NAC Files, Lot 60D137, Box 362
Minutes of Meeting No. 167 of the National Advisory Council, Washington, December 5, 1950
2. Use of the [International Monetary] Fund’s Resources
Mr. Glendinning said that the U.S. Executive Director for the last two years had made clear the United States position on the use of the Fund’s resources.1 The United States criteria for Fund drawings, however, had not received general acceptance. The Managing Director of the Fund2 had come to the conclusion that it would not be possible to reach a clear understanding in the Board as to the abstract criteria for drawings. Mr. Gutt felt, however, that the Fund should be moving toward its objectives. As outlined in NAC Staff Document No. 4733 he had made a proposal under which the Fund would explore actively with a number of countries, whose balance of payments positions were [Page 825] improving, the possibility of steps being taken toward the Fund’s objectives. In cases where the countries were prepared to make substantial moves, the Fund’s resources might be made available to assist in the progress.
This proposal had been discussed by the Staff Committee. The U.S. Executive Director had indicated his view that we should welcome this suggestion of the Management of the Fund, and that the proposal did not mean modification of the Council’s previous actions on the criteria governing the use of the Fund’s resources.
Mr. Southard observed that this might not be an appropriate time to talk about ways in which resources of the Fund might be used to encourage countries to move toward the objectives of the Fund, i.e., to eliminate exchange restrictions and try to establish full convertibility, at least on current account. The discussions in the Fund outlined in his memorandum took place under circumstances of somewhat less anxiety than existed at the moment, but he had to assume that it might seem fit to the Managing Director and others to resume the discussion in the future. The reasons that impelled him to propose that he initially go along in the Fund with the Gutt proposal were that it would be a means for the time being of putting to an end the rather fruitless and acrimonious discussion on the use of the Fund’s resources in which the United States was usually made to bear the responsibility for holding back. He did not think we should give up the two basic positions that (1) drawings should be subject to scrutiny, to sensible criteria, and to challenge even at the last moment, and (2) that in some countries special questions of repayment would arise. Mr. Gutt had indicated that what he proposed would be without prejudice to our views or those of the other side. He was saying that in the meantime, and with great caution, the Fund Staff would select those countries that might appear to be within reaching distance of the realization of the Fund’s objectives. The Fund would take the initiative in approaching those countries one by one to discuss their problems and what additional steps they might take. If it appeared they were prepared to take steps that would promise decisive progress toward the objectives of the Fund, but they feared they might be faced in the short-run with balance of payments pressure, the use of the Fund’s resources might be held out to them as part of the whole package. There were, of course, pitfalls. The Fund’s Staff might be lacking in decision and firmness and allow inadequate programs to be submitted to the Board, and the Board might have to take the position that these programs did not merit the use of the Fund’s resources. Even in such cases the position of the United States would be no worse than at the present time where we are thought to be standing in the way of any except “blue chip” [Page 826] proposals. We might have to say no to these proposals but the burden on us would be a little less than at present and acceptance of the proposal would be a gesture in the right direction. He added that he and Mr. Hooker4 thought it was a fair risk although it was not free of all risk.
Mr. Southard continued that he considered that this proposal did not contradict any decisions of the NAC nor the two documents he had put before the Fund at the direction of the Council. The Staff Committee and the Council would have an opportunity to see in advance any program which, in the judgment of the Fund’s Staff, met the broad Gutt standard. He thought it was only when the individual cases were brought up that the Council could be expected to say yes or no. He would like to feel it would not be inappropriate for him to show this degree of cooperativeness in the Fund. However, if the Council felt it was time to call a halt to the use of the Fund’s resources he would like to know that now.
Mr. Szymczak5 said that he had strongly favored the proposed approach three or four weeks previously. Under present conditions, however, he would favor steps that would delay a decision until we could see more clearly what we were going to do. He added that he understood that no change was being proposed in the NAC action with respect to the ERP countries. Mr. Southard confirmed this understanding.
