m . .V
í •' » v
*
AFRICAN MINISTERIAL CONFERENCE
llllôt-HB
Abidjan,
2 May, 1973_5 508£
1MARS 1973
ADB/COHFI UN/7 3/WP/ll/4
ENGLISH
Original: FRENCH
Distribution :
RESTRICTED
THE DEVELOPING COUNTRIES OF AFRICA AND THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM
by
Professor A. V7ADE
Report presented to
the meeting of
the group of experts responsible for
the preparatory studies
Abidjan,
26
-23 February 1973
THE AFRICAN DEVELOPMENT BANK IS NOT BOUND BY THE OPINIONS EXPRESSED
IN THE WORKING PAPERS
t
THE DEVELOPING COUNTRIES OF AFRICA AND THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM
INTRODUCTION
The title of this paper is no accident» The international monetary system is and will be for many years based on a deferative
concept in which all countries are represented, federalism bein5
one of the best expressions of the objective community of interest
between national monetary systems.
Hence it is undesirable for each country or group of
countries to tackle reform from a rigid standpoint based on egois¬
tical interests alone. True, it is perfectly legitimate to use one's ov/n interests as a point of departure, but in this case
such
interests must coincide or at least be compatible with the general interest. The point of departure should in fact be the interest
of the v/orld economy, though on this subject there may be
differences between developing and developed countries. The latter
have a sad tendency to judge the interest of the world economy
on the basis of short-term quantitative criteria and to consider
that what is good for them must be good for the v/orld economy.
This unfortunate tendency explains why for nearly ten
years all changes in the operation of the international monetary
1/
system have originated with the Club of Ten—' which finally compelled the IMF to adopt them, in flagrant
violation of the
Fund's federative nature.
!_/
The ten most highly>developed countries:Belgium, Canada,
Federal Republic of Germany, France,
Italy, Japan, Netherlands,
United Kingdom, United States and
Sweden
(
Today, although matters have not yet changed, change is
on the way. The principle of effective participation by the developing countries in the reform of the monetary system is now
accepted.^)
This paper, though concerned v/ith the idea the higher
interest of the world economy#is nevertheless intended to
i.
demonstrate the points on which the African countries, following
in the footsteps of Latin America, could contribute to the problem of reforming the international monetary system in solidarity with the other developing countries.
To help in examining the crucial points of the reform and to place them in the context of the development of the whole inter¬
national monetary system and its machinery, the paper is divided into three parts;
— The need for reform of the international monetary system and the form African participation should takej
— The question of what the African countries require
*
of an international monetary system;
— The defence and protection of African interests while the transitional system is being improved.
il)
We may well have serious misgivings about the possibilityof true participation by the developing countries. Recent events such as the decline of the dollar and the flight of capital into the Federal Republic of Germany and Japan led
to three—cornered negotiations
(by
France, the United Kingdom and Germany) and a proposal to convene a worldmonetary conference in spite of the fact that the Committee of 20 had already begun its meetings.
I
♦ • *
t
- 3
PART ONE
THE NEED FOR A REFORM OF THE MONETARY SYSTEM AND THE
FORM WHICH AFRICAN PARTICIPATION SHOULD TAKE
The laws of nature are not necessarily fair. A poor nan who gambles with a millionaire
is doomed to lose because what ought to be a lav;
of probability becomes a certainty for him. For the same reason, dealings between the richer
nations and. the poorer ones can only result in
the latter becoming poorer still, unless the human will intervene to stop the implacable interplay of the laws'of nature.
NEED FOR A REFORM OF THE INTERNATIONAL MONETARY SYGTEK
i. The international monetary system must be neither too restrictive nor too broad.
It cannot be reduced to IMF principles, methods, rules
and machinery which are designed to guarantee international payments and prevent deficits or surpluses from curbing the expansion of world trade. The reason is that international
liquidity is not in itself a currency necessarily any different
from national currencies. In fact, it consists essentially of
some of these currencies which are universally accepted as
instruments for international payments and are known as reserve
currencies. Hence the close relationship between national
liquidity and international
liquidity^ ^ ^
m This is why the crisesof the pound and the dollar — both reserve currencies — have
always led to crises in the international monetary system.
