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

NAC files, lot 60 D 137, “Documents”

Memorandum by the United States Executive Director of the International Monetary Fund (Southard) to the Secretary of the National Advisory Council on International Monetary and Financial Problems (Glendinning)

restricted
Document No. 1566

[ Washington ,] December 4, 1953.

• Subject:
• Review of Policy on Use of Fund Resources

1. By the end of this month the Executive Board of the Fund has to take three decisions: (a) charges on use of resources; (b) procedure for stand-by credit arrangements; (c) renewal of the basic decision on use of resources, dated February 13, 1952.¹

2. As to Fund charges:

(a) I have been endeavoring for a good many months to find some schedule of charges on use of Fund resources which would increase such charges over the present schedule, and at the same time would have reasonable prospect of being an acceptable compromise in the Executive Board of the Fund. The present schedule of charges is very low for the first tranche and in the earlier time periods of the second tranche of the quota (see Attachment II where the existing effective rates are shown). Higher charges would more adequately reflect the general level of rates in primary money markets and also would enable the Fund more adequately to pay its way. However, it must be realized that there will be no enthusiasm anywhere in the Executive Board of the Fund, aside from the U.S. Director, for any increase, or at least any substantial increase, in the schedule of charges.

(b) Appended hereto as Attachment I is a proposed new schedule of charges which I believe might have reasonable prospect of being accepted in the Executive Board. It sets 2 percent per annum (effective rate) as the minimum and eliminates the lowest of the four existing schedules of charges. Attachment II compares this proposal with the present effective rates. I recommend that I be authorized to seek the adoption of this new schedule in the Executive Board of the Fund.

3. As to stand-by credit arrangements:

(a) The present Fund decision (adopted October 1, 1952) puts a limit of six months on stand-by credit arrangements.² As NAC agencies are aware, the United Kingdom and the Continental European members of the Fund (and also others) consider that this period is too short to provide effective stand-by facilities. The United Kingdom Government is particularly insistent that, in the event of a move to convertibility of sterling, a stand-by arrangement will be needed running for not less than 12 months and probably for two years.

(b) The Fund Staff recommends (see SM/53/93 of November 23, distributed to NAC agencies³) that the six months limitation be retained, but that appropriate language be added to the new decision to indicate that the Fund would give sympathetic consideration for a longer stand-by arrangement, in the light of the problem facing the member and the measures being taken to deal with it. In my view this is an acceptable modification, possibly with the addition of a phrase to indicate that the cases where a period longer than six months might be needed would arise particularly in connection with positive proposals for convertibility. I recommend that I be authorized to support a revision of the decision on stand-by credit arrangements substantially along the above lines. If the United Kingdom is to go along with this arrangement, it will be necessary for me to assure the U.K. Director⁴ that the United States realizes that a six months stand-by arrangement would not be long enough to serve the needs of the United Kingdom at the time of a move to convertibility of sterling, that the United States understands the United Kingdom problem in this respect, and would be prepared to support a stand-by arrangement for the United Kingdom for an appropriate period of time whenever the United States was satisfied that the United Kingdom had an acceptable proposal to make to the Fund.

(c) As to the commitment fee of ¼ of 1 percent per annum on stand-by credit arrangements, the Fund Staff recommends that it not be levied with respect to the part of the stand-by arrangement covering gold tranche transactions. The U.K. Director has urged that the charge itself be reduced to ⅛ of 1 percent. I do not favor reducing the charge. However, if the British or others very strongly urge some reduction, I believe we could agree to an arrangement whereby the commitment fee would be credited against the other charges payable to the Fund in proportion to actual drawings made under a given stand-by arrangement. That is, if in a given period a member made a drawing amounting to one-fourth of the total stand-by arrangement, one-fourth of the commitment fee pertaining to that period would be credited against the charges resulting from the drawing. For the subsequent period the stand-by fee would be paid on the unused portion of the stand-by agreement. As to the Staff recommendation that no charge be levied with respect to the portion of the stand-by arrangement covering gold tranche transactions, I think a reasonable case could be made either way and I would propose to reach an amicable understanding in the Executive Board.