Mr. Blaisdell6 pointed out that Mr. Gutt’s paper was dated November 7. In the month that had elapsed since then a great many things had happened that changed the picture entirely. At the earlier date there was a considerable feeling of optimism that we were looking to a time when we could have fewer quantitative controls, and the kind of freedom of trade and payments which he took it Mr. Gutt had in mind when he raised the question. The matter had to be regarded in the light of developments during the past month and of the kind of world situation it seemed we were likely to have.7 This included a budgetary situation in the United States which, unless regulatory measures were taken, would make the dollar of considerably different character in international trade than in the past. In view of similar actions that would be taken in other countries he wondered whether, instead of there being the cautious approach Mr. Southard had suggested, there should not be a very bold approach to the problem and [Page 827] we should not be thinking of utilization of the Fund for purposes far beyond what was conceived of when the Fund was established. This might be done informally or might even require modification of the Fund’s Articles. We were striving to discover international machinery to handle some of the difficult problems in the trade field. Even under GATT we were working toward a kind of trade situation which was not previously contemplated. The GATT and Fund machinery were such that it would be easy to have a working arrangement between countries which were members of both. However, our concern was likely to be not so much how to get rid of controls as what form controls were going to take. He thought the Council might consider what the relation of these considerations was to the Fund mechanism and to United States policy, rather than to limit its attention to the points suggested in Mr. Gutt’s memorandum.
Mr. Southard said he was not sure what use could be made of the Fund, assuming we could change the Articles of Agreement. The Fund had power, for example, to permit drawings against commodity collateral but that was designed for periods of surplus rather than scarcity. It was conceivable that the United States might obtain access to some foreign currencies through the Fund but whether we would want to make that approach rather than to approach foreign countries directly in order to obtain credits was an open question. He was not sure how the Fund could be used.
Mr. Blaisdell said he was not sure either. He thought the Council should be working on the whole series of problems that was being raised relating to blocking assets, materials controls, etc. In a meeting in Mr. Thorp’s office recently, the need for machinery of the OEEC type had been discussed. The OEEC itself was not international enough since, for example, the Latin American countries were not included. He did not know whether one of the possible mechanisms that might be used was the Fund with an international secretariat that could deal with problems objectively.
Mr. Szymczak said this was something we would be able to see more clearly in the days or weeks ahead. The Gutt proposal allowed for days or weeks to go by before it was implemented.
Mr. Southard observed that the Fund and the Bank together constituted a pool of about 500 technical experts. It would not be impossible, particularly if there were any kind of broad support from the countries represented in the Fund for commodity controls and agreements, to mobilize the Fund and Bank to do some of the work suggested by Mr. Blaisdell. It was not unusual for the Fund to do very time consuming jobs for organizations such as the Economic Commission for Latin America or for the Far East. The use of the Fund’s resources involved different considerations and was bound by certain requirements.[Page 828]
Mr. Martin8 commented that the discussion high-lighted the fact that all of the Council members were sympathetic to the proposed approach 30 days earlier but most of them had some question now and generally speaking thought any approach should be taken very slowly. Mr. Gaston observed that the proposal might be “re-examined”.
Mr. Southard said that if he found that anyone wished to discuss the proposal further he would bring the matter back to the Council for further consideration.
[Here follows discussion of another agenda item.]
- For previous documentation on this subject, see Foreign Relations, 1949, vol. i, pp. 729 ff.↩
- Camille Gutt.↩
- Not printed.↩
- John S. Hooker, Alternate U.S. Director, International Monetary Fund.↩
- M. S. Szymczak, Board of Governors, Federal Reserve System.↩
- Thomas C. Blaisdell, Jr., NAC representative from the Commerce Department.↩
- This is a reference to the national and international emergency that had arisen following upon the Chinese Communist intervention in the hostilities in Korea; for documentation regarding Korea, see vol. vii, pp. 1237 ff.; for information regarding the proclamation of the national emergency in the United States, see editorial note, p. 477. The remarks that follow are made in the context of this emergency.↩
- Mr. William McChesney Martin, Jr., representative from the Treasury Department and Acting NAC Chairman.↩