Survey and Appraisal of Proposed Schemes of Compensatory Financing (Etude et évaluation des méthodes proposées de financement compensatoire) (Examen y evaluación de los sistemas propuestos para el financiamiento compensatorio) Author(s): Gertrud Lovasy Source: Staff Papers (International Monetary Fund), Vol. 12, No. 2 (Jul., 1965), pp. 189-223 Published by: Palgrave Macmillan Journals on behalf of the International Monetary Fund Stable URL: http://www.jstor.org/stable/3866304 Accessed: 02-11-2015 21:44 UTC REFERENCES Linked references are available on JSTOR for this article: http://www.jstor.org/stable/3866304?seq=1&cid=pdf-reference#references_tab_contents You may need to log in to JSTOR to access the linked references.

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Surveyand Appraisalof Proposed Schemesof Compensatory Financing Gertrud Lovasy *

of primary products-instability THE PROBLEMS facingexporters in exportreceiptsas wellas longer-run structural problems-have beenofmajorconcern formanydecades,and attempts to findsolutions, international havea longhistory. mainly through agreements, commodity has shown,however, thatnotonlyis itdifficult to reachsuch Experience but if even often established not have been effective. agreements they The sharpfluctuations of pricesin theearly1950's and the subsedeclinehave once more focused quent widespreadand protracted attention on these problems.For a few commodities, international have been reached;forothers,however, have agreements negotiations failed.Growingawarenessof the importanceof maintaining and ofprimary so countries, raisingtheexportreceipts gradually producing as to enable thosecountriesto meettheirdevelopment needs,has the searchformethodswhichcould take the place of, or suggested traditionalprocedures.The conceptof compensatory supplement, has emerged, and a varietyof applications have been sugfinancing gested.The UnitedNationshas playeda leadingpartin the developmentof manyof the proposals;additionalcontributions have come from otherquarters. transfers to mitigate the adverseeffects of changes Compensatory in the termsof tradewerefirstproposedin 1953, but did not gain to the support;sometenyearslater,similarproposalsweresubmitted UN Conference on Trade and Development In the late (UNCTAD). 1950's and at thebeginning of the 1960's,schemesaimedat compenin exportreceipts weredevisedbya UN Committee satingforshortfalls ofExperts,and,later,by a working within theframepartyestablished workof theOrganization of American States(OAS). Also,expansion of assistance, gearedto thatparticular purpose,by the International Fund (IMF) was favored;and in 1963,theIMF responded Monetary * Miss Lovasy,Advisorin theResearchand Statistics was formerly Department, withthe Economicand FinancialDepartmentof the League of Nations.She is the authorof a memorandum on International Cartels,publishedby the United Nations,and of severalarticlesin economicjournals. 189

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withthecreationof itscompensatory Simultaneously facility. financing withtheemergence actionin theevent of proposalsforcompensatory in international ofreplacing of exportshortfalls, thoughts pricesupport transfers beganto takeshape. agreements commodity by compensatory and The UNCTAD producedfurther suggestions, in the discussions as a convenient muchemphasiswas laid on compensatory financing deviceforsolving short-term andlong-term problems. to of thevariousproposalsis theattempt The commondenominator countriesof changesin on primary offsetadverseeffects producing exportreceiptsor in international prices,withthe explicitor implicit those countriesto proceed with their ultimateaim of permitting there Withinthatbroadframework, economicdevelopment. however, arewidedifferences in scopeandin immediate Compensatory objective. wouldbe linked to pricesupportagreements as an alternative financing wouldbe theintention to changesin pricesof individual commodities; of suchchangeson incomedistribution effects to correctundesirable The underlying countries. conceptof proposalsreferring amongtrading ofincomefrom to changesin thetermsof tradeis similar:a retransfer to covertotal schemes The various to countries. designed gaining losing outshort-run eitheron evening placethemainemphasis exportreceipts or on assistingcountriesin theirlonger-run fluctuations problems. in greatdetail;mostofthem, Someoftheproposalshavebeensetforth in broadoutlineonly.1Somehavebeen havebeenpresented however, and discussion,while othershave examination to subject thorough of theproposals, so far.A chronological receivedlittleattention listing to actiontakenor suggestedon theirbehalf,is reference including review givenbelowin theAppendix(pp. 216-21). In the following main and their to with reference discussed and analysis, scope theyare 1. in Table as shown objectives, it willbe assumedthatstabilizathevariousproposals, In appraising tionand/orexpansionof receiptswouldassist,as a rule,in achieving in primary theprocessof development aimof maintaining theultimate thisobjectivemight The broaderquestionwhether countries. producing be betterservedby financialassistancenot linkedto exportsor to in international movements pricesis excludedhere.The analysiswill ofthevariousschemes theeffectiveness itselfto considering thusconfine in meetingthe immediateobjectives,without, however,losingsight on the of theireffecton economicdevelopment and, particularly, made at theUNCTAD hardlywentbeyondrequesting A numberof suggestions for losses of developingcountriesaffectedby exportshortfallsor compensation declinesin prices;fundsshould be providedby the developedcountries.Since morefully, in essencefromthosepresented do notseemto differ thesesuggestions includedin thefollowingdiscussion. theyare not specifically

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TABLE1. COMPENSATORY FINANCING PROPOSALS I. FinancingLinkedto Changesin Pricesand Intendedto Correct UndesirableEffectson the Distribution of Income Caused by Changesin pricesof individual Changesin termsof trade commodities Proposalsby Proposalsby Hazelwood (2) Olano (1) Kahn (3) Prebisch(7) Meade (8) II. FinancingLinkedto Exportsof PrimaryProducingCountries withthe Main Emphasison Short-term fluctuations Longer-run problems Proposalsby Proposalsby UN group: DIF scheme, U.K. and Swedishdelegaloan variant(4) tionsto UNCTAD (9) OAS group(5) UN group: DIF scheme, IMF facility(6) grantvariant(4) Indian delegationto UNCTAD: import guaranteescheme(10) 1The numberscorrespond to thenumbering of the schemesin the Appendix.

allocation of resources.The essential featuresof individualschemes and theirimpliedeffectson operationsand resultswill be examinedin

somedetail;alternative measures of a noncompensatory such character, as commodity will be takeninto account.Finally,the agreements, schemesand possible interrelationship amongthevariouscompensatory choiceamongthemwillbe discussed.

Price CompensationSchemes These schemesare intended to offset undesirable effects on income

of price changes in internationaltrade. Compensation would be

linkedto changeseitherin pricesof individual commodities or in the termsoftrade.Compensatory ofthistypeis considered to be financing a retransfer of incomefrom"gaining"to "losing"countries, directly or through theintermediary of a fund.These transfers are not reimdirectedtowardprimary bursable,but the flowis not necessarily if pricesof theexportsof thesecountries should countries; producing increaseor if theirtermsof tradeshouldimprovebeyondan agreed maximum transfers couldbe madeto thecountries level,compensatory importing products. primary The basic consideration theseproposals,whetherthey underlying

referto pricesof individualcommoditiesor to the termsof trade,is by

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and largethesame: it wouldbe easierand,as a rule,preferable to let and to offset pricesmovefreelyin responseto marketdevelopments transfers on incomedistribution. effects bycompensatory anyundesirable in for However,compensatory financing changes individual commodity fordeterioration in the termsof tradediffer in pricesand financing variousrespects-inscope and effecton incomes,as well as in the technical to discuss involved;it therefore problems appearsconvenient theproposalsseparately. COMMODITY PRICES

commodities haveemerged to pricesofindividual Proposalsreferring in close connectionwiththe development of the contracttype of This typeof agreement providesfor mutual agreement. commodity to purchase on thepartofimporting countries andexporting obligations in questionat pricesnot andto sellcertainquantities ofthecommodity or nothigherthantheagreedmaximum, lessthantheagreedminimum couldbe theguaranteed Transactions respectively. exceeding quantities atfreemarket prices. for that compensatory be substituted transfers Early suggestions when or maximum actualpurchasesor sales at the minimum prices, to simplify market pricesmoveoutsidetheagreedrange,wereintended and to avoidthedifficulties undercontract-type operations agreements in a two-price schemeon a bilateral inherent system.The compensatory forbulkwas designedas a substitute basis,proposedby Hazelwood,2 in trade cocoa those concerning purchasingcontracts, particularly on transfers betweentheUnitedKingdomand Ghana.Compensatory 3 to a multilateral basiswerefirstsuggested by Kahn as an alternative oftheInternational theprovisions SugarAgreement. transfers in moregeneraltermswere proposedby Compensatory In forpricestabilization Meade as a possiblesubstitute agreements.4 his proposal,the authorpointedto thedoubleroleof the introducing effect. and (2) its efficiency pricemechanism:(1) its distributional The latterwas thechiefreasonformaintaining a system offreemarket effect, however, mightnotbe desirable.There prices;thedistributional was no reasonforthepricethatwas desirableon "efficiency" grounds to coincidewiththeone desirableon "distributional" grounds.Meade be permitted thattheformer to fulfill its economicfunction suggested theincomeeffect andthatstepsbe takento offset through compensatory the priceof a particular declinedto Whenever transfers. commodity 2 See Appendix (Scheme 2).

