NAC files, lot 60 D 137, “Documents”

Memorandum by the United States Executive Director of the International Monetary Fund (Southard) to the Acting Secretary of the National Advisory Council on International Monetary and Financial Problems (Willis)1

Document No. 1261
  • Subject:
  • Use of the Fund’s Resources and Repurchases
Since I forwarded to you my memorandum on this subject (NAC Staff Document No. 558, January 31, 1952),2 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 [Page 309] take the following position in the Executive Board, for the reasons indicated, unless the National Advisory Council perceives some objection.
I would acquiesce in the statement which the Managing Director3 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:
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.
The member’s whole situation would be considered, including its past prudence in drawing and its voluntary repayments to the Fund.
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 1951,4 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.
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, members [Page 310] would be required to cite their agreement with such decisions at the occasion of any drawing.
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.5
  1. A covering transmittal memorandum to the NAC, dated Feb. 11, 1952, is not printed. It indicated that Southard’s memorandum was a revision of an earlier one, dated Feb. 8, 1952, not printed.
  2. Not printed. (NAC files, lot 60 D 137, “Staff Documents”)
  3. Ivar Rooth.
  4. Reference is to the proposal approved by the IMF Executive Board on May 2, 1951, outlining the circumstances in which the Fund’s resources might be made available to increase the confidence of members undertaking actions that would help to resolve their respective internal monetary problems and to achieve the purposes of the Fund. For additional information, see International Monetary Fund, Annual Report 1951 (Washington, 1951), pp. 81–82.
  5. The NAC approved Executive Director Southard’s proposed position on the use of the IMF’s resources in a telephone poll of its members completed on Feb. 12, 1952. (NAC files, lot 60 D 137, Document No. 1263) The IMF’s decision with respect to the use of its resources was announced on Feb. 13, 1952; for text, see IMF, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1952 (Washington, 1952), pp. 87–90.