country adhere to certain
quantitative policy performance criteria during the program.
The
criteria usually include ceilings on domestic credit expansion, on
bank lending to the public sector, and on foreign borrowings of
specified maturities.
reserves.
A floor is usually established for foreign
This places a limit on the amount of exchange market inter-
vention that can occur.
Sometimes, as a pre-condition, some specified
devaluation of the currency is required.
The macroeconomic criteria
are set at levels judged to be consistent with the achievement of
the balance-of-payments, income, and price targets of the program.
If the performance criteria are not met during the program, the country becomes ineligible to draw further installments until performance
becomes consistent with the program.
In some cases, the program may
be renegotiated, or the Fund may grant a waiver of the performance
requirement.
2.
Severity of IMF Programs.
The quantitative criteria set
by the Fund often imply an abrupt change from the past policies followed
by the authorities. ,This is understandable since misguided policies
are often largely responsible for the balance-of-payments difficulties
that the programs are designed to correct.
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Federal Reserve Bank of St. Louis
As part of its stabilization
- 3 -
programs, the Fund also often induces countries to alter key prices
in their economies.
It is common, especially in the developing
countries, for the authorities to set interest rates and producer
and consumer prices for agricultural staples at artificially low
levels.
Fund guidance sometimes leads to greater reliance on market
mechanisms, which usually has the effect of causing resources to be
more efficiently allocated.
The Fund's use of conditionality is somewhat controversial.
It has been charged that the Fund dictates conditions to countries
without taking into account the political consequences of its programs.
It is argued that the programs are too severe, with hardships being
imposed on the populations of the countries concerned.
In June 1978, the DAF Executive Directors reviewed Fund
conditionality for the first time in ten years.
There was a broad
consensus among the Executive Directors that conditionality was
necessary to safeguard adequately the Fund's resources.
Most felt
that the apparent 'harshness' was related to the fact that countries
wait too long before going to the Fund for assistance, and consequently
the adjustment problems have already grown to large proportions.
It
was also agreed that in general the Fund should not dictate to the
national authorities conditions on internal prices and subsidies
unless they directly affect the balance-of-payments position of the
country, or if the pricing structure severely strains the budgetary
finances of the government, and thereby affects its external position.
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Federal Reserve Bank of St. Louis
-4..
3.
Countries.
Recent Stabilization Programs Adopted in Problem
Twenty-one countries adopted conditional IMF programs
between January 1977 and mid-September 1978 (see Table 1).
Usually,
Fund programs run for one year, although programs can be negotiated
for longer periods if the Fund and the country think this is desirable.
In each case the amount is based on the country's financing
need, and more importantly on the unused portion of its quota
the
IMF. (Countries' quotas in turn have been determined by their importance
in world trade, their reserves, and their GNP.)
The countries listed in Table 1 have experienced various
degrees of success and failure under Fund programs.
The United Kingdom
has been quite successful in controlling inflation and improving its
balance of payments under its stand-by arrangement with the Fund.
However, growth in output and employment has been slow.
Argentina
has also shown dramatic improvement in its external position under the
Fund stabilization program, although progress toward containing inflation has been weak.
Egypt, Jamaica, Peru, and Zaire were much less successful
at implementing EgF programs originally negotiated in 1977.
They all
violated performance criteria by wide margins and became ineligible
to make further drawings under those programs.
The economic situations
in these countries did not improve without Fund programs and all but
Zaire have negotiated new programs with the IMF during 1978.
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Federal Reserve Bank of St. Louis
(Zaire is
Table 1
5.
DIAF Conditional Programs under Stand-By Arrangements
and the Extended Fund Facilityl/
January 1977 - September 1978
Country
Year/Month
of
arrangement
Length
of
21.12IEM
(in
Amount
Approved
SDR millions)1(
Amount not purchased
as of expiration date"
or as of July 31,1978
(in SDR millions)
1977
United Kingdom
Pakistan
Egypt
Italy
Zaire
Burma
Jamaica
Romania
Argentina
Peru
Sri Lanka
January
March
April
April
April
May
August
September
September
November
December
2 years
1 year
1 year
1 year 8 months
1 year
1 year
2 years
1 year
1 year
2 years 1 month
1 year
3,360.00
80.00
125.00
450.00
45.00
35.00
64.00
64.13
159.50
90.00
93.00
1,720.00
0
20.00
450.00
250.00
0
44.80
13.00
159.50
80.00
38.00
300.00
250.00
15.00
200.00
25.00
57.35
30.00
600.00
6.25
184.00
250.00
200.00
15.00
172.00
25.00
57.35
30.00
250.00
n.a.
n.a.
1978
Turkey
Zambia
Gabon
Jamaica
Panama
Portugal
Burma
Egypt
Guyana
Peru
April
April
June
June
June
June
July
July
July
September
2 years
2 years
1 year
3 years
1 year
1 year
1 year
3 years
1 year
2 years 5 months
1/ The Extended Fund Facility is a conditional stabilization program which allows for a longer
adjustment period than the conventional stand-by agreement. Jamaica and Egypt came under EEFs
during 1978.
2/ The value of the SDR is determined by a weighted basket of currencies. At the end of July
1978, 1 SDR equaled $1.26.
n.a. - not available.
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Federal Reserve Bank of St. Louis
-6
currently negotiating a new program.)
These countries have found that
successful negotiation and implementation of EgF programs are increasingly
important in getting further loans from commercial banks and official
donors.
II.
Resources of the IMF
1.
The Sixth Quota Increase and the Supplementary Financing
Facility (Witteveen Facility).
The long delayed Sixth Quota increase
finally took effect in April 1978.
This increased most members' quotas
by 25 per cent, with larger selective increases for the OPEC countries.
•
Total quotas were increased from SDR 29 billion to SDR 39 billion
($37 billion to $49 billion)-' with countries paying the entire increase in their own currency or seventy-five per cent in their own
currency and twenty-five per cent in SDRs or usable currencies specified
by the IMF.
With the Sixth Quota increase the U.S. quota now stands
at SDR 8,405 million ($10,590 million).
The Witteveen Facility, if it becomes effective, will provide
the Fund with temporary additional liquidity, which could then be used
to provide financing for countries with particularly severe adjustment
problems in relation to quota sizes.
Funds from the Witteveen Facility
would be made available in conjunction with drawings made under stand-bys
or extended fund facility arrangements.
The new facility should amount
1/ SDRs have been converted to dollar equivalent at 1 SDR = $1.26.
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Federal Reserve Bank of St. Louis
1
-7-
to approximately SDR 8.75 billion ($11.03 billion), with contributions
coming from the major OPEC countries, the United States, Germany,
Switzerland, Japan, and others.
The U.S. contribution would amount to
SDR 1.45 billion ($1.83 billion).
The Witteveen Facility should come
into effect once Congress approves the U.S. contribution, which it is
expected to do by the end of the calendar year.
2.
Fund Liquidity.
The payment of the Sixth Quota increase
and the early repayments by the United Kingdom have improved the Fund's
liquidity over the past year, while the Witteveen facility should
further improve the Fund's liquidity when it becomes effective.
The
various components of Fund liquidity are presented in Table 2.
Table 2
Fund Liquidity (end-period)
(in SDR billions)
1977
6.12
Usable currenciesil
(non U.S. dollar usable currencies)(2.92)
1.18
SDR holdings
Total
7.30
August
1978
16.00
(10.35)
1.20
17.20
1/ Usable currencies represent the total of the Fund's holdings.
of currencies of all members who are net creditors to the Fund.
The Fund's liquidity as of end-August is much improved over
that of December 1977.
and SDRs
The total holdings of usable Fund currencies
amounted to SDR 17.20 billion ($21.67 billion) at end-August
1978, about SDR 10 billion ($12.6 billion) more than at the end of 1977.
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Federal Reserve Bank of St. Louis
-8 -
It would appear that the U.S. could draw its reserve tranchc of
SDR 2.73 billion ($3.44 billion) if it chose to do so, without putting
undue strain on the Fund's liquidity position.
In light of the recent and prospective increases in liquidity,
the EMF has recently waived the traditional limit on borrowings under
regular credit programs of 100 per cent of quota.
In recent months
Turkey, Zambia, and Egypt have become eligible to draw over 150 per
cent of their quotas.
In all three cases, adjustment problems are
large in relation to quota size.
The purpose of the Witteveen Facility
is to accommodate similar sized financing needs for prospective borrowers,
without cramping the Fund's liquidity position.
It is hoped that the
additional amounts available will induce countries in need of adjustment
to seek the Fund's assistance at an earlier stage than they previously
would.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNOR':
OF THE
rEDERAt RESERVE
Dr. Heinz Sippel
1978SEP 1 8 r4111: 36
Vorsitzender des Vorstandes
Hessische Landesbank -Girozentrale -
f?ECEIVED
OFFICE OF THE CHAIRMAN
6000 Frankfurt am Main 1
JunghofstraBe 18-26
September 11th, 1978
To the Chairman
Federal Reserve Bank
Federal Reserve Building
Constitution Avenue
Washington D.C.
Dear Mr. Miller,
I would like to expncere
us the opportunity
g you on the of
the IMF-Meeting in
n. I would als
confirm the arrangen appointment
September 25th at 2made through
offices of Mr. Vandthe Geneva Am
the United Nations.
to
I
II
I can well imagine that your time schedule is very
especially during the IMF-Meeting and appreciate
highly your giving us some of your valuable time to
discuss matters of mutual interest, in particular the
international monetary situation and the interest
development.
I
Looking forward to meeting you, I remain,
yours sincerely,
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4t
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Federal Reserve Bank of St. Louis
Aueust 18, 1978
The Honorable William J. vanden Heuvel
The Representative of the United States
to the European Office of the United Nations
Geneva, Switzerland
Dear
r. Ambassador:
It would be a pleasure to meet with Dr.
Heinz Sippel and his colleagues from the
Hessische Landesbank during their visit in
September. May I suggest 2:30 PM on Monday,
September 25?
If this is not convenient, I
suggest Dr. Zippel contact my office at 452-3201.
Best wishes.