3 See Appendix (Scheme 3).

4 See Appendix (Scheme 8).

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countries wouldmake lessthanan agreedminimum standard, importing to exporting countries foran agreed"normal" compensatory payments tradevolume;shouldpricesrisebeyondan agreedmaximum standard, corresponding paymentswould be made in the oppositedirection. Compensation mightbe fullor partial.Therewouldbe ampleleeway withinthe broad framework indicatedto adapt the compensation to a particularcommodity and to the conditionsunder agreement whichit was traded.There could be a wideror narrowerrange betweenthe "minimum" standardand the "maximum" standard;as within no as that transfer moved range, long prices (compensation) or "regressive" wouldtakeplace. Payments as mightbe "progressive" fromthestandards; from pricesdeviatedfurther theymightbe greater to exporters thanvice versaif the latterwerelow-income importers Whentherewas a downward or an upward countries. primary producing trendof prices,the"minimum" itselfcould (or "maximum")standard be adjustedgradually or at intervals. Transfers wouldbe madebetween and wouldnot (or not automatically) be passed on to governments or consumers; butgovernments producers mightchooseto use partof the payments receivedto supplement incomesof producers(or to subsidizepricesto consumers).It wouldalso be leftto governments to raisethenecessary fundsin anywaytheywished,e.g., by levying taxesonproducers orbyusinggeneral taxreceipts. (or consumers) the that which are desirableon Accepting proposition pricechanges on income have undesirable effects distribution efficiency groundsmay and thatcorrective actionis called for leaves us withthe question whetherand underwhat conditionscompensatory transfers would offerthe best solution.5 Inasmuchas compensatory linked financing to pricechangeshas been suggestedas a substitute for (and may indeedbe consideredas a new variantof) international commodity startby examining thisdevice agreements, appraisalmayconveniently as a possiblealternative to thetraditional The choice between approach. the twodeviceswoulddepend,at leastin theory, on whether it was considered to leave pricesfreeto moveand to compensate preferable forundesirable incomeeffects to stabilizepricesat or, alternatively, or close to their"distributional optimum"and to take measuresto Thelatter coursehasbeenchosenbymostindustrial regulate production. fortheirown agricultural countries sectorand, frequently, forprices of productsimportedfromtheiroverseasterritories. International action,whenevertaken,has likewisebeen based on price support 5 We may dismissthe possibleobjectionthatno such actionwould be required since,in the long run, reallocationof resourceswill ultimatelylead to a more desirableincomedistribution. Reallocationwould take too long,and thereis no thatitwouldmaterialize. certainty

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measures.On the whole,experiences have not been encouragingcontrolover becauseof lack of effective mainly,thoughnot entirely, production. foreveningout Muchis to be said,at leaston theoretical grounds, in on direct action fluctuations sharp prices(commodity pricesthrough butpermitting basedon bufferstock agreements, preferably operations)6 theirdistribuand to course take their movements long-run offsetting tionaleffects Violentshort-run transfers. fluctuations, by compensatory fromhighly inelasticdemandand (short-run) supplyof most resulting do not,as a rule,servea usefulpurpose.Demand primary products, to sharppricechanges:it has oftenbeen reactsperversely frequently observedin marketsfor primaryproductsthat advancesin prices becausethesepricemoveand declinesdiscourage, stimulate, buying, effectsof price mentsare expectedto continue.The longer-run movements on resourceallocation Very mayproveevenmoreharmful. short-run inelasticities, maycause overexpansion highprices,reflecting minesor, fortree theopeningof additional of capacity, e.g.,through additional in either excessive case, supplieswouldnot crops, planting; in a investment becomeavailablefora numberof years.In addition, in other investment as diversification will boomingindustry discourage Worsestill,veryhighpricesinduce becomesless attractive. directions a processwhich, in importing of substitutes thedevelopment countries, reduction carriedon and causespermanent once started, is invariably in A decline in demandfortheprimary priceswill,as product.7 sharp slow responseon the production a rule,evokea comparatively side, led to contraction in has decline severe a occasionally receipts though to expand,evenwhentherewas a considerreluctance and subsequent thatsharp ableincreasein prices.Theseconsiderations suggest strongly shouldbe avoided.Butthecaseforpermitting long-run pricefluctuations to taketheircourseremains;thefactthatthe adjustment movements ofresources arelong-drawn-out andreallocation ofproduction processes A scheme effect. thedistributional theneedforcorrecting underscores withcompensatory theeveningoutof sharpfluctuations thatcombines wouldthus appearto providethe movements of long-run financing best solution. in orderto preservethe effectof (long-term) It is imperative, be such the internaluse of compensation that price movements, of the changes.If withthe allocativefunction as not to interfere to producers, werepassedon, fullyor partially, receipts compensatory 6 Thoughexportquotas,themostfrequently used device,may succeedin mainprices,theymay cause a reductionin exportreceipts. tainingthe minimum 7 See Albert0. Hirschman, Should Techno"PrimaryProductsand Substitutes: logical Progressbe Policed?",Kyklos,Vol. XII (1959), p. 354.

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or reduced. wouldbe eliminated to scaledownproduction theincentive the necessary towardfacilitating Receiptsmightbe applied,however, and the shiftof resourcesto alternative uses. Nor should adjustment thepayinggovernment raisethe additional revenueby levyinga conin question.This would offsetthe tax on the commodity sumption of If compensation declines in effect priceson consumption. stimulating and wereusedforsubsidizing wereprovidedby taxingconsumers profor price transfers ducers,the purposeof substituting compensatory stabilization wouldbe defeated. if notimpossible, For practicalpurposesit is difficult, to distinguish whichshouldbe avoided,and a long-term betweenfluctuations, trend, whichshouldbe allowedto takeitscoursebutmight callforcompensation.Thusa combined schemecould,at best, stabilization-compensation aim at approximating its objective.Such a schememightcombine transfer andbufferstock in thefollowing operations compensatory way: Two pricerangeswouldbe adopted.The narrower of themwould indicatetheextentto whichpriceswouldbe considered "acceptable" and importing the secondone wouldbe countries; by bothexporting wide enoughto induceadjustments that are necessarywhenprices approachthe loweror theupperlimit(see Diagram1). As long as withinthenarrower range,no actionwouldbe taken. pricesremained If theymovedbetweenthetworanges,compensatory transfers would be made in the appropriate directionwithoutbeing passed on to or consumers. If pricesmovedbeyondthe lower individual producers DIAGRAM1. COMPENSATORYAND BUFFERSTOCKOPERATIONS

27

Transfers Sales plusBufferstock

////I / to 2S~N~N/////////////////////// t/mportM9 / C02t1/ties//~//// Transfers Countries Importing No Action

pi Transfersto Export/ing Countries

Purchases Transfers plus Bufferstock low (high) to induce contraction (expanP1, P2: prices considered sufficiently sion). pi, p2: floor and ceiling of range acceptable to both exporting and importing countries.

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or sales-would or upper limit,bufferstock operations-purchases untilpriceswereagainwithinthe supplement compensatory payments "outerrange." undera "mixed"schemewouldbe on operations Thoughbufferstock a smallerscalethanundera purebufferstock it neverthearrangement, less mightprovedifficult to securethenecessary support.It wouldbe possible,in thatcase, to base a schemesimilarto the one outlined on compensatory transfers. Ifpricesmovedbeyondthe aboveexclusively in loweror the upperlimitof the "outerrange,"transfer payments or consumers.8 excessof eitherlimitshouldbe passedon to producers Prices(including compensation) paid by thelattershouldnot exceed the upperlimit,and thosereceivedby producersshouldnot be less thanthelowerlimit, ofthe"outerrange." For commodities wouldbe "symmetrical." The schemeas described it low-income and countries, exportedby importedby high-income the be in favor of countries with might adjusted exporting bydispensing to importing upperlimitof the narrowerrange: transfer payments wouldbe calledforonlyifpricesexceededthe"outerrange" countries so as to avoidthe and,in thatcase,shouldbe passedon to consumers illeffects ofexcessive prices. Objectionsmightbe raised,however,againstany obligationfor a to high-income transfer fromlow-income The largedifference countries. that in theper caputincomeof thetwo groupsof countries suggests from the redistribution of income to developed high-incomeprimary any low-income countries mighttendto increasetotalwelfarein producing On thatbasis,anypricedeclinewhich thetwogroupstakentogether. wouldreduceincomesof the latterin favorof the former mightbe while the over-allincomeeffectof price regardedas undesirable, increaseswould be desirable.These considerations suggestthat,for countries to low-income commodities producing exportedby primary transfers wouldin fact developedcountries, compensatory high-income be justified inonedirection only. thereare reasonsin favorof a two-way Nevertheless, arrangement. countrieswould Firstly,it could hardlybe expectedthatimporting whenpricesdeclinedto be preparedto makecompensatory transfers, a quidproquo ifprices without lessthana certainminimum, requiring out above,increasesin as shouldrisesubstantially. pointed Secondly, pricesof primary products beyonda certainlevelwouldhave adverse on distributional theirbenefits welloutweigh whichmight effects long-run 8 Demand at the subsidizedprice might,however,exceed supplyand, in the absenceof stocks,some informalrationing mightbecomenecessarywhilescarcity to but stillpreferable be cumbersome, conditions prevailed.This wouldadmittedly wouldturnto substitutes. an excessiverisein price,withthedangerthatimporters

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to foregothe benefits arisingfroma grounds.It appearspreferable temporary sharp increasein receiptsratherthan to risk a lasting of themarket. Undera "mixed"schemeas suggested above, shrinkage whichprovidesfor bufferstock sales wheneverprices exceed the to high-income retransfers fromlow-income ceiling, exporting importing versionbased countriescould be avoided; under the alternative on compensatory the level of pricesat which exclusively financing, wouldhaveto be madewouldbe comparatively suchretransfers high. But someprovision an exporting mayhaveto be madeforexempting in theprobablyrarebut conceivable case wherethepriceof country the productin questionexceeds the "maximum," thus callingfor to importers, transfers while a sharp reductionof compensatory exportablesupply,say througha severecrop failure,resultsin the country's exportreceiptsbeingless than"normal."This woulddispel the fear expressedby Meade thatundercertaincircumstances the schememayresult in"perverse" transfers.9 Since compensatory transfers aim at correcting the effectof price suchtransfers wouldhaveto be based changeson incomedistribution, on pricesat whichtheproducts in questionhavebeensold and bought rather thanonmarket It is wellknownthattransaction quotations. prices (unitvaluesof exports)oftendiffer widelyand, as a rule,fluctuate lessthanmarket insofar as theyarenot quotations; changesin thelatter, reflected inpricesreceived or paid,shouldnotgiveriseto compensatory transfers. Floor and ceilingpricescouldbe subjectto periodicreview; in provisionmightbe made for automaticadjustment alternatively, accordancewitha movingaverageof actualpricesovera numberof pastyears,so as to seta timelimitto compensation payments.10 The best measureof the volumefor whichcompensation would be paidwouldgenerally be theactualquantities andimported; exported undercertainconditions-particularly if considerable stocks however, have been accumulated in exporting countries-limiting compensation tosomeagreedmaximum volumewouldbe preferable. In appraising theeffects of a compensatory schemeappliedto price of changes,it appearsobviousthatits immediate purpose-offsetting undesirabledistributional effects-wouldautomatically be achieved retransfer. Whether wouldfulfill theirallocathrough pricemovements would largelydependon the internaluse of transfer tive function receivedand,perhapsto a lesserextent, on thewayin which payments 9 See Meade (citedin Appendix,Scheme8), p. 17. 10Such a procedurehas beensuggested withrespectto compensation forchanges in thetermsof trade;see page 200,below.

