149. Telegram From the Embassy in Belgium to the Department of State 1

4303. Subject: Highlights of Meetings of Group of Ten. From: Treasury Under Secretary Volcker for MacLaury.

Ministers and Governors of Group of Ten met for three hours and issued communique reported separately.2 Following report by Chairman Ossola of Deputies, which termed problem not urgent or ripe for final decision and indicated main differences of emphasis among Deputies, they termed IMF report3 “useful” and agreed to further study by Executive Directors of Fund. They also directed their Deputies specifically to continue work on this subject, as well as to review from time to time working of international monetary system more generally.
French and Belgians most guarded in approval of report and wanted social and economic consequences of exchange policies examined and also effect of proposed techniques on sharing of burden of adjustment between surplus and deficit countries. Also, Deputies should follow up SDR and international liquidity developments in relation to forecasts made at time of initial allocation decision. EC countries noted lack of fully agreed EC position which hoped to achieve later.

Secretary Kennedy commented on flexibility along following lines (not verbatim text):

“My delegation welcomes the report by the Executive Directors on the role of exchange rates in the adjustment of international payments. We are glad to see that this subject has been examined in the executive board for the first time since Bretton Woods in a thoroughgoing way, and through a special report. This report puts the subject in proper perspective. During the past five years there has been some evidence of rigidity in the system, and delay in the use of exchange rates for adjustment purposes on occasion. A study of this sort was long overdue, and we must not take it up and then simply drop it. We must face up to this question.

The report is judicious and in no sense radical. It stresses the preservation of the basic principles of exchange stability, so long as they [Page 417]correspond to economic realities. The report is the kind of analysis we expect to have clarify many of the issues with which we must deal. It rejects extreme measures but does broaden the concept of the adaptability of the par value system. It recognizes that the transitional float has been and may be useful in minimizing economic disruption and helping restrain domestic inflation in those cases where a change is necessary.
As the report suggests, my delegation is prepared to suspend judgment on the legal questions related to possible future amendments, so that we may determine whether the scope now available under the Fund’s articles will prove adequate. In this connection, I hope the Deputies will keep the subject under review as it is examined by the Executive Directors and inform the Ministers and Governors of their collective or individual views on the need for an amendment during the ensuing year.
I think that we will all agree that the work of the Deputies has been very useful. I hope they will continue to meet and to report to us. It has been demonstrated that they can do so without giving the appearance of crisis.
Members of my delegation have made it clear that the United States does not look to the techniques examined in the report as a means of bringing about major improvements in our own balance of payments or those of other countries. We rather think of them as helping to loosen tendencies towards excessive rigidity in the exchange structure, and possibly leavening past tendencies for exchange depreciation to be more frequent than appreciation. In a broader sense, we believe these exchange techniques deserve our more careful consideration to make us better prepared to deal with the strains arising from international movements of funds. I believe that it is most helpful to have any differences of view expressed.
The United States fully appreciates that the Community wishes to progress toward exchange stability within that group.”
Chairman Emminger (German) of WP-3, in general review of world monetary situation, noted recent tendency for inflationary pressures to continue stronger in Europe than in North America, increasingly severe international limitations on autonomy of national monetary policies, and that outflow of dollars into foreign reserves would no longer be offset as in January-June 1970 by “mitigating influences” of repayment of official reserve credits. Ministers and Governors commented at some length on economic and monetary situations their countries. Secretary Kennedy expressed belief United States on way to resumption of growth without excessive price rises, though adjustment had been long and hard. Said U.S. not satisfied with balance of payments [Page 418]situation, though trade position improving, and exerting efforts expand exports. Chairman Burns stressed recent “dramatic” improvement in productivity and said policy objective is gradual rather than too rapid recovery. He looked forward to a prosperous world and did not want to see very high interest rates much longer. Over two-year period U.S. balance of payments not as bad as it looks in last six months. Canadian Minister said Canada hoped to return to fixed level when a sustainable level reached, and not wise attempt to do so now.
Netherlands Minister said Bretton Woods philosophy was that stability of exchange rates should not require countries to deflate or inflate domestically and that exchange adjustment could therefore be used to avoid inflationary domestic policies as it has in past been used to avoid deflationary policies.
At meeting on September 18, Deputies discussed position of industrial countries on possible pressure by LDCs for study of SDR-aid link in IMF or elsewhere. All Deputies supported U.S. view that study is clearly premature until SDRs firmly established as monetary instrument. Germans, Dutch, Japanese, French felt U.S. position not strong enough, question decided in 1968 and should not be reopened, and study of link should not be undertaken at any future time. U.K. position weakest and could not commit Chancellor. French and some others noted that positions expressed in other international forums, especially UN bodies, did not always coincide with views of Treasuries.
We are told here that communique of Commonwealth Finance Ministers meeting at Cyprus endorsed study of SDR-aid link prior to 1972 allocation. British say resolution for IMF study may be put in by Latin Americans or others at Copenhagen, but no confirmation this from Fund staff here at present time.
  1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Limdis; Greenback. Repeated to London, Stockholm, Bonn, Paris, USOECD, Tokyo, The Hague, Bern, Ottawa, and Rome.
  2. The G-10 Ministers met in Brussels on September 19, prior to the IMF-IBRD Annual Meetings in Copenhagen September 21-25. The communique has not been found.
  3. See footnote 4, Document 148.