Chapter

Chapter 8 Balances of Payments of Selected Countries

Author(s):
International Monetary Fund
Published Date:
September 1966
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This chapter reviews balance of payments developments in a number of individual countries, to supplement the analysis of the broader trends in world payments in Chapter 5. The countries selected for examination are generally those whose balance of payments either had a significant impact on world payments because of the size of their surpluses or deficits or exhibited interesting changes during the last year. Some of the countries (specifically Ghana and India) have been selected primarily because they illustrate, in acute form, problems encountered by a wide range of countries. In general the analysis is confined to 1964, 1965, and the early part of 1966, but in a few countries where a broader perspective is needed to appreciate the significance of recent developments it covers also some earlier years.

United States

Developments in the balance of payments of the United States during 1965 (Table 29) were the product of divergent trends. On the one hand, the surplus on account of current transactions (defined as in Group A) was reduced under the impact of the economic expansion, which was more rapid in the United States than in the other industrial countries. On the other hand, an improvement on capital account was brought about by the measures introduced to restrain the outflow of capital, but also, increasingly, by the tightening of monetary conditions associated with the boom in the economy. For the year as a whole the favorable factors prevailed. However, it is more than usually difficult to express the balance of payments of the United States during 1965 in a single figure for an over-all balance. A special problem is created by the liquidation by the U.K. Government of about $500 million of corporate securities held by the U.K. Exchange Equalization Account as secondary reserves. These transactions are shown in U.S. statistics as adding to the deficit “above-the-line,” the corresponding accumulation of liquid liabilities being included as financing “below-the-line,” on both the liquidity basis and the official settlements basis. When allowance is made for this special factor (as seems appropriate, at least in the estimates on the official settlements basis), there was a reduction in the over-all deficit from 1964 to 1965, whichever measure of the deficit is chosen. Moreover, the deficit was considerably lower in 1965 than in 1963, independent of the basis of measurement. The reduction in the deficit on the liquidity basis was particularly large (see Table 30).

Table 29.United States: Balance of Payments Summary, Seasonally Adjusted, 1964-First Quarter 19661(In millions of U.S. dollars)
196519662
19641965First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
A. Goods, Services, and Transfers (excluding aid)
Exports f.o.b.25,29726,2765,6256,7986,8267,0277,121
Imports f.o.b.−18,621−21,488−4,656−5,481−5,595−5,756−6,003
Export surplus6,6764,7889691,3171,2311,2711,118
Net military expenditures−2,087−2,037−464−472−546−555−643
Investment income3,9884,2551,1881,2121,0597961,097
Other services, remittances, and pensions (excluding
aid and military transfers)−966−1,043−308−296−217−222−303
Total7,6115,9631,3851,7611,5271,2901,269
B. Aid and Nonmonetary Sectors’ Selected Capital
Advance repayments on U.S. Government loans123221105183233
Other government capital and grants−3,683−3,596−812−954−926−904−958
Direct investment abroad−2,416−3,371−1,212−859−569−731−630
Portfolio investment abroad−1,961−1,080−664101−363−154−244
Foreign direct and portfolio investment in
United States109−167285−309−23592241
Total−7,828−7,993−2,393−2,016−1,910−1,674−1,588
C. Total (A plus B)−217−2,030−1,008−255−383−384−319
D. Unrecorded Transactions−1,011−429−109−240−80−228
E. Short-Term Capital, n.i.e.
U.S. private assets−2,146761271412105−27−14
Foreign nonliquid capital478246631936−16−31
Foreign liquid capital10034395615−7679
Total−1,5681,041373661126−11934
F. Liquid Liabilities to Foreign Commercial Banks1,45411617−59733−575268
G. Total (D through F)−1,125728390493619−77474
H. Total (C plus G)−1,342−1,302−618238236−1,158−245
I. “Official Settlements”
Liabilities to central banks and governments
Nonliquid liabilities9897−23−15−2215729
Liquid liabilities1,073−17−201−291−255730−208
IMF accounts26616568−207330−26−125
U.S. convertible currency holdings (increase —)−220−349−58−56−413178222
Gold sales (purchases —)1251,406832331124119327
Total1,3421,302618−238−2361,158245
J. Main Categories, without seasonal adjustment
Export surplus6,6764,7881,0181,5448441,3821,133
Services and transfers (excluding aid)9351,175544354−172449279
Aid and nonmonetary sectors’ selected capital−7,828−7,993−2,289−2,289−1,580−1,835−1,477
Subtotal−217−2,030−727−391−908−4−65
Unrecorded transactions−1,011−42923838−347−35810
Short-term capital, n.i.e.−1,5681,041366613286−22427
Liquid liabilities to foreign commercial banks1,454116164−206697−539408
Subtotal−1,125728768445636−1,121445
“Official Settlements”1,3421,302−41−542721,125−380
Memorandum item: change (increase —) in monetary
reserves assets net of liquid liabilities
Seasonally adjusted2,7981,355697−226534350563
Without seasonal adjustment2,7981,355185−1891,00635378
Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Table 30.United States: Deficit in Balance of Payments on Various Bases, 1960–65(In millions of U.S. dollars)
196019611962196319641965
Liquidity basis−3,881−2,370−2,203−2,670−2,798−1,355
“Official settlements” basis−3,402−1,347−2,706−2,044−1,342−1,302
Basis of Table 151−3,455−2,043−3,387−2,370−1,464−1,523
Table 15, adjusted for U.K.
liquidation of securities2−3,455−2,043−3,387−2,370−1,464−1,023
Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

In addition to “official settlements,” advance debt repayments are included below-the-line.

The liquidation of securities by the U.K. Government is not shown separately in Table 29 because precise figures for these transactions are not yet available.

Source: U.S. Department of Commerce, Survey of Current Business, June 1966.

In addition to “official settlements,” advance debt repayments are included below-the-line.

The liquidation of securities by the U.K. Government is not shown separately in Table 29 because precise figures for these transactions are not yet available.

During the first three quarters of the year the cumulative deficit was very small on the official settlements basis (see Group H) and there was even a slight surplus when allowance is made for a liquidation of securities by the U.K. Exchange Equalization Account, precise data for which are not available by quarters. A worsening occurred in the fourth quarter because short-term capital movements (Groups E and F), which had resulted in an inflow during the first three quarters of the year, turned adverse. This shift in movements of short-term capital apparently reflected both larger than usual year-end operations by foreign commercial banks and some movement of funds to London influenced by the strengthening of sterling in the fourth quarter. The deficit on account of current and long-term transactions (Group C) remained at a much reduced level after the first quarter of the year.

Behind the moderate changes in the over-all balance there were several important shifts in the U.S. balance of payments in 1965. The trade surplus was reduced from $6.7 billion to $4.8 billion, under the influence of higher rates of expansion in the United States than in the other industrial countries. Imports were 16 per cent higher than in 1964; exports increased only 4 per cent for the year, although in the second half they were a little over 6 per cent greater than in the same period of 1964. In the first quarter of the year exports were adversely affected by a prolonged dock strike, but they made some recovery in the remainder of the year. The seasonally adjusted trade surplus rose slightly from the first half of the year to the second half, despite steadily climbing imports. The reduction in the current account surplus (Group A) from 1964 to 1965 was mitigated by an improvement of a few hundred million dollars on services account, as a sharp rise in income on investments more than offset higher payments on account of travel and other services; the surplus fell from $7.6 billion to $6.0 billion between the two years.

This deterioration in the current balance by $1.6 billion was offset by a reduction in the net outflow on account of private capital and errors and omissions, while there was no appreciable change in government grants and capital transactions. Changes in movements of private capital into and out of the United States have been reviewed in Chapter 6. They may be summarized as follows:

  • (1) During the first half of 1965, U.S. direct investment abroad rose sharply. The outflow of $2 billion was about twice as large as during the first half of 1964. In the second half of 1965, the outflow of direct investment capital, though substantially reduced as the program of voluntary restraint became increasingly effective, remained at about the level attained in the second half of 1964. From 1964 to 1965 as a whole, there was an increase of $955 million. However, U.S. companies borrowed about $200 million in the second half of the year in European markets for investment in their foreign affiliates.

  • (2) There was a reduction by $1.1 billion in the net outflow of other U.S. long-term capital (including aid), reflecting for the most part a diminution of long-term bank lending. Total outflow of U.S. long-term capital thus declined by a little over $100 million (or by about $300 million if allowance is made for the borrowing for future investment referred to above).

  • (3) There was an unfavorable change totaling $276 million in the movements of long-term foreign capital, reflecting largely the sales of about $500 million of corporate securities by the U.K. Exchange Equalization Account, less the borrowing in European markets of about $200 million by U.S. corporations.

  • (4) The inflow of liquid funds held by foreign commercial banks was reduced by about $1.3 billion to about $0.1 billion. This change may, in part, represent a side effect of the program to restrain the out-flow of capital.

In the first quarter of 1966, although the trade surplus fell off slightly, the current surplus, after seasonal adjustment, was much the same as in the preceding quarter. However, a disturbing factor was the continued rising trend in imports; at $6.0 billion, imports for the first quarter were about 12 per cent higher than the quarterly average for 1965. There was some decline in the net outflow of long-term capital and aid, mainly owing to lower U.S. direct investment abroad. Short-term capital movements were not especially significant, although liquid liabilities to foreign commercial banks increased. The seasonally adjusted over-all deficit on an “official settlements” basis was $245 million.

Canada

Although over all the Canadian balance of payments remained strong in 1965, the balance on current account deteriorated during the year under the impact of boom conditions in the domestic economy, which were even more vigorous than those in the United States. The increase in imports continued to be large, while that of exports slowed down, partly because of a large decline in shipments of wheat under special bulk contracts with foreign governments. On a year-to-year basis, imports were about 15 per cent greater than in 1964, following a similar rise from 1963 to 1964. Exports were only about 6 per cent higher than in 1964; the total exclusive of wheat, however, rose by 9 per cent. With comparatively little change in the services items, the total current account deficit appears to have widened from about $0.4 billion in 1964 to almost $1.1 billion in 1965 (Table 31, Group A).

Table 31.Canada: Balance of Payments Summary, 1964 and 1965 1(In millions of U.S. dollars)
1965
19641965First

quarter
Second

quarter
Third

quarter
Fourth

quarter
A. Goods, Services, and Transfer Payments
Exports7,6228,0811,6882,0252,0922,276
Imports−6,975−7,989−1,727−2,051−1,949−2,262
Trade balance64792−39−2614314
Nonmonetary gold13412632313231
Transportation−37−73−8−23−22−20
Travel−46−45−82−56125−32
Investment income−614−677−158−156−147−216
Other services−401−394−96−98−96−104
Transfer payments−83−80−19−12−26−23
Total−400−1,051−370−3409−350
B. Long-Term Capital
Direct investment in Canada236362651119393
Canadian direct investment abroad−130−106−32−5−46−23
Transactions in Canadian securities
New issues1,0391,043253283276231
Retirements and other transactions−350−508−135−225−43−105
Transactions in foreign securities−58−68−32−5−20−11
Columbia River Treaty (net)503030
Other loans by Canadian Government (net)−1−5521−13
Other3−181−10−79−61−31
Total78956711482200171
C. Total (A plus B)389−484−256−258209−179
D. Short-Term Capital (including net errors and omissions)−53630190259181
E. Total (C plus D)336146−6612092
F. Monetary Movements
IMF position−256−156−43−86−7649
Official gold and foreign exchange (increase —)−801010985−133−51
Total−336−14666−1−209−2
Source: Based on data published by the Dominion Bureau of Statistics.

Preliminary. No sign indicates credit; minus sign indicates debit.

Source: Based on data published by the Dominion Bureau of Statistics.

Preliminary. No sign indicates credit; minus sign indicates debit.

There was a fall of some $220 million in the net inflow of long-term capital in 1965, despite some increase in foreign direct investment in Canada. That increase was roughly offset by a steady attrition in foreign holdings of outstanding Canadian securities. The volume of Canadian new issues sold abroad, however, remained virtually unchanged—partly because of the postponement of a considerable volume of such issues in the United States from late 1965 to 1966 under the influence of “moral suasion” by both the Canadian and the U.S. authorities.

The balance of combined current account and long-term capital transactions (Group C) swung from a surplus of nearly $400 million in 1964 into a deficit of somewhat larger size in 1965. The 1965 deficit, however, was more than covered by a net inflow of short-term capital, much of which represented a return of Canadian banking funds from Europe in excess of a net outflow of such funds to the United States. Reserves increased by $146 million in 1965, compared with $336 million in 1964. The 1965 reserve gain might well have matched or approached that of 1964 had it not been for the postponement of security issues mentioned above.

In March 1966, the Canadian Government announced a series of measures aimed at damping the boom conditions in the domestic economy and at containing the rise in the current account deficit.

As an outgrowth of the understanding with the United States in connection with Canada’s exemption from the U.S. Interest Equalization Tax, the Canadian Government has indicated that it expects Canada to draw on its official exchange reserves as well as to borrow in the United States to cover its current account deficit in the balance of payments in 1966, and has expressed its intention of purchasing Canadian securities in the U.S. market if necessary to ensure that the net flow of capital funds to Canada is not in excess of the amount required to meet the needs of the current account balance and to keep Canada’s reserves within an appropriate range.

United Kingdom

In 1964 the balance of payments of the United Kingdom showed a heavy deficit, which reached its maximum during the second half of the year. Results in 1965 were substantially better than in 1964, and the deficit on the combined current and long-term capital accounts, which had been $2.2 billion in 1964, was reduced to less than half that amount in 1965 (Table 32, Group C). As movements of short-term capital were on balance more favorable than in 1964, the deficit as measured by official monetary movements (Group F) was reduced even more, to $358 million. In 1965, the United Kingdom again availed itself of the option to defer loan service on the U.S. and Canadian postwar loans, amounting to $174 million.