(l) cf, F, Machlup, Liquidité nationale et liquidité internationale,
But the rules for an international monetary system cannot
cover all the details of national systems, although they do cover all the international and national principles, methods,- controls,
and machinery of such systems that may have an overall non—neutral effect on the distribution or expansion of international liquidity.
The international monetary system therefore consists of all the international and national principles, methods, controls
and machinery that may have a net effect on the distribution or
increase of international liquidity.
This system obviously includes as part of its machinery
the IMF, which was, in fact, designed for that very purpose, but
it also includes agreements on credit and other payment facilities
between countries, domestic controls on the international flow of capital, and the international structure of interest and
exchange rates.
2. This paper will deal in the main with the concept of the international monetary system in the most limited sense of the term and with the international aspect of domestic systems, without going too far into national monetary policies.
3. Between the wars, when the under-developed countries played
satellite to the economies of the developed countries, liberal policies — even combined with the institution of the gold
exchange standard - soon revealed weaknesses on the international scale as a consequence of independent national economic and
monetary policies designed to serve national
ends/^
/. After the war, the theorists believed that there were
serious risks of a 1929-type depression if the industrialized countries' national target of full employment/were not matched by a policy of harmonization and machinery for intervention on an
(l) This, I believe, was the origin of the break in the parallel evolution of national and international cycles.
- 8 -
international scale. This was the origin of the Bretton /foods system, whose main features were:
— that the dollar was guaranteed at the rate of $35
per ounce of gold as the basis of the system;
— that the various currencies were defined in relation to the dollar
(parities)
and hence indirectly to gold(pars);
— since the various currencies were linked by exchange rates, each country undertook to keep its exchange
rate ivithin the narrow margin of 1% above and below par;
— since the price of gold remained officially fixed in relation to the dollar, par rates could be changed only
in uniform proportion (Article IV, Section
7)J
— the general system was therefore rigid and the dollar
and the pound soon become the two reserve
currencies.^)
5. Despite what developed countries may say, the Bretton 7/oods system, although it did have positive effects on the world economy by ensuring continuous expansion of international trade, was more useful to the developed countries, because:
(i)
the share of the developing countries in the global volume decreased while that of the developed countries increased;(ii) international trade between the developing countries decreased while trade between developed countries
increased;
(ï) The system's rigidity is due to the fact that gold production
is inelastic, and has therefore never been able to meet the needs of world trade payments, and because industry has
consumed a considerable part as v/ell. . Between the wars, this situation had already resulted in a shortage of gold.
(iii)
the average growth of the developing countriesdeclined by 5% in the 'fifties to t-S in the 'sixties.
The growth rate in Africa as a whole barely averaged 2%
(Tables
1 and 2),6. The major result of the interplay of the first two factors
was the marginalization of the developing countries in world
trade and the gradual bipolarization of the world economy, which
was reduced to the developed countries alone with a single debtor
on one side and a number*of creditors on the other. Since
: I• ; ;
bipolarization contains no endogenous elements for reversing trends, this situation led to the crisis of 15 November 1971»
7. The scarcity of international liquidity resulting from inadequate supply or poor distribution deeply affected the growth policy of the developed countries, on which the development of
the developing ones, because of their exports and imports of
essential capital, depends. The developed countries' balance-of- payments difficulties always lead them to introduce restrictions
on imports of products from the underdeveloped world,to exchange controls,and cuts in their volume of aid to the
developing
countries.(3)
The international climate favourable to(1) For instance the 10$. import tax introduced by the United States, although the US very quickly took specific steps to limit its effects on the African countries' exports.
(2) The United Kingdom, France and the Federal Republic of Germany provide numerous examples in this respect.
Í3)
At the Illrd session of UNCTAD in Santiago, the developed countries, far from affirming their intention of attainingthe International Development Strategy target of.1% of
their GNP, said that they could not even undertake to reach 70$ of that target by 1975.