Sincerely,
BOARD Or
THE REPRESENTATIVE
:EIJERAL
OF THE
UNITED STATES OF AMERICA 1918
TO THE
EUROPEAN OFFICE OF THE UNITED NATIONS
GENEVA
;
...1
!
nix -8
II: 52
RECEIVE0
OFFICE OF rFIE
CH4IRM-1''
July 11, 1978
/11
Honorable G. William Miller
Chairman, Board of Governors
Federal Reserve System
Constitution Avenue between
Twentieth & Twenty-First Streets
Washington, D. C. 20551
1
,4s
Dear Mr. Chairman:
On July 7, Mr. Peter H. Stehli, Vice President of Paine, Webber,
Mitchell, Hutchins, International, Inc., of Geneva, contacted me
to ask if I could arrange an unofficial meeting with you for the
following top members of the Hessische Landesbank, Junghofstr. 18-26,
6 Frankfurt a. M., Germany:
Dr. Heinz Sippel
- Chairman of the Board
Dr. Herman-Adolf Kunisch - General Manager
Mr. Horst Elwenn
- Senior Vice President
QS
These gentlemen .11 b in Washington, D. C. for the World Bank
me
nd would be most appreciative if they could
meet with you uns ficj.all to discuss economic matters of mut
157ggt concerning the Uni e
a e
e many.
e essische Landesbank is one of the large German mutual savings 63nks and it has been
an important buyer and seller of American securities for many years.
I would appreciate hearing from you at your earliest convenience
as to whether and when an appointment might be set up.
With best wishes,
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Federal Reserve Bank of St. Louis
1 Vet4
William J. vanden Heuvel
United States Ambassador
ea
/
_ 4)
t.,
•
CASSA DI RISPARMIO DI TORINO
BANK ESTABLISHED IN ITALY IN 1827
U
S. REPRESENTATIVE OFFICE
375 PARK AVENUE
ALBERTO SALES
NEW YORK, N. Y. 10022
REPRESENTATIvE
TELEPHONE 421-6010
August 30, 1978
Mrs. Catharine Mallardi
Federal Reserve Board
Room 2046
20th and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Mrs. Mallardi:
Following your telephone conversations with
Mr. Bill Gallagher of Textron Inc. and myself, I
would like to confirm that the Chairman of our bank,
Mrs. Emanuela Savio, will be pleased to meet with
the Chairman of the Federal Reserve Board, Mr. Miller,
on Monday, September 25th at 3:00 p.m.
For your guidance, our party will be staying
at the Sheraton Carlton Hotel in Washington from
September 22nd to September 27th.
Thanking you for your kind attention and
assistance 3 we remain
Very truly yours,
CASSA DI RISPARMIO DI TORINO
alet
Alberto S'
U.S. Representative
AS/lc
CABLE ADDRESS: CARF1OEV NyC
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TELEX: 666491 (INTERNATIONAL), 147297 (DOMESTIC), 7105815021 (TWX)
REPRESENTATIVE OFFICES ALSO IN FRANKFURT AND IN LONDON
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Confidential: Biographical profile, David Ibarra Munoz, April 13, 1978.
Confidential: Biographical profile, Gustavo Romero Kolbeck, April 21, 1978.
Federal Reserve Bank of St. Louis
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Yves Maroni
September 13, 1978
Mexico--Key Issues
- The Mexican authorities are concerned that their access to financing
from national banks in the United States is being impeded by the Comptroller
of the Currency's proposal to aggregate loans to a government and loans to
certain other public sector entites in verifying that a national bank has
not loaned more than 10 per cent of its capital anl reserves to a single
borrowar.
U.S. bank claims on Mexico have declined significantly since
September 1977.
- The U.S. Government is asking Mexico to reduce the level of its
borrowings in real terms from the Inter-American Development Bank (IDB),
so that the IDB may channel more of its loans toward the poorest countries.
The basis for the U.S. request is Mexico's potential oil wealth and the
expected large income from it.
The Mexican authorities are not pleased
by this request.
- The slow growth of economic activity in Mexico over the last three
years has prevented the creation of enough new jobs to absorb all of the
new entrants to the Mexican labor force.
This has fueled intensified
pressures for illegal emigration to the United States.
Can Mexico's
economic growth be accelerated enough to prevent further increases in
unemployment ani reduce emigration pressures without rekindling inflationary pressures?
- The deceleration in the Mexican rate of inflation has slowed
significantly this year.
Unless it picks up momentum again, the con-
tinuation of wage moderation, on which further progress in the recovery
from the 1976 crisis depends, may be in jeopardy.
Can a renewed de-
celeration of inflation be achieved while the rate of economic growth
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Federal Reserve Bank of St. Louis
2
goes up?
Can it be achieved before labor unrest forces a relaxation
of wage restraints?
Can it bring the Mexican inflation rate down
to the level of the U.S. rate?
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Federal Reserve Bank of St. Louis
Yves Maroni
September 9, 1978
Recent Economic and Financial Developments
in Mexico
Mexico is continuing to recover from the crisis which forced
a sharp devaluation of the peso two years ago.
It is generally com-
plying with all of the quantitative criteria specified in its agreement
with the IMF, and it has already repaid the IMF nearly half of the
SDR 419 million ($485 million) that it borrowed from the IMF at the time
of the crisis.
The current account deficit was cut by 40 per cent from 1976
to 1977, as imports fell by about 10 per cent while exports rose by
about 20 per cent.
This year, the current account deficit will be
larger (perhaps $2.3 billion, up $500 million).
While exports may rise
by another 25 per cent, imports may go up more and interest payments on
the external debt are increasing.
Crude oil exports are sparking the 1978 rise in exports.
may exceed $1.7 billion this year, double last year's level.
They
The rise
in imports reflects mainly the implementation of the plans to develop
the oil and natural gas resources.
September 1
President Lopez Portillo announced
that Mexico has potential oil reserves of about 200 billion
barrels, and proven reserves of 20 billion barrels.
Mexico is building
a natural gas pipeline to supply its Northern industrial areas, but
failure to reach an agreement with the United States on a selling price
for the gas has, for the present, blocked plans to extend it to the U.S.
border.
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Federal Reserve Bank of St. Louis
2
Long-term external debts maturing this year total nearly $4
billion.
Another $2.7 billion in short-term external debt must be
refinanced.
External borrowings are continuing to exceed the amounts
needed merely to balance the country's international accounts,
because
reserves are being built up as called for under the IMF
agreement.
Reserves rose by $450 million last year and have risen a further
$100
million so far this year.
They were $1,820 million at the end of
August.11
The improvement in fiscal management begun last year, and the
consequent reduction in real terms in the public sector's demand
for
resources, are being continued this year.
The financial position of
business firms, that the devaluation had strained, has been strengt
hened
with the help of some increase in bank credit made possible mainly
by an
enlarged flow of funds toward the financial institutions after
interest
rates on deposits were raised.
As a result, private investment has shown
some signs of picking up after a lOng period of stagnation.
More
generally, economic activity, which grew slowly for more than
two years,
seems to be expanding more rapidly this year.
The marked degree of
wage moderation achieved last year in comparison with previou
s years
has continued so far in 1978.
The deceleration in the rate of inflation
was substantial last year, but has slowed significantly this year.
The favorable prospects for oil and natural gas exports and
the satisfactory progress of the recovery from the 1976 crisis have
1/ Including gold holdings of about $78.5 million, valued at SDR
35.00 per ounce.
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Federal Reserve Bank of St. Louis
3
strengthened Mexico's attractiveness for foreign lenders.
As a result,
Mexico has been able to raise all the funds it needed at interest rate
spreads which have declined substantially in the last year, and with
lengthening maturities.
In the second quarter this year, Mexico's Euro-
currency borrowings had an average spread of 1.14 per cent and
an
average maturity of 8.8 years, compared with 1.57 per cent and
5.4 years
in the same quarter last year.
However, between September 1977 and March 1978, U.S. bank
claims on Mexico declined by $1.4 billion, while claims of banks
in
other G-10 countries and Switzerland rose by $1.2 billion.
recent data are not available.)
(More
This appears to be the result of a
proposal by the U.S. Comptroller of the Currency to aggregate
loans to
a Government and loans to certain other public sector entitie
s in
verifying that a national bank has not loaned more than 10 per cent
of
its capital and reserves to a single borrower.
In the last 18 months, the peso-dollar exchange rate has
remained virtually unchanged, while the Mexican inflation rate
continued
to exceed that of the United States.
As a result, Mexico's competitive
position weakened vis-a-vis the United States. But it strengthened
vis-a-vis third countries, because, as the dollar depreciated against
other currencies, so did the peso.
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Number of Pages Removed: 3
Confidential: Biographical profile, Muhammad ibn Ali Aba al-Kuayl, October 17, 1977.
Federal Reserve Bank of St. Louis
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Martha Terrie
September 21, 1978
Recent Economic Developments in Saudi Arabia
Activity and Prices
--
Real GDP grew by 13.2 per cent in 1977, up from 8.4 per cent
in 1976.
--
This growth trend is expected to continue in 1978.
Consumer prices rose 11 per cent in 1977 down considerably from
the 31 per cent rise in 1976.
--
In the first half of this year crude oil production fell 17 per cent
over the first half of 1977 to 7.8 million barrels per day.
External Sector
Saudi Arabia's current-account surplus is projected to decline by
over 40 per cent in 1978 to approximately $11 billion (excluding
official transfers).
This drop will be the result of lower oil
revenues and the continued growth in imports (although this growth
is expected to slow to about 25 per cent from 30 per cent in 1977).
Total Saudi foreign economic assistance was almost $6 billion 1976
and probably somewhat higher in 1977.
It is expected to be somewhat
lower this year.
Current Issues
--
See the attached note by the Treasury staff discussing oil prices
and the dollar.
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Confidential: Oil Prices and the Dollar, Chase/Newman, September 7, 1978.
Federal Reserve Bank of St. Louis
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Extract from interview of Saudi Prince Fahd by Kuwaiti
publisher Jarallah
QUESTION:
What about oil and the dollar? Will you accept
the proposal for a basket of currencies, to
replace the dollar as the basis for oil-pricing?
ANSWER:
We have refused to exchange the dollar with a
basket of currencies. It is a complicated subject and needs a very long study. We are not
about to accept this proposal at present. We
believe that the dollar is the important currency.
In my information, T can say that the dollar will
regain its strength before the end of this year.
The dollar is the most powerful currency in
international investments. Furthermore, if we
accept the basket proposal, our revenues and
investments in dollars will be affected and that
is what we wish to avoid as we are the biggest
oil producing country. We also do not want any
other country to be harmed by this. In a very
important matter like this, the decisions should
be well studied.