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the necessaryrevenuewas providedby the payingcountry.l1 The effect of a compensationschemeon participating countries'foreignexchange receiptsand paymentswould be similarto the effectof a commodity But comparedwitha quota agreement, agreementof thecontracttype.12 whichmaintainsthe floorprice throughexportrestrictions, receiptsof on countries be account of would tend to a greater higher exporting volumeof trade.Double pricing,whichhas been consideredas one of wouldbe avoided theobjectionablefeaturesof a contract-type agreement, undera compensatory scheme;priceswould be the same forindividual whetheror not theircountriesparticipatedin the exportersor importers scheme. On the domesticside, compensatoryschemes,in contrastto comwould not affectthe prices of individualexporters modityagreements, or importers; transfer paymentswould accrueto, and wouldbe provided of countries.As mentionedabove, this the by, governments participating accrual should and could facilitatethe carryingout of necessaryadjustmentsin exporting countries;it might,on theotherhand,createproblems of raisingtheadditionalrevenue.Thus, whenthe distributional optimum level of the price were far apart and compensatory and the efficiency to exporterswereexpectedto be largeand protracted, transfers importing countriesmightpreferto accept an agreementprovidingfor price supportratherthan to committhemselvesto compensatorytransfers.l3 or relaxingof exportrestricIf, undera quota agreement,a tightening tionsshouldfailto maintainpriceswithintheagreedrange,participating would have no furthercommitments; moreover,a quota governments the not would settingof fixedfloorand necessarilyrequire agreement ceilingprices. It thereforewould appear that under certainconditionsthe establishmentof a quota agreement,though less desirable on economic of a scheme grounds,mightprove to be easier than the establishment based on compensatorytransfers,which would involve payments obligationswhen prices moved outside the agreed price range. Under 11The lower the elasticityof demandfor the commodityin questionin the of collectingthenecesthesmallerwouldbe the adverseeffect country, importing saryrevenueby imposinga tax on consumersof thiscommodity. 12 This wouldapplyif compensatory werelimitedto agreedquantities. transfers In the absence of such limitation,total receipts(includingcompensation)of exportingcountrieswould be greaterwhen marketpriceswere below the floor, countrieswouldbe smallerwhenpricesexceeded and totalpaymentsof importing the ceiling,thantheywould be undera contract-type agreement. 13 Conditions the International on the coffeemarketat the timeof negotiating were a case in point.There was littleresistanceto maintaining prices Agreement countrieswould not have but importing at or close to the level thenprevailing, if prices been willingto undertaketransfer paymentsof themagnitudeanticipated to findtheirown level. had been permitted

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forcommodities forwhich different however,particularly conditions, opposed,or wherethe existenceof close pricesupportwas strongly substitutes militated a compensaagainsttheadoptionof suchsupport, to pricemovements, toryscheme,whichwouldprovidean offset might provemoreexpedient. TERMS OF TRADE

The schemeforcompensatory of changesin thetermsof financing tradesuggested in 1953 by Olano,a memberof a UN expertgroup,14 was described for"undesirable effects of a byitsauthoras a corrective rootcause."Compensation wouldbe extended to countries or producers affected termsof trade.Such payby "unjust,unfairand inequitable" mentswouldcome intoplay onlyin the eventof rathersubstantial thetermsof tradehad deteriorated swings;theywouldstartwhenever wouldthen by at least10 percentfroman agreedstandard. Payments be automatic, butonlypart-at mosttwothirds-ofanydeterioration The standard itself wouldbe beyond10 percentwouldbe compensated. The schemewas intendedto operatein subjectto periodicrevisions. bothdirections-from industrial to primary producingcountriesand vice versa,dependingon the behaviorof the termsof trade.The proposalwas notendorsed bytheexpertgroup,mainlyon thegrounds thatit was notconsidered A secondUN groupofexperts 15 practicable. had similarreservations and, in addition, objectedto an arrangement whichmightcall fortransfers fromprimary to the more producing advancedcountries. The proposalby Prebisch,submitted to theUNCTAD,16visualized in only one direction-from compensation developedto developing countries. Such compensation wouldconstitute a retransfer of income thataccruesto countries importing products primary through improvementin theirtermsoftrade.The "fundamental aim"of theretransfers would be "to maintainthe total purchasing powerof the external 17 resourcesaccruingto developingcountries throughtheirexports." It wouldnotbe sufficient, to plan the transfers in the however, only eventofdeterioration in thetermsof tradein thefuture; compensation shouldbe providedalso fortheworsening thathas takenplace since themid-1950's.The compensation couldnotbe expectedon an automaticbasis;transfers wouldhaveto be selectiveand takeintoaccount theeffect ofthechangesin thetermsoftradeon countries' balancesof investment and otherrelevantfactors. payments, resources, 14See Appendix(Scheme1). 15 See Appendix(Scheme4). 16 See Appendix(Scheme7). 17 Prebisch(citedin Appendix, Scheme7), p. 97.

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transfers Takingthe termsof tradeas the basis forcompensatory presentsa varietyof technicaland operational problemswhichhave been analyzedin somedetailin a paperpreparedforthe UNCTAD The paperpointsto the factthatcoverage, by theUN Secretariat.18 choiceofbaseperiod,andmethodofcomputation ofexportandimport in results.Thoughsome of priceindiceswillcause greatdifferences the problemscould be met,e.g., by adoptinga uniform methodof a whollysatisfactory thenatureofindexnumbers computation, precludes solution.19

In regardto thechoiceof a standard formeasuring changesin the termsoftrade,objections wereraisedagainstthenotionofa once-for-all reference period: the freezingof price relationswould neitherbe thecostwouldbe high wereprotracted, practicable(if theworsening and rapidlygrowing)nor servea good purpose.Since compensation to a changedsituawouldbe intended to facilitate adjustment primarily would a certainperiod,countries tion,it couldbe expectedthat,within shiftof be able to take the necessarymeasures-diversification, etc.-to alterthe termsof tradein theirfavor.The study, resources, a standardin theformof a (three-year) therefore, moving suggested feltthatactualtransactions theauthors to volume, average.Withrespect in the countries and industrial between participating producing primary schemewouldbe thelogicalbase; yetwhenthetradetermsmovedin countries thesecountries favorof the industrial mightbe discouraged No alternacountries. from fromexpanding primary producing imports thatcompensation was made.It wouldappear,however, tivesuggestion tradevolume,perhaps couldbe basedon an agreedand predetermined belowactualtradein recentyearsso as to avoid possible somewhat "overcompensation." forchangesin thetermsof tradewas conceivedby Compensation of gainsto the authorsof boththeproposedschemesas a retransfer to pricechangesof individual However,in contrast losingcountries. and can be where"gains"and "losses"are symmetrical commodities, thisdoes notholdforthetermsof trade. tracedforpairsof countries, incoverageandmethods fromdifferences results The asymmetry largely oftheindices,butalso fromtheleadsandlagsinvolved ofcomputation evenifit werepossibleto solvethese trade.Moreover, in international so as to equatetotalgainsand totallosses,thefactwould problems, 18 E/Conf.46/10(citedin Appendix, Scheme7).

19 A in coverageof made in the paper (ibid.,p. 31) foruniformity suggestion countries-eachcountry's thepriceindicesof primary exportpriceindex producing would be based on its six main exportproductsand all countrieswould use the same importprice index,based on pricesof manufactures only-thoughgreatly tendto exaggeratelosses. would admittedly procedures, simplifying

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remainthatlossesofone groupofcountries exporting products primary whileindustrial be offset countries, might spreading by gainsof others, theirimportsover a wide rangeof productsand sourcesof supply, wouldhavenogains. of theseasymmetries The financialimplications could be met by fundprovidedthroughcontributions not settingup a supplementary linkedto changesin termsof trade,as suggested in the UN study.20 Yet underthesecircumstances, to losingcountries could compensation be regarded ofgains;it would as a retransfer not,or couldonlypartly, be moreofthenatureof supplementing thoughon the exportreceipts, thana shortfall in exports. basisofa changeinpricesrather Thiswould theuse ofthetermsoftradeas thebasis;themain not,perse,preclude wouldarisefromtheperplexities mentioned above,including difficulty whichwouldmilitateagainstbasinga claim indexnumberproblems, solelyon changesin thetermsof trade. BothPrebischand Olano wereawareof thetechnical difficulties just to meetthemby confining Olano attempted mentioned. compensation to changesofmorethan10 percentandto makecompensation partial. thiswouldreducethescale of transfers, it wouldnot solve Although involved:determining whether thedeterioration thetechnical problems of the termsof tradeof a particular exceeded the crucial country theexcesswouldnotbe easierthandiag10 per centand measuring the magnitude of a deterioration nosingthe existenceand measuring fromanyotherstarting point. The proposalby Prebischdoes not call for compensation to be in a automatic;it would dependon the effectof the deterioration trade on its terms investment of rate of resources, country's growth, withaccounttakenof otherrelevant and balanceof payments, factors. in the termsof tradeper se wouldnot be a sufficient Deterioration a claim,andtherewouldbe no needforexact condition forestablishing of thedegreeof deterioration. measurement of compensatory Whiletheeffects to adjustforchangesin financing could also be achievedby way of pricesof individualcommodities thereis no close substitute forcompensation directpricesupport, for changesin thetermsof trade.It mightappear,at firstsight,thatsuch in a commodity-currency wouldhavea counterpart standcompensation ard,as repeatedly proposed,whichwould,through buyingand selling maintainthe priceof a "commodity composite"covering operations, some 20-25 primary products.Indeed,in periodsof a generaland of thetwodevices declinein commodity prices,theeffect widespread 20See E/Conf.46/10 (cited in Appendix, Scheme 7), p. 8.

