Payment Agreements Research Articles

A Court-Based Notification System for Traffic Defendants

The Las Vegas Municipal Court designed a simple computerized system to notify traffic defