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ment in local enterprises. The trust would attract new capital by offering investors a unique opportunity: participation in a managed broad selection of investments in developing country firms, public, private, and mixed. The International Finance Corporation would manage it and perhaps provide seed capital, but most of its funds would come from government and private investors. Investors would have their exposure to major losses limited by a $200 million loss reserve provided by governments of industrialized, oil-producing, and developing nations. This institution could be a powerful link between the capital markets and the developing world and could provide billions of dollars of essential

resources.

Third, the United States will contribute actively to the work of the IMF-World Bank Development Committee to find ways to assist developing countries in their direct borrowing in the capital markets. It is encouraging that the Latin American countries are considering a regional financial safety net to underpin their access to capital markets by mutual commitments of financial backing.

Finally, we believe that all industrial countries should systematically review the conditions for developing country access to their national markets to assure that they offer fair and open opportunity. The United States is prepared to provide technical assistance and expertise to developing countries ready to enter long term capital markets, and we ask others to join us.

For the full text of Secretary of State Kissinger's address to the Seventh Special Session of the U.N. General Assembly on Sept. 1, 1975, see Dept. of State Bulletin, Vol. LXXIII, No. 1891, Sept. 22, 1975, pp. 425-441; Report by Congressional Advisers to the Seventh Special Session of the U.N., Joint Committee print, 94th Cong., 1st Sess., Oct. 13, 1975, pp. 35-61.

The Boards of Governors of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD; World Bank) and its affiliates met at Washington September 1-5, 1975. Secretary of the Treasury William E. Simon, in an address to the Boards on September 2, 1975, further described the proposals made in Secretary Kissinger's address to the Seventh Special Session of the U.N. General Assembly and suggested additional steps which the two Boards should take. Excerpts from Secretary Simon's speech follow:

As the oil facility of the IMF phases out this year, we should take action to assure the immediate usability of all currencies held by the IMF. We also need to direct early attention to a review of the tranche policies of the Fund and to consider whether changes should be introduced in these policies in order to provide increased access to the Fund's regular drawing facilities. This would enable the Fund to play the expanded and more active role required of it in today's world.

The World Bank is by far the largest and most influential development lending institution and as such has a major role to play in assisting developing nations achieve their development goals. It is of the greatest importance that the quality of this work and the soundness of its financial position be sustained.

Since the lending program now being implemented by the Bank carries with it demanding assumptions about the Bank's long term ability to borrow funds, it is important that the management and Executive Directors of the Bank work together to assess carefully the role the Bank should play in the development process in the next decade and to examine the implications of this for the capital of the Bank and the nature of its programs. With capital an increasingly scarce resource, critical for the growth of the developed as well as the developing countries, it is essential that we have a clear understanding of the priorities which should govern the lending of an institution whose borrowing now approaches $5 billion per year. The United States will continue to provide strong support to the Bank, and we will assist in helping it maintain a sound financial position.

we support a substantial increase in World Bank share ownership and voting power for countries newly able to make a major contribution to development through the Bank Group. Such an increase should be determined country by country, and increases in capital should be accompanied by commensurate contributions to the International Development Association (IDA) to help the poorest countries as well as the middle-level countries.

Secretary Simon noted further that the IMF Interim Committee had achieved a significant breakthrough in its August 1975 meeting in resolving the questions of a major increase in quotas and on phasing gold out of the monetary system. He recommended reaching an accord on exchange rates. The following are excerpts from that portion of his speech:

Let us . . . proceed to the final component of our negotiations—an agreement on amendment of the exchange rate provisions of the articles

which will enable us to put into practice the accords reached here this week. Amended provisions are needed which give legal recognition to the realities of today's world and reflect the evolution of the system that has occurred in recent years.

Two and a half years ago the par value system gave way to a voluntary system of exchange rate practices under which some countries float independently, some float jointly, and some use pegged rates. We are fortunate that this system was actually in place before the oil crisis hit, and its flexibility has served us well in difficult circumstances.

The basic logic of the par value system implies a world which does not now exist-one in which prices are reasonably stable and in which current account balances adjust to capital flows that are relatively slow to change. But the world has changed, and we need a system that is adaptable and is appropriate for the world as it is today, not as it once was or as we might like it to be.

Today we have a system which is flexible and resilient. It has enabled exchange markets to remain open and viable in the face of pressures that would have previously been overwhelming: Even the massive accumulations by the OPEC countries and occasional significant fluctuations in particular exchange rates have not unsettled the system. It has been possible to relax or eliminate many of the extensive restrictions on capital move ments and to find viable alternatives to restrictive current account measures. The large payments deficits of today have provoked fewer import restrictions by major countries than did the comparatively minor payments difficulties of earlier years. Although rates of inflation have varied enormously, from 6 percent in some countries to 25 percent in others, the flexibility of our system has allowed exchange rates to move so as to reflect these divergencies in costs and prices. Attempts to maintain fixed exchange rates under these circumstances would have quickly and inevitably collapsed under the strain.

U.S. policy is to have our own exchange rate determined essentially by market forces, and not by arbitrary official actions. We do not propose to object if foreign countries elect to establish fixed exchange rates among themselves—the essence of a voluntary system is to permit a free choice—so long as our own desire for essential freedom of the dollar exchange rate is respected. We are prepared to intervene whenever necessary to maintain orderly exchange market conditions. However, sizable movements in exchange rates over a period of several months are not necessarily indicators of disorderly markets and the fact that such movements are sometimes reversed does not demonstrate that it would have been possible for governments to prevent the initial movement in rates, nor desirable to try.

We believe strongly that countries must be free to choose their own exchange rate system and that all countries, whatever choice they make, must be subject to the same agreed-upon principles of international behavior. The right to float must be clear and unencumbered. In view of the great diversity in political systems, institutional arrangements, size of national economies, and degree of dependence on foreign trade and investment, our present world requires an open mind about the future.