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on any primary wouldbe muchthe same;21 but producing country ifpricesofprimary moved in different thuscausing directions, products littleor no changein theover-allpricelevel,no actionwouldbe taken underthecommodity and countries whoseexportpriceshad standard, declinedwouldfeelthewholeimpactof thedecline.Undera scheme forchangesin thetermsof trade,thesecountries could compensating receivean offsetting payment.Price supportfor individualproducts wouldprobablybe a closer a seriesof commodity through agreements standard. substitute thana commodity At present, fivecommodities-coffee, oliveoil, and wheat,sugar,22 tin-are coveredby suchagreements; together theyaccountforabout of totalexportreceipts(excludingthoseof petroleum)23 of one fifth of agreements If thenumber weretrebledand countries. thedeveloping includedwere thosewiththe highestvalue in the the commodities halfof the totalexportreceipts countries' trade,roughly developing ofthosecountries wouldbe covered.This couldgo a longwaytoward since totalexportpricesandthetermsoftrade,particularly maintaining Yet fluctuations. includethosewiththesharpest thecommodities price inconcluding the and failure involved thedifficulties agreements, frequent to maintain priceswithintheagreedrange,do notsuggestsuchagreeto compensation forchangesin the alternative mentsas a practicable termsoftrade. Schemes Covering Export Receipts to totalexportreceipts varywithrespectto their Proposalsreferring are Some for,or place main designedexclusively majorobjectives. but do not fluctuations, emphasison, the eveningout of short-run in thelongerrun.Othersare intended to raiseaveragereceipts attempt to supplement exportreceiptsover longerperiodsor to raise the ofprimary countries. level producing (long-run) ofexports forsupplementing devices Proposalsof thefirsttypeare essentially a country's reservesand otherliquidassetswhenexportreceiptsfall Shouldsucha shortfall shortofa certainagreedstandard. occur,credits 21 The fact that price supportunder a commoditystandardwould take no accountof changesin primaryproducers'importpricesis of minorsignificance. In view of the large share of manufactured goods in these imports,theirprices tend to move withinmuch narrowerlimitsthan those of primaryproducing countries' exports. 22The sugar agreement, thoughnominallyin existence,has been inoperative forseveralyears. 23 Petroleum sincetheir (and products)have beenexcludedfromthecomparison companies. pricesare controlledand keptstableby the exporting

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or subjectto additional wouldbe extendedeitherautomatically condishortperiod, wouldbe expectedwithina relatively tions.Repayment ideallyat the timewhenexportshad recoveredand wereexceeding loan variantof the theirtrendlevel. Threeschemes,the contingent denoted Insurance Fund (DIF) scheme, byitsauthorsas Development "DIF II," 24 OAS scheme,25 and the IMF Compensatory Financing Facility,26 belongin thisgroup. the U.K.Amongthe proposalsfocusingon longer-run problems, Swedishproposal27 would provideassistancein cases of protracted whereshort-term balanceofpayments would exportdifficulties, support DIF notbe adequate.Theoutright of version scheme the (DIF I) ,28 grant the loan variant mentioned would as an alternative to above, suggested combinebothshort-term Stillanother, assistance. rather and long-term different countries,29 proposal,basedon import guarantees byindustrial aims at raisingglobal exportsof low-incomeprimaryproducing countries tohigh-income industrial countries. EVENING OUT OF SHORT-RUN FLUCTUATIONS

Two of theseschemes, theOAS schemeand theloan variantof the DIF scheme,are similarin variousrespects.Underboth schemes, primaryexportingcountriesthat experiencean exportshortfallmeasuredagainsta standarddefinedas the averageof exportsin the threeimmediately entitled to preceding years-wouldbe automatically The one be would half compensation. compensation partial,covering or twothirdsof theshortfall. wouldfalldue whenever in Repayment thefollowing threeyearsexportsexceededthestandard; theproportion oftheexcessto be usedforrepayment wouldbe thesameas theproportionoftheshortfall UndertheOAS scheme, receivedin compensation. loansoutstanding afterthethirdyearwouldhaveto be repaiduncondiloans tionallyoverthenexttwoyears;underDIF II, theoutstanding wouldbe written offand converted into a grant.The OAS scheme forlimiting totaloutstandings to 20 percentofaverageexports provides in thethreeimmediately preceding years;theDIF schemehas no such limitation butsuggests thatno compensation be givenfor3-10 percent of any shortfall.30 24See Appendix (Scheme 25See Appendix (Scheme 26 See Appendix (Scheme 27See Appendix (Scheme 28See Appendix (Scheme 29See Appendix (Scheme

4). 5). 6). 9). 4). 10).

30 Limitingprovisionswould be necessaryunderany schemerequiringrepayin theeventof a sharpdeclinein exports ment,so as to avoidtoo heavyobligations

which was due to a natural disaster. It has rightlybeen pointed out that effectsof

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Underbothschemes,the resources requiredwouldbe providedby would be made by all settingup an ad hoc fund.Contributions or industrial. UndertheDIF countries, producing participating primary for would be all assistance; scheme, participants eligible compensatory theOAS schemewouldconfinesuchassistanceto primary producing to someagreed countries. Contributions wouldbe determined according basedon percaputincomeinthecontributing scale,presumably country, and thuswouldbe greaterforthosenot eligiblefor,or not likelyto beneficiaries. thanit wouldbe forprospective claim,compensation Sincecompensation wouldbe on a loanbasis-exceptforthewriting at leasttheoretioffofbalancesundertheDIF scheme-contributions, on a once-for-all would and be basis, exceptifenlargement large by cally, of thefundweredesired.Thoughthemethodof raisingcontributions to theiroperations, unrelated undertheseschemeswouldbe completely disbursements thesize ofthefundand thesize ofcompensatory would, and forpracticalpurposeswould of course,be mutually interdependent haveto be adjustedto eachother. The morelimitedfacility providedby the IMF offerscompensadifficulties of arisingfroman exportshortfall, financing payments tory and beyondthe character is of a short-term providedthattheshortfall is willingto thatthe country controland provided, further, country's to its in a solution where problem. payments cooperate, required, finding is normally underthisfacility amountof anydrawings The outstanding limitedto 25 per centof a country's quota in the IMF. Repurchase fromthe IMF, i.e., conditions are thesame as forordinary drawings withan outsidelimitof fiveyears. BoththeDIF and theOAS schemehave been subjectto extensive discussion and detailedanalysiswithinand outsidetheUnitedNations, theschemesas well as theproblemsinvolvedin operating examining to providecompensascheme theirfinancial designed Any implications. tionforexportshortfalls (ratherthanforpricechanges)is facedwith problemsarisingfromthefactthattheflowof exportsis not,or not oftheexporting outsidethesphereofinfluence Firstly, country. entirely, and thus to delayphysicalshipments it is possible,to a certainextent, to reduceexportsin any givenperiod.Secondly,and of voluntarily theflowofexportsdependsinteralia on monetary importance, greater factors andcommercial Although beyond bya country. policiesfollowed ofdemandforthecountry's a slackening ofa country-e.g., thecontrol of supplybecauseof naturaldisaster-are mainexportsor a shortage itis alsotruethatsuch offin exports, for a falling responsible frequently disasters cannot easily be covered withinthe frameworkof a stabilization scheme (see Hazelwood-cited in Appendix, Scheme 2-pp. 310-11); they require special treatment.

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own actionor inaction.The a decreasemayresultfroma country's if a shortfall shouldoccurmight compensation prospectof obtaining totakeremedial weakenincentives steps. inthewayofsuccessfully problem operating Perhapsthemostdifficult a schemeintended toevenout-through short-term lending-fluctuations in exportsarounda trendarisesin connection a standard withdefining formeasuring Such a standardhas to be definedin exportshortfalls. termsof a "trendvalue,"whichideallyshouldreflect in developments thenearfutureas well as in therecentpast.But sincein practicea trendvaluecan be basedon pastexperience cannot only,thedefinition do morethanaimatapproximating the"idealtrend value."31 The UN and theOAS groupsof experts, whichproposedthe DIF andtheOAS scheme,respectively, variousmethods afterconsidering of a standarddecidedin favorof the unweighted defining averageof inthepreceding threeyears.It hasbeendemonstrated, however, exports thatwhenthetrendis risinga standard basedon pastyearswilltendto or fail to indicate,shortfalls and will exaggerate understate, positive willbe overstated and if thetrendis downward, shortfalls deviations; favor (and excesses understated).This standardwould therefore countrieswitha decliningexporttrend,whichpresumably are the in greaterneed of assistance;on the otherhand,it would countries reducethechanceof repayments outof exportsin excessof trend.32 Statistical has shown that closerapproximation to an actual testing trendvalue-defined,forthispurpose,as themidpoint of a five-year thatincludesthe movingaverage-canbe achievedbyusinga formula current thanone basedon preceding Extensive yearrather yearsonly.33 testshave led the IMF to selectas its standardor "practicalnorm" a three-year average,whichincludesthe current yearwitha weight of 0.50 and the precedingtwo yearswithweightsof 0.25 each. Inclusionof the current yeartendsto reducethe computedshortfall, threeyears;givinga comparedwiththeresultbasedon thepreceding weightto the currentyear greaterthan the averageweightof the reduction. The tendency to showsome yearscausesa further preceding trendas a shortfall, and the riskthatrepayment partof a declining wouldnot,ornotfully, be madeoutofexcessexports, aremodified, but not eliminated. However,thisrisk,thoughperhapsless pronounced, wouldstillremainevenifit werepossibleto calculatetheactualtrend valuefrom whichthemeasure deviates. 31 For detailed analysisand discussionof this question,see Marcus Fleming, RudolfRhomberg,and LoretteBoissonneault, "ExportNormsand TheirRole in Compensatory Financing,"StaffPapers,Vol. X (1963), pp. 97-149. 32 UN ReportE/CN/13/43 (cited in Appendix,Scheme4). See also Fleming and others,op. cit.,p. 98. 33Flemingand others,op. cit.,pp. 106-7.

