115 McFarlane to Melville

Letter CANBERRA, 2[8] [1] February 1946

At the meeting of Governors of the International Monetary Fund which you will attend [2] the U.S. representative will propose a resolution permitting, on the same terms as original members, the admission to membership during a limited period of those countries listed in Schedule A of the Agreement who have not yet joined the Fund.

2. You may possibly be approached to ascertain how Australia stands towards the matter. In this event you should refer to the impossibility of having the matter submitted to Parliament before 31st December, 1945. [3] You might also indicate that the Australian Government has not yet completed its consideration of the proposals. Subject to this reservation, however, I think it would be useful if you were to make it known that we should prefer a reasonably lengthy period. You might also be able, through informal contacts, to convey this to the U.K. delegation and induce them to keep our interest in view when the item is before the meeting. It should not be indicated, however, that Australia's preference in this matter is based on a desire to know the outcome of the forthcoming trade and employment negotiations before defining its attitude to Bretton Woods.

3. Also, the U.K. representative will probably bring forward the interpretative declaration referred to by Dr. Dalton in his House of Commons speech on the U.S. Loan Agreement. [4] The effect of it was 'That having regard to the intention of the Government of the United Kingdom to maintain full employment ... the Fund shall agree ... that steps necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, shall be measures necessary to correct a fundamental disequilibrium.' [5] 4. Such a declaration by the Fund would be valuable to Australia, as well as to the United Kingdom, if, as in 1929-32, a fall in external income and reserves, due to deflation abroad, were tending to create a deflationary pressure here. Accordingly you should convey to the United Kingdom delegation our interest in their proposal.

5. But the United Kingdom proposal might not be taken to cover the case when expansive measures to protect employment here were not being paralleled by expansion abroad and we had disequilibrium due more to increasing imports than to falling exports. I should think this could happen to the United Kingdom as well as to us and their delegates might consider amending their declaration to bring such conditions clearly within its meaning. This might be done by deleting the words 'from pressure on its balance of payments' and inserting appropriate wording such as either- (a) 'partly or wholly from international factors', or (b) 'accompanied by pressure on its balance of payments'.

But the question of any alteration depends on how far the United Kingdom delegation might be willing to go and the exact wording would have to be worked out with them. Indeed, all your approaches to the U.K. delegation must be governed by your status as an observer and by their response to any suggestion for the modification of their own proposal.

6. The United States Government has also expressed an intention to seek some interpretative declarations from the Fund and the Bank but their proposals do not appear to be of vital concern to Australia.

7. The Treasurer concurs in the terms of this letter.

S. G. MCFARLANE Secretary to the Treasury

1 The date given on the file copy is 29 February.

2 A meeting to establish the Fund and the International Bank for Reconstruction and Development was to be held in Savannah, Georgia, from 8 to 18 March. Australia, having joined neither the Fund nor the Bank, had been invited to send observers. Melville was to be accompanied by Brigden.

3 See Volume VIII, Documents 428 and 443.

4 12 December 1945.

5 Article IV, Section 5(a) of the Articles of Agreement of the I.M.F. prohibited proposing changes in the par value of members' currencies 'except to correct a fundumental disequilibruim'. Under Section 5(f) the Fund was obliged to concur in a change greater than 10% of initial par value if satisfied the change was necessary to correct a fundamental disequilibrium, regardless of domestic, social or political policies of the member country proposing the change.

[AA:A3300/2, 46/387]