Table 32.United Kingdom: Balance of Payments Summary, 1964-First Quarter 19661(In millions of U.S. dollars)
19651966
19641965First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
A. Goods, Services, and Transfer Payments
Exports, seasonally adjusted12,51913,3813,2653,2203,3943,5023,534
Imports, seasonally adjusted−14,017−14,123−3,374−3,550−3,601−3,598−3,749
Trade balance, seasonally adjusted−1,498−742−109−330−207−96−215
Services and transfer payments, seasonally adjusted3613615913450118106
Total, seasonally adjusted−1,137−381−50−196−15722−109
Seasonal influences−56182−1734736
Total, unadjusted−1,137−381−106−14−33069−73
Memorandum item: Goods, Services, and Private
Transfers, unadjusted−68110651103−21216481
B. Long-Term Capital Movements, n.i.e.
Official long-term−325−226−40−33−70−83−67
Private long-term
Investment abroad (net)−1,117−874−274−199−196−205−243
Investment abroad (net)4264901291408213106
Total−1,016−610−185−92−258−75−204
C. Total (A plus B)−2,153−991−291−106−588−6−277
Memorandum item:
Loan service, due to U.S. and Canada, but not paid−174−174−174
Total (A plus B including loan service)−2,327−1,165−291−106−588−180−277
D. Errors and Omissions62294−313412151216
E. Short-Term Capital Movements, n.i.e.
Miscellaneous capital1513792842207102−23
Foreign currency liabilities (net) of banks409−182314−269−151−76−148
Sterling liabilities (net) other than Group G
Sterling area countries−176176−17−2512395140
Other−157−34−162−2039109
Total227339163−272218230−31
F. Total (C through E)−1,864−358−131−244−358375−92
G. Official Monetary Movements
IMF position1,0051,391−171,4102−4−18
Gold deposit liability to IMF8825
Central bank assistance525−53414−580389−2762
Swiss loan7839392
Sterling liabilities (net) to overseas central monetary
institutions
Sterling area countries59−440−218−109−19986109
Other countries−145102−34−5412169−341 2
Transfer of securities from dollar portfolios
to reserves885
U.K. gold and currency reserves (increase —)
Gold347−12925−11587−126230
Foreign currencies−5−560−39−347−50−124−798
Total1,864358131244358−37592
Memorandum item:
Waiver of loan service, due to U.S. and Canada174174174
Total (Group F) including waiver2,038532131244358−20192
Source: U.K. Balance of Payments article in Economic Trends for June 1966.

No sign indicates credit; minus sign indicates debit.

Central bank assistance is included in sterling liabilities to overseas central monetary institutions of non-sterling area countries.

Source: U.K. Balance of Payments article in Economic Trends for June 1966.

No sign indicates credit; minus sign indicates debit.

Central bank assistance is included in sterling liabilities to overseas central monetary institutions of non-sterling area countries.

Favored by a continued rapid growth of the United Kingdom’s main overseas markets, particularly the United States, and perhaps also by a somewhat lower pressure of demand in certain domestic sectors, British exports grew more rapidly in 1965 than in 1964 and were, over the year as a whole, 7 per cent higher (of which roughly 2 per cent was accounted for by price increases). The rise in exports was heavily concentrated in sales to the United States, which rose by 23 per cent above those in 1964, while at the other end of the range exports to the European Economic Community were almost unchanged. Imports for the year as a whole, as well as their time pattern during the year, were affected, inter alia, by the import surcharge, which was reduced from 15 per cent to 10 per cent at the end of April 1965. This reduction, which had been announced in February, caused imports in the first quarter to be held back, but led to larger imports in the second quarter. For the four quarters taken together, imports rose by about 1 per cent (both in value and volume), following an increase of 14 per cent (10 per cent in volume) from 1963 to 1964.

Owing largely to these swings in imports, the marked improvement in the current balance of payments in the first quarter was followed by a temporary setback in the second quarter (Group A). But a limited reduction in the current account deficit was achieved in the third quarter, seasonally adjusted, and a small surplus emerged in the last three months of the year.

The net outflow of long-term capital was also erratic, with a sharp and unexpected increase in the third quarter (largely due to an unforeseen bunching of net oil investments).

Uncertainties and occasional periods of speculation against the pound in 1965 were reflected in movements of private short-term capital, which were adverse in the first half of the year. The last period of speculation in the exchange markets lasted from June to early August. Starting early in September, there was a continuous influx of private short-term capital, facilitating some repayment of the short-term assistance which the authorities had used during the earlier periods of speculation. In this period, drawings under these support arrangements raised the level of outstanding debt to $890 million (at the end of August). For the year as a whole there was a net inflow of short-term capital, as in 1964.

British reserves were replenished by a drawing on the Fund of $1.4 billion in May 1965, following the earlier drawing of $1 billion in December 1964, both of which involved the use by the Fund of the General Arrangements to Borrow. In addition, $885 million was added to reserves in February 1966, representing the proceeds of U.S. corporate securities sold by the Exchange Equalization Account. Although a net deficit in the overseas sterling area added to the pressures arising from the British balance of payments, U.K. reserves were considerably strengthened in the course of 1965 and the early part of 1966.

In the first quarter of 1966 the current balance again reverted to a deficit, because of a sharp rise in imports and a greater net outflow of private long-term capital, which at $137 million was rather higher than in previous quarters and which probably reflected in part an expectation of further restraint on the outflow of private long-term capital. Errors and omissions showed an unusually large credit figure; revisions may eventually lower the recorded deficit of $277 million on the current and long-term capital accounts. There was an over-all deficit of $92 million (Group F), which was financed by some unusually large transactions under “Official Monetary Movements.” An increase in gold and foreign currency holdings of $568 million was more than explained by the transfer of the proceeds ($885 million) of the sales of securities from the dollar portfolio. Complete details of foreign central bank operations were not released, but the outstanding swaps with the Federal Reserve Board were repaid by the end of February and a number of central bank transactions in March together balanced out. Over the quarter, partly reflecting these operations, sterling liabilities to monetary authorities in non-sterling countries fell by $341 million.

Germany

The balance of payments of Germany was in over-all deficit in 1965 in contrast to the situation prevailing in the rest of the EEC countries. On the current account there was a deficit of $1.6 billion, compared with a surplus of $0.1 billion in 1964 (Table 33, Group A). Notwithstanding the strong pressure of domestic demand in Germany and the rather weak demand conditions in some neighboring countries, the value of exports continued to grow strongly, in line with demand in foreign markets, but imports rose by nearly 20 per cent and the trade surplus (with imports measured c.i.f.) amounted only to $0.2 billion, compared with $1.4 billion in 1964. Other factors contributing to the deterioration of the current account were the increased deficit on account of investment income (owing largely to the increased remittances of profits by U.S.-owned enterprises in Germany, partly in response to measures introduced by the U.S. Government in February), tourism, and transfer payments. The rise in net outward transfer payments was attributable especially to the increases in foreign workers’ remittances and in indemnification payments. Although the final installment under the agreement with Israel was paid in 1965, a noticeable decline in indemnification payments to foreign countries cannot be expected for a few more years. In the last quarter of 1965, by which time demand conditions in Germany had begun to ease and a gradual revival of activity had begun in France as well as in Italy, the current account of the balance of payments improved considerably more than seasonally.

Table 33.Federal Republic of Germany: Balance of Payments Summary, 1964-First Quarter 19661(In millions of U.S. dollars)
1965 21966 2
19641965 2First