TABLE i
70RLB TBATE
1963-1C71
Import C A F
1963 1ÇÓ4 1965 1966 1967 1968 1969 1970
1971 United States 23,387 26,650 27,530 30,430 31,622 34,6 36 38,006 43,224 44,137
United Kingdom 12,220 12,781 13,722 14,713 14,454 15,443 17,614 19,351 22,340
Industrial Europe 47,550 53,860 60,340
65,9
90 0•V *-0O 79,920 93,850 109,460 123,680All industrial
countries 95,400 108,040 118,550 130,900 138,010 156,150 179,920 208,170 232,550
Latin America 9,040 9,650 10,110 10,720 10,670 11,230 12,340 13,800 14,700 Middle East
5/880
6,61c 7,150 7,770 8,510 9,300 10,100 11,130 13,500Africa 5,710 6,720 7,030 7,620 7,790 9,170 10,650 11,870 12,550
7/orld total 135,800 152,<00
165,300
181,200 190,600 213,200 244,400 280,300 312,600TABLE 2
PER. CAPITA GRONTH RATS OF SOME AFRICAN COUNTRIES
Source: OECB 1972 Examination, p. 296 ( ) estimated
COUNTRY 19ÓO-Í9Ó6 1967 1968 1969 1970 1971
North of the Sahara
4.7
Algeria •
(5.4) (1.0) (-0.1)
Libya *
(8.0) (30.7)
9.0Morocco -0.4 3.6 9.3 -2.2 2.6 1.9
Tunisia 1.9 1▼H•OO 7.1 1.1 1.3 5.5
2.2 -3.2 3.1 5.6
South of the Sahara 1.2
Angola 1.4 7.1
Zaire
•
• (-3.3) 5.8 4.4 5.8 0.6
Ethiopia 2.8 2.2
(1.4)
2.1 1.8 2.4Ghana —0.1 -0.6 -1.5
(0.9)
(0.8)Ivory Coast -1.7 14.7 3.4 3.9
Kenya 1.2 1.5 <• •CO 2.6 3.4 1.3
Malawi 0.3 0.6 -^6.7 4.9 10• r- 6.0
Mozambique 3.3 7.3
Nigeria• 1.6 0.5
Rhodesia -0.1 1.0 6.2 6.2
Sierra Leone 1.9 11.0
Sudan 0.1 9.6
Tanzania 1.4 2.6 2.8 -0.4 3.0
(1.3)
Uganda 1.4 0.5 -0.2 6.8
(-1.3)
-1.8Zambia 4.4
45.5) (-)
11.8 2.0 -1.0clevelopind countries is one where there is accelerated demand by
the industrialized countries for their goods, thus enabling then
to expand production and sell their commodities at better prices, however, a close watch oust be kept on loan terns,
interest
ratesand other conditions, which the developed countries
tend
tomake
stiffer than necessary by stressing the essential part that
continued growth of their own economies plays in
development,
8, Apart from the above-mentioned "external"condition
of development, the developing countries themselves experiencebalance of payments
difficulties,
asthe following table,
illustrating the situation from 1ÇÓ6 to 1971> goes to show.TABLE 3
BALANCE OF PAYMENTS OF THE AFRICAH DEVELOPING COUNTRIES
Source; IMF Annual Reports
Units: Thousand million SBRs YEARS 1Ç66
"1967
1968 1969 1970 1971Current balance —0.8 -0.8 -0.5 - -0.1 10•
Capital balance 0.8 0.7 0.8 0.8 1.0 1,6
SDR allocations
V
- 0.2 0.1
Ovex'all balance - -0.1 0.3 0.8 1.0 1.0
The difficulties, however, aire so peculiar to these
countries and their causes are so varied that the present inter¬
national monetary system has proved incapable of solving them;
moreover, although scarce international liquidity nay be bad, surpluses can, above certain limits, create further problems and
not promote development at
all,^ ^
(l)
For instance in Libya and other Middle Eastern countrieswith large reserve surpluses from petrol exports.