On Aug. 31, 1975, the Interim Committee of the Board of Governors of the IMF issued a press communique, which included the following paragraphs:

5. The Committee noted the progress made by the Executive Directors on the Sixth General Review of quotas within the framework of the understandings reached at previous meetings of the Committee. The Committee noted the agreement on increases in the quotas of almost all members. In particular, the increases for the industrial countries and for the major oil exporting members have been agreed. The differences that remain among the other members are few and are expected to be resolved soon. The Committee asked the Executive Directors to prepare and submit to the Board of Governors a resolution on increases in the quotas of individual members. The Committee also asked the Executive Directors to complete their work on the mode of payment of the increases in quotas on the basis of the understandings already reached in the Committee so that appropriate recommendations can be submitted to the Board of Governors at the same time as the resolution on increases in quotas. The Committee reiterated its view that all of the Fund's holdings of currency should be usable in its transactions. The Committee agreed that on the question of majorities for the adoption of decisions of the Fund on important matters, a majority of eighty-five percent should be required under the amended Articles for those decisions that can now be taken by an eighty percent majority. It also agreed that amendments of the Articles should become effective when accepted by three-fifths of the members having eightyfive percent of the total voting power,

6. The Committee discussed the problem of gold, including the disposition of the gold holdings of the Fund. The elements of the consensus reached are described in this paragraph.

At the meeting of the Interim Committee on January 16, 1975, it was decided to move “toward a complete set of agreed amendments on gold, including the abolition of the official price and freedom for national monetary authorities to enter into gold transactions under certain specific arrangements, outside the Articles of the Fund, entered into between national monetary authorities in order to ensure that the role of gold in the international monetary system would be gradually reduced.”

To implement this general undertaking, provision should be made for: 1. Abolition of an official price for gold.

2. Elimination of the obligation to use gold in transactions with the Fund, and elimination of the Fund's authority to accept gold in transactions unless the Fund so decides by an 85 percent majority. This understanding would be without prejudice to the study of a Gold Substitution Account.

3. Sale of 1/6 of the Fund's gold (25 million ounces) for the benefit of developing countries without resulting in a reduction of other resources for their benefit, and restitution of 1/6 of the Fund's gold to members. The proportion of any profits or surplus value of the gold sold for the benefit of developing countries that would correspond to the share of quotas of these countries would be transferred directly to each developing country in proportion to its quota. The rest of the Fund's gold would be subject to provisions in an amendment of the Articles that would create enabling powers exercisable by an 85 percent majority of the total voting power.

The Committee noted that, in order to give effect to the understandings arrived at in this Committee, the countries in the Group of Ten have agreed to observe during the period referred to below the following arrangements, which could be subscribed to by any other member country of the Fund that wishes to do so. Other members might adhere to these arrangements, and on such occasions the necessary modifications in them would be made:

1. That there be no action to peg the price of gold.

2. That the total stock of gold now in the hands of the Fund and the monetary authorities of the Group of Ten will not be increased.

3. That the parties to these arrangements agree that they will respect any further condition governing gold trading that may be agreed to by their central bank representatives at regular meetings.

4. That each party to these arrangements will report semi-annually to the Fund and to the BIS the total amount of gold that has been bought or sold.

5. That each party agree that these arrangements will be reviewed by the

participants at the end of two years and then continued, modified or terminated. Any party to these arrangements may terminate adherence to them after the initial two-year period.

Many members from developing countries expressed concern that the proposed arrangements for gold would give rise to a highly arbitrary distribution of new liquidity, with the bulk of gains accruing to developed countries. This would greatly reduce the chances of further allocations of SDRs, thereby detracting from the agreed objective of making the SDR the principal reserve asset and phasing out the monetary role of gold. This aspect should be studied, and measures explored to avoid these distortions.

7. The Committee noted the work done so far by the Executive Directors on the subject of the establishment of a trust fund and the possible sources of its financing in response to the request of the Development Committee. It was agreed to ask the Executive Directors to pursue their work with a view to completing it at an early date, taking into account the understandings reached in the Committee with regard to the use of profits from the sale of part of the Fund's gold for the benefit of developing countries, without neglecting the consideration of other possible sources of financing.

8. It was agreed that acceptable solutions must be found on the subject of the exchange rate system under the amended Articles, so that these agreed solutions can be combined with those on quotas and gold. The Executive Directors were requested to continue their work in order to arrive at acceptable solutions and to prepare for submission to the Board of Governors, after examination by the Committee at its next meeting, appropriate proposals for amendment of the Fund's Articles on all aspects that have been under consideration.

9. The Committee noted that the Executive Directors are in the process of conducting a review of the Fund's facility on compensatory financing with a view to improving a number of its aspects. It was agreed to urge the Executive Directors to complete their work on this subject as soon as possible, taking into account the various proposals that have been made by members of the Committee.

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On September 1, 1975, Secretary of State Kissinger in an address to the Seventh Special Session of the U.N. General Assembly, delivered on his behalf by Ambassador Daniel P. Moynihan, U.S. Representative to the United Nations, called for fundamental structural improvement in the relationship of the developing countries to the world trading system. He recommended that in the early stages of their development they receive special treatment through preferences, favorable concessions, and exceptions but that they gradually accept the same obligations of reciprocity and stable arrangements as other countries. Second, he urged improved opportunities for the manufacturing sectors of developing countries, in particular through generalized tariff preferences.

In addition to proposing creation of a development security facility within the International Monetary Fund (see ante, Ch. 10, § 1, p. 500), Secretary Kissinger made the following proposals in the area of international trade:

(1) That a consumer-producer forum be established for every key

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