QUESTION:
Will your highness raise oil prices?
ANSWER:
Western countries should realize that we do not
raise oil prices unless we are compelled to do
so. When we raised the oil prices last year to
cope with the prices of consumer and industrialized
products which shot up in a horrifying manner.
As long as international consumer items keep their
prices steady, we do not think of raising the oil
prices. There will be no oil price rise unless
the situation demands it.
SOURCE:
(-
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Federal Reserve Bank of St. Louis
Kuwait 04675 dated 8/23/78 (Unclassified)
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Restricted: Memorandum from Ted Truman to Chairman Miller, Bank of Israel, September 27,
1978.
Restricted: Background Information on the Direct Distributions of Profits from IMF Gold Sales,
September 27, 1978.
Confidential: Biographical profile, Arnon Gafni, September 5, 1978.
Confidential: Biographical profile, Simcha Ehrlich, September 5, 1978.
Confidential: Biographical profile, Haruo Maekawa, undated.
Confidential: Biographical profile, Emile van Lennep, August 24, 1978.
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$
Larry Promisel
September 21, 1978
The Organization for Economic Cooperation and Development
I.
The OECD has performed two major functions in recent years, so far
/
as general economic matters are concerned:I
-- It has provided the major forum for international discussion
of economic developments, policies, and prospects in industrial
countries and for the international coordination of policy.
-- The OECD Secretariat has prepared a great deal of material that
serves not only as background for OECD meetings but also as
major inputs into the work of analysts throughout the world
(including our own work here at the Fed).
The OECD's Economic
Outlook, published twice yearly, is the preeminent publication
of its kind.
II.
Most of the OECD meetings with which the Federal Reserve is involved
come under the aegis of the Economic Policy Committee (EPC), of which
Charles Schultzeis now Chairman.
The EPC!s Working Party 3, in which
Governor Wallich typically participates, deals with international payments and adjustment.
Other working parties deal with growth and
investment, inflation, and short-term economic prospects.
III.
Although the OECD Secretariat is basically an objective analytical and
statistical organization, since 1974 it has consistently advocated more
expansionary demand management policies on the part of those countries
with strong external positions (notably Germany and Japan and, until
/
1 The OECD is also involved with other areas, such as development and
North/South issues, industry, energy, manpower, agricultural, and
science.
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Federal Reserve Bank of St. Louis
-2
the past year or so, the United States).
The Secretariat's persistent
urging in the direction of more expansionary policies reflects:
-- The fact that its forecasts for activity have generally
been more pessimistic than those of national forecasters
(and have, by and large, turned out to be more accurate),
and
-- The staff is dominated by English economists whose training
has led them to favor active government spending policies to
stimulate aggregate demand.
Stephen Marris, Secretary General
van Lennep's chief economic adviser, shares this orientation.
IV.
The Secretariat has also encouraged national authorities to consider
incomes policies in one form or another.
V.
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Federal Reserve Bank of St. Louis
The issue that the Secretariat is now pushing to the forefront of
international discussion involves what it calls "positive adjustment
policies" (PAP), i.e, structural or supply-oriented policies -- designed
to complement aggregate demand policies -- to increase investment and
improve the allocation of resources over time.
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Confidential: Biographical profile, Emile van Lennep, June 8, 1976.
Federal Reserve Bank of St. Louis
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3
BOARD OF GOVERNORS
OF TME
FEDERAL RESERVE SYSTEM
Office Correspondence
To
From
Date
Subject:
George L. Spencer, Jr.
September 25, 1978
Reception for central bank
delegates--Wednesday, September 27, 1978
Attached for your information is a listing of the persons
who have been invited to the reception to be held between 6:00-8:00 p.m.,
Wednesday, September 27, 1978, honoring central bank officials and their
spouses who are in Washington this week for the annual IMF/IBRD
meetings. This listing has been compiled (as of 9/21/78) on the basis
of replies to a letter of invitation sent to the heads of foreign central
banks, and from information furnished by the International Monetary
Fund/World Bank regarding the composition of the delegations.
ARRANGEMENTS
The reception will be held on the Terrace Level of the
Martin Annex Building.
There will be no formal receiving line. However, it is
suggested that Members of the Board and their spouses place themselves
near the two entrances to the Terrace Dining Room in order to greet
the guests as they enter.
Members of the staff and their spouses are requested to
place themselves where the guests are likely to gather as the
reception gets under way: the Podium Level, and the hallway adjacent
the three elevators on Terrace Level. The staff should greet the
visitors and escort them to the Terrace Dining Room and introduce
them, when practical, to the Members of the Board.
Chartered buses will be available at the Sheraton-Park
Rotel (where the annual meetings are taking place) to bring the
visitors to the Board's reception, leaving the hotel at 5:45, 6:05,
6:45 and 7:10 p.m. Chartered buses will leave the "C" Street
entrance to the Martin Annex for the Sheraton-Park at 6:35, 7:30,
and 8:15 p.m.
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Federal Reserve Bank of St. Louis
As of 9/21/78
Central Bank Delegates Invited to
Attend Board's Reception on
Wednesday, September 27, 1978
Invitees
Afghanistan
(The Afghanistan Bank)
Mohammed Hakim
Mohammad Akbar
Algeria
(Central Bank of Algeria)
Seghir Mostefai
Mohamed Bessekhouad
Rachid Bouraoui
Argentina
Australia
N.
A.
J.
L.
President
Advisor, Office of President
Director
Director
General Manager
Deputy General Manager
Deputy General Manager
Manager, Foreign Department
(Reserve Bank of Australia)
Sanders
Johnston
Phillips
Howitt
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Director of Research
Director of Credit
(Central Bank of the Argentine Republic)
Adolfo C. Diz
Ricardo H. Arriazu
Francisco P.N. Soldati
Enrique Folcini
*Pedro Camilo Lopez
Horacio A. Alonso
Elias Salama
Antonio E. Conde
*D.
*R.
M.
E.
Governor
First Deputy Governor
Deputy Governor
Chief Manager, Int'l Dept.
Secretary to Deputy Governor
-2-
Austria
(Austrian National Bank)
*Stephan Koren
Philipp Rieger
Erwin Schmidbauer
Ferdinand Hain
Bahamas
(The Central Bank of the Bahamas)
Timothy B. Donaldson
Bahrain
Bangladesh
Director General
Adviser to the Board
(Bangladesh Bank)
M. Nurul Islam
Governor
(Central Bank of Barbados)
Courtney N. Blackman
Winston Cox
Belgium
Governor
(Bahrain Monetary Agency)
*Abdulla Hassan Saif
Alan E. Moore
Barbados
President
Executive Director
Assistant to the President
Chief, Int'l Division
Governor
Deputy Director
(National Bank of Belgium)
*Cecil de Strycker
Georges Janson
Roger Vanden Branden
Andree Gruloos
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Director, Nat'l Bk. of Belgium
Head of Foreign Department
Secretary to Governor
-3-
Benin
(Centrale des Etats de l'Afrique de l'Ouest)
*Guy Pognon
National Director
(Central Bank of Bolivia)
Bolivia
*Jose Justiniano
Milton Paz
Botswana
President
General Manager
(Bank of Botswana)
*Brenton C. Leavitt
B. Gaolathe
Dr. Masire
Governor
Permanent Secretary
Minister of Finance
Brazil (Central Bank of Brazil)
*Paulo H. Pereira Lira
Fernao C. B. Bracher
Luiz Barbosa
Burma
President
Dir, for the External Area
Adviser to the Board
(Union of Burma Bank)
U. Aye Hlaing
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Chairman
-4-
(Bank of the Republic of Burundi)
Burundi
Governor
Vice Governor
Elisee Ntahonikora
Aloys Ntahonkiriye
Cambodia
Cameroon
(Banque des Etats de l'Afrique Centrale)
Gottlieb Titti
Canada
National Director
(Bank of Canada)
*Gerald K. Bouey
Alain Jubinville
Central African Empire
Jean Marie M'Bioka
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Deputy Governor
(Banque des Etats de l'Afrique Centrale)
National Director
•
-5-
Chad
(Banque des Etats de l'Afrique Centrale)
Machayl Bako
Chile
(Central Bank of Chile)
Alvaro Bardon M.
Roberto Guerrero
Enrique Tassara T.
Adolfo Goldenstein K.
China
National Director
President
General Counsel
Dir. of Int'l Operations
Manager, Reserves Admin.
(Central Bank of China)
Kuo-Hwa Yu
Kan Lee
H. P. Chia
Paul T. M. King
Colombia
(Bank of the Republic)
Comoros
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Managing Director
General Manager
Director of Secretariat
-6-
Congo
(Banque des Etats de l'Afrique Centrale)
National Director
*Gabriel Bokilo
Costa Rica
(Central Bank of Costa Rica)
Guillermo Gonzalez Truque
Roberto Picado Hidalgo
Otto Kikut Croceri
Cyprus
Executive President
Director, Monetary Department
Director, Economic Division
(Central Bank of Cyprus)
Governor
Manager, Economic Research Dept.
*C. C. Stephani
H. G. Akhniotis
Denmark
(National Bank of Denmark)
Chairman, Board of Governors
Member, Board of Governors
Assistant Director
Assistant Department Head
*Erik Hoffmeyer
Svend Andersen
Henning Dalgaard
Hans Flinch
Dominican Republic
(Central Bank of the Dominican Republic)
*Eduardo Fernandez P.
Carlos Despradel
Opinio Alvarez
George Arzeno
* Spouse accompanying
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Governor
Economic Adviser to Governor
Technical Financial Asst.
Member of the Monetary Board
-7-
Ecuador
(Central Bank of Ecuador)
Rodrigo M. Espinosa
Ricardo Munoz Chavez
Eduardo Cabezas
Celso Maldonado
Jose Mario Rumazo
Egyyt
General Manager
President, Monetary Board
Adviser to General Manager
Adviser to General Manager
Adviser to General Manager
(Central Bank of Egypt)
Mohamed Abdel Fattah
Farouk Fouad Meshreki
Nasser Sayed Morsi
El Salvador
Governor
Director General
Personal Assistant to Governor
(Central Reserve Bank of El Salvador)
*Victor Hugo Hurtarte
Eusebio Martell
Mauricio Daniel Vides Casanova
*Rafael Rodriguez Loucel
Jose Edilberto Martinez
President
Director
Director
Chief, Dept. of Economics
Equatorial Guinea
Ethiopia
(National Bank of Ethiopia)
Legesse Tickeher
Atnafou Mengistu
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Manager, Foreign Bkng. Section
-8-
Fiji
(Central Meonetary Authority of Fiji)
*H. J. Tomkins
Finland
(Bank of Finland)
Mauno Koivisto
Pentti Uusivirta
Kari Pekonen
Kaarlo V. Jannari
France
Governor
Member of Board of Management
Head, Exchange Policy Dept.