- 13 -
Ç. It is clear from consideration of the two preceding
objectives that in the reform of the international monetary syten economic growth in the industrialized countries must be allied with development in the Third World: the developing countries must
have the requisite conditions for optimum dynamic equilibrium of
their balance of payments,
10, This equilibrium should be sought not statically but through
the dynamics of production and trade. But apart from growth it
should not create internal
structural^A)
or further sociological (2)imbalances,v ' Development, not growth, should be the standard by which the optimum is assessed,
11, At the world level it seems that liquidity policy ought
to be based on the following considerations which demonstrate the complexity of the world economy and explain the difficulty of adopting the basic assumption that the same rules are acceptable
to all countries,
(i) Under the Bretton Woods system, the United States - the heart of the system — has been under the almost permanent strain of a continual balance-of-payments
deficit (Tables 3 and
4)J
this was the only way to supply the rest of the system with internationalliquidity since the dollar had a fixed relationship to gold. While the cumulative deficit remained within
(1)
In order to increase their exports, many African countrieshave concentrated on single crops which makes them dependent
on external factors; this policy has had harmful effects on
their terms of trade,
(2) Income from exports based on mining or a monoculture often
creates privileges classes: either directly through ownership
or resources, or indirectly because the State apparatus is
in the hands of politicians.
4
• I
certain limits the advantages of this practice largely compensated for its drawbacks. But when dollars were accumulated abroad - as was inevitably the case - to
such an extent that they acted as a brake on United
States production by restricting its exports and causing unemployment, despite that country's undertaking to
ensure the system's stability the strain became
unbearable because it was incompatible with national
responsibilities.^ ^
(ii) The major problem for the other developed countries
seem to be poor distribution rather than scarcity of liquidity. Therefore, there are generally no problems
while confidence exists between these countries,
(iii)
However, the major problem for the developing countriesis primarily the scarcity of international liquidity
and only secondarily poor global distribution. v/ith
their lack of gold and balance of payments deficits, scarcity is a permanent problem to them. Moreover,
countries with surpluses generally lack confidence in
the economies of the developing countries,
(iv)
Since international liquidity is mainly in reservecurrencies, the need for international liquidity
appears as the expression of a difference arising after
the balance of payments deficit has been attenuated fey
credit agreements and between countries by commercial
and banking arrangements. Since the volume of the balance of payments deficit is not necessarily
connecte- xvith the volume of imports or exports, it
seems useless to try to measure world international liquidity requirements and preferable to seek for indicators of national needs.
(l)
The events of the first half of February 1973 seem to confirmthis opinion.
It does not seen possible to set criteria for an optimum
world volume of international liquidity. But at the national level, several criteria or indicators, though of questionable value, have been put forward,
Since liquidities serve to settle "differences" in the balance of payments, a minimum available liquidity in relation
to imports must be maintained. This may be compared to the
ratio between cash and turnover in a business. The general rule
in Europe is for reserves to cover 3—6 months' imports. This is a bad-criterion because reserves are not used to pay for imports but
for an "external deficit", Moreover, a deficit may occur in many ways in a balance of payments, depending on the items affected and
the size of the impact. But the final result is not the same from the payment point of view
(urgency,
resources,economic
andfinancial effects). The retio of reserves to imports is none¬
theless still used today as the test for optimum volume of international
liquidity,^1)
Some economists have put forward the criterion of liquidity
cost including the cost of sterilizing part of the import capacity
and the neutralization of the influx of external liquidity to obviate price rises,
//hatever the criteria adopted, international liquidity
must grow fast enough to allow unhampered expansion of inter¬
national trade; but not so fast as to become a source of
inflation,)
(l) If the question of SDRs, which we shall examine later on, .
had been put in this way, it would have been obvious that
the essential limitations were inflation and the developing
countries' absorptive capacity. The volume would not then have been so arbitrarily chosen with the major emphasis on the operating needs of the centre of the system, namely the
United States,
See Part III below, creation of liquidity.
12. It was not the possibility that United States gold stocks
would become exhausted which was behind the American decision of IS August 197Í» In
ÍÇÓ7#
the United States had already drawnheavily on those stocks to support the pound on the London market.
The strain on the United States become unbearable when if
was clear that the numerous measures designed to counter its
balance-of-payments deficit would be inoperative; these measures, which were strongly criticized abroad, included the interest rate
equalization tax introduced on 3 September
1ç6/,
the voluntarylimitation of foreign investments by American firms, the compulsory
restrictions on loans abroad and development aid. To avoid depreciation of the dollar, the United States had long tried to maintain its gold stocks in equilibrium at a level consonant with its dollar balance obligations to official foreign agencies,
koosa bonds were one application of this policy as was the system of technical drax;ing on the IMF. (Annex l).