4. As to the basic Fund decision of February 13, 1952, on the use of Fund resources, I do not consider that this decision needs revision in any material or substantial way.

5. I should appreciate having a discussion of this memorandum in the NAC Staff as soon as possible.⁵

Attachment I

Proposed Charges for the Use of the Fund’s Resources

Alternative Proposal Three Brackets

Period of use	Variable Charges			Effective Rates
	0–50	50–75	75–100	0–50	50–75	75–100
0 to 3 months	0.0	0.0	0.0	2.00	2.00	2.00
3 to 6 months	2.0	2.0	2.0	2.00	2.00	2.00
6 months to 1 year	2.0	2.0	2.5	2.00	2.00	2.25
1 to 1½ years	2.0	2.5	3.0	2.00	2.17	2.50
1½ to 2 years	2.5	3.0	3.5*	2.12	2.38	2.75
2 to 2½	3.0	3.5*	4.0	2.30	2.60	3.00
2½ to 3 years	3.5*	4.0	4.5	2.50	2.83	3.25
3 to 3½	4.0	4.5	5.0†	2.71	3.07	3.50
3½ to 4 years	4.5†	5.0†	—	2.94	3.31	—
4 to 4½ years	5.0†	—	—	3.17	—	—

Attachment II

Effective Rates ^‡

Time Period	Present				Proposed
	0–25	25–50	50–75	75–100	0–50	50–75	75–100
0 to 3 months	1.00	2.00	2.50	63.00	2.00	2.00	2.00
3 to 6 months	—	—	—	—	2.00	2.00	2.00
6 mo. to 1 yr	1.00	1.75	2.25	2.75	2.00	2.00	2.25
1 to 1½ yrs	1.17	1.83	2.33	2.83	2.00	2.17	2.50
1½ to 2 yrs	1.38	2.00	2.50	3.00	2.12	2.38	2.75
2 to 2½ yrs	1.60	2.20	2.70	3.20	2.30	2.60	3.00
2½ to 3 yrs	1.83	2.42	2.92	3.42	2.50	2.83	3.25
3 to 3½ yrs	2.07	2.64	3.14	3.64	2.71	3.07	3.50
3½ to 4 yrs	2.31	2.88	3.38	—	2.94	3.31	—
4 to 4½ yrs	2.56	3.11	—	—	3.17	—	—

1. Regarding the IMF’s decision of Feb. 13, 1952, see Southard’s memorandum, Feb. 11, 1952, p. 308.
2. For a discussion of standby arrangements relating to the IMF’s decision of Oct. 1, 1952, see the minutes of the 196th meeting of the NAC, Aug. 26, 1952, p. 313.
3. The reference document was not found in Department of State files.
4. Sir Edmund Hall-Patch.
5. The NAC Staff Committee discussed Southard’s memorandum at a meeting in December 1953, and recommended approval. (NAC files, lot 60 D 137, “Staff Committee Minutes No. 404”) In Action No. 663, the NAC authorized Southard “to support decisions in the Fund on Fund charges, stand-by credit arrangements, and basic policy on use of the Fund’s resources along the lines set forth in NAC Document No. 1566.” (NAC files, lot 60 D 137, “Actions”) The IMF’s decision on use of Fund resources, standby arrangements, and charges was announced on Dec. 23, 1953; for text, see IMF, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1954 (Washington, 1954), pp. 131–135.
6. Point at which consultation becomes obligatory. [Footnote in the source text.]
7. Point at which consultation becomes obligatory. [Footnote in the source text.]
8. Point at which consultation becomes obligatory. [Footnote in the source text.]
9. Maximum charges; Fund has discretion to make lower charges. [Footnote in the source text.]
10. Maximum charges; Fund has discretion to make lower charges. [Footnote in the source text.]
11. Maximum charges; Fund has discretion to make lower charges. [Footnote in the source text.]
12. Maximum charges; Fund has discretion to make lower charges. [Footnote in the source text.]
13. Including ½ of 1 percent service charge. [Footnote in the source text.]
6. The source text indicates that these first four figures are combined data for the first two entries under “Time Period,” i.e., 0 to 6 months.