Acting Head, Exchange Policy
(Bank of France)
Bernard Clappier
Marcel Theron
*Gabriel Lefort
Gabon
General Manager
Governor
Deputy Governor
Managing Dir., Foreign Dept.
(Banque des Etats de l'Afrique Centrale)
Jean-Paul Leyimangoye
National Director
The Gambia
S. S. Sisay
J. A. Solheim
A. K. Mambouray
*Spouse
accompanying
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Federal Reserve Bank of St. Louis
Governor
Chief Economist
Economist
=11.
-9-
(Deutsche Bundesbank)
Germany
*Otmar Emminger
*Karl Otto Poehl
Helmut Schlesinger
Kurt Nemitz
Wolfgang Rieke
Dieter Schmoelling
Ruediger von Rosen
Ghana
Governor
Deputy Governor
Member of the Board
President, L
• andeszentralbank
Department Head
Assistant to Governor
Assistant to Deputy Governor
(Bank of Ghana)
A. E. K. Ashiabor
Botchway
E. W. Asumang
Greece
Governor
Deputy Governor
Deputy Chief
(Bank of Greece)
*Xenophon Zolotas
Dimitrios Chalikias
*Michael Vranopoulos
Frosso Stefanitsis
Governor
Economic Adviser
General Manager
Secretary to Governor
Grenada
Guatemala
(Bank of Guatemala)
Plinio Grazioso
Carlos H. Alpirez P.
Federico Linares M.
Mario Mejia G.
Julio Noriega H.
*Spouse accompanying
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Federal Reserve Bank of St. Louis
President
Manager
Director, Dept. of Eco. Studies
Director, Foreign Exchange Dept.
Chief, Financial Inst. Section
-10-
Guinea
(Central Bank of the Republic of Guinea)
Kory Kondiano
Guinea-Bissau
(National Bank of Guinea-Bissau)
Victor Freire Monteiro
Augusto B. Evora
Jose A. Lopes
Jose P. Vaz
Guyana
Governor
Inspector
Director
Head of Department
(Bank of Guyana)
Patrick E. Matthews
Haiti
Director of Research
Governor
(National Bank of the Republic of Haiti)
Honduras
(Central Bank of Honduras)
Guillermo Bueso
Gonzalo Carias Pineda
*Spouse accompanying
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Federal Reserve Bank of St. Louis
President
Assistant to President
-11-
Iceland
(Central Bank of Iceland)
*Johannes Nordal
*Sigurgeir Jonsson
India
(Reserve Bank of India)
I. G. Patel
Indonesia
Governor
Managing Director
Official of Bank Indonesia
Official of Bank Indonesia
Representative of Bank in N.Y.
Official of Bank in Washington
(Bank Markazi Iran)
Youssef Khoshkish
Shapur M. Shirazi
Ali Manavi-Rad
Iraq
Governor
(Bank Indonesia)
*Rachmat Saleh
*Arifin M. Siregar
TJ. A. Partha Sukawati
Aulia Pohan
*A. Effendie
*Djamalius Luddin
Iran
Governor and Chairman
Director
Governor
Vice Governor
Director, Int'l Relations Dept.
(Central Bank of Iraq)
Izziddin Saleem
Sabhi Frankool
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Acting Governor
Adviser
-12-
Ireland
(The Central Bank of Ireland)
*C. H. Murray
Israel
(Bank of Israel)
*Arnon Gafny
Eliezer Sheffer
Moshe Meirav
Avraham Van De Hal
Italy
Governor
Governor
Deputy Governor
Director, Foreign Department
Foreign Department
(Bank of Italy)
Paolo Baffi
Giuliano Monterastelli
Giovanni Magnifico
Fabio Bonci
*Fabrizio Saccomanni
Ivory Coast
(Banque Centrale des Etats de l'Afrique de l'Ouest)
*Laraine Diabate
Jamaica
Governor
Central Operations Manager
Economic Adviser
Director
Division Chief, Research Dept.
National Director
(Bank of Jamaica)
*Herbert S. Walker
Lloyd F. Muschette
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Acting Governor
-13-
Japan
(The Bank of Japan)
Haruo Mayekawa
Masaru Hayami
Shijuro Ogata
Akira Aoki
Kumiharu Shigehara
Yoshiharu Obata
Satoshi Shiibashi
Jordan
(Central Bank of Jordan)
Mohammad Saleh
Kenya
D.
A.
D.
A.
Governor
Deputy Governor
Director
Director of Research
(Bank of Korea)
Byong Hyun Shin
Eun Shik Chuh
Seung Chul Ahn
Hoon Shim
Chong Hack Chung
Kuwait
Executive Manager
(Central Bank of Kenya)
N. Ndegwa
Abdallah
M. Kayanda
N. Komora
Korea
Deputy Governor
Executive Director
Adviser to Governor
Representative in New York
Associate Adviser, Foreign Dept.
Assistant Representative in N.Y.
Secretary to Deputy Governor
Governor
Assistant Governor
Deputy Director
Chief, Int'l Cooperation Div.
New York Representative
(Central Bank of Kuwait)
Hamzah Abbas Hussein
Mabarak Faleh AI-Noot
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Manager, Foreign Operations Dept
-14-
Laos
(National Bank of Laos)
Leuane Somboukhan
Lebanon
Acting Director
(Bank of Lebanon)
Michel El-Khoury
Governor
Lesotho
Liberia
(National Bank of Liberia)
*Charles A. Greene
Libyan Arab
(Central Bank of Libya)
K. M. Sherlala
Mohamed Finaish
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Governor
Economic Adviser
-15-
Luxembourg
Pierre Jaans
Madagascar
(Central Bank of Madagascar)
*Leon M. Rajaobelina
Renee Razafintsalama
Malawi
Commissioner for Banking Control
Governor
Director of Research
(Reserve Bank of Malawi)
J. Z. U. Tembo
H. M. Mapondo
J. Chikapa
Governor
Senior Research Officer
Assistant General Manager
Malaysia
Tan Sri Ismail bin Mohamed All
Lin See Yan
Khong Kim Nyoon
Kamal Ibrahim
Mali
Governor
Economic Adviser
Senior Economist
Administrative Officer
(Central Bank of Mali)
Ismaila Kanoute
Albert Clary
*Spouse accompanying
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Federal Reserve Bank of St. Louis
President
Director General
-16-
Malta
(Central Bank of Malta)
Lino Spiteri
Emanuel Ellul
Mauritania
(Central Bank of Mauritania)
Dieng Boubou Farba
Naim H. Chaar
Mauritius
Governor
Director, Research Department
(Bank of Mexico)
*Gustavo Romero Kolbeck
*Alfredo Phillips 0.
*Leopoldo Solis
*Francisco. Suarez Davila
*Ariel Buira Seira
Na. Concepcio Rubio
Morocco
Governor
Adviser
(Bank of Maritius)
Goorpersad Bunwaree
S. S. Tarapore
Mexico
Deputy Governor
Head of Research Department
Director General
Deputy Director
Deputy Director
General Manager
Manager
Private Secretary of Dir. Gen.
(Bank of Morocco)
H. H. Prince Moulay Hassan Ben El Mehdi
Ahmed Bennani
*Spouse accompanying
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Federal Reserve Bank of St. Louis
r,overnor
Vice Governor
-17-
Nepal
(Nepal Reserve Bank)
Kul Shekhar
Netherlands
J.
A.
D.
J.
E.
Governor
(The Netherlands Bank)
Zijlstra
Szasz
H. Boot
G. J. van Delden
F. Mansur
New Zealand
Netherlands
Antilles
(Reserve Bank of New Zealand)
R. W. R. White
Nicaragua
President
Executive Director
Deputy Director
Managing Director
Chairman, Board of Directors
Governor
(Central Bank of Nicaragua)
Roberto Incer B.
Carlos G. Muniz B.
Guillermo Solorzano A.
Mario Alonso
President
Manager
Assistant to the Presidency
Director, Special Development
Niger, (Banque Centrale des Etats de l'Afrique de l'Ouest)
*Boukary Adji
*Spouse accompanying
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Federal Reserve Bank of St. Louis
National Director
-18-
Nigeria
0.
G.
S.
M.
E.
S.
(Central Bank of Nigeria)
O.
O.
B.
A.
A.
I.
Vincent
Nwankwo
Falegan
Uduebo
Ajayi
Nmakwe
Norway
(Norges Bank)
Knut Getz Wold
*Hermod Skanland
Arne Lie
Bjarne Hansen
Oman
Governor
Deputy Governor
Director
U.S. and Canada Representative
(Central Bank of Oman)
*Yusuf A. Nimatallah
Tariq Al Jamali
Pakistan
Deputy Chairman and President
Vice President
(State Bank of Pakistan)
A. G. N. Kazi
Ziauddin Ahmad
Panama
Governor
Executive Director
Director of Research
Deputy Director of Research
Senior Economist
Confidential Secretary to Gov.
(National Bank of Panama)
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Deputy Governor
-19-
Papua New Guinea
(Bank of Papua New Guinea)
Henry To Robert
*J. A. Spicer
Paraguay
(Central Bank of Paraguay)
Cesar Romeo Acosta
Augusto Colman V.
Peru
Governor
Manager, Bkng. & Finance Dept.
President
Manager
(Central Reserve Bank of Peru)
Manuel Moreyra Loredo
Felipe Reategui
Philippines
(Central Bank of the Philippines)
*Gregorio S. Licaros
Cesar C. Zalamea
Benito Legarda, Jr.
Gabriel C. Singson
Escolastica B. Bince
Guillermo V. Soliven
Oscar de los Santos
Portugal
President
Chairman and Governor
Member, Monetary Board
Deputy Governor
Deputy Governor & Gen. Counsel
Special Assistant to Governor
Special Assistant to Governor
Bank Executive Assistant II
(Bank of Portugal)
Emilio Rui Vilar
Vitor Constancio
Carlos Saldanha do Valle
Abdool Vakil
Antonio dos Santos Labisa
*Spouse accompanying
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Acting Governor
Vice Governor
Director, Int'l Relations Dept.
Deputy Director, Foreign Dept.
Deputy Director, Int'l Dept.
-20-
Qatar
(Qatar Monetary Agency
*Jawad Azzeh
Romania
Head, Research Department
(National Bank of the Socialist Republic of
Romania)
Vasile Rauta
Rwanda
(National Bank of Rwanda)
Jean Baptiste Ngirabacu
Mr. Ntirugilimbabazi
Mr. Munyarukiko
Mr. Ndagijimana
Saudi Arabia
Senegal
Governor
Executive Director
(Saudi Arabian Monetary Agency)
(Banque Centrale des Etats de l'Afrique de l'Ouest)
*Ady Khaly Niang
*Spouse accompanying
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National Director
-21-
Sao Tome and Principe
(National Bank of Sao Tome and Principe)
Victor Manuel Lopes Correia
Manuel de Nazare Mendes
Sierra Leone
Governor
Director
(Bank of Sierra Leone)
S. L. Bangura
Governor
Singapore (The Monetary Authority of Singapore)
Michael Wong Pakshong
Ng Kok Song
Somalia
(Central Bank of Somalia)
Mohamud Jama Ahmed
Ali Mohamed Ibrahim
South Africa
*G.
J.
*B.
B.
*C.
Managing Director
Deputy Manager, Int'l Dept.
(South African Reserve Bank)
P. C. de Kock
C. du Plesis
P. Groenwald
Van Staden
H. du Toit
*Spouse accompanying
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Governor
Assistant Director General
Senior Deputy Governor
Deputy Governor
Permanent Resident Rep., IMF
Adviser
Attache, South African Mission
-22-
Spain
(Bank of Spain)
Jose Ramon Alvarez Rendueles
Antonio Sanchez Pedreno
Luis Angel Rojo
Agustin de Alcocer
Sri Lanka
Governor
Director, Foreign Affairs Dept.
Director General of Research
General Secretary
(Central Bank of Ceylon)
H. E. Tennekoon
Governor
Sudan (Bank of Sudan)
Suriname
(Central Bank of Suriname)
V. M. de Miranda
L. J. Budhu Lall
Swaziland
(The Monetary Authority of Swaziland)
H. B. B. Oliver
Sweden
President
Legal Adviser
Acting Governor
(Bank of Sweden)
Carl-Henrik Nordlander
Hans Lundstrom
Arne Linda
Sven-Olof Johansson
*Spouse accompanying
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Governor
Deputy Governor
Director
Head of Division
-23-
Syrian Arab Republic
(Central Bank of Syria)
*M. Riffat Accad
Tanzania
Governor
(Bank of Tanzania)
*C. M. Nyirabu
D. G. Mboyi
Thailand
Governor
Finance Manager Officer of Treas-
(Bank of Thailand)
Snoh Unakul
Sompong Thanasophon
Viyada Avilasakul
Chaiyawat Wibulswasdi
Togo
Governor
Assistant Governor
Assistant Director
Chief, Int'l Economic Res. Sec.
(Banque Centrale des Etats de l'Afrique de l'Ouest)
K. Klousseh
Trinidad and Tobago
*V. E. Bruce
Eurice Issac
accompanying
*Spouse
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Federal Reserve Bank of St. Louis
National Director
(Central Bank of Trinidad and Tobago)
Governor
Secretary to Governor
-24-
Tunisia
(Central Bank of Tunisia)
Mohamed Ghenima
Mohamed Bouaouaja
Turkey
Governor
Director of Research
(Central Bank of Turkey)
Yavuz Canevi
Uganda
General Director, Exchange Dept
(Bank of Uganda)
C. Oneigi Obel
A. S. Njala
United Arab Emirates
United Kingdom
Governor
Director of Research
(United Arab Emirates Currency Board)
(Bank of England)
*Rt. Hon. Gordon Richardson
*C. W. McMahon
J. A. Kirbyshire
B. Quinn
D. Ryan
accompanying
*Spouse
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Federal Reserve Bank of St. Louis
Governor
Executive Director
Chief Adviser
Adviser
Secretary
-25-
Upper Volta
(Banque Centrale des Etats de l'Afrique de l'ouest)
Kassoum Congo
Uruguay
(Central Bank of Uruguay)
*Jose Gil Diz
Juan Alberto Chiarino Rossi
Juan Jose Anichini
Carlos Koncke
Juan A. Olascoaga
Venezuela
President
Director
General Manager
Manager, Economic Research
(Central Bank of Venezuela)
*Benito Roul Losada
Francisco Garcia Palacios
Rosevelt T. Velasquez
Aura Osuna de Carasco
Viet Nam
National Director
President
Adviser to President
Adviser to President
Assistant to Vice President
(State Bank of Viet Nam)
Tran Duong
Nguyen Manh Thuy
Le Hoang
Western Samoa
Minister, Director General
Senior Economist
Director, Foreign Department
(Bank of Western Samoa)
K. W. Taylor
R. H. Carruthers
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Senior Manager
Director
-26-
Yemen Arab Republic
(Central Bank of Yemen)
Abdulla Sanabani
Yemen, People's Dem. Republic
Governor
(Bank of Yemen)
Ahmed Obeid Fadhli
Yugoslavia
(National Bank of Yugoslavia)
Ksente Bogoev
Ilija Marjanovic
Borivoje Jelic
Gordana Hofmann
Dusan Velickovic
R. V. Mitrovic
V. Zlatic
Zaire
Governor
Deputy Governor
Gov., Nat'l Bk. of Serbia
Director
Assistant in the Bank
Protocol
Secretary
(Bank of Zaire)
Bofossa w'Amb'ea Nkoso
Muanda di Baziuki
Fiti Mombo
Buhendwa bwa Mushaba
Zambia
Governor
Governor
Adviser
Secretary to Governor
Director of Research
(Bank of Zambia)
L. J. Mwananshiku
G. B. B. Mbulo
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Director of Research
-27-
OBSERVERS
Bank for International Settlements
*Rene Larre
R. T. P. Hall
*Alexandre Lamfalussy
General Manager
Manager
Economic Adviser
Bank of Central African States
*Casimir Oye-Mba
*Francois Pehoua
Paul A. Gibeault
Governor
Director
Adviser to the Governor
Center for Latin American Monetary Studies
Jorge Gonzalez del Valle
Director
Central Bank of West African States
*Abdoulaye Fadiga
Marcel Kodjo
Alassane Ouattara
*Patrice Kouame
Switzerland
(Swiss National Bank)
Fritz Leutwiler
*Piere Languetin
Martin Thomann
*Spouse accompanying
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Federal Reserve Bank of St. Louis
Governor
Director of Credit
Special Adviser to Governor
Dir. of Financial Operations
President
General Manager
Head, Economics Department
\
•
-28-
OBSERVERS
Djibouti
Ibrahim Kassim
Director of the Nat'l Bank
East Caribbean Currency Authority
*Cecil A. Jacobs
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•
Federal Reserve Bank of St. Louis
Managing Director
.-
,.....ib
111
Martha Terrie
September 20, 1978
Current Economic Developments in Israel
Activity and Prices
The economy continues to face high inflation, currently
at an
annual rate of 45 per cent, which is somewhat higher than the
40 per cent rate experienced last year; the rise is largely
because most labor demands have been accepted by Prime Minister
Begin in an attempt to maintain strong political support.
Real GNP is expected to rise 4 to 5 per cent this year, up from
the 1977 increase of 1 per cent, but considerably lower than
the 1969-72 average rate of over 10 per cent.
The External Sector
The non-military trade deficit has improved from a deficit of
$3.9 billion in 1975 to a deficit of $1.1 billion projected for
1978, largely because of an increase in exports and a weak demand
for imports stemming from the relatively low level of domestic
activity.
Gross reserves currently amount to about two months' imports
($1.7 btllion) while the total external debt, expected to reach
almost $12 billion by end-1978, will require servicing of about
$1 billion, equal to almost 25 per cent of exports.
Total defense spending in 1978 is expected to reach $3.2 billion,
which accounts for about 28 per cent of public expenditures.
Imported equipment and services account for about half of the
defense expenditure.
Current Issues
The IMF has agreed this month to a purchase by Israel of SDR
72.4 million ($90.5 million) under the Fund's compensatory financing
facility.
-
Continued economic improvement will be affected by political developments
in the Middle East.
-
The external financial gap would widen greatly if hostilities were
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to break out again.
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Confidential: Biographical profile, Francois-Xavier Ortoli, August 31, 1978.
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BOARD tjF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Edwin M. Truman
Date September 20, 1978
Subject: European Monetary System
From _ Jerry c212
Summary
The debate concerning the European Monetary System (EMS)
gained momentum during the past week.
However, although there was
some coalescence of opinions concerning the exchange-rate aspect of
the ENS, it is still unclear what decisions will be taken in this area
and when they will be implemented.
U.S. interest in the EMS is centered
on the maintenance of flexibility of the dollar vis-a-vis EC currencies
and the possibility of a deflationary bias within the system.
Details
After two days of bilateral talks last week, the Germans
appeared to have won French acceptance of the so-called parity-grid
approach, which is the system used in the current snake arrangement.
Hitherto, the French, British and Italians had preferred that each
currency be pegged to a basket of EC currencies, since such an arrangement would potentially (but not necessarily) permit a looser relationship between their currencies and the German mark.
However, the
practical difficulties of operating a basket system seem to have
convinced most prospective EMS members that a parity-grid approach
would be better.
At the September 18 meeting of the EC Finance Ministers, a
compromise proposal was put forth.
The proposal called for a parity
grid as the center of the EMS, with the possible use of a basket as
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_
Edwin M. Truman.
- 2
a longer-term indicator of exchange-rate changes.
Although it is very
unclear how the compromise would operate, most reports say that the
British stood alone in their opposition to it.
Discussions on all
aspects of the EMS will resume next month and a final report is due
on October 31.
At present, the heads of government are
scheduled
to decide in early December on the exact nature of the EMS and the
system is to begin operating on January 1.
We continue to receive
conflicting reports as to the feasibility of this time schedule.
The EC Finance Ministers reiterated on September 18 the
statement made at Bremen that "in principle" intervention in the EMS
will be carried out in EC currencies.
However, they continued to
entertain the possibility that third currencies, including the dollar,
could be used in intervention by participants.
Thus, the concern that
the EC might attempt to limit exchange-rate movements against third
currencies is still a live issue.
It is also unclear how rigid will
he the rules -- and the adherence to these rules -- of the EMS.
Con-
sequently, it is not possible to ascertain whether or not the EMS will
have a deflationary impact on the EC and, as a result, on the rest of
the world.
Finally, two issues that are likely to be discussed at the
IMF annual meetings are:
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(1)
What are the implications of the EMS for the IMF? Will
the EMS participants be able to avoid IMF surveillance?
Will the formation of the EMS lead to a neglect of the
IMF by Europe?
(2)
What will be the effect of an EC reserve unit on world
liquidity?
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Confidential-NOFORN: Biographical profile, Francois-Xavier Ortoli, undated.
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,P
iIiINTERNATIONAL MONETARY FU
Washington, D.C. 20431
PRESS RELEASE No. 78/71
FOR IMMEDIATE RELEASE:
September 24, 1978
Press Communique of the Interim Committee of the
Board of Governors of the International Monetary Fund
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, Secretarr-General, UNCTAD; Mr. Ali M. Jaidah, SecretaryGeneral, OPEC; Mr. Rene Larre, General Manager,.iie van Lennep,
Secretary-General, OECD; Mr. F. Leutwiler, President, National Bank of
Switzerland; Mr. Olivier Long, Director General, GATT: Mr. Robert S.
McNamara, President, IBRD; Mr. Francois-Xavier Ortoli, Vice-President, CEC;
Mr. Jean Ripert, Under-Secretary-General for International, Economic and
Social Affairs, UN; and Mr. CesarVirata, 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 increate continued to be much too high and substantial under,
utilization 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
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Federal Reserve Bank of St. Louis
2
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 cur-•
rencies 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.
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Federal Reserve Bank of St. Louis
3
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.
The Committee considered a number of questions concerning the SDR on
3.
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.
The Committee reached the following conclusions with regard to other
5.
aspects of the SDR.
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Federal Reserve Bank of St. Louis
4
increased
(a) It was agreed that the interest rate on the SDR shculd be
rates
t
interes
from 60 per cent of the weighted average of the short-term
cent of
in the five member countries with the largest quotas to 80 pe:per cent
that average and that the rate of remuneration should be set et 90
d
combine
of the interest rate on the SDR, that is, at 72 per cent of the
:
andings
underst
market rate. This change would be subject to the following
r
conside
would
(i) Shortly before the end of each financial year, the Fund
sufficiently
whether the estimated net income of the Fund for that year was
ble for that
applica
large to permit the average annual rate of remuneration
of the
cent
year to be raised to a level above 90 but not above 100 per
would
ion,
average annual rate of interest on the SDR and, in this connect
Fund's
also consider the possibility of lowering periodic charges on the
Egecutive Board
currency holdings in the future. (ii) At the time that the
it would take
decides to adopt the new formula for the rate of remuneration,
periodic
a decision to prevent an automatic increase in the initial rate of
Fund's
charges on the Fund's holdings that would otherwise occur under the
financial
Fund's
the
review
ve
Board
would
Executi
The
Rules and Req,ulations.
protect that
position, and would take such action as might be necessary to
period of
any
in
income
its
d
exceede
s
position, if the Fund's total expense
six successive months.
g
(b) The Committee noted that the Executive Board had been pursuir
loans,
for
namely,
SDRs,
of
its work with reard to additional tynes of uses
that could
collateral security, and the direct settlement of obligations,
amended
the
of
ons
provisi
be permitted by the Fund in accordance with the
e
complet
would
noard
ve
Articles and expressed the hope that the Executi
on
report
and
future,
this work, take the necessary decisions in the near
them to the Committee at its next meeting.
that the
(c) The Committee endorsed the view of the Executive Board
oblithe
namely,
requirement of reconstitution of special drawing ri7,hts,
,
periods
ed
specifi
gation to maintain a minimum average balance of SDRs over
and
ions
allocat
should be reduced from 30 to 15 per cent of net cumulative
the light of experience.
that this requirement should be considered further in
keep under
(d) The Committee noted that the Executive Board intends to
review the question of a substitution account.
General Review of
The Committee resumed its discussion of the Seventh
6.
the size of the
it:
Quotas and considered three major issues relating to
the method of
and
ents,
overall increase in quotas, selective quota adjustm
red by the
conside
payment of the increases in quotas. These issues were
SDR with
the
to
g
Committee in conjunction with the various issues relatin
d
ee recalle its view
which they are regarded as interrelated. The Committ
under the Seventh
that there was a need for an increase in total quotas
for conditional
Review that would be adquate to meet the expected need
recalled its view
liquidity over the next five years. The Committee also
le sources of balance
that an adquate increase would strengthen the availab
Fund to provide such
of payments financing by enhancing the ability of the
furthering the process
financing without heavy recourse to borrowing and by
of international adjustment.
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Federal Reserve Bank of St. Louis
5
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 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 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
asistance 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 Tqashington, D.C. in
the spring of 1979.
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Federal Reserve Bank of St. Louis
U.S. Delegation
IMF - IBRD • IFC - IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
UNITED STATES DELEGATION
--------GOVERNOR
*W. Michael Blumenthal, Secretary of the Treasury
ALTERNATE GOVERNORS
Richard N. Cooper, Under Secretary of State for
Economic Affairs (IBRD)
TEMPORARY ALTERNATE GOVERNORS
*G. William Miller, Chairman, Board of Governors, Federal
Reserve System (IMF) 1/
*Anthony M. Solomon, Under Secretary of the Treasury for
Monetary Affairs
•
*C. Fred Bergsten, Assistant Secretary of the Treasury
for International Affairs
*Sam Y. Cross, U.S. Executive Director, International
Monetary Fund
*Edward R. Fried, Executive Director, International Bank
for Reconstruction and Development
*John J. Gilligan, Administrator, Agency for International
Development
*Henry C. Wallich, Member, Board of Governors, Federal
Reserve System
CONGRESSIONAL ADVISERS
*James J. Blanchard, Member, Subcommittee on International
Trade, Investment.and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*Elford A. Cederberg, Member, House Committee on Appropriations
1/
•
Pending confirmation as Alternate Governor.
*Married
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secretary for International Affa,-s
- 2 -
•
•
•
CONGRESSIONAL ADVISERS,(Cont'd)
*David W. Evans, Member, Subcommittee on International Trade,
Investment and Monetary Policy, House Committee on Banking,
Finance and Urban Affairs
*Henry B. Gonzalez, Chairman, Subcommittee on International
Development Institutions and Finance, House Committee on
Banking, Finance and Urban Affairs
*Harold C. Hollenbeck, Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*John J. LaFalce, Member, Subcommittee on International
Development Institutions and Finance, House Committee
on banking, Finance and Urban Affairs
*Matthew F. McHugh, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
*Joseph G. Minish, Member, Subcommittee on International
Development Institutions and Finance, House Committee
on Banking, Finance and Urban Affairs
*Stephen L. Neal, Chairman, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee on
Banking, Finance and Urban Affairs
*Jerry M. Patterson, Member, Subcommittee on International
Development Institutions and Finance, House Committee
on Banking, Finance and Urban Affairs
*Henry S. Reuss, Chairman, House Committee on Banking, Finance
and Urban Affairs
*Edward R. Roybal, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
*J. William Stanton, Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee
on Banking, Finance and Urban Affairs
*Newton I. Steers, Jr., Member, Subcommittee on International
Trade, Investment and Monetary Policy, House Committee
on Ba.king, Finance and Urban Affairs
*Louis Stokes, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
*C. W. Bill Young, Member, Subcommittee on Foreign Operations,
House Committee on Appropriations
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•
3
ADVISERS
*H. K. Allen, First Vice President and Vice Chairman of the
Board, Export-Import Bank of the United States
*Robert B. Anderson, Former Secretary of the Treasury
*Joseph W. Barr, Former Secretary of the Treasury
*Daniel H. Brill, Assistant Secretary of the Treasury for
Economic Policy
David Bronheim, Assistant Administrator, Agency for
International Development
*John B. Connally, Former Secretary of the Treasury
*William P. Dixon, Alternate U.S. Executive Director,
International Bank for Reconstruction and Development
•
*Henry H. Fowler, Former Secretary of the Treasury
Sidney Harman, Under Secretary of Commerce
*John G. Heimann, Comptroller of the Currency, Treasury Department
*Alan R. Holmes, Executive Vice President, Federal Reserve Bank
of New York
*Robert D. Hormats, Deputy Assistant Secretary of State
for Economic and Business Affairs
*Gary C. Hufbauer, Deputy Assistant Secretary of the Treasury for
Trade and Investment Policy
Helen B. Junz, Deputy Assistant Secretary of the Treasury for
Commodities and Natural Resources
*Julius L. Katz, Assistant Secretary of State for Economic and
Business Affairs
*David M. Kennedy, Former Secretary of the Treasury
•
*Thomas Leddy, U.S. Alternate Executive Director, International
Monetary Fund
*Charles F. Meissner, Deputy Assistant Secretary of State for
International Finance and Development
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Federal Reserve Bank of St. Louis
•
4
ADVISERS (Cont'd)
*John L. Moore, Jr., President and Chairman of the Board,
Export-Import Bank of the United States
*Arnold Nachmanoff, Deputy Assistant Secretary of the Treasury
for Developing Nations
*William D. Nordhaus, Member, Council on Economic Advisors
*Henry Owen, Special Representative of the President for
Economic Summits
*Charles L. Schultze, Chairman, Council of Economic Advisors
*George P. Shultz, Former Secretary of the Treasury
*William E. Simon, Former Secretary of the Treasury
John W. Snyder, Former Secretary of the Treasury
•
*Robert S. Strauss, Special Representative for Trade Negotiations
*Edwin M. Truman, Director, Division of International Finance,
Board of Governors, Federal Reserve System
*Paul A. Volcker, President, Federal Reserve Bank of New York
*Frank A. Weil, Assistant Secretary of Commerce for Industry
and Trade
*F. Lisle Widman, Deputy Assistant Secretary of the Treasury for
International Monetary Affairs
•
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Federal Reserve Bank of St. Louis
•
U.S. Delegation
IMF • IBRD IFC - IDA
Annual Meetings, September 25-28,1978
Washington, D.C.
ADMINISTRATIVE ARRANGEMENTS
1.
