Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

155. Memorandum From the Assistant Secretary of the Treasury (Coughran) and the Secretary of the Treasury’s Special Assistant (Southard) to Secretary of the Treasury Anderson and the Under Secretary of State for Economic Affairs (Dillon)⁰

August 26, 1958.

SUBJECT

• Increase in IBRD and IMF Resources

This memorandum deals with the question of an increase in capital of the IBRD and quotas of the IMF and outlines a suggested position which the United States might take.

1. Schedule of action

(a) Review within U.S. Government and with Congressional leaders.

(b) At New Delhi, Governors would instruct Executive Boards to study and report.

(c) Executive Boards would prepare reports, October-November.

(d) Approval of reports by Governors.

(e) Presentation to U.S. Congress, January–March 1959. Simultaneous action by other member countries.

2. Action at New Delhi would be confined to adoption of a resolution by Governors directing Executive Boards to study and submit reports to Governors, which would be approved by them for such further action by member governments as may be necessary. The reports would also contain any proposed amendments to the Articles of Agreement.

3. The U.S. view should be tentatively agreed upon before the New Delhi Meeting, because other countries will press the U.S. Delegation for guidance. The main points of a possible U.S. position are outlined in the remainder of this memorandum.

4. Amount of the increases in resources

The Management of the Bank feels that an increase of 100 per cent in the Bank’s capital is necessary to provide an adequate guarantee fund for Bank operations as projected. The total present capital of the Bank is $10 billion and a 100 per cent increase would amount to $3,175 million in the case of the United States. The tentative plan is to give assurances that the member countries would not be required to pay up any portion of the increased capital, except in the exceedingly remote contingency of large-scale defaults on IBRD loans. A doubling of the present IMF quotas of approximately $9.1 billion would involve 25 per cent payment in gold and, in the case of the United States, Germany, and possibly several other countries, would involve encashment of non-interest-bearing notes during the next few years. The U.S. quota is $2,750 million, which would mean a gold payment of $687 million. It does not seem advisable to seek an increase of this size.

It is recommended that the U.S. position be as follows:

(a) IBRD capital would be increased 100 per cent, with assurance of no call-up except under stated contingencies.

(b) IMF quotas would be increased not less than 50 per cent. This would provide approximately $2.4 billion in new resources in gold, dollars, and deutsche marks. Of this amount, the United States would contribute $344 million in gold and $1,031 million in dollar notes. Also, the following measures would add to available resources:

(1) The Articles of Agreement would be amended to permit countries to repay in the same currency which they had drawn. This should operate to make sterling and other semi-convertible currencies of the Fund more readily available for use, because it would free the drawing countries from the present obligation to repay in dollars.

(2) Countries wishing larger quota increases might be allowed to have them, provided the increase is reasonable and 25 per cent is paid in gold. It is understood that German officials are thinking of a quota equal to that of France, and some other countries, such as Japan, Italy, Mexico and Brazil, are unlikely to be satisfied with 50 per cent increases.

(3) If any considerable number of countries with the larger quotas wish to have increases of more than 50 per cent, the United States could propose such increase beyond 50 per cent in its own quota as would maintain the U.S. voting power. Alternatively, consideration could be given to an increase of all quotas (including the U.S. quota) by 100 per cent.

5. Increases in IBRD and IMF resources should be contingent on participation by members having at least 80 per cent of total quotas.

6. In the case of the IMF, all quota increases should be subject to 25 per cent payment in gold.

7. Two delicate political problems will have to be dealt with. One is the treatment to be accorded to China and the other is the relative position of India.

(a) Nationalist China has a quota of $550 million in the Fund and is entitled to subscribe to $600 million of capital in the Bank. China has made only token payments to the two institutions. It would be highly desirable to leave the Chinese quota and capital subscription unchanged. However, this would drop China from among the first five countries, which are entitled to appoint Executive Directors.

(b) India has been insistent on retaining its position among the first five countries, for prestige reasons. If the German quota in the IMF is to be increased by substantially more than 50 per cent, Germany would jump over India. However, if the Chinese quota is not increased, India would retain its position among the first five counties.

(c) It may be anticipated that the Nationalist Chinese Government will object to a move which would appear to favor India. However, as a matter of practical fact, China would not suffer, since the Chinese voting strength would continue to be large enough to elect a Director in both the Bank and the Fund.

0. Source: National Archives and Records Administration, RG 56, Records of the Office of the Secretary of the Treasury, Robert B. Anderson, Subject Files, International Bank for Reconstruction and Development, IBRD–IMF Proposal to Increase Resources. Official Use Only; For National Advisory Council Use Only. The memorandum, covered by an action sheet outlining the recommended NAC action, was distributed to the National Advisory Council on International Monetary and Financial Problems as NAC Document No. 2361.