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The OAS and DIF schemesmakeprovisions forunpaidbalances. Undertheformer, suchbalanceshavetobe repaidunconditionally within twoyearsafterreceiptof compensation. UndertheDIF scheme,they would be writtenoffand convertedinto grants.Neitherprovision, in Unconditional however,has been foundsatisfactory. repayment in of could a those shortfall the country years aggravate problems coulddefeatthepurposeof thescheme.For yearsand,to thatextent, thisreason,the OAS schemeactuallyhad littleappealto prospective The provisions underthe DIF schemewouldobviatethis recipients. of problem,but theircost would necessitate periodicreplenishment of is not since the resources; moreover, timing exports entirely beyond balance would be a country's control,the chancethata remaining to shiftexportsfromthe written offwouldoffera strongincentive critical third tothefourth year. are UndertheIMF compensatory exportdeviations facility, financing measured norm"as developed bytheFund,suppleagainsta "practical ofthetrendvaluebasedon market mented analysisforthe byestimates conditions-the shortfall has Additional country's majorexportgoods. control and of the to be due to circumstances tempobeyond country's if required,mustbe willingto seek and the country, rarycharacter, thatthecountry someassurance meanstoremedy thesituation-provide without wouldbe ina position tomeetitsrepayments straining obligation itsresources. theproposals underthe IMF facility, In contrast to the provisions comunderboththeOAS and theDIF schemeprovideforautomatic that under of the being pensation exportshortfalls, onlyqualifications wouldnot be payableforsome small theDIF schemecompensation and undertheOAS schemetherewouldbe of theshortfall, proportion Muchhas been to 20 percentof exports. of compensation a limitation in recentyearsin favorof, and evenmoreagainst, said and written aimed at eveningout export in compensatory automatism financing The IMF has repeatedly fluctuations.34 expressedits oppositionto Sincetheflow automatism and has statedthereasonsforitsattitude.35 own of its not of a country's is actions, independent attaching exports to any exportshortfall claimforcompensation an automatic appears of a practicalstandard, unreasonable. Moreover,the shortcomings however chosen,also militate Apartfrom againstautomatism. carefully a base or an a downward either thebias introduced trend, upward by which abnormal a include few a of might highly year period yearsmight UN ReportE/CN/13/56 (cited in Appendix,Scheme4). "Fund Policiesand Proceduresin Relationto theCompensatory Financingof CommodityFluctuations,"StafiPapers,Vol. VIII (1960), pp. 20 ff.;also IMF report(citedin Appendix,Scheme6). 34 35

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the deviationto be measured.Under such overstateor understate to base a claimforcompensation itwouldbe undesirable or conditions, a repayment resultof suchmeasurement, on themechanical obligation whenactuallythe shortfall indicatedwas a returnto normalaftera suddenincrease,or theexcesswas notmorethanrecovery to normal aftera severedecline.Neitherof thesepossibleshortcomings can be however,by making entirelyovercome.They may be mitigated, ratherthanautomatic; thiswould compensatory financing discretionary of statistical determination a shortfall to be supplemented permit by ofitsnatureandat leastsomescrutiny ofitscause. qualitative judgment The reasonsin favorof makingcompensation undertheseschemes nonautomatic also commend rather than of full,compensation partial, for in shortfalls as both OAS DIF the and the export actuallyprovided proposal. The proposedschemes, as wellas theIMF facility, havebeensubject to different to measureand comparetheireffects. The tests,intended IMF staff has developedtheconceptof the"deviation ratio,"designed to measuretheextentto whichcompensatory undera paroperations 36 from ticularschemewouldhave reduceddeviations of availabilities trend(defined as thefive-year moving averageofexports).Theseratios, corrected and no repayment so as to excludeyearswithno shortfall underanyofthevariants indicated thatthesmoothing effect obligations, examinedwouldhavebeenquitesmall.37 Similarresultswereobtained whenthe same methodwas appliedto hypothetical of the operations IMF facility:as shownin thelast line of Table 2, the facility in its to25 percentof (present) form, present limiting drawings compensatory fromtrendbyabout14 percent. quotas,wouldhavereduceddeviations In interpreting theseratherlow figures, accounthas to be takenof the factthattheymeasurenot onlythe inherent operational shortcomings of theschemes, suchas nonautomatic in yearsof shortfall, repayments butalso theimperfections of any"ex ante"standard in approximating deviations fromthe"true"trendvalue.As pointedoutbytheIMF staff, thelow percentage reduction of exportdeviations shouldnotbe taken toindicate theextent to whicha compensation schemerelievesthehardsincethedetrimental influence offluctuations shipcausedbyfluctuations, variesmorethanin proportion to theirsize.Moreover, whena shortfall fromtrendreflects in the rate of increaseof exports acceleration 38 are definedas receiptsfromexportsplus compensation 6' Availabilities or minus of previouscompensatory loans. repayments 87 See Flemingand others, op. cit.,pp. 132ff. 88A (five-year) wheneverexports movingaveragewillindicateexportshortfalls riseat a constantor increasing rate.

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TABLE 2. RESULTS OF HYPOTHETICAL

OPERATIONS OF DIF

DIF Loan Scheme 1. Standardof measurement 2. Period covered

<

OAS Scheme

1951-61

none

of shortfall7 (billion

8. Compensation as per cent of shortfalls 9. Reduction of deviations from trend

>

1954-64

20% of exports

4. Compensationratio4 75% 5 5. Repaymentratio6 75% 5 6. Cumulativeshortfalls 6.27 (billiondollars) 7. Net compensation in years dollars)

SCHEMES AND OF T

Averageofprecedingthreeyears

1953-61

3. Limit3

AND OAS

48 PRIMARY PRODUCINGCOUNTRIES

67% 67%

5.26

2.65

2.40

36

45

14%

18%

3.67

7.26

59 ...

Sources: DIF, adapted fromUN ReportE/CN/13/56 (cited in Appendix,Scheme 4 of Annex 3; OAS and IMF, computedby IMF staff. lThe computations relatingto the IMF facilityare based on the assumptionthat drawingsto thefullextentof any shortfallof currentexportsfromthe weightedaverageof precedingyearsup to a limitof 25 per centof presentquotas on outstanding drawings.Two exportsabove the weightedaverage is assumedto be applied to the repaymentof outsta after are to in the four three assumed be in outstanding equal installments years repaid 2 The weightsapplied are 0.50 for the currentyear and 0.25 for each of the two pr 3 4

Limit on total compensation outstanding.

Proportionof estimatedshortfallscompensated.

5 Afterdeducting2.5 per cent of shortfall.

6 Proportion of excess of exportsabove the standardof 7

measurementused for repaym

That is, compensation minus repayments in shortfall years.

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rather thana decline,failureof an "ex ante"formula to indicatesucha shortfall wouldrarely on thecountry havean adverseeffect concerned.39 of suchundetected and uncompensated Yet,thecomparative frequency shortfalls fromtrendin theperiod (some45 percentoftotalshortfalls effectof compensatory 1954-62) is boundto reducethe smoothing on deviations fromtrendand therefore is partlyresponsible operations forthelowvaluesobtained. A different measure-theratio of net compensation receivedin shortfall minusrepayments in suchyears)to years(i.e., compensation cumulative as determined standardadopted shortfalls, bytheparticular -has beenused by theUN Working a number Party40 in examining ofDIF andOAS variants. Thisratiohasbeenrecomputed foroperations of an OAS schemein a morerecentperiodas wellas foroperations of theIMF facility (see line8, Table2); itdoesprovidea roughindication ofthedegreeofassistance thatthe"averageprimary producing country" wouldhavereceivedin yearsof shortfall standard fromtheparticular thestandarditself.Here theunderapplied,without, however, testing is thata country's need for compensation arises lyingconsideration when fall short of those in the recent not primarily exports past, taking into accountwhethersuch shortfall indicatesa deviationfromor a declineofthetrend.Thustheratiosshownmayoverstate "net"benefits derived sincetheyfailtoindicate caused countries, byrecipient hardships infuture shortfall byrepayment obligations years. Neitherofthetwomethods givesa fullysatisfactory appraisalof the oftheschemesexamined. effects The first, thedegree though indicating to whichfluctuations aroundtrend(as defined)would have been understates thebenefits to recipients of compensareduced,admittedly thesebenefits and failsto indicate tion;thesecondtendsto overstate of the schemesin eveningout fluctuations. the effectiveness Thereis no fullysatisfactory method oftesting a schemein all respects; probably the resultschangeaccordingto the testingperiodchosen. moreover, of compensatory The effect loans on the ultimate objective,which is to enablea country to maintainits development can be program, discussedonlyin broadterms. Whether in anyparticular case an export wouldactually shortfall continuation ofthecountry's endanger program, and whether would and shouldbe used forthe compensatory receipts the program, cannotbe determined in specificpurposeof supporting vacuo.The authorsof theproposedDIF scheme,whendiscussing the utilization of compensatory it advisablethatin the considered receipts, 39 This is probablytruein mostinstancesalthoughdifficulties may arise,under certainconditions, because of a delayin an expectedupturnof exports. 40 UN ReportE/CN/13/56 (citedin Appendix,Scheme4), Table 1, p. 23 and Table 4 of Annex3.

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of the less developedcountries the receiptsshouldbe used majority 41 buttheydid not largelyto financedirectly projectsof development; on the itpracticable or advisableto imposedetailedconditions consider received.42 useto be madeofcompensation of the subject,the pointhas been made In subsequent discussions thatcompensation wouldaccrueto the government whilethe export thewarning shortfall wouldreducetheincomesof individual exporters; for wasgiventhatthegovernment shouldnotuse theadditional revenue in a projectwhichcould not be carriedon whenexports investment and receiptsaccruedagainto individuals. wererestoredsubsequently doesnotappearto be likely.In mostprimary suchinvestment However, revenueis a considerable countries, portionof government producing revenuemaydo no derivedfromtheexportsector,and compensatory morethanoffset a loss. Thereare manypossibleuses foradditional in demandand in prices weredue to a reduction revenue;ifa shortfall thegovernment forthecountry's mainexportproduct, mightengagein thusassisting somestockpiling, and,whendemandrecovered, producers, and repaythecompensatory disposeof its stocks,possiblyat a profit, oneofmanywaysin whichcompensation loan.Butthisis merely might wouldbe thatthe be used; the onlyrule thatcould be established of a loan in such forlaterrepayment mustmakeprovision government would not be a way thatthe benefitsderivedfromcompensation endangered. SUSTAININGEXPORTSIN THE LONGERRUN

The threeproposalscovering considerably problemsdiffer long-run in bothscope and approach.The U.K.-Swedish proposalforsuppleto theUNCTAD,43was intended submitted financial measures, mentary theIMF facility to supplement by dealingwithproblemsarisingfrom whichcouldnot of a natureand duration adverseexportdevelopments balanceof payments be dealtwithadequatelyby short-term support. on a selectivebasis,was visualizedeitherwhenthe IMF Assistance, or whenan additional was temporary thattheshortfall was notsatisfied had beenexhausted. aftertheIMF facility occurred shortfall Moreover, soft-loan on a long-term weredelayed, ofexports ifrecovery refinancing wouldbe eligible countries basis wouldbe provided.Onlydeveloping forassistance. 41 See International forFluctuationsin CommodityTrade (cited Compensation in Appendix,Scheme4), pp. 52 ff. 42 This attitude has been criticized Compensaby RobertM. Stern,"International Journalof Economics, in Commodity tionforFluctuations Trade,"The Quarterly Vol. LXXVII (1963), p. 258. 43 See Appendix, Scheme9.

