Foreign Relations of the United States, 1951, National Security Affairs; Foreign Economic Policy, Volume I

NAC Files, Lot 60 D 137

Memorandum by Mr. Frank A. Southard, United States Executive Director of the International Monetary Fund, to the Acting Secretary of the National Advisory Council (Willis)

confidential

[Washington,] February 11, 1952.

NAC Doc. No. 1261

Subject: Use of the Fund’s Resources and Repurchases

1. Since I forwarded to you my memorandum on this subject (NAC Staff Document No. 558, January 31, 1952),¹ there have been further discussions both in the NAC Staff and in the Executive Board of the Fund. On the basis of these discussions, I propose to take the following position in the Executive Board, for the reasons indicated, unless the National Advisory Council perceives some objection.

2. I would acquiesce in the statement which the Managing Director has made as a framework for his discussions with members on the use of the Fund’s resources. The essential elements of this statement are as follows:

(a) Decisions on use of the Fund’s resources will have to be made case by case, to help members achieve the purposes of the Fund, with recognition that the task of the Fund is to help members that need assistance to deal with a temporary problem and who intend to pursue adequate policies to deal with the problem within a temporary period.

(b) The member’s whole situation would be considered, including its past prudence in drawing and its voluntary repayments to the Fund.

(c) As a supplement to what may be called ordinary drawings, the Fund would be prepared to consider specific drawings to deal with special very short-term situations, with commitments to repurchase in periods up to 18 months. The Fund would also be prepared to give countries very much the benefit of the doubt with respect to drawings involving the so-called gold tranche. In accordance with the Fund’s decision of May 1951, the Fund would be prepared to consider assistance to enable the members to pursue programs designed to make progress toward the objectives of the Fund.

3. As to repurchase arrangements, the Fund would make clear that exchange purchased by members should not remain outstanding beyond the period reasonably related to the payments problem of the member, ordinarily not exceeding three years with five years as the outside limit. Where the drawing is within a bracket of the quota involving payment of interest, it would be made clear that the mandatory consultations occurring when the rate reaches 3½ percent per annum would be for the agreed purpose of arriving at appropriate arrangements to ensure complete repurchase within five years of the original drawing. With respect to so-called gold-tranche drawings, the Fund would request members to agree on a schedule of repurchases so that all amounts outstanding at the end of three years would be repurchased by the end of five years of the original drawing. These decisions having been taken,² members would be required to cite their agreement with such decisions at the occasion of any drawing.

4. A decision along the above lines would in my judgment fully preserve the basic principles of the NAC respecting the use of the Fund’s resources. It should be emphasized that there will be advance notice on every proposed drawing which will give the NAC opportunity for review and for instructions to the U.S. Director.³

1. Not printed.
2. Marginal notation reads: “by the Ex[ecutive] Board.”
3. The IMF Board of Executive Directors reached an agreement on February 13, 1952, which became known as the “Rooth Plan” (Decision No. 102–(52/11), February 13, 1952). For text, see J. Keith Horsefield, The International Monetary Fund, 1945–1965, Twenty Years of International Monetary Cooperation, volume III: Documents, pp. 228–230.