quarter
Second

quarter
Third

quarter
Fourth

quarter
First

quarter
A. Goods. Services, and Transfer Payments
Exports f.o.b.16,21817,8964,3424,3434,3084,9034,739
Imports c.i.f.−14,614−17,474−4,034−4,331−4,391−4,718−4,528
Other merchandise−242−193−62−64−60−7−50
Trade balance1,362229246−52−143178161
Paid services to foreign troops1,0551,038231252266289270
Other services−1,061−1,366−203−409−449−305−303
Total goods and services1,356−99274−209−326162128
Transfer payments−1,236−1,454−337−444−340−333−379
Total120−1,553−63−653−666−171−251
B. Long-Term Capital
Bonds−121−72−881528−27−30
Shares412−41−649−47
Other private long-term capital191567232116106113196
Other government long-term capital−316−327−46−85−89−107−86
Repayments on post-EPU claims342611231
Other Bundesbank assets (increase —) 36−1352−117−2049
Total−165616047−55982
C. Total (A plus B)−45−1,492−3−606−721−162−169
Total, excluding certain extraordinary transactions4−85−1,383−6−607−627−143−218
D. Short-Term Capital, n.i.e. (including net errors and
omissions)
Government short-term capital−18128335−12155105−21
Commercial bank short-term credits (net)39−72−266−3613892−173
Other short-term capital432096867659105
Net errors and omissions392553260340132−179210
Total2939739729850177121
E. Commercial Bank Liquid Capital (net)5
Foreign exchange (increase —)−118−87−17829112−50−22
Foreigners’ deposits (decrease —)92112−73−18178−152
Total−2625−25128120128−174
F. Total (C through E)222−494−157−280−10043−222
G. Memorandum item: Increase or decrease (—) in
swap engagements between Bundesbank and com-
mercial banks 589−89152−80−144−17
H. Official Settlements 5
Reserve position in the Fund−360−16432−179−2−15−24
Bundesbank liabilities54116−8122143
Foreign exchange (increase —) 6537779104602102−29195
Monetary gold (increase —)−404−1625−135−12−208
Total−222494157280100−43222
Source: Deutsche Bundesbank, Monthly Report, April 1966.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Covers IBRD bonds and notes and repayments received on consolidated credits and other Bundesbank assets of limited usability.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption (none in period covered), (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes, repayments received on consolidated credits, and other Bundesbank assets of limited usability. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

U.S. dollars put at the disposal of the commercial banks by the Bundesbank through swap arrangements are included in the commercial banks’ foreign exchange in Group E and excluded from the Bundesbank foreign exchange in Group H. The entries in the memorandum item (Group G) show changes in the outstanding amounts of these swaps. An increase (no sign) results in a rise in the commercial banks’ holdings and a decline in the Bundesbank’s holdings of U.S. dollars on account of swaps; a decrease (minus sign) results in a decline in the commercial banks’ holdings and a rise in the Bundesbank’s holdings of such dollars.

Covers freely usable foreign exchange and earmarked assets.

Source: Deutsche Bundesbank, Monthly Report, April 1966.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Covers IBRD bonds and notes and repayments received on consolidated credits and other Bundesbank assets of limited usability.

This balance is intended to facilitate analysis of the more basic factors in the balance of payments. It excludes the following extraordinary transactions: (a) advance debt redemption (none in period covered), (b) repayments on post-EPU claims, and (c) other Bundesbank assets, i.e., IBRD bonds and notes, repayments received on consolidated credits, and other Bundesbank assets of limited usability. However, it includes private transactions in securities, which are likely to fluctuate widely in the short run. Such transactions should be taken into account in evaluating the balance.

U.S. dollars put at the disposal of the commercial banks by the Bundesbank through swap arrangements are included in the commercial banks’ foreign exchange in Group E and excluded from the Bundesbank foreign exchange in Group H. The entries in the memorandum item (Group G) show changes in the outstanding amounts of these swaps. An increase (no sign) results in a rise in the commercial banks’ holdings and a decline in the Bundesbank’s holdings of U.S. dollars on account of swaps; a decrease (minus sign) results in a decline in the commercial banks’ holdings and a rise in the Bundesbank’s holdings of such dollars.

Covers freely usable foreign exchange and earmarked assets.

The substantial deficit on current account was financed only to a limited extent by a decline in the reserves, since there was a considerable inflow of foreign capital. In contrast to the net outflow of long-term funds in 1964, there was some net inflow in 1965 (Group B), despite a continued net outflow on account of transactions in securities and increased capital exports by public authorities. This stemmed from an accelerated rise in foreign direct investment in Germany—mainly the reinvestment of profits and conversions of short-term loans (granted previously by foreign parent companies to their subsidiaries in Germany) into capital resources and long-term credits. There was also a substantially enlarged inflow of short-term capital and an increase in the positive errors and omissions items (Group D). This presumably reflects, in large measure, a greater utilization of foreign suppliers’ credits, associated with the accelerated growth in imports. In addition, parts of this inflow of short-term capital represent a revival of borrowing abroad by German enterprises and a reduction in the Federal Government’s foreign assets.

Germany’s over-all deficit (Group F) was less than $500 million, most of it accumulated in the first half of the year. Foreign exchange holdings were reduced, not only because all reserve losses were taken in this form but also because transactions with the Fund resulted in conversions of deutsche mark, and the proportion of German foreign exchange holdings to total reserves declined to its lowest level during the postwar period. Aside from gold sales to Germany by the Fund of $132 million, gold reserves increased by only $30 million.

In the first quarter of 1966 there was a current account deficit of some $250 million, quite substantially larger than that of the first quarter of 1965 and well above that of the fourth quarter of 1965. However, it was below the quarterly average for that year. The pattern of capital flows did not change the picture significantly. A net outflow of short-term funds from credit institutions was largely offset by errors and omissions. Since, at the same time, there was a small surplus on long-term capital account, the resulting over-all deficit was of much the same magnitude as the current deficit.

France

The current account surplus of metropolitan France vis-à-vis countries outside the franc area, which had fallen abruptly in 1964, rose again in 1965, to more than $500 million (Table 34, Group A). This was mainly a reflection of the improvement in the trade balance, following an exceptional deficit in 1964, and resulted from the effects of the stabilization policies, which slowed down the growth of imports while exports continued to rise quite rapidly, in line with foreign demand. The trade surplus, however, tended to decline in the final months of 1965, when the growth of imports accelerated as more rapid expansion of domestic production was resumed.

Table 34.Metropolitan France: Balance of Payments Summary, 1964 and 1965 1(In millions of U.S. dollars)
1965 2
19641965 2First

quarter
Second

quarter
Third

quarter
Fourth

quarter
A. Goods. Services, and Transfer Payments
Exports f.o.b.7,6258,5962,0622,1092,1572,268
Imports f.o.b.−7,714−8,208−2,000−2,038−1,894−2,276
Trade balance−893886271263−8
Services105894993−9441
Transfer payments7142−2131318
Total8751910917718251
B. Private Long-Term Capital
Foreign direct investment in France327334111756088
Other foreign capital27620250613655
French direct investment abroad−162−233−74−42−39−78
Other French capital86581718320
Total5273611041126085
C. Official Long-Term Capital
Advance debt redemption−179−179
Other official−82−70−10−3−27−30
Total−82−249−10−3−206−30
D. Total (A through C)53263120328636106
Total, excluding advance debt redemption532810203286215106
E. Private Short-Term Nonmonetary Capital−57−90−41−12−26−11
F. Total (D plus E)4755411622741095
G. Net Errors and Omissions
Operations pending settlements61−7−5−9−1219
Other net errors and omissions−115933471366
Total601522838185
H. Net Transactions of Overseas Franc Area26126992484782
I. Commercial Bank Short-Term Capital
Liabilities249273−26−2185116
Assets (increase —)−230−52731−113−154−291
Total19−2545−11531−175
J. Total (F through I)8157082872458987
K. Official Monetary Movements3
IMF position−169−265−23−160−64−18
Other liabilities−1−79−51−17−2211
Foreign exchange (increase —)−9161325516812070
Monetary gold (increase —)−554−977−468−236−123−150
Total−815−708−287−245−89−87
Source: Data provided by the French authorities.

Groups A through G cover settlements of Metropolitan France with the non-franc area, while Group H covers the transactions of the rest of the franc area with the non-franc area settled through Metropolitan France. Groups I and K cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world. No sign indicates credit; minus sign indicates debit.