13. As far as the developing countries are concerned, if we agree that the need for international liquidity reflects a
"difference" originating in various ways, an international liquidity policy must be linked with both national and inter¬
national policies on trade. National policies designed to
encourage selected imports - including imports of capital equipment - and to improve export earnings, and international
trade and economic policies designed to favour the developing
countries' terns of trade and to increase their experts would undoubtedly attenuate the latter's need for international payments inst rumenfs,
14. . The nature of their own economies and the structure of the world economy mean that the developing countries' needs are
permanent. For this reason, long-term measures to provide
resources for development are just as necessary as short—term
measures concerned with liquidity alone. Consequently, the
TABLE 3
- 17 -
DEVELOPMENT II! TUB WORLD ECONOMY
n1
* :
Balance of Payments Suanary 1ÇÓ9—71
Source: IMP
(in
billions of U.S.dollars)
Balemce on
Services Capital Alloca¬ Ovproil
and Current Account tion of V vD A C1JL.JL Trade private Account Balance SDRs Balance
transfers
Industrial countries 196-9 7.0 1.1 8.1 - 7.6 0.5
1970 11.3 0.6 10.7 - 5.9 2.3 7.1
1971 12.3 1.3 13.7 -16.O 2.0 -0.3
Primary producing countries 1969 ■ 3.2 -5.1 - -8.3 ' 9.8 ' — 1.5
1970 - 5.9, ■5;2 -ll.l 14.3 -4.1 4.3
1971 6.8 ■5.3 -12.2 19.4 1.0 8.2
! More developed area 1969 -3.9 1.8 -2.1 2.1 — —
1 1970 -5.8 2.7 -3.1 . 4.1 0.3 1.3
1971 -6.5 , 4,0 r2.4 . 5.8 0.2 3.6
Less developed areas 1969 0.7 -6;8 -6.2 7.7 1.5
1970 -0.2 -7.9 -8.0 10.2 0.8 3.0
1971 -0./, -9.4 -9.7 13.6 0.7 • 4.6
In the Middle East 1969 0.8 -1.6 -0.8 0.4 — -0.4
! 1970 Í.2 -2.1 -0.9 0.9 0.1 0.1
1971 3.5 -3.8 -0.3 2.5 0.1 2.3
In Africa 1969 2.ó -2.5 — 0.8 — 0.8
* 1970 2.3 -2.5 -0.1 1.0 0.2 1.0
1971 1.5 -2.2 -0.7 1.6 C.l 1.0
In Asia 1969 -3.4 0.3 -3.1 3.6 — 0.6
1970 -3.8 -0.1 -3.9 4.2 0.3 0.6
1971 -4•1 -0.3 -4•4 4.9 0.2 0.8
In the Western Hemisphere 1969 0.7 -3.0 -2.4 2.9 — 0.5
1970 0.1 -3.2 -3.1 4.0 0.3 1.2
3 1971 -1.2 -3.2 -4.1 4.6 0.3 0.5
- 17(b) -
TABLE 3 (Contd.) ... • . ; . ...