Delegation offices will be on the fourth floor of the
Sheraton Park Hotel, Rooms C-440 to C-454 in the "C" wing
and M-477 in the main corridor.
2.
There will be individual offices for the Governor and
the Alternate Governors, as well as for the Treasury
Under Secretary (Monetary Affairs) and Assistant Secretary
(International Affairs). Office space will be available
for the use of other members of the Delegation. Offices
will have Treasury telephone lines. Consult your U.S.
Delegation telephone directory for dialing instructions.
3.
Plenary sessions take place in the main ballroom, entrance
through foyer on lobby level.
•
4.
REGISTRATION AND BADGES
Members of the U.S. Delegation should register at the
U.S. Delegation Office (Room C-452), not at the general
registration desks in the lobby. Badges will be required
for admission to the floor of the conference at all of
the sessions.
DOCUMENTS
5.
There will be mail boxes in Room C-451 for the members of
the Delegation, in which the Secretariat (U.S. Delegation)
will place documents as they are received from the Fund
and Bank for the use of U.S. Delegation members. These
boxes will also serve for the deposit of mail and other
communications for U.S. Delegates.
SOCIAL INVITATIONS
6.
•
Some invitations to social events may have been sent to the
Delegate's home or office address; others may be received
at the Delegation Office. The Secretariat staff will hold
any invitations received at the Delegation Office and U.S.
Delegates are requested to check their boxes in Room C-451
for invitations.
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Office of the Assistant Secretary for Internationai Afla
•
7.
2
Please note that classified material may not be left in
hotel rooms overnight. However, there will be limited
storage facilities for classified folders and papers
(not briefcases) in Room C-452 which is the International
Affairs Secretariat.
William C. Grant
Secretary, U.S. Delegation
•
•
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U.S Delegation Offices
4th floor, Sheraton Park Note!
rir•en
Q
VP,
0
,
1
•ce
C-442
Secretary Blumenthal
C-441
U/S Solomon
C-440
Secretary's Conference Room
C-444
Support Staff for:
Vtl
Secretary Blumenthal
U/S Solomon
C-443
Support Staff for:
A/S Bergsten
Chairman Miller
ofsI
C-445
Chairman Miller
C-446
A/S Bergsten
C-447
Advisers
C-446
State
C-449
Advisers
C-450
Secretarial Support
0-451
Supplies/Copy Service/Mail
C-452
I.A. Secretariat
C-453
Reception
C-454
Administration
M-477
Public Affairs
U.S. Delegation
IMF - IBRD - IFC - IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
AGENDA
IMF:
1.
2.
3.
4.
5.
6.
7.
8.
9.
BANK:
1.
2.
3.
4.
5.
6.
7.
8.
9.
4111
ANNUAL REPORT
REPORT OF THE CHAIRMAN OF THE INTERIM
COMMITTEE
ANNUAL REPORT AND REVIEW OF JOINT
DEVELOPMENT COMMITTEE
1978 REGULAR ELECTION OF EXECUTIVE
DIRECTORS
FINANCIAL STATEMENTS AND AUDIT REPORT
ADMINISTRATIVE BUDGET FOR FISCAL YEAR
ENDING APRIL 30, 1979
AMENDMENTS OF RULES AND REGULATIONS
PLACE AND DATE OF 1980 ANNUAL MEETING
SELECTION OF OFFICERS AND JOINT
PROCEDURES COMMITTEE FOR 1978/79
ANNUAL REPORT
FINANCIAL STATEMENTS AND ANNUAL AUDIT
ALLOCATION OF NET INCOME
ADMINISTRATIVE BUDGET FOR FY79
ANNUAL REPORT AND REVIEW OF JOINT
DEVELOPMENT COMMITTEE
1978 REGULAR ELECTION OF EXECUTIVE
DIRECTORS
EXECUTIVE DIRECTORS' ADMINISTRATIVE
ARRANGEMENTS
PLACE AND DATE OF 1980 ANNUAL MEETINGS
OFFICERS AND PROCEDURES COMMITTEE
FOR 1978/79
IFC:
1.
2.
3.
ANNUAL REPORT
FINANCIAL STATEMENTS AND ANNUAL AUDIT
ADMINISTRATIVE BUDGET
IDA:
1.
2.
3.
ANNUAL REPORT
FINANCIAL STATEMENTS AND ANNUAL AUDIT
ADMINISTRATIVE BUDGET
(MEETINGS OF JOINT PROCEDURES COMMITTEE SCHEDULED FOR
MONDAY, SEPTEMBER 25, AND THURSDAY, SEPTEMBER 28, 1978)
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secretary for International Affa.rs
U.S. Delegation
IMF • IBRD - IFC - IDA
Annual Meetings, September 25-28,1978
Washington, D.C.
Position Paper
IMF
FORMAL AGENDA ITEMS
1.
Annual Report
was
Keid --OT
2.
Report of the Chairman of the Interim Co=ittee
Recommendation: To note that appropriate discussion
the Annual Report of the Fund.
Recommendation: To join in noting the report of the
Chairman Of—the Interim Committee.
3.
Annual Report and Review of the Joint Development Committee
Recommendation: To join in noting the report of the
Joint Development Committee
•
4.
1978 Recular Election of Executive Directors
Background: The Board of Governors has approved a
resolution relating to the 1978 Regular Election of Executive
Directors of the IMF. This resolution provides for the
appointment by Saudi Arabia of an Executive Director for a
two-year term beginning November 1, 1978 pursuant to Article
XII Section 3(c) of the IMF Articles of Agreement. It also
provides for a temporary expansion of the Executive Board to
twenty-one members during the
o-year period of the Saudi appointment, in accordance with Article XII, Section 3(b). The U.S.
voted in favor of this resolution.
Recommendation: To leave to the discretion of the U.S.
Governor, in consultation with the Department of State and
any other interested members of the National Advisory Council,
decisions on any questions which may arise with respect to
the election of Executive Directors for 1977-78. (The United
States appoints its Executive Director and does not participate
in the elections).
5.
•
Financial Statements and Audit Report
Recommendation: To support a resolution stating that the
Report of Audit and the Financial Statements contained therein
fulfill the requirements of the Articles of Agreement and
By-Laws. (The Audit Report has been prepared by an External
Audit Committee, consisting of creditors from three member
countries).
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secretary for International Attars
-2-
6.
Administrative 15.adget for Fiscal Year Ending April 30, 1979
Recommendation: To support a resolution stating that the
Administrative Budget fulfills the requirements of the
respective Articles of Agreement and By-Laws.
(The IMF Administrative Budget for the fiscal year ending
April 30, 1979 amounts to $92.8 million compared with actual
expenditures during the past year ofS85.7 million).
7.
Amendments of Rules and Regulations
Recommendation: To support a resolution notifying the
Executive Directors that the Governors have reviewed the
amendments to the Rules and Regulations adopted by the Executive Directors since the 1977 Annual Meeting and have no
changes to suggest.
(Changes in the Fund's Rules and Regulations are adopted
by the Executive Directors subject to review by the Governors
at their next Annual Meeting.)
The Executive Board undertook a comprehensive review of
the Rules and Regulations to bring them into conformity with
the Second Amendment to the Articles of Agreement. The revised Rules and Regulations took effect as of the date the
Second Amendment entered into force on April 1, 1978 and
copies were sent to all members of the Fund on April 14, 1978.
Since then, the following changes have been made in the Rules
and Regulations:
Rule B-4, relating to IMF holidays, was adjusted to
reflect U.S. legislation changing the date of observance of
one of the holidays in the United States.
Rule 0-1, relating to valuation of the SDR, was modified,
with effect from July 1, 1978, following the decision of the
Executive Board on changes in the method of valuation of the
special drawing right to adapt the composition of the basket
of 16 currencies that determines the value of the SDR on the
basis of statistics for the period 1972-76 and to revise the
percentage weights assigned to each currency in the basket.
On June 30, 1978, the Fund made the calculations necessary to
convert those weights into units of each of the 16 currencies
so that the value of the SDR in terms of any currency was
exactly the same on that day under the revised valuation
basket as under the previous valuation basket.
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Federal Reserve Bank of St. Louis
•
ON.
Rule T-1(c), relating to the interest rate on the SDR,
was amended, also effective July 1, 1978, to make the weights
assigned to interest rates of the five member countries that
are used to determine the rate of interest on the special
drawing right consistent with the weights in the SDR valuation
basket.
8.
Place and Date of 1980 Annual Meeting
Recommendation: To support a resolution approving
Washington, D.C., U.S.A. as the site for the 1980 Annual
Meeting.
9.
Selection of Officers and Joint Procedures Committee
for 1978-79
Recommendation: To leave to the discretion of the U.S.
Governor, in consultation with the Department of State and
other interested members of the National Advisory Council,
decisions on any questions as to the officers or membership
of the Joint Procedures Committee for 1978-79 and as to the
Chairmanship of the Bank and Fund Boards of Governors for
the year following the end of the 1978 Annual Meeting.
•
IBRD-IFC-IDA
FORMAL AGENDA ITEMS
PROBLEM: To state the U.S. position on the various agenda
items to be taken up by the Governors of the Bank, the
Bank's affiliates and the Fund.
U.S. POSITION: The U.S. Governor should vote for the
ad&T-Eion of the Joint Procedures Committee reports on
present agenda items, thus giving U.S. support to each of
the resolutions relating to these items. Items presently
on the agenda are largely pro forma and in the main relate
to internal management of the Bank, the Bank's affiliates
and the Fund.
BACKGROUND: It is expected that the formal agendum for the
institutions and the rules for conduct of the meetings
will already have been approved when the meetings open.
Tour
IBRD AGENDA ITEMS
I_.
Annual Report for the Year Endini_June 30, 1978
Recommendation: To join in noting that appropriate
discusion-was 'fie-Td of the Annual Report of the IBRD.
•
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Federal Reserve Bank of St. Louis
1
S
_ 4 _
2.
Financial Statements and Annual Audit
Recommendation: To support a resolution stating that
the rinanciii-Statement and Audit Report fulfill the
requirements of the respective Articles of Agreement and
By-Laws.
(As in previous years, the Audit Report of the IBRD has
been prepared by Price, Waterhouse and Company. It has
also been reviewed and approved by the Joint Audit Committee of the Executive Directors.)
3.