Preliminary. The quarterly figures for 1965 have been adjusted by the Fund staff to agree with the annual total by distributing any differences between the quarterly and annual figures evenly among the four quarters. Differences arise because certain adjustments are made by the French authorities to the annual figures but not to the quarterly figures.

Central government short-term capital is included in official monetary movements (Group K).

Source: Data provided by the French authorities.

Groups A through G cover settlements of Metropolitan France with the non-franc area, while Group H covers the transactions of the rest of the franc area with the non-franc area settled through Metropolitan France. Groups I and K cover changes in assets and liabilities of institutions in Metropolitan France arising from transactions of both parts of the franc area with the rest of the world. No sign indicates credit; minus sign indicates debit.

Preliminary. The quarterly figures for 1965 have been adjusted by the Fund staff to agree with the annual total by distributing any differences between the quarterly and annual figures evenly among the four quarters. Differences arise because certain adjustments are made by the French authorities to the annual figures but not to the quarterly figures.

Central government short-term capital is included in official monetary movements (Group K).

The net inflow of private long-term capital tended to decline during 1965 from the high level reached in the latter part of 1964. The inflow of foreign long-term capital was lower than in 1964, though still larger than in 1963; while the outflow of French long-term capital for direct investment abroad was much larger than in any recent year. The combined surplus on current and long-term capital account, excluding an advance debt repayment by the Government, amounted to some $800 million (Group D). This, together with the net transactions of the overseas franc area with the non-franc area, which again added some $270 million to French reserves, produced an aggregate surplus of nearly $1,100 million, some $300 million higher than in 1964. Nevertheless, French reserves, including the net IMF position, rose somewhat less than in that year, increasing by about $700 million. The somewhat smaller accumulation of reserves was in part the consequence of the French Government’s advance debt repayment of $179 million at mid-year, when the current account surplus was rising sharply; there had been no such advance repayment in 1964, when the increase in reserves was due predominantly to the inflow of capital. Another important factor in 1965 was a marked outflow of short-term capital (both monetary and nonmonetary), in part stimulated by U.S. measures to restrain capital outflows from the United States and in part by an easing of French capital controls and the low interest rates in the French money market. While the increase in reserves in France was lower than in 1964, the addition to its gold holdings rose from $554 million in 1964 to $977 million in 1965, and French official foreign exchange holdings, which had risen moderately in 1964, fell by more than $600 million in 1965.

Italy

The current account surplus of $2.2 billion recorded by Italy in 1965 was more than double that of any previous year on record (Table 35, Group A). Although there was a change from a small inflow to an outflow of about $650 million on account of nonmonetary capital (Group B), there was a sharp rise in the over-all surplus (Group E). On an official settlements basis, the over-all surplus increased from $330 million in 1964 to $960 million in 1965. Moreover, the improvement in the net foreign position of the commercial banks accelerated from 1964 to 1965, and the increase in the total net foreign position of the monetary sector reached $1.6 billion (Group C).

Table 35.Italy: Balance of Payments Summary, 1964 and 1965 1(In millions of U.S. dollars)
1965 2
19641965 2First

quarter
Second

quarter
Third

quarter
Fourth

quarter
A. Goods, Services, and Transfer Payments
Exports f.o.b.5,8637,0951,6531,7631,7771,902
Imports f.o.b.−6,508−6,429−1,568−1,574−1,583−1,704
Trade balance−64566685189194198
Travel (net)8271,062115246491210
Other services (net)12616913510843
Transfer payments (net)311351609393105
Total6192,248273533886556
B. Capital Movements (excluding Groups D and F)
and Net Errors and Omissions
Remittances of Italian banknotes3−577−314−133−50−42−89
Foreign investments in Italy31,0883881151365681
Italian investment abroad−109−135−60−5−41−29
Other private capital and net errors and
omissions−263−654−129−171−108−246
Government capital156124514
Total154−654−205−90−90−269
C. Total (A plus B)7731,59468443796287
D. Commercial Banks’ Capital
Liabilities−287400−107−2419512
Assets−155−1,03455−196−519−374
Total−442−634−52−220−500138
E. Total (C plus D)33196016223296425
F. Official Monetary Movements
IMF position80−402−32−164−200−6
Short-term liabilities−144837−18−3019
Foreign exchange (increase —)−7341061821632−241
Other net claims (increase —)230−376−21686−62−184
Monetary gold (increase —)237−29613−290−6−13
Total−331−960−16−223−296−425
Sources: Ufficio Italiano dei Cambi (UIC), Movimento Valutario, and Bank of Italy.

No sign indicates credit; minus sign indicates debit. Some data in Group B are on a payments (exchange record) basis.

Preliminary.

Part of “Foreign investments in Italy” is believed to be financed from the proceeds of Italian banknotes remitted abroad and subsequently repatriated; to that extent foreign investment in Italy may be overstated.

Sources: Ufficio Italiano dei Cambi (UIC), Movimento Valutario, and Bank of Italy.

No sign indicates credit; minus sign indicates debit. Some data in Group B are on a payments (exchange record) basis.

Preliminary.

Part of “Foreign investments in Italy” is believed to be financed from the proceeds of Italian banknotes remitted abroad and subsequently repatriated; to that extent foreign investment in Italy may be overstated.

Most of the current account improvement resulted from trade, although net receipts through other current account items, in particular travel, rose from about $1.2 billion to $1.6 billion. For the year as a whole, exports increased by over 20 per cent to $7.1 billion, while imports (valued f.o.b.) fell slightly.

Capital transactions in the Italian balance of payments are difficult to interpret because of inflation of the figures for foreign investment by investment for Italian account financed through foreign intermediaries by means of Italian lira notes. In 1964, recorded foreign investments were $500 million higher than the amount of the notes remitted back to Italy, suggesting a genuine flow of foreign capital for investment in Italy of at least that amount; Italian investments abroad were only about $100 million. In 1965, foreign investments in Italy were small and probably fell short of Italian investments abroad; in addition, there appeared to be an increase in the already quite large outflow of short-term funds. In both years, the outflow of short-term capital was presumably mainly associated with the improvement in the trade balance, which tended to produce an excess of export credits, extended over import credits received.

In spite of the surplus of $1.6 billion on account of current transactions and nonmonetary sector capital (Group C), the rise in Italian gold and foreign exchange reserves was quite limited. First, the commercial banks, encouraged by the monetary authorities, increased their net foreign assets by $634 million. Second, $402 million of the surplus was absorbed by Italian participation in Fund transactions. Third, second-line reserves (other net claims, in Group F) increased by $375 million. Altogether, ordinary gold and foreign exchange reserves rose by less than $200 million. While gold holdings increased by $296 million during 1965, they remained at about the level reached at the end of 1963, when total reserves were about $1 billion lower than at the end of 1965.

Japan

During 1965 Japan experienced once again one of the rather dramatic adjustments of its current account position which have become characteristic of its postwar balance of payments (Table 36). The current account swung from a deficit of about $0.4 billion in 1964 to a surplus of about $1.0 billion (Group A), as policies of financial restraint to strengthen the balance of payments adopted in 1964 had led to recessionary conditions in the domestic economy while demand in Japan’s foreign markets expanded rapidly. Measures to reactivate the economy taken during 1965 brought about an improvement in the last quarter of the year, but imports did not revive during 1965. On the other hand, the rise in exports slowed down in the closing months of the year, in part under the influence of a shipping strike. For 1965, as a whole, exports rose 24 per cent above 1964, whereas imports rose only 1.6 per cent.

