NAC files, lot 60 D 137, “Minutes”

Minutes of the 196th Meeting of the National Advisory Council on International Monetary and Financial Problems, Held at Washington, August 26, 1952


Secretary John W. Snyder (Chairman), Treasury Department

Mr. David K. E. Bruce, State Department

Mr. Jack C. Corbett, State Department

Mr. J. J. Stenger, State Department

Mr. Loring K. Macy, Commerce Department

Mr. Frederick Strauss, Commerce Department

Mr. William McC. Martin, Jr., Board of Governors, Federal Reserve System

Mr. Arthur W. Marget, Board of Governors, Federal Reserve System

Mr. Lewis Dembitz, Board of Governors, Federal Reserve System

Mr. Hawthorne Arey, Export-Import Bank

Mr. W. John Kenney, Mutual Security Agency

Mr. C. Tyler Wood, Mutual Security Agency

Mr. Melville E. Locker, Mutual Security Agency

Mr. Frank A. Southard, Jr., International Monetary Fund

Mr. John S. Hooker, International Bank

Mr. Andrew N. Overby, Treasury Department

Mr. Thomas J. Lynch, Treasury Department

Mr. William L. Hebbard, Treasury Department

Mr. Elting Arnold, Treasury Department

Mr. Henry J. Bittermann, Treasury Department

Mr. James J. Saxon, Treasury Department

Mr. Allan J. Fisher, Treasury Department

Mr. George H. Willis (Acting Secretary)

Mr. C. L. Callander (NAC Secretariat)

Mr. Sidney B. Wachtel (NAC Secretariat)

Mr. James W. Westcott (NAC Secretariat)

[Page 314]

[Here follow a table of contents and discussion relating to the Seventh Annual Meeting of the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF).]

2. Stand-by Arrangements in the International Monetary Fund

Mr. Willis stated that the question of stand-by arrangements arises in connection with the Fund meeting in Mexico City1 because the Managing Director of the Fund has indicated his desire to make an announcement on this subject at the beginning of the meetings. The question has been discussed in two meetings of the Staff Committee and in the Fund Executive Board, although no action has been taken there. The Fund staff had originally recommended that stand-by arrangements be made available for fairly long periods (up to 18 months), and that they constitute, in effect, a guaranty that a country would be able to draw during the period covered. The Fund staff had also raised the question of whether a commitment fee should be charged whether or not an actual drawing was made.

After thorough discussion with the U.S. Executive Director, the Staff Committee is proposing to the Council that the draft decision now being considered in the Fund should be amended in some respects. The document before the Council (NAC Document No. 13652) indicated the changes that in the opinion of the Staff Committee the U.S. Executive Director should introduce in the Fund. Mr. Willis explained that the first suggested change would make clear that, in considering any request for stand-by arrangement or a renewal of a stand-by arrangement, the Fund would apply the same policies as are applied to a request for an immediate drawing, “including consideration of the performance of the member in making progress in achieving the objectives and purposes of the Fund and in carrying out agreed programs of action.” The Staff Committee feels that since a stand-by arrangement would in effect commit the Fund in advance to make actual drawings, any decision adopted by the Fund should specify clearly the tests that would be applied. The second suggestion, Mr. Willis continued, concerns the time period of such arrangements. The Fund staff now recommends that stand-by arrangements be “generally” limited to periods of not more than six months. The Staff Committee and the U.S. Executive [Page 315] Director suggest that the word “generally” be deleted to indicate clearly that stand-by arrangements would be limited to not more than six months.

In addition to those suggestions, the Staff Committee has agreed that a flat charge of ⅛ of 1 percent for a stand-by arrangement and for each renewal would be appropriate. Mr. Willis concluded by observing that while considerations relating to a member’s formal ineligibility to draw might conceivably stop on actual drawing by a member which had received a stand-by arrangement, such cases would in practice be extremely rare.

Mr. Southard referred to his two memoranda (NAC Document No. 13583 and NAC Staff Document No. 6094) on this subject, and stated that the development of stand-by arrangements appeared to be desirable, provided that the safeguards indicated above were adopted. It has not been possible, he continued, to ignore the feeling of a number of Fund members that they do not know where they stand with respect to the use of the Fund’s resources and therefore cannot make plans ahead which might include assistance from the Fund. These members feel that they cannot find out where they stand unless they request an actual drawing. In many cases, so they argue, they do not want actually to draw at a given moment. They might not be able to cite that they have a present need for the money, but they would like to know whether they could count on a Fund drawing if the need should materialize. The stand-by arrangement would mean that a country that would like to count on the use of the Fund’s resources can find out whether it will be able to draw if it needs a drawing. In bankers’ terminology, it would involve a virtually irrevocable line of credit. There are certain provisions whereby the right to draw could be terminated or suspended, for example through technical ineligibility of a country, but the arrangement would in practice be sufficiently irrevocable to meet the needs of these member countries. Mr. Southard pointed out the similarity between the proposed stand-by arrangements and the arrangements which had recently been worked out for Belgium.

Mr. Southard continued that the proposal is a proper development of Fund policy. However, it contains some element of calculated risk, like the gold tranche policy which the Council previously approved. Mr. Southard thought, however, that the gold tranche policy involved greater risks than the present proposal in that it in fact deprives the Council of a meaningful review of gold tranche [Page 316] drawings. The stand-by arrangement proposal does not eliminate Council review, but rather gives the United States every opportunity it would want to scrutinize every request for a stand-by arrangement.

Mr. Southard thought that this particular version of the stand-by proposal will not be welcomed by a number of Executive Directors. Some will say it goes too far, some that it doesn’t go far enough, and especially that six months is not a long enough period. Some may believe that the proposal provides so little that it would be a mistake to publicize it. Mr. Southard thought that the U.S. Government would not want to publicize it if there was a lack of enthusiasm for it, and that it would be unwise to press it further if the arrangement did not seem to please the majority of the Board. However, Mr. Rooth is willing to try this approach.

The Chairman expressed the view that everyone present realized there were some features of the arrangement they would prefer to have different, but that it was desirable to increase the flexibility of the operations of the Fund. Such an arrangement could present some problems, since it departs to some extent from the initial conception of the Fund. He concluded, however, that present circumstances appear to call for progressive development of Fund policies.

Without further discussion, the Council approved the draft Fund decision on stand-by arrangements as submitted.

Action: The following action was taken (Action No. 574):

The National Advisory Council authorizes the U.S. Executive Director of the International Monetary Fund to support a decision in the Fund on stand-by arrangements along the lines set forth in NAC Document No. 1365.5

[Here follows discussion concerning an emergency loan to Pakistan and the issuance of $75 million of IBRD bonds in United States markets.]

  1. Reference is to the Seventh Annual Meeting of the Boards of Governors of the IBRD and the IMF, held in Mexico City, Sept. 3–12, 1952. For additional information and documentation concerning the meeting, see IBRD, Seventh Annual Meeting of the Board of Governors: Summary Proceedings (Washington, 1952).
  2. Supra .
  3. Dated Aug. 14, 1952, not printed. (NAC files, lot 60 D 137, “Documents”)
  4. Addressed to Glendinning, dated Aug. 7, 1952, not printed. (NAC files, lot 60 D 137, “Staff Documents”)
  5. The IMF’s decision regarding standby credit arrangements was announced on Oct. 1, 1952; for text, see IMF, Annual Report 1953 (Washington, 1953), pp. 95–96.