Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

NAC files, lot 60 D 137, “Staff Documents”

Position Paper Prepared in the National Advisory Council on International Monetary and Financial Problems¹

Staff Document No. 708 (Revised)

[Washington,] March 23, 1954.

Position Paper for the 17th Session of ECOSOC² and the IMF Executive Board, Concerning Proposals on the Use and Replenishment of IMF Resources

Problem

A report on Commodity Trade and Economic Development³ prepared by a group of experts appointed by the Secretary General of the U.N.⁴ concerns itself in part with the use of IMF resources to compensate for declines in international demand resulting from a recession in the main industrial countries. The report is scheduled to be considered at the 17th Session of ECOSOC, but before that by the Fund in formulating its position on it for the ECOSOC session. A U.S. position for use in both instances is outlined below.

The proposals of the experts are: (1) the IMF should declare its intent to use its resources boldly to maintain the international “flow of currency” if a major industrial country is involved in depression, (2) the Fund should declare its intent to seek to increase its resources when these reach a certain minimum level, and (3) the Fund should negotiate with major members to see how far such increases can be pledged in advance.

US Position

1. In connection with consideration by the Fund of the position to be taken by it during ECOSOC discussion of the experts’ proposals, the US Executive Director in the Fund may be guided as follows:

(a) The first proposal of the experts envisages a declaration by the Fund which has in fact already been made (see Discussion below). It is understood that the Managing Director of the Fund intends at the ECOSOC to recall these previous statements by the Fund relating to its responsibilities in the event of balance-of-payments difficulties arising because of recession. There would appear to be no objection to having the Fund state a position substantially similar to its previous statements.

(b) As regards the second proposal of the experts, the Fund representative at ECOSOC should go no further than a statement of intent that if the Fund’s resources should at some future time appear inadequate for its functions, the matter of increasing its resources will be given proper consideration.

(c) As regards the experts’ third suggestion, the US Executive Director may call attention to the provisions of Section 5 of the Bretton Woods Agreements Act,⁵ which prohibits any loan to the Fund or action by any officer of the United States to increase the U.S. quota in the Fund without express authorization of Congress. During any discussion of this proposal of the experts, he might state that when an increase in the Fund’s resources becomes necessary, the US would be prepared to give the matter “proper consideration”. This was the position taken by the U.S. representative⁶ during the discussion in ECOSOC in 1952 of recommendations contained in the report of the experts on Measures for International Economic Stability.⁷

2. During ECOSOC consideration of the experts’ proposals, the U.S. representative at ECOSOC may be guided as follows:

(a) If possible, specific recommendations by ECOSOC to the Fund on the problem of future uses of, or increases in, Fund resources should be avoided. At ECOSOC, the U.S. should seek to hold any resolution on this matter to a recommendation that the Fund give (or continue to give) appropriate attention to the adequacy of its resources.

(b) Statements made by the Fund in the past concerning Fund action to assist its members suffering balance-of-payments difficulties arising out of recession would appear to dispose of the experts’ first proposal, and no further elaboration by the Fund of these statements would appear to be necessary.

(c) Should the Fund representative at ECOSOC make a general statement of intent along the lines indicated in paragraph 1(b) above, the US might indicate agreement with the Fund’s declaration and should seek to prevent any recommendation by the ECOSOC looking to fund action going beyond such a general declaration.

(d) If appropriate, the US representative should refer to the provisions of the Bretton Woods Agreements Act concerning increases of the US quota in the Fund or US loans to the Fund. He might also recall the statement of the US representative in ECOSOC made in 1952 that, when an increase in the Fund’s resources becomes necessary, the US would be prepared to give the matter proper consideration.

3. The U.S. representatives should seek to minimize fears that the current mild decline of economic activity in the U.S. is likely to develop into a severe recession, or that the U.S. will be unable to take any effective remedial action that may be required. They might refer to relevant statements by the President and others, including the Council of Economic Advisers, concerning the readiness of the U.S. Government to act to prevent a substantial recession from getting under way.

Discussion

1. The Managing Director of the Fund, speaking at the 14th Session of ECOSOC,⁸ said in part as follows: “The Fund’s resources provide a second line of reserves to be used … to help members meet balance-of-payments deficits due to a recession or a depression abroad . . . .⁹ The Fund is fully aware of its responsibilities to act with determination to assist its members in lessening the balance-of-payments impact of any future depression”. This statement had the prior approval of the Fund’s Executive Directors.