Table 36.Japan: Balance of Payments Summary, 1964 and 1965 1(In millions of U.S. dollars)
1965 2
19641965 2First

quarter
Second

quarter
Third

quarter
Fourth

quarter
A. Goods, Services, and Private Transfer Payments
Exports f.o.b.6,7038,3331,8122,0662,1982,257
Imports f.o.b.−6,328−6,432− 1,625−1,665−1,546−1,596
Trade balance3751,901187401652661
Government special receipts 3329345718285107
Other services and private transfer payments−1,102−1,221−274−321−284−342
Total−3981,025−16162453426
B. Private Long-Term Capital
Direct investment52−326−325−11
Other91−25011−56−112−95
Total143−28217−88−107−104
C. Central Government Transfer Payments and
Nonmonetary Capital
Reparations and loans extended−108−182−33−35−64−50
IBRD loans received (net)1102314
Other4−2−43−28−5−6−4
Total−109−215−59−37−69−50
D. Total (A through C)−364528−5837277272
E. Net Errors and Omissions11−5129−133−70
F. Private Short-Term Capital
Nonmonetary sector233−62−937−52−38
Commercial banks
Liabilities6698514414−8714
Assets (increase —)−598−373−50−138−145−40
Total304−35085−87−284−64
G. Total (D through F)−4912756−63−4138
H. Treasury and Bank of Japan Monetary Capital and Gold
IMF position−40−35−2−6330
Liabilities 427213−91
Payments agreement assets8−1−532−1
Official reserves (increase —)79−98−51110−19−138
Total49−127−56634−138
Source: Data provided by the Japanese authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Including sales to U.S. and UN forces under the special procurement program.

Liabilities for the yen portions of subscriptions to the International Development Association ($6 million for 1964) are included in Group C rather than in Group H.

Source: Data provided by the Japanese authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Including sales to U.S. and UN forces under the special procurement program.

Liabilities for the yen portions of subscriptions to the International Development Association ($6 million for 1964) are included in Group C rather than in Group H.

The improvement in the current account position did not lead to a significant strengthening of the over-all balance of payments (Group G), because it was for the most part offset by an opposite change in capital movements. In 1964, as in other recent years, Japan had been a net importer of capital, but in 1965 there was an outflow of capital on both long-term and short-term account, totaling about $0.8 billion. In part this outflow represented a continuation of the consolidation of the net foreign position of the commercial banks which had begun in 1964 and was encouraged by the monetary authorities, but the change in the trade balance combined with the lowering of interest rates in Japan compared with those in foreign money markets also tended to bring about a net outflow of funds.

Australia

The deterioration in Australia’s over-all balance of payments by some $400 million from 1964 to 1965 (Table 37, Group D) was linked to sharply rising imports as well as to a drop in some export prices from their high level in 1963/64. The rise in imports by 17 per cent in 1965 was partly due to special factors such as heavy imports of defense equipment, of civil aircraft, and of copper and alloys because of a strike against the country’s largest copper mining company. But in the main it reflected high levels of incomes and activity in the economy, supported by four years of external surpluses; demand was especially strong for fixed investment, and there was a large accumulation of inventories. The damping effect of the balance of payments deficit and of measures taken by the authorities to moderate the expansion began to be apparent toward the end of 1965.

Table 37.Australia: Balance of Payments Summary, 1964-First Quarter 1966 1(In millions of U.S. dollars)
1965 21966 2
FirstSecondThirdFourthFirst
19641965 2quarterquarterquarterquarterquarter
A. Goods, Services, and Transfer Payments
Exports f.o.b.2,9992,934720746720748719
Wool (at current prices)1,004876246208175247241
Wool (at 1958 prices)790799231199161208199
Wheat (at current prices)4084141011321107174
Wheat (at 1958 prices)3854411051431197474
Imports f.o.b.−2,829−3,299−764−811−899−825−737
Investment income3−376−335−73−83−90−89−65
Other services and transfers−255−377−96−107−88−86−92
Total−461−1,077−213−255−357−252−175
B. Private Capital (including errors and omissions)
Marketing authorities20−94−41−38−8−735
Other53574597217217214194
Total55565156179209207229
C. Official Capital−3171−5−222672−35
D. Total (A through C)63−355−162−98−1222719
E. Monetary Movements
IMF position−34−12−12−10−25
Official and banking reserves (increase —)
Monetary gold−18−5−3−1−18
Other−45394177111123−17−2
Total−6335516298122−27−19
Source: Based on data from the Commonwealth Statistician.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Includes royalties and copyrights.

Source: Based on data from the Commonwealth Statistician.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Includes royalties and copyrights.

Export earnings were slightly lower in 1965 than in 1964, being adversely affected by lower prices for wool and other products and the effects of a prolonged drought which began to reduce agricultural production in some areas. To a large extent, these losses were offset by increasing exports of minerals and manufactured goods. Large deposits of minerals, particularly iron ore and bauxite, have been discovered in recent years, and from now on their exploitation will quicken the gradual shift in Australia’s export pattern away from farm products. The capital inflow to Australia remained strong in 1965; indeed there are indications of a further increase in direct foreign investment attracted by the new mining ventures.

In the first quarter of 1966 there was a considerable improvement in the current account. Imports at $737 million were 4 per cent lower than in the corresponding quarter of 1965 and 11 percent lower than the quarterly average for 1965. The net inflow of private capital (including errors and omissions) rose further above the already high level of 1965, so that despite a net outflow of official capital there was a modest over-all surplus.

Ghana

The external position of Ghana since 1959 has been marked by persistent deficits on the current account of the balance of payments (Table 38, Group A) and by a sharp decline in reserves. The deficit on current account, $228 million in 1965, was higher than in any previous year; in the seven years 1959-65 such deficits aggregated about $800 million. Official net reserves and foreign exchange holdings of commercial banks and official and semiofficial bodies (Group E) fell by some $450 million during this period, and at the end of 1965 amounted to $14 million. At the same time, the Government’s foreign debt increased from a very small amount at the end of 1959 to almost $700 million at the end of 1965, consisting for the most part of suppliers’ credits.

Table 38.Ghana: Balance of Payments Summary, 1958–65 1(In millions of U.S. dollars)
195819591960196119621963196419652
A. Goods, Services, and Transfer Payments
Exports f.o.b. 3301317335333320308322321
Imports f.o.b.−219−300−349−386−311−338−319−437
Trade balance8217−14−539−303−116
Services and transfer payments−48−43−94−93−86−99−94−112
Total34−26− 108−146−77−129−91−228
B. Private Capital and Net Errors and Omissions−2624−14−303571789
C. Central Government Miscellaneous Capital
(excluding Group E)
Loans and commercial credits received (net)−5−1134435334450
Other−2−55434
Total−5−1132430384884
D. Total (A through C)3−13−90−172−12−84−26−55
E. Monetary Movements
IMF position
Sterling assets (increase —)−414−11
Commercial banks (net)−101012101410−614
Cocoa Marketing Board and other official entities−9402079−63192
Central government−42489228−41
Central bank and currency reserves20−3510−9−12352749
Total−3139017212842655
Source: Data provided by the Ghanaian authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Including nonmonetary gold.

Source: Data provided by the Ghanaian authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Including nonmonetary gold.