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The proposaldispensedwitha statistical formulato determine an and suggested therather flexible conceptof "reasonable exportshortfall In viewoftheultimate aim,whichwas to prevent disrupexpectations." tionof development it to measure programs, appearedmoresignificant fromexpectations a shortfall rather thanfroma trend, however defined. Reasonableexpectations wouldbe in thenatureof a realistic forecast, A shortfall relatedto development concerned. of thecountry planning ofexports fromexpectations a primafaciecase butnot wouldestablish a claimforassistance;a finaldecisionwoulddependon a varietyof factors(suchas theexistence of a repayment forcompensaobligation tionreceivedearlier)relevant in forappraising theneedforassistance ordertoavoiddisruption ofthecountry's development program. The International and Development Bank for Reconstruction of the UNCTAD, has undertaken to study (IBRD), upon invitation thefeasibility of a schemealongthelinessuggested; examination ofthe is nowunderway. proposalandofitsfinancial implications TheDIF I scheme44 is basedexclusively on grants andwouldcombine forexportshortfalls withlonger-run It has all assistance. compensation thefeatures of thecontingent loan variant(DIF II), describedabove, takestheformof an outright exceptthatcompensatory financing grant; extendedto a country wouldimmediately becomethe compensation of subsequent As country's property, irrespective exportdevelopments. a result, overtimewouldtendto be higher thanifthere averagereceipts wereno suchschemeof assistance. The problems arisingfromthefactthatexportsare notindependent of exporting countries' actionwouldbe evenmorepronounced fora schemeproviding forgrants thanforschemesbasedon loans.Sinceno wouldbe required, therestraining influence of a repayment repayment wouldbe missing, andtheincentive to "manipulate" or obligation exports to delaypoliciestowardtheirexpansionwouldbe sustained.On the otherhand,thechoiceof a standardwouldnothave theimplications thatarisein connection withthetiming of repayments An obligations. of shortfalls overstatement and understatement of excessreceiptswhen the trendwas declining wouldnot interfere withthe purposeof the itwouldraiseitscost.45 scheme, though The mainobjectionto theDIF I schemearises,however, fromthe and long-run assistance. The main wayin whichit combinesshort-run 44See Appendix,Scheme4. 45A hypothetical applicationof the DIF schemes,coveringthe years 1953-61, appliedto primaryproducingcountriesonly,and providing50 per centcompensation afterdeductionof 5 per cent of the shortfall, has indicateda total cost of $2.7 billionunderthe grantvariant,comparedwith$1.3 billionunderthe conloan variant.See UN ReportE/CN/13/56(citedin Appendix,Scheme4), tingent Table 1, p. 23.

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withsharpexport underthe schemewouldbe countries beneficiaries whilethosewitha sluggish, even,trendwould fluctuations, though fairly whoseexnotbe eligible.46 Thereis no reasontobelievethatthecountry would also trend most around the the fluctuations show pronounced ports over time. be theoneingreatest needofhigher averagereceipts The thirdproposalforsustaining exportsin thelongerrunis of a different nature:basedon import rather (or, guarantees bytheindustrial it aims at maintaining the developed)countries, moreprecisely, the countries level of exportsof all primary producing(or developing) takentogetherratherthanthoseof individualcountries.47The proposal,

submitted by the IndianDelegationto the UNCTAD, was thateach undertake to maintainand increase the obligation developedcountry countries the value of from the as its total gradually developing imports a group.Shouldimports fall of in anyparticular short a country's year "quota,"thatcountrywouldmake a compensatory payment.These wouldbe usedto makeloansor toextendgrants to developing payments countries thathadexperienced shortfalls. export No priorsetting andno contributions up ofa fundwouldbe required, otherthanthoseaccruingautomatically in the formof compensation and forming an integralpartof the operations of the schemeitself. toexporting Disbursements couldnotbe made,however, countries on an automatic basis. Sincetheobligation ofimporting to maintain countries at a certainlevelrelatesto purchases fromdeveloping countries imports as a group,theschemewouldnotguarantee thatpurchasesfrom(or exportsof) each of the developingcountrieswould be maintained; ifany,might wellbe smallerthantotal(gross) compensation payments, ofindividual shortfalls countries.48 The factthatcountries whichundertook wouldbe import obligations abletocontrol, tosomeextent, thesizeandoriginoftheirimports would ratherthanthwart theobjective ofthescheme;maintenance or support in orderto avoid expansionof importsby the developedcountries wouldactuallybe of greaterassistanceto the payments compensatory countries thancompensation. developing The standard underan import schemewouldbe expressed guarantee in termsof a "target" forgradualexpansionof imports from providing 46 The maldistribution of aid whichwould resultundera schemeof this type has beenpointedout by BorisC. Swerling, "FinancialAlternatives to International CommodityStabilization,"The Canadian Journalof Economics and Political Science,Vol. 30 (1964), p. 534. 47See Appendix,Scheme10. 48It is also conceivable,thoughnot likely,that paymentsby importersin a yearwouldexceedtotalgrossshortfalls. particular

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it wouldnotinvolveestimating or forecasting thedeveloping countries; a trend.The proposalvisualizeda standardbased on importsin a certain(recent)period,escalatedbyan agreedrateofminimum growth, fortheUN Development keepingin viewpasttrendsand theprospects Decade.Ifdesired, theratemight be reviewed periodically. to underProvidedthatthedevelopedcountries wereat all prepared the choice takeobligations to maintainand to escalatetheirimports, ofa baseperiodshouldnotbe difficult. The logicalstarting pointwould be thevalueof imports in a veryrecentperiod,say theaverageof the lastthreeyears.The mainproblemwouldprobablyarisewithrespect to the rate of increasethatimporting countries mightbe willingto Boththerateofgrowth andthebase periodcouldvaryfrom guarantee. a to country. a waivermightbe required, Moreover, relieving country countryfromits payments obligationin the eventthatbalance of in imports. difficulties necessitated a temporary reduction payments In appraising themerits of an importguarantee scheme,twoaspects on globalexportsof the have to be takeninto account-itseffects countries and thoseon theexportsof an individual country. developing In respectof thefirstaspect,one greatadvantage of theschemelies in thefactthatitspurposewouldbe servedwhether or notcompensatory wouldbe likely effects contributions wereforthcoming. The beneficial to taketheformof steadierand expanding markets ratherthancomsuch payments actually pensatory payments importers; by defaulting countries wouldfind mightbe expectedto be quitesmall.Importing it to theiradvantage since to makeall efforts to meettheirobligations, failureto do so wouldnot (or not appreciably were if compensation well include the reduce their efforts Such partial) expenditure. might of tariff and the other which barriers lowering hamper expansionof trade.Moreover, someof theimporting couldbe expectedto countries exceedthe"guaranteed" fromthe importquota;hence,globalimports of the countries would than the sum tend to be developing greater individual import quotas. In respectof thesecondaspect,effects on theexportsof individual that theschemewouldoffer butnota guarantee an opportunity countries, automatic wouldgrowor evenbe maintained; norwouldit offer exports in theeventthatexportsdeclined.As mentioned above compensation not be sufficient to contributions would almostcertainly (p. 212), allow disbursements to all exporting countriesexperiencing export This is not an unsoundfeatureof the scheme;insofaras shortfalls. suchshortfalls the country mightresultfromlack of competitiveness,

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214 INTERNATIONAL MONETARY FUND STAFF PAPERS or countriesin questionwould have to adopt appropriate policies. offin demand of supplyor a falling However,iftherewerea shortage fromeithertheresources fora particular assistance country's products, accruedundertheschemeorsomeothersourcewouldbe required.

Choice AmongVarious Schemes COMPENSATING FOR PRICE VS. EXPORT DECLINES

forpricechangesversusthat In a briefdiscussion of compensation for exportshortfalls, Meade pointedto one obviousadvantageof forthelatter:it wouldcoverdeclinesin volumeas well compensation oftransfers On theotherhand,theadministration as inpricesofexports. it foroffsetting pricechangeswouldbe simplerand easier;moreover, to of individual an for would not be country possible policies normally "togain affect theworldpricein a waywhichwouldenablethatcountry hold true with would not This from the respect arrangement." improperly be morereadyto a country to compensation forexportshortfalls; might in a declineifitknewthatthedeclinewouldbe adoptpoliciesresulting compensated.49 automatically for Thereis stillanotheraspectwhichmightfavorcompensation on latter for declines. the than rather Basingcompensation export, price, of whichhavesucceeded in offsetting theeffects wouldpenalizecountries of volume.50 In some their declines cases, expansion export through price the expansionmightnot appreciablyaffectresourcesavailablefor domesticuse; in others,however,it would entail a reductionof If compensation werelinkedto pricechanges, domesticconsumption. of exportswouldbenefit if it thecountry; an increasein thequantity theincentive a pricechange to offset wereappliedto exportshortfalls, thevolumewouldbe reduced. byraising for These considerations that,on balance,compensation suggested for was if than declines rather preferable-particularly export, price, weredesired.Yet the two measuresare not automaticcompensation ofpricecompenoutbyMeade,a network exclusive:as pointed mutually to cover andcounsationagreements, gradually manyproducts expanded witha generalschemeforcompensatory tries,couldideallybe combined it If bothmeasureswerein operation, of exportshortfalls. financing twiceforthesame in orderto avoidcompensating wouldbe necessary, thata country transfers to takeaccountofcompensatory claiming thing, 49 50

See Meade (cited in Appendix, Scheme 8), pp. 15 ff. This point was repeatedlymade in discussions on compensatoryfinancing.