The Annual Report of the Fund for 1953¹⁰ states (page 32) that “it cannot be hoped … that domestic activity in all countries would always proceed without a ripple along a smoothly rising trend . . . . If there is a recession in demand [for exports],¹¹ it will always be necessary to fall back upon the temporary use of reserves to supplement current export earnings. These reserves may be a country’s own reserves, or the reserves held in common by members in the International Monetary Fund. Effective action in such an emergency is one of the principal purposes for which the Fund was established. One of the Fund’s most important functions is to assist its members to mitigate the impact of a sharp decline in their foreign exchange upon their ability to maintain a needed volume of imports and a high level of employment.”^*

In the light of the foregoing statements, the first proposal of the experts would appear superfluous. The Fund declaration envisaged in the first proposal—to the effect that the Fund intends to use its resources boldly during a slump—is one which the above statements seem to cover explicitly.

2. It may be argued by some countries that the second proposal of the experts—concerning a Fund declaration of intent to replenish its resources when these reach certain minimum levels—follows logically from the general position of the Fund indicated above and should be accepted by the Fund on these grounds. It might be urged that since the statements cited above pledge help to members with balance-of-payments difficulties during a recession abroad, and since there is no evidence that the pledge means the help is to be limited to the use of the Fund’s existing resources, the Fund is in fact committed to seek new resources if they should stand at, or fall to, levels at which little or no help is possible when members find themselves in difficult straits.

Such a conclusion should be opposed as unwarranted. The Fund statements cited above are expressions of general policy only. It would be quite unreasonable to interpret them to mean that the Fund would extend help to members during any recession and in any amounts, whatever the surrounding circumstances and amounts involved.

Furthermore, it is clear that any increase in the Fund’s resources to be used for the purpose of combatting a possible recession would have to come largely from the U.S., and all the countries represented in the ECOSOC would be fully aware that this is the case. Inasmuch as it is uncertain whether the U.S. Government would be willing to supply additional resources to the IMF for such a purpose, we should be very careful to avoid any statement or action that might be taken to imply a commitment to do so. If we were to support, first in the IMF Executive Board and secondly in the ECOSOC, any declaration of intent by the IMF to seek an increase in its resources when this becomes necessary, we might be held to be implying that when the time came we could be expected to implement the suggestion—a misleading implication.

3. The third of the experts’ proposals looks to a negotiation by the Fund with its major members to see how far increases in the Fund’s resources can be pledged in advance. During the debate on Measures for International Economic Stability at the 14th Session of ECOSOC, the U.S. representative stated that the U.S. would be prepared to give “proper consideration” to the matter of an increase in the resources of the Fund at such time as this becomes necessary. The experts’ third proposal might be met by recalling this statement. In this connection, the U.S. representative should note that a U.S. Government commitment to contribute to a future increase in resources is legally impossible. The Bretton Woods Agreements Act specifically enjoins the Executive Branch from committing the U.S. to raise its quota in the Fund, or to lend the Fund money, except after action by Congress. Nor can one Congress assure action by its successors. An affirmative vote on any proposal designed to obtain prior assurances of increased dollar resources for the Fund at some future time is therefore out of the question.

The statement that the Executive Branch cannot commit the United States Government to a further contribution to the Fund’s resources may precipitate a proposal aimed at eliciting a pledge by member governments that, should a contribution in fact be requested at some future time, the responsible national authorities (Executive Branch) would recommend appropriate action to this end, in accordance with their established constitutional procedures.

If developments take this course, the U.S. representative might state that future circumstances cannot be foreseen. There is always the possibility that a Fund request to the U.S. in the future for additional resources might be regarded by the Executive Branch as unnecessary or unjustified. In such a situation, the Executive Branch would obviously not wish to be pledged to recommend U.S. help in replenishing the Fund’s resources. For the Executive Branch to offer a pledge of this type cannot, therefore, be reasonably expected.

1. A covering memorandum by Glendinning, dated Mar. 23, 1954, not printed, transmitting this position paper to the members of the NAC, states that the paper was approved by the NAC Staff Committee on Mar. 22.
2. Held in New York, Mar. 30–Apr. 30, 1954; for documentation concerning the session, see United Nations, Official Records of the Economic and Social Council, Seventeenth Session and Annexes, (New York, 1954).
3. U.N. Document E/2519, published in 1954.
4. Dag Hammarskjold.
5. Public Law 171, approved July 31, 1945 (59 Stat. 512).
6. Isador Lubin.
7. U.N. Document E/2156.
8. Held in New York, May 20–Aug. 1, 1952; for documentation concerning the session, see United Nations, Official Records of the Economic and Social Council, Fourteenth Session (New York, 1952).
9. Ellipses throughout in the source text.
10. IMF, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1953 (Washington, 1953).
11. Brackets in the source text.
12. In this connection see also the attached excerpt from the Fund’s report to ECOSOC on the adequacy of international monetary reserves. [Footnote in the source text; the excerpt is not printed.]