The principal cause of the deterioration in the balance of payments has been an increase in imports resulting from large development expenditures and high consumer demand. The increase in imports was marked in 1960, and again in 1961, when the Government introduced a number of restrictions on current and capital payments, aimed at arresting the deterioration in the balance of payments. The import control regime was changed from one of predominantly open general licenses to one administered almost entirely through individual licensing. After declining in 1962, imports rose again in 1963 and jumped sharply upward in 1965, when there were extraordinary imports of capital goods (including aircraft and ships) as well as of consumer goods. While imports were increasing, export receipts remained relatively stable. Although the output of cocoa (which accounts for about two thirds of exports) rose substantially, receipts increased very little, owing to the decline in the world price of cocoa.

The upward pressure on imports has stemmed primarily from the public sector, where the growth in expenditure has far outstripped the rise in receipts. In recent years the budgetary deficit has been financed largely by resort to the central bank; previously, the Government had drawn down external assets.

By the end of 1965, Ghana had undertaken 222 separate commitments for loans and credits from 22 foreign countries in respect of specific projects involving a total expenditure of some $870 million. Most of the contracts call for repayment in five to eight years. Scheduled capital repayments and interest on suppliers’ credits in 1966 represent about 23 per cent of exports expected during this year.

After a change of government in February 1966, the Ghanaian authorities worked out a program designed to reduce the budgetary deficit, arrest the deterioration in the balance of payments, and rehabilitate the economy. In support of this program, the Fund approved a stand-by arrangement for $36.4 million for Ghana in May 1966. Negotiations have also been started to work out possible solutions to Ghana’s debt problems. At the invitation of the U.K. Government, representatives of 13 creditor countries met representatives of Ghana in London on June 1 and 2, 1966. Representatives of the Fund and of the IBRD participated in these meetings. A communiqué issued at the conclusion stated that Ghana found itself unable to meet all its debt obligations and sought immediate relief by a temporary suspension of all payments under suppliers’ credits. Ghana proposed a further meeting with creditor countries in August or September to negotiate a rearrangement of these debt repayments. In the meantime, the Ghanaian Government has decided not to enter into any new suppliers’ credits.

India

India’s balance of payments position was under pressure throughout 1965 (Table 39), and the difficulties have continued into 1966, necessitating sizable use of Fund resources despite a severe tightening of restrictions.

As the year 1965 opened, exchange reserves had already been reduced to a low level by increased payments for food imports occasioned by the shortfall in domestic production and by delays in the repatriation of export proceeds. In March, a stand-by arrangement for $200 million was approved by the Fund.

The authorities took steps designed to slow down the monetary expansion, including raising the Bank Rate to 6 per cent, adopting a substantially less expansionary Union Government budget for the fiscal year beginning April 1, 1965, and imposing a 10 per cent surcharge on all but the most essential imports. In August, a supplementary budget was adopted, including additional domestic taxation and a simplification and rationalization of the import tariff, which also had the effect of increasing further the duties on most imports. However, the tempo of monetary expansion has in fact continued unabated, in part because of unexpected adverse developments affecting the Union Government’s budgetary position and of deficits in State government budgets.

Exports failed to increase in 1965. However, this was the result of a change, toward the end of 1965, in the system of recording exports, which has resulted in a lower export figure for 1965 than would otherwise have appeared (and which has contributed to some extent to the positive errors and omissions item in the table). On the other hand, debt service payments continued to increase. In the latter part of 1965, exchange reserves increased steadily because of the disappearance of the earlier delays in repatriating export proceeds, some inflow of banking capital, and the tight import restrictions—which, however, soon began to affect domestic industrial production adversely. Moreover, by the end of the year, the basic payments position was further seriously aggravated by a pause in the inflow of external assistance and by a domestic drought of unprecedented severity, which sharply increased requirements of imported foodgrains. In order to help meet the balance of payments impact of the drought, a drawing of $187.5 million from the Fund was made in March 1966. Reflecting this, and remittances received under the National Defence Remittance Scheme, foreign exchange reserves increased substantially further in the first five months of 1966. The Remittance Scheme, which operated from November 1965 to May 1966, afforded a more depreciated exchange rate to certain inward remittances by providing for the issuance of transferable certificates against which import licenses up to 60 per cent of the value of the remittance could be issued.

Table 39.India: Balance of Payments Summary, 1962–651(In millions of U.S. dollars)
1962196319641965 2
A.Goods, Services, and
Private Transfers
Exports f.o.b.1,4121,6231,7171,678
Imports, mainly c.i.f.−2,288−2,493−2,915−2,932
Trade balance−876−830−1,198−1,254
Services−69−20−32−163
Private transfers47725852
Total−898−818−1,172−1,365
B.Private Capital and
Net Errors and
Omissions18−52−12596
C.Official Transfers and
Capital
Transfers123151261105
Capital5948059741,162
Total7179561,2351,267
D.Total (A through C)−16386−62−2
E.Monetary Movements
IMF position29−20−44134
Commercial banks248
Central institutions
Other liabilities−8131−14
Other assets
(increase —)116−1618−17
Government assets
(increase —)26−8787−109
Total163−86622
Source: Data provided by the Indian authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Grants of U.S. surplus agricultural commodities through private agencies are included with official transfers.

Source: Data provided by the Indian authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Grants of U.S. surplus agricultural commodities through private agencies are included with official transfers.

In the most far-reaching policy change of recent years, designed to effect a basic improvement in the balance of payments position, India devalued the rupee by 36.5 per cent early in June 1966. Simultaneously, export promotion arrangements in the form of import entitlement schemes and tax credits were abolished. In order to avoid a deterioration in export prices, export duties were imposed on about a dozen commodities, including tea and jute goods. Import duties, which had been increased sharply in 1965, were reduced somewhat, but the net effect was to increase the landed costs of imports substantially. The authorities also expressed the hope that, with sufficient assistance forthcoming from friendly nations or institutions abroad, it would be possible to liberalize imports soon, so as to meet in a substantial measure the needs of the economy for raw materials, spare parts, etc.

Korea

After deteriorating markedly in 1962 and 1963, Korea’s external payments situation improved in 1964, and further progress was made in 1965 (Table 40). The improvement was related to a devaluation in 1964 and the adoption of a fluctuating exchange rate system with the support of a stand-by arrangement approved by the Fund in 1965. The decline in the current account deficit (Group A) from 1964 to 1965 was larger than the reduction in the inflow of capital and net official aid. As a result, the over-all balance (Group D) improved by about $9 million, to a surplus of $5 million in 1965.

Table 40.Korea: Balance of Payments Summary, 1960–651(In millions of U.S. dollars)
196019611962196319641965 2
A.Goods, Services,
and Private
Transfers
Exports f.o.b.33415587120176
Imports f.o.b.−305−283−390−497−365−420
Trade balance−272−242−335−410−245−244
Receipts on
account of
foreign
military
forces638085586474
Other services
and private
transfers−33−11−511440
Total−242−173−255−351−167−130
B.Private Capital
and Net
Errors and
Omissions1−4−661619
C.Official Transfers
and Capital
Transfers256207200207141135
Capital−1317113416−19
Total243224211241157116
D.Total (A
through C)247−50−49−45
E.Monetary
Movements
Liabilities531610414
Assets
(increase —)−7−503439−19
Total−2−4750494−5
Source: Based on data from the Bank of Korea.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Source: Based on data from the Bank of Korea.

No sign indicates credit; minus sign indicates debit.

Preliminary.

A rise of 45 per cent in exports, following increases averaging 43 per cent in 1962–64, was a major factor in the improvement of the balance of payments. The composition of exports continued to change from primary products to manufactures: exports of manufactured goods accounted for as much as 61 per cent of the total in 1965, compared with 21 per cent in 1962. Imports, which had decreased substantially in 1964, expanded by 15 per cent from 1964 to 1965, as an increase of 18 per cent in manufacturing production stimulated import demand. Net foreign official aid-financed imports continued to decline; their ratio to total imports fell from 72 per cent in 1960 to 40 per cent in 1964 and 28 per cent in 1965.

