1. When I was in Canberra, you asked me to send you a note setting
out the worst that can happen to Australia if we do not join the
International Monetary Fund.

2. The most obvious and probable penalties for not joining are
covered by paragraphs 28 to 32 of my report. [1] There are,
however, other possible penalties, some of which I do not regard
as at all likely but which might, nevertheless, be imposed on us.

3. The meaning of Article XI of the International Monetary Fund is
not at all clear [2], but it is possible that, under this article,
sanctions could be imposed against any country which did not join
the Fund. These sanctions would take the form of exchange
restrictions designed to prevent trade between the non-member
country and members of the Fund. In these circumstances, the only
Australian exports which could be sold would be those which
members of the Fund could not get elsewhere and could not do
without.

4. Even if these sanctions were not invoked immediately, as a
penalty for not joining the Fund, it is conceivable they might be
used to compel Australia to comply with the provisions of the
Fund, even though we were not a member; that is to say, that we
would be compelled to accept all the obligations of the Fund
without gaining any of its benefits.

5. If we do not join the Fund, we would not be permitted to join
the International Trade Organisation. In these circumstances, the
United States of America could, if it so wished, impose a very
high tariff on Australian wool and give preference in its markets
to wool from countries which were members of the Organisation.

This would encourage not only increased home production but also
imports from South Africa and South America instead of from
Australia. This might condemn the Australian wool industry to a
very bleak future, for wool interests have hoped, not without some
justification, that the United States of America would be an
important purchaser of Australian wool in future.

6. It might also happen that, under the International Trade
Organisation, the United Kingdom would be required to give
preference in her markets to goods from members of the
Organisation. This would place Australian butter, sugar, meats and
fruits at a serious disadvantage in competition with countries
such as Denmark, Holland, Cuba, the Argentine, New Zealand, the
United States of America, and Canada, if they were members of the
Organisation.

7. Under Article XI of the International Monetary Fund, it might
be possible for the Fund to prevent investment of overseas capital
in Australia.

L. G. MELVILLE