128. Memorandum From Secretary of the Treasury Simon to President Ford 1
- Jamaica Meetings of Interim and Development Committees
I am pleased to report that at Jamaica last week, the IMF Interim Committee reached agreement on a major reform of the international monetary system.2
Building on understandings reached at earlier meetings in August3 and at the Rambouillet Summit, we concluded several years of negotiations [Page 458]and produced the first sweeping revision of our international monetary arrangements since the Bretton Woods Conference in 1944. As a result, we will now have a flexible monetary system which can adapt to changing international circumstances, avoiding the strains and stresses of the 60's which resulted in an uncompetitive U.S. economy and eventually a breakdown of the system in August 1971.
The main features of the Jamaica agreement are:
- Revision of the exchange rate provisions of the IMF Articles of Agreement to eliminate the rigidity of the existing provisions, to legalize the various exchange arrangements presently applied by countries, and to provide a flexible framework for future evolution of the exchange system. The new provisions focus on the need for underlying economic stability rather than on action to control the exchange rate. Under the new provisions, the U.S. will have a controlling voice both in the future adoption of general exchange arrangements for the system and in the selection of exchange arrangements to be applied by the U.S. individually.
- Implementation of measures to phase gold out of the international monetary system. The official price of gold will be abolished; the use of gold in transactions with the IMF will be eliminated; the IMF will begin immediately to dispose of its large holdings of gold; and the major central banks of the world will adhere to transitional guidelines on official transactions in gold designed to assure that a central role for gold does not re-emerge. By placing gold on a one-way track out of the monetary system, we reinforce the move toward flexibility embodied in the revised exchange rate provisions and reduce the risk of pressures on the United States to assume once again the responsibility for maintenance of a gold-based system.
- Measures to meet the increased financing needs of IMF members. As previously agreed in principle, there will be a one-third increase in IMF quotas, which provide the financial resources of the IMF. Our quota—which determines our lending obligations, our borrowing rights and our voting power—will rise from about $8 billion to about $10 billion. As a result of the U.S. quota increase and agreed changes in many of the voting majorities for decisions in the IMF, the U.S. will retain the power to block important decisions in the IMF if not consistent with our interests.
It was also agreed to expand temporarily the quota limits on access to present IMF resources by 45 percent. While support for this expansion came mainly from the developing countries, it will be available to all members. We believe this will be within the IMF's financial capacity on a purely temporary basis. Upon the completion of the quota increases, mentioned in 3 above, this increase in access to fund credit will lapse.[Page 459]
To help meet the increased calls on IMF resources, it was agreed that all members will make their currencies usable by the IMF within six months—to end a situation whereby some countries in strong position (including some in OPEC) could avoid providing their share of IMF credit.
In addition, for the developing
- Agreement was reached to establish a Trust Fund to channel to the poorest countries the profits on sales of one-sixth (25 million ounces) of the IMF's gold for balance of payments assistance needed urgently as a result of the current international economic situation. As a quid pro quo for IMF gold sales, another one-sixth of IMF gold will be distributed directly to members in proportion to present quotas. The LDC's will receive about 28 percent of this distribution.
- There will be a major liberalization of the IMF's special facility to partially offset primary producing countries' fluctuations in export earnings resulting from wide swings in the demand for commodities that are typical of business cycles. This proposal is a major element of the U.S. approach to commodity issues.
Amendment of the IMF Articles of Agreement and the IMF quota increase will require Congressional authorization. After final technical examination by the IMF Executive Board, the entire package should be ready for submission to Congress about mid-April. While some concern has been voiced by individual Members about certain aspects of the gold agreement, I anticipate Congressional support for the package as a whole. We have kept the Congress closely informed as we have negotiated the agreement, and we will be working intensively with key Members and committees in preparation for formal submission of legislation.
Following the activity of the Interim Committee, there was little interest in the subsequent meeting in Jamaica of the Development Committee4—essentially the same ministers focused on the problems of the developing countries. There was a consensus that the financial problems of the developing countries continue to be serious, although less difficult in 1976 than in 1975. There was general agreement that implementation of the Trust Fund and expanded access to IMF resources, as agreed in the Interim Committee, are significant steps to help the developing countries. As we have not yet received appropriations for our first of four annual contributions to the fourth replenishment of the International Development Association, we could not agree to positive statements on contributions to IDA-Five, on which negotiations have started.[Page 460]
As a final note, let me add that the close working relationships we have developed with the French proved to be the critical element in reaching the accords on the international monetary system. I anticipate continuing to try to work with them closely in the future.
- Source: Ford Library, National Security Adviser, NSC International Economic Affairs Staff Files, Box 5, Presidential Subject File, Monetary Affairs. No classification marking. A notation on the memorandum indicates the President saw it.↩
- The Interim Committee met in Kingston from January 7 to 8. Excerpts from the communiqué issued on January 8 were printed in The New York Times, January 10, 1976, p. 34.↩
- See Document 101.↩
- The Development Committee met in Kingston on January 9.↩