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wouldhave had receivedor made.Suchtransfers exportcompensation to be added to (or subtracted from)exportreceiptsin all relevant wascomputed. theshortfall yearsbefore forexportshortfalls wouldbe A close substitute forcompensation forchangesin globalexportpricesor in the termsof compensation trade.It wouldmeetsomeof theobjectionsraisedagainstautomatic forexportshortfalls andwouldhavethemeritofcovering compensation commodities. Yet globalexportpricesratherthanthoseof individual thetermsoftradewouldnotbe a suitable basisforautomatic compensaofdefining difficulties andmeasuring tion,inviewofthetechnical changes inthem. SCHEMES RELATED TO EXPORT RECEIPTS

In regardto schemesthatare aimedat eveningout fluctuations in exportreceipts,we may recall the seriousobjectionsto automatic for shortfalls whichare determined compensation by a mechanical formula and whichmaynotbe independent of a country's ownaction. The IMF compensatory the obviates facility problemsarisingfrom automatic accessto resources.It does,however, involvetheriskthat fall due at a time a when repayment may country's exports(and general thanat thetimeof thedrawing. position)are less favorable payments The DIF I scheme,whichwouldcombineshort-run and long-run on a muchmoreambitious assistance as a scale,cannotbe considered suitablealternative, evenifthemuchhigher costweredisregarded. The need forshort-term basis forextending supportis not a satisfactory automatic aid. longer-term The importguaranteeschemewouldnot increasereceiptsfor any no matter whatchangemighthaveoccurred in that particular country, or it exports prices; wouldprimarily country's providea guaranteed butforthe market, thoughagainnotforanyspecialproductor country of countries as a whole. This is products primary producing appealing, the moreso as the successof the schemewouldnot be impairedif countries wereto take stepsto increasetheirimports from importing countries rather than to Whatever primary producing paycompensation. were receivedunderthe schemecould be appliedto compensation countries affected assist,on a selectivebasis,exporting by exportor the schemewouldprobablypermitdisbursepricedeclines.Although mentson a smallscaleonly,theguarantee ofsteadily markets expanding devices proposedfor appears superiorto the othercompensatory theexport ofprimary countries. receipts increasing producing

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APPENDIX Main Featuresand Statusof ProposalsforCompensatory Financing, Presented inChronological Order 1. A MUTUAL INSURANCESCHEME, by F. G. Olano, member of group of

of the United Nations. See experts appointed by Secretary-General CommodityTrade and EconomicDevelopment(UnitedNations,1953, Sales No.: 1954.II. B.1), AppendixD. Coverage:termsof trade. Basis for compensation: changein termsof tradeby 10 per centor more from"just"or "fair"levelas agreedbyparticipants. Form of compensation:automatic;nonreimbursable fromcountransfers trieswhosetermsof tradehave improvedto thosewhosetermsof tradehave to be channeledthrough fundto be administered deteriorated; by international to be partial,i.e., not exceedtwo thirdsof the "gain" agency.Compensation or "loss." all countries. Potentialrecipients: Source of funds:contributions (compensationpaid) by countrieswhose termsof tradehave improved;additionalcontributions visualizedin orderto cover"losses"notmatchedby"gains." Status: group of expertsas a whole examinedbut did not supportthe involved;not further proposal,mainlybecause of the technicaldifficulties considered.

2. INTERGOVERNMENTAL COMPENSATION AGREEMENTS, by Arthur Hazelwood.

See "Stabilizationand Development:A Proposal,"Kyklos,Vol. XII (1959), pp. 307-15. Coverage:pricesof individualcommodities. Basis forcompensation: declineof pricesto less thanagreedflooror increase beyondagreedceiling. Form of compensation: transfers fromimportautomatic;nonreimbursable ing to exporting countryif pricesdeclined,and vice versaif pricesincreased, beyondagreedlimits. Potentialrecipientsor contributors: under the any countryparticipating conditions describedabove.

3. THE PRINCIPLE OF COMPENSATIONAS AN ALTERNATIVE, by R. F. Kahn.

Brieflyoutlinedin "MultilateralOptions for Sugar," Appendix C to an documentof the International unpublished SugarCouncil (November1959). Coverage:priceofindividualcommodity (sugar). Basis forcompensation: declineof priceto lessthanagreedflooror increase beyondagreedceiling. Form of compensation: fromimporttransfers automatic;nonreimbursable ing to exporting countryif pricedeclined,and vice versa if price increased, beyondagreedlimits. under the Potentialrecipientsor contributors: any countryparticipating conditionsdescribedabove.

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INSURANCE FUND (DIF), by (second) group of experts 4. DEVELOPMENT of the United Nations. See International appointedby Secretary-General CompensationforFluctuationsin CommodityTrade (UnitedNations,1961, Sales No.: 61. II.D.3). Coverage:merchandise exports. Basis for compensation:shortfallof exportsmeasuredagainst average threeyears. exportsin preceding Form of compensation:automatic;contingent loans (DIF II) or outright grants(DIF I); compensation partial,between50 per cent and 75 per cent of shortfall. Limitations shortfalls of less thansome agreedminimum of compensation: (3 per centto 10 per cent) not to be compensated;similarpercentageto be deductedbeforecomputingcompensation if shortfallexceedsthe minimum. loans to be repaidwheneverin followRepaymentterm:DIF II contingent ing threeyears exportsexceed the averageof those in the precedingthree shouldequal the proyears;proportionof excessto be used for repayment portionof shortfallcompensated;balance remainingafterthreeyearsto be converted intogrant. Potentialrecipients:DIF II-all countries;DIF I-may be confinedto primary producing(low-income)countries. Sourceof funds:contributions on the basis of theirexport by all countries, tradeor,preferably, of theirpercaputnationalincome. Status:submitted to NinthSessionof UN Committee on International Comon requestby CICT, the UN SecremodityTrade (CICT); subsequently, tariat prepared two studies, "Considerationof CompensatoryFinancial Measuresto OffsetFluctuationsin the ExportIncomeof PrimaryProducing Countries" (United Nations, 1962, E/CN/13/43) and "A Development InsuranceFund for Single Commodities"(United Nations, 1962, E/CN/ 13/45). Discussionof thesestudiesat theTenthSessionof CICT led to the appointmentof a Technical WorkingGroup, asked to examine the DIF proposal(as well as an additionalproposalby an expertgroupappointedby theOrganization of AmericanStates),and takeintoaccountassistancewhich the InternationalMonetaryFund could provide. The Technical Working Financial Measures to OffsetFluctuations Group's Report,"Compensatory in the Export Income of PrimaryProducingCountries"(United Nations, January1963, E/CN/13/56), analyzedmanypossiblevariantsof the DIF DraftArticlesof Agreement, without,howproposaland preparedillustrative to ever,commending anyversionof theproposal. The Reportwas submitted the EleventhSession of CICT in May 1963; furtherconsiderationwas of a new Fund facilityhad been deferred,however,untilthe effectiveness tested(see Scheme6, below). Adaptationof a DIF proposal,to be applied in the studypreparedby the was foundimpracticable to singlecommodities, UN Secretariat and was not further considered. OF EXPORT RECEIPTS, by group of experts appointed by the 5. STABILIZATION

Organizationof AmericanStates(OAS). See Final Reportof the Group of OAS, WashExpertson theStabilizationof ExportReceipts(mimeographed, ington,Doc. 59, Rev. 4, April2, 1962) and ProposedArticlesof Agreement Fund forStabilization of theInternational of ExportReceipts(mimeographed, Doc. 64, Rev. 4, April3, 1962). OAS, Washington, Coverage:merchandise exports.

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Basis for compensation:shortfallof exportsmeasuredagainstaverageof exportsin threeimmediately years. preceding Form of compensation:automatic;fullyrepayableloans; compensation partial,twothirdsof shortfall. limitedto 20 per Limitationsof compensation:total loans outstanding centof thecountry's exports. Repaymentterms: repaymentdue whenever,in followingthree years, exportsexceededthe averageof threeprecedingyears;two thirdsof excess to be used forrepayment; afterthreeyearsto be repaidin balanceremaining overthenexttwoyears. equal installments Potentialrecipients:countriesdescribedin Reportas "CategoryA" councountries. low-income tries,i.e.,essentially primary-producing Source of funds: contributions by all countries,the greaterpart provided i.e., high-income by countriesdescribedin Reportas "CategoryB" countries, countries. Status: theproposalwas made availableto theTenthSessionof CICT and was examined,togetherwiththe DIF proposal,by the TechnicalWorking established(see "status"underScheme4, above). The Group subsequently of this Group werelargelybased on extensiveanalysis,by the staff findings of the International MonetaryFund, of a large numberof variantsof the was expressedfor certainvariants, originalOAS scheme;thoughpreference none of themwas commendedto the CICT. The EleventhSessionof CICT of the Fund facilityhad deferredfurther consideration untilthe effectiveness been tested(see Scheme 6, below). Discussionswere also held withinthe of theOAS withoutleadingto a finaldecision.Thoughvisualized framework on a world-wide basis,theproposalprovidedthat,in the eventof difficulties of a or undue delay, considerationshould be given to the establishment regionalscheme. FACILITYof the InternationalMonetaryFund. See Com6. COMPENSATORY pensatoryFinancingof ExportFluctuations(InternationalMonetaryFund, February1963). Washington, exports. Coverage:merchandise underpresentpracBasis for compensation:exportshortfalldetermined, tices, on the basis of weightedaverage of exportsin three latest years (includingthe currentyear), in conjunctionwith qualitativeappraisal of prospective exportdevelopments. Form of compensation:nonautomatic;fullyrepayableloans (compensatorydrawings). characterand mustbe of short-term Conditionsof compensation:shortfall to circumstances beyondthe controlof the IMF member; largelyattributable to find,where membermustbe willingto cooperatewiththeFund in an effort solutionsforits balance of paymentsdifficulties. required,appropriate Limitationsof compensation:amountof compensatory drawingwill not exceed25 percentof themember'squota. normally Repaymentterms: compensatorydrawingsare subject to the Fund's establishedpoliciesand practiceson repurchase.Accordingto the principles laid down by the ExecutiveBoard,the periodinvolvedshouldnormallyfall withinan outsiderangeof threeto fiveyears. Prospectiverecipients:all membersof the Fund, particularlyprimary exportingcountries.

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Status: the compensatory facilityhas been in forcesinceit was announced in February1963. Note: the UN Conferenceon Trade and Development (UNCTAD) membersof the International "thatGovernments adopteda recommendation MonetaryFund studythe followingmeasures: (1) To increase,as soon as over financing possible,the amountallocatedby the Fund to compensatory from25 per cent to 50 per cent of a and above its currenttransactions, creditsentirelyoutside membercountry'squota; (2) To place compensatory the structureof the successive gold and credit tranches . . .; (3) To explore

ways to secure possible refinancingof compensatoryfinancingobligations. .. ." Moreover, the Fund was requested to give greater weight,in its

determination of an exportshortfall,to the actual experienceof the three precedingyears. See Final Act of the UnitedNations Conferenceon Trade and Development(mimeographed, E/Conf.46/L.28,June16, 1964), Annex A.IV.17, p. 110. 7.