DEVELOPMENT IH THE '/OHL D ECONOMY
Balance of Payments Summary 1969—71
Source: IIIF (in billions of U.S.. dollars)
1
Balance on - •I
I
Í I
Trade
Services and '
private
transfers
Current, Account
Capital
Account Balance
Alloca¬
tion of SDRs
Overall Balance
Total} all countries 1969 3.7 -3 .'9 -0.2 ' 2.2 • 1.9-
j
! L970 5.4 -5.8 «0.4 . 8.4 . 3.4. 11.41971 5.S -4.0 ! 1.5 3.5 .. 2.9 5 7.8,
t Memorandum:
All countries in less 1969 -3.9 -1 .'8 -5.8 • 7.0 M ' 1.2
developed areas excluding 1970 -5.6 -2.7 -8.3 9.8 • 0.7 2.2
oil exporters 1971 -3.S -2.8 -11.2 ' 11.7 • ; C.6 1.1'
! -
'
TABLE 4
DEVELOPMENT OF INTERNATIONAL LIQUIDITY
U.3, Balance of Payments and its Financing, 1967-71
Source: IMF
(in billions of SDRs)
1967 1968 1969 1970
1971^
Balance on goods and services 3.9 1.3 0.7 2.2 -0.8
Transfers and long—term capital -7.1 -2.7
-3,.,6
-5.2 -8.5Basic balance -3.2 -1.3 -2.9 -3.0 -9.3
Short-term capital
(including
banking
liabilities)^>
-0.2 3.0 5.6 7.6 -21.2Official settlements balance -3.4 1.6 2.7 -10.7 -30.5 Financed by
Reserve liabilities
(decrease)
3.4 -0.8 -1.5 7.3 27.4Reserve assets
(increase)
Gold 1.2 1.2 -1.0 0.8 0.9
SDRs - — — — 0.5
IMF gold tranche -0.1 -0.9 -1.0 i 0• 1.3
Foreign exchange 1tH •0 -1.2 0.8 2.2 0.4 Total reserve asset transactions 0.1 -0.9 -1.2 3.4 3.1 Memorandum item : SDR
allocation (—) -0.9 -0.7
Variation of reserves including
the allocation of SDRs
(increases)
0.1 -0.9 -1.2 2.5 2.3Source: U.S. Department of Commerce, Survey of Current Business
(1)
The U.S. dollar value of these transactions over 1971 has been used as an approximation of their value in terms of SDRs.(2) Official settlements balance less basic balance.
- 19 -
international monetary system must be such that these two
interconnected aspects of the sane problem can be dealt v/ith
simultaneously(^).
15» From the short-term point of view., if the international community wishes to set up a valid international monetary system,
this oust include all possible measures designed to ensure that
the developing countries' earnings from their activities'will
grow at least at a normal rate. The aim of the measures would be:
(i) to compensate for drops in production;
(ii)
to guarantee the stability of external prices andto make up for losses when such prices vary since
stable sales prices are a prerequisite for- develop¬
ment planning;
(iii)
to stabilize external demand and, if possible,increase it;
(iv) to exercise some form of control over world markets instead of leaving them to the mercy of monopolies
and international cartels.
l6. //ith a view to the more distant future, the developed
countries should — and they are well able to do this — avoid
producing goods that compete with those exported by the developing countries. If necessary, they should make the structural changes required for this purpose. This effort to remodel the structure
(l) The UHCTAD General Secretariat has managed to convince the
International Community of the close link between the
monetary problems of developing countries and their economic problems and of the dangers of over—specialization in inter¬
national organizations. Both IMF and GATT have indicated their willingness to widen the scope of their activities to
some degree by agreeing to deal with "related matters".
_ - 20 -
of the world economy should be combined with an allocation of resources for development financing; in the Third World
countries^ y.
17» The above considerations make- it clear that the developing
countries' international liquidity requirements are closely
connected with their own economic conditions and with the structure of the world economy,
18, Unfortunately, so far all the modifications or improvements
to the international monetary system have emanated from the Club of Ten (the ten most developed countries) which began as a
pressure group but, because of its joint meetings with the IMF Executive and the voting powers of its members, has in fact now
become a decision—making instrument. Some examples of IMF
measures taken after the relevant decisions had won the approval
of the Club of Ten are the institution and operation of the IMF
Special Account, the general realignment of currencies imposed
by the Smithsonian Agreement
^ ^,
the adoption of a central rate and the widening of the margins within which exchange rates canfluctuate.
(1) cf: G, Corea, The International Monetary System and the Developing Countries,
- UNCTAD, International Monetary Issues and the Developing
Countries : Report of the Expert Group, U.N,, New York, 1965.
(2) The agreement that was signed on 18 December 1971 in
Washington, but at the Smithsonian Institute and not at the IMF Headquarters, by the developed countries in the presence of the IMF Executive, The fact that this meeting was held in
Washington and not elsewhere — not in Ilex-/ York for example —
nas created some confusion in that the term "the "Washington Agreement" might tend to suggest that the agreement x^as
signed"Smithsonianunder theAgreement"auspicesshouldof thenotIMF,be translated intoFor this reason, French as "Accords de ".Washington",
- 21 -
19. Although in principle these measurès are not necessarily detrimental to the interests of the developing countries, some of
them have had harmful effects on these countries' reserves by increasing their external debt. In any case, they were in no way designed to improve the position of the developing countries.