Allocation of Net Income
Recommendation: To support a resolution to transfer to
the IDA-MT-million out of the Bank's net income for the
year ending June 30, 1978 and to allocate the balance to
the General Reserve for Losses and Exchange Adjustment.
S
IBRD net income for FY77 was$238 million, and there
were $110 million in foreign exchange gains, making $348
million available for transfer. The transfer of $100
million to IDA will result in an increase in the Bank's
General Reserve (currently $1.95 billion) of $248 million.
4.
Administrative Budget
Recommendation: To support a resolution stating that
the ATTITTistriTiTe Budget fulfills the requirements of the
respective Articles of Agreement and By-Laws.
(IBRD Administrative Budget for the fiscal year ending
June 30, 1979 amounts to $162.4 million compared with
actual expenditures during the past year of $148.1 million.)
5.
Joint Development Committee
Recommendation:
Committee report.
6 and 9.
S
To join in noting the Development
Election of Officers and Joint Procedure Committee
?or 1977-78.
Recommendation: To leave to the discretion of the
U.S.-Upvernor, in consultation with the Department of
State and other interested members of the NAC, decisions
on any questions as to the officers of membership of the
Joint Procedures Committee for 1978-79 and as to the
Chairmanship of the Bank and Fund Board of Governors for
the year following the 1978 Annual Meetings.
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Federal Reserve Bank of St. Louis
•
-5
7.
Executive Directors Administrative Arrangements
Recommendation: The U.S. should join in voting the
Administrative arrangements for the Executive Directors.
8.
Place and Date of 1980 Annual Meetin9s
Recommendation: To support a resolution approving the
selection of Washington, D.C., as the site of the 1980
Annual Meetings.
10. Application for Membership: To support the resolution
admitting Cape Verde to membership in IBRD.
IFC AGENDA ITEMS
1.
Annual Report for the Year Ending June 30. 1978
Recommendation: To join in noting that appropriate
discussToiwas held of the Annual Report of the IFC.
•
2.
Financial Statements and Annual Audit
Recommendation: To support a resolution stating that
the financial Statements and Audit Report fulfill the
requirements of the respective Articles of Agreement
and By-Laws.
(As in previous years, the Audit Retort of the IFC
has been prepared by Price, Waterhouse and Company.
It has been reviewed and approved by the Joint Audit
Committee of the Executive Directors.)
3.
Administrative Budget
Recommendation: To support a resolution stating that
the Administrative Budget fulfills the requirements of the
respective Articles of Agreement and By-Laws.
IDA AGENDA ITEMS
1.
•
Annual Rep2rt for the Year Ending June 30, 1978
Recommendation: To join in noting that appropriate
discussion was held of the Annual Report of IDA.
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Federal Reserve Bank of St. Louis
•
-6
2.
Financial Statements and Annual Audit
Recommendation: To support a resolution stating that
Statements and Annual Audit Report fulfill
Yinancial
the
of the respective Articles of Agreement
nts
requireme
the
Laws.
and By(As in previous years, the Audit Report of IDA has
been prepared by Price, Waterhouse and Company. It has
been reviewed and approved by the Joint Audit Committee
of the Executive Directors.)
3.
Administrative Budget
Recommendation: To support a resolution stating that
the Administrative Budget fulfills the requirements of
the respective Articles of Agreement and By-Laws.
(The IDA Administrative Budget for the fiscal year
ending June 30, 1978 amounts to $111.0 million compared
with actual expenditures during th past year of $91.9
million.)
4. Application for Membership. To support the resolution
admitting Cape Verde to membership in IDA.
•
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Federal Reserve Bank of St. Louis
•
U.S. Delegation
IMF - IBRD - IFC - IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
SCHEDULE OF EVENTS
Monday
September 25
Tuesday
September 26
•
Wednesday
September 27
Thursday
September 28
9:00 a.m.
-
Briefing of U.S. Delegation
Meeting Room No. 2, Sheraton Park Hotel
10:00 a.m.
-
Opening Ceremonies
Address from the Chair
Annual Address by Managing
Director, IMF
Annual Address by President,
IBRD, IFC, IDA
2:30 p.m.
-
Joint Procedures Committee
3:00 p.m.
-
Annual Discussion
8:00 a.m.
-
Briefing of Press
Meeting Room No. 4, Sheraton Park Hotel
9:30 a.m.
-
Annual Discussion*
3:00 p.m.
-
Annual Discussion
IMF Election of Executive Directors
IBRD Election of Executive Directors
9:30 a.m.
-
Annual Discussion
3:30 p.m.
-
ICSID** Administrative Council
9:30 a.m.
-
Annual Discussion
12:35 p.m.
_
Joint Procedures Committee
4:30 p.m.
-
Joint Procedures Committee Reports
Comments by Heads of Organizations
Adjournment
*Secretary Blumenthal will speak at this session.
**International Centre for Settlement of Investment Disputes.
NOTES:
1. All sessions will be joint.
2. The election of the IMF Executive Directors will be held
at 3:30 p.m. followed by the IBRD election.
3. The morning sessions will adjourn by 1:00 p.m. and on
Thursday by 12:30 p.m.
4. The afternoon sessions will adjourn by 6:00 p.m.
4111
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secretary for International Affa,rs
•
U.S. Delegation
IMF - IBRD - IFC - IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
LIST OF PRINCIPAL OFFICIAL SOCIAL EVENTS
Sunday
September 24
7:00 p.m.
-
Reception by the Chairman
Tengku Razaleigh Hamzah
Shoreham Americana Hotel
Monday
September 25
6:30 p.m.
-
Mr. and Mrs. de Larosiere
Mr. and Mrs. McNamara
Reception for Governors and
their Wives in the Fund
Atrium
Followed by Dinner at 7:00 p.m.
9:00 p.m.
-
Mr. and Mrs. de Larosiere
Mr. and Mrs. McNamara
Concert for Governors, other
Delegates and their Wives
John F. Kennedy Center for the
Performing Arts
The Washington National Symphony
Mstislav Rostropovich conducting
6:30 p.m.
-
Reception by U.S. Governor,
Treasury Secretary Blumenthal,
National Gallery of Art
East Wing
•
Tuesday
September 26
(ALL EVENTS BY INVITATION ONLY)
•
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Federal Reserve Bank of St. Louis
Department of the Treasury
Office of the Assistant Secretary for International Affa,rs
•
U.S. Delegation
IMF - IBRD - IFC • IDA
Annual Meetings, September 25-28, 1978
Washington, D.C.
WOMEN'S EVENTS
•
Monday
September 25
12:15 p.m.
Tuesday
September 26
8:30 a.m.
to
1:00 p.m.
Wednesday
September 27
10:00 a.m.
to
3:00 p.m.
Thursday
September 28
8:00 a.m.
to
9:45 a.m.
9:30 a.m.
to
12:30 p.m.
•
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Federal Reserve Bank of St. Louis
Welcoming Luncheon in the
Pan American Union Building
Hostesses:
Mrs. de Larosiere and
Mrs. McNamara
Breakfast on Capitol Hill
Breakfast in the House of
Representatives' Rayburn
Building followed by a
special tour of the Capitol.
Visit to Mount Vernon and
Woodlawn Plantation. Tour
of the home of the first
President of the United
States, followed by
luncheon at nearby
Woodlawn Plantation.
Historic Tour of the White House
Mrs. Michael Blumenthal,
Hostess:
wife of the United States
Secretary of the Treasury and
Governor of the Fund and the
Bank.
Coffee will be served.
Buses will leave the White House
for the National Gallery and/or
return to the hotel
Conducted Tour of the new East
Building of the National Art
Gallery.
Special exhibits and a short
film presentation on American
artists.
(ALL EVENTS BY INVITATION ONLY)
Department of the Treasury
eyf
111,.•
VI
LIM
r‘aziaLciiil
s-_
- -1
.2m.r cid y Jur internationdi
• AS
Aria 's
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to internal or confidential information.
Citation Information
Document Type: Treasury
Citations:
Number of Pages Removed: 2
Confidential-NOFORN: Biographical profile, Tatsuo Murayama, June 13, 1978.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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•
Date:
MEMORANDUM FOR: SECRETARY BLUMENTHAL
From:
Assistant Secretary Bergsten
Subject
Bilateral Meeting with Murayama, Japanese Finance Minister
Date and Time:
September 24, 1978 at 10:00 A.M.
Place:
Your suite
Persons expected to attend:
U.S. Treasury
Secretary Blumenthal
Under Secretary Solomon
Deputy Assistant Secretary Widman
Richard Fisher, Executive Assistant
to the Secretary
Japan:
Tatsuo Murayama, Finance Minister
Takehiro Sagami, Vice Minister for
International Affairs
Michiya Matsukawa, Special Advisor
to Murayama
Fujio Matsumuro, Minister (Financial)
•
Recommended recording officer:
David J. Klock
Checklist of Issues
1.
Actions expected at Interim Committee
- - Quotas (Japanese want selective increase)
- SDR allocation
2.
Outlook for tlie dollar
- - Japan has done all it can
- - Nature of U.S. actions being contemplated
Initiator
11106 e
IMA
NYE
Initials/Date '"," At / is'
Form OS 3129
Department
of Treasury
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Federal Reserve Bank of St. Louis
Reviewer
Reviewer
IMA
SYVRUD
IMA
WIDMAN
/
/
Reviewer
/
Reviewer
Ex. Sec.
/
1
•
- 2 _
- - U.S. view of outlook
- - Concern about advance consultations
3.
Prospects for Japanese growth and current account
- - Recent GOJ actions
- - Prospects and timing of shifts
4.
Continued U.S. concern over trade liberalization
5.
Future of the monetary system
- - European monetary arrangement
6.
Export credit arrangement.
•
,
•
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Federal Reserve Bank of St. Louis
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to internal or confidential information.
Citation Information
Document Type: Treasury
Citations:
Number of Pages Removed: 16
Confidential: Japan Political Outlook, September 7, 1978.
Confidential-GDS: Japan, Economic and Financial Scene: Overview, undated.
Confidential-GDS: Key Statistics, September 20, 1978.
Confidential-NOFORN: Biographical profile, Mishiya Matsukawa, March 14, 1977.
Confidential-NOFORN: Biographical profile, Fujio Matsumuro, December 6, 1977.
Confidential-NOFORN: Biographical profile, Tatsuo Murayama, June 13, 1978.
Confidential-NOFORN: Biographical profile, Takehiro Sagami, June 29, 1978.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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@FedFRASER