In the first three months of 1966 the favorable external payments situation continued; exports were nearly twice as large as in the corresponding period of 1965, and international reserves increased by $12 million to $158 million at the end of March 1966.

Peru

In the years since the 1959 stabilization program, the Peruvian balance of payments has generally been in comfortable over-all surplus, supported by a sharply rising trend in exports (Table 41). At the same time the economy has achieved a fairly high rate of economic growth in an environment of monetary stability. Until 1964, per capita income at constant prices rose on the average by some 3 per cent a year, and consumer prices at a yearly average of no more than 6 percent.

Table 41.Peru: Balance of Payments Summary, 1958–65 1(In millions of U.S. dollars)
19581959196019611962196319641965 2
A. Goods, Services, and Transfer Payments
Exports f.o.b.292323444510556555685687
Imports f.o.b.−345−281−341−429−478−518−518−654
Trade balance−534210381783716733
Services (net)−84−92−116−120−133−138−168−174
Transfers (net)1510212718191515
Total−122−408−12−37−8214−126
B. Private Capital (net) and Net Errors and Omissions1025830552964−3823
C. Official Capital (net)8−6−9−821505976
D. Total (A through C)−12122935133235−27
E. Monetary Movements
IMF position−1−1−1−1−1
Central bank net foreign exchange assets (increase —)4−8−18−28−6−8−15−15
Monetary gold (increase —)9−9−14−5−10−10
Banco de la Nación net foreign exchange
liabilities38
Commercial banks’ and specialized banks’ net foreign
assets and gold (increase —)−164−1−6−13−104
12−12−29−35−13−32−3527
Source: Data provided by the Central Reserve Bank of Peru.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Source: Data provided by the Central Reserve Bank of Peru.

No sign indicates credit; minus sign indicates debit.

Preliminary.

In the course of 1964, however, signs of strain began to appear in the economy, which resulted in a weakening of the balance of payments in 1965. A large volume of bank credit, required to finance deficits incurred by the Central Government, combined with an export boom to supply a greatly increased volume of liquidity to the system. The Peruvian economy is an open one, but the resulting expansion in demand did not immediately work itself out in rising imports and a consequent deterioration of the balance of payments—a result to which an adjustment in the customs tariff contributed. Instead, the rise in domestic prices accelerated to 11 per cent. In 1965 the domestic monetary imbalance became more acute as a sharp advance in bank credit to private borrowers was added to continued bank financing of the government sector. Import demand was no longer contained, and there was an abrupt worsening of the trade balance as the rate of increase of consumer prices accelerated further to 15 per cent. Imports rose by 26 per cent from 1964 to 1965 and a balance of payments deficit was recorded for the first time since 1958.

The key to recent changes in the Peruvian balance of payments is to be found in shifts of the balance of trade, propelled by alternating increases in the production of exportables and of import demand. Peruvian exports are rather more diversified than those of many other developing countries. Nevertheless, the rise in export receipts, while strong enough over the years to have provided one of the dominant factors underlying Peruvian economic growth, has more recently been unsteady. On the other hand, the incidence of domestic policies has been such that imports have adjusted to export receipts only after a certain lag. In 1964, after stagnating for a year, exports spurted ahead while imports were restrained. In 1965 there was again a virtual stagnation of exports while imports soared. Fluctuations in the production of fish and fishmeal were the major cause of the variations in exports. An extraordinarily large increase in output of these products in 1964 raised exports of them to a record height, offsetting by far the decline in exports of the traditional agricultural products (cotton and sugar). Together with an increase in the production of copper, it accounted for the strong upsurge in total exports in that year. In 1965 the scarcity of anchovies, the raw material for Peruvian fishmeal, caused a decline in the production and export volume of fish and fishmeal, which was the principal cause of the failure of exports to continue to grow.

A steady increase in the net capital inflow, especially of official capital, has accompanied Peruvian economic development for many years. This allowed balance of payments surpluses to be recorded up to 1964 despite fluctuations in the trade balance. Even in 1964 and 1965, when the movement of private capital became much less favorable, official capital continued to come in at a substantial rate. In 1965, however, the ordinary inflow of capital (official and private) fell short of the current deficit by $27 million. This shortfall was more than financed by a three-year loan of $40 million obtained from a group of U.S. commercial banks by the Banco de la Nación, the Government’s fiscal agent, and the foreign reserves of the Central Reserve Bank increased further. At the end of 1965, they were $175 million, representing a little over three months’ imports at the 1965 rate.

Spain

An important change occurred between 1964 and 1965 in the balance of payments of Spain (Table 42). Since the stabilization program of 1959, which included a devaluation, Spain has experienced continuous balance of payments surpluses, and has accumulated almost $1.5 billion in reserves. In 1965, however, its international transactions turned for the first time into deficit, and official reserves (as measured by changes in its IMF accounts, monetary gold, and foreign exchange assets) declined by $110 million. The main factors of strength in the balance of payments during the period 1959-65 were a rapid rise in income from tourism and remittances by Spanish migrant workers, combined with an inflow of private capital.

Table 42.Spain: Balance of Payments Summary, 1961–65 1(In millions of U.S. dollars)
196119621963196419652
A. Goods, Services,
and Transfer
Payments
Exports f.o.b.7598027861,0041,019
Imports c.i.f.−1,053−1,455−1,812−2,081−2,778
Trade balance−294−653−1,026−1,077−1,759
Travel3314666118521,027
Other services204−38−70−114
Transfer payments163171270327361
Total220−12−18332−485
B. Nonmonetary Capital
and Net Errors
and Omissions183131160243302
−7528746747
Total108159234310349
C. Total (A plus B)32814751342−136
D. Monetary Movements
IMF position−50−15−17−53−34
Monetary gold
(increase —)−139−130−127−42−194
Foreign exchange
assets
(increase —)−182−1445−260338
Commercial banks
(net)22193832
26
Other net21−710−19
liabilities________________________
Total−328−147−51−342136
Source: Based on data from the Spanish authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

Source: Based on data from the Spanish authorities.

No sign indicates credit; minus sign indicates debit.

Preliminary.

In 1965, for the first time, net income from tourism exceeded the income from merchandise exports. Exports in 1965 rose only slightly, despite the fact that the modernization of the economy that has taken place in recent years has led to an increase in the share of manufactured products in total exports. Imports, on the other hand, stimulated by the rapid growth of the economy and the gradual liberalization of international transactions, practically quadrupled between 1959 and 1965, to an estimated $2.8 billion (f.o.b.). The rate of growth of imports became particularly pronounced in 1965 as excess demand pressure in the economy developed and the current account of the balance of payments ran into a substantial deficit. While the net loss of reserves was limited by a continuation of the inflow of capital to a little over $100 million, the composition of reserves changed. Gold holdings increased by about $200 million, while foreign exchange holdings fell by about $340 million, of which $34 million is attributable to conversion of pesetas made available for Fund transactions and has a counterpart in an increase in Spain’s reserve position with the IMF.

The reserve losses continued in the early months of 1966, and in January the Spanish Government announced a series of measures to combat the rising pressures of demand in the economy, including a reduction in government expenditures, the imposition of certain luxury taxes, and a tightening of bank credit. In May the balance of payments was almost balanced, showing only a slight deficit ($1.4 million).

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