COMPENSATORY FINANCING TO COUNTER THE EFFECTS OF DETERIORATION IN THE TERMS OF TRADE, presented to the UN Conference on Trade and

of the ConDevelopment(UNCTAD) by Raul Prebisch,Secretary-General ference. See Report by the Secretary-General of the UN Conferenceon Trade and Development,Toward a New Trade Policy for Development (mimeographed, E/Conf.46/3,February 12, 1964), Chapter III, Part A, pp. 97-104. wouldbe made fromdevelopedcountries transfers "gaining" Compensatory in theirtermsof tradeto developingcountries"losing" throughimprovement in theirtermsof trade. In additionto such transfers, throughdeterioration for past losses is proposedin orderto restorethe purchasing compensation countries. powerof exportsof developing Coverage:termsof trade. Basis forcompensation:deterioration in thetermsof trade. Form of compensation:nonautomatic;nonreimbursable transfers subject to examinationof relevantcircumstances, such as impacton balance of paymentsor thecountry's rateof growth. Potentialrecipients:developingcountriesaffected in their by deterioration termsof trade. Source of funds: contributions by developingcountrieswhose termsof tradehave improved;to be supplemented in order by additionalcontributions to cover"losses"notmatchedby "gains." Status: expectedto be subjectto studyand discussionto be organizedas recommendedby the UNCTAD. See Final Act of the United Nations E/Conf. 46/L.28, Conferenceon Trade and Development(mimeographed, June16, 1964), AnnexA.IV.18, Part B, p. 113. and technicalquestionshave been examinedin some Note: methodological detailin a separatepaperpreparedby the UN Secretariat.See International CompensatoryFinancingof the Effectsof Changes in Terms of Trade March23, 1964). E/Conf.46/10, (mimeographed, 8. PRICE COMPENSATION AGREEMENTS, presented to the UN Conference on

Trade and Development(UNCTAD) by J. E. Meade. See International March 24, E/Conf.46/P/l/Rev.1, CommodityAgreements(mimeographed, 1964), ChapterIII.

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and importing transfers betweencountriesexporting primary Compensatory undercomcommodities are suggestedas an alternative to pricestabilization modityagreements. Coverage:pricesof individualcommodities. Basis for compensation:decline of prices to less than agreed floor or increasebeyondagreedceiling. Formof compensation:automatic;nonreimbursable fromimporttransfers ing to exportingcountryif pricesdecline,and vice versa if pricesincrease, maybe fullor partial. beyondagreedlimits.Compensation under countries Potentialrecipients or contributors: anyof theparticipating theconditions describedabove. Status: mightbe includedwithotherproposals,in prospectivestudyand discussionsto be organized as recommendedby the UNCTAD. See Final Act of the United Nations Conferenceon Trade and Development E/Conf. 46/L.28, June16, 1964), AnnexA.IV.18, Part B, (mimeographed, p. 113. 9. SUPPLEMENTARYFINANCIALMEASURES,presented in general outline, orally

and in writing, by the Delegationsof the UnitedKingdomand Swedenas a formal recommendation to UN Conferenceon Trade and Development (UNCTAD), May 1964. The schemewould normallybe applicableaftera countryhad had recourseto the InternationalMonetaryFund under its facility(describedabove under6). compensatory Coverage:exports. Basis for compensation:exportshortfallfrom"reasonableexpectations." loans on concessionaland flexible Form of compensation:nonautomatic; terms,subjectto prior examination(under the InternationalDevelopment Association)of all relevanteconomiccircumstances. Conditionsof compensation:not yetclearlystated;the followingcircumstanceswerementionedto illustrate primafaciecases forassistance: "(i) If financfollowingan IMF drawingin one yearunderits specialcompensatory below reasonableexpectationsin the ing facility,exportsfall significantly second or thirdyear. (ii) If when IMF drawingswere due to be repaid forthisto be possiblewithoutdisrupexportshad not recoveredsufficiently in exportswhich shortfall tionof development.(iii) If therewerea significant natureand the IMF adjudgedat the outsetto be otherthanof a short-term for it to providetemthe IMF had decidedthatit would be inappropriate support." porarybalanceofpayments terms:notgenerally predetermined. Repayment countries Potentialrecipients:developing only. shouldbe in the formof additionalcomSource of funds: Contributions mitments Developby all majorPartI membercountriesof theInternational mentAssociation(IDA), i.e.,bydevelopedcountries only. Status: the Conferencerecommendedthat the InternationalBank for and Development(IBRD) be invitedto studythe feasibility Reconstruction to workit out. A studyby the IBRD of such a scheme,and, if appropriate, is underway.

10. IMPORT GUARANTEESCHEME, proposed by Delegation of India to UN Con-

ferenceon Trade and Development(UNCTAD). Suggestedin formof broad

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of Conference.See Reportof theFirstCommittee outlineto FirstCommittee June5, 1964), AnnexB, p. 2. E/Conf.46/131, (mimeographed, Every developedcountryshould undertaketo importnot less than an as a group. countries agreedannual"quota"fromall developing developedcountry Compensationpayments:to be made by participating in a particular if,and to theextentthat,its importsfromdevelopingcountries yearhavefallenshortof itsquota. Form of compensation:automatic;nonreimbursable transfer;contingent loans or grantssubject to examinationof circumstances(disbursements limitedbyfundsavailablethrough payments). compensatory Potentialrecipients:developingcountriesexperiencing exportshortfalls. Status: mightbe included,withotherproposals,in prospectivestudyand to be organizedas recommended discussions by theUNCTAD. See Final Act of the United Nations Conferenceon Trade and Development(mimeographed,E/Conf.46/L.28,June16, 1964), AnnexA.IV.18, Part B, p. 113.

Etude et evaluationdes methodesproposees de financement compensatoire Resume de financement Au coursdes dernieres annees,diversespropositions ontete avancees,et le Fonds des deficits d'exportation compensatoire de compensation a creeen 1963 sonmecanisme international monetaire auxtransferts etesuggere recours le dansce domaine.Il a egalement que dans les accords le des soutien prix remplacer pourrait compensatoires de l'O.N.U. de base.La Conference relatifs aux produits internationaux surle commerce a donnede nouvelles et le developpement propositions commeun le financement etl'onen estvenua considerer compensatoire a courtet a longterme. moyencommodede resoudreles difficultes les recettes visenta soutenir Bienque toutesles propositions d'exporetqu'ellesaientpourobjectif, tationdespaysen voiede developpement, leurporteeet leurs le developpement, en finde compte,de favoriser de la baissede prixdesproduits butsimmediats varient. La compensation les de base ou des termesde l'echangeest destineea contrebalancer des du revenu.La compensation incidences facheuses surla distribution a courtterme les fluctuations a pourbutde niveler deficits d'exportation a ou de veniren aide aux payseprouvant des difficultes d'exportation terme. long Cette etude passe en revue et analyseles diversespropositions etde la possibilite alternatives de avancees,en tenant comptede mesures La compensation choisirentreles differents mecanismes compensatoires.

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des variations de prixdes produits de base presente certainsavantages danscertains par rapportau soutiendirectdes prix;cependant, cas, le soutiendesprixestplusfacilea realiser. Fonderles transferts compensatoiressurles variations des termesde l'echangepresente des difficultes d'ordretechnique est de Le financesurmonter. qu'il presqueimpossible mentcompensatoire a des deficits se heurte un d'exportation probleme du faitque le fluxdes exportations n'estpas entierement independant des dispositions la mesuredes lui-meme; prisesparle paysexportateur deficitsd'exportation Aucun de ces soulevede nouvellesdifficultes. ne peutetrepleinement etreattenues resolu,maisils peuvent problemes facultatif enrendant le financement plutotqu'automatique. compensatoire desimportations, du mecanisme de garantie I1ybeaucoupa direenfaveur les des par compensatoires pays dont les prevoit paiements qui sont des pays en voie de developpement en provenance importations a une valeurminimalegarantie;cettemesuretendraita inferieures lesmarches ouverts auxpaysenvoiede developpement. elargir

Examen y evaluaci6n de los sistemaspropuestospara el financiamiento compensatorio Resumen

variaspropuestas En los ultimosafiosse han presentado para el de las de las deficiencias financiamiento exportaciones, compensatorio su mecanismo instituy6 y en 1963 el Fondo MonetarioInternacional Tambiense ha sugerido que se recurraa las paradichofinanciamiento. de como al sostenimiento una alternativa transferencias compensatorias sobreproductosbasicos. los preciosen los acuerdosinternacionales de las Naciones de la Conferencia emanaron otraspropuestas Asimismo, el financiamiento UnidassobreComercioy Desarrollo, compensatorio y de medio uitil resolver los un a considerarse como problemas para lleg6 cortoyde largoplazo. es apoyarlos Si bien el objetoque todaslas propuestas persiguen de conel finulterior de los paisesen desarrollo, de exportaci6n ingresos en su alcance y en sus las mismasdifieren fomentar su desarrollo, de la compensaci6n de las declinaEl prop6sito objetivosinmediatos. basicoso en los terminos enlospreciosde los productos cionesocurridas los efectosnocivosque surtensobrela del intercambio es contrarrestar de las deficiencias distribuci6n del ingreso.Mediantela compensaci6n

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se procuraequilibrar las fluctuaciones a cortoplazo, enlas exportaciones o ayudara los paisesque confrontan a problemas largoplazo en sus exportaciones. En esteartfculo se hace un exameny un analisisde las propuestas, tomandoseen cuentalas medidasalternativas y una posibleselecci6n entrelos sistemas La compensacompensatorio. para el financiamiento ci6npor alteraciones en los preciosde los productos basicospresenta ciertasventajassobreel apoyodirectoa los precios;no obstante, en algunoscasos quiza resultemas facilobtenerapoyo para los precios.El

de basarlas transferencias en las variaprocedimiento compensatorias cionesde los terminos del intercambio de orden planteadificultades tecnicocasi insuperables. El financiamiento de las deficompensatorio ciencias de las exportacionesconfrontael problemade que la corriente

de las exportaciones no es del todoajena a lo que el propiopais haga; tambien otros al medirlas deficiencias de las exportasurgen problemas ciones.Ningunode estosproblemas resolverse mas puede porcompleto, es posible aminorarloshaciendo que el financiamiento compensatorio sea discrecionalen vez de automatico.Son muchas las razones que

el puedeninvocarseen pro del Recursode Garantiade Importaci6n, cual requierepagoscompensatorios porpartede aquellospaisescuyas de paisesen desarrollo no alcancendeterimportaciones provenientes minadovalorminimogarantizado; esta medidatenderiaa ampliarlos mercados de lospaisesendesarrollo.

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