20. The effects of the general realignment of the main currencies
on the countries of African can be studied by analysing the effects
on:
- reserves
- export earnings
- the prices of imported goods
- tied and untied aid
- the achievement of development plan targets.
21. The Secretary-General of UHCTAD considers that the
developing countries' reserves, and their share of world reserves, have dropped substantially. A study of a sample of 55 developing
countries showed that while the price of gold rose by 8*57%s their purchasing power,fell by
2%f
i.e. by about $500 million.22. One of the worst results of the general realignment of the major currencies and the fact that some of them were allowed to
i
float was the ensuing upheaval in the structure of exchange rates in Africa and the harm, done to flows of trade by the amplification
I
of this effect. Since the African countries have no simple machinery for re-establishing equilibrium, it is extremely
difficult to reverse any temporary imbalance in trade. Such imbalances tend to become permanent features and to result in a
blockage of intra—regional trade.
23. The effects on the exchange rate structure in Africa - effects which were accepted rather than deliberately chosen— can be illustrated by the fact that some African countries devalued their currencies by the sane percentage as the dollar
(Burundi,
- 22 -
il I
m
I
Egypt, Kenya,
Liberia, Sudan and Uganda), others revalued their
currencies (Equatorial Guinea,
Ethiopia, Guinea, Gambia, the
franc zone countries, Libya,
Malawi,
Morocco,Nigeria, Rwanda,
Sierra Leone, Somalia,
Algeria and Tunisia), while still others
devalued even farther than the U.S. had done
(Ghana, Botswana,
Lesotho and Swaziland).
The following table shows the ways
in which the values of
the major currencies were
modified
as aresult of the Smithsonian
Agreement,
TABLE 5
EXCHANGE RATE RELATIONSHIPS
RESULTING"FROM
THE SMITHS QUIAIT AGREEMENT,
DECEMBER l8, 1971
Source: IMF
Member
Percentage change in
terms of Par Value
Percentage change in
terras of US Dollar
Exchang e Rate Action
Effective Date
Germany + 4•6i +
13.58^
central rate21/12/71
Belgium
Canada
+ 2.76 + 11.57 central rate floating rate
continued
21/12/71
United States - 7.89 + 8.57 new par value
8/3/72
Franco par value
maintained Italy
Japan
Netherlands United Kingdom
- 1.00
+ 7.66
+ 2.76
+ 7.À8
+ ió.88
+
il.57vl>
+ 8.57
central rate central rate central rate par value maintained
20/12/7/.
20/12/74 21/12/74
Sweden 1 tH •0o + 7.49 - central rate
21/12/74
*
_.(l)
Based on parvalue in effect prior to May 9, 1971.
- 23 -
2A. Since regional economic integration and the development of intra-regiohal trade require a certain amount of stability in the exchange rate structure of the countries concerned — as the EEC countries have shown by restricting the degree to which their
currencies can vary in relation to each other — all attempts to achieve monetary integration in Africa are at the mercy of
decisions taken unilaterally by the developed countries.
25. While the crisis of August 19713 which had been brewing
for years, made it clear that some change in the international monetary system v/ás necessary, subsequent events have merely confirmed the need for wholesale reform,and the fact that the developing countries must play an effective part in the decisions taken is no longer contested.
II. AFRICAN PARTICIPATION IN THE REFORM
26. In order to attempt to reduce the unilateral influence of
the Club of Ten, the Group of 77 in the Lima declaration of 7 November
1971^^
set up a sub-gròup of It. members which they feltwould be able to study international monetary problems rapidly and
intervene more flexibly, especially within the IMF where, at both
the executive level (the Board of Directors) and the legislative
level (the Board of Governors) the developed countries dominate because the voting powers are based on quotas.
27». Since the 20 seats on the Board of Directors are allocated
on the basis of a minimal quota, all the developed countries have
a seat each whereas the developing countries, apart from India,
have to join together in order to obtain a seat. The final result is -that certain African countries have been compelled to join groups represented by Directors from non—African or developed
countries, (
(l) The declaration and principles of the Action Programme of Lima.
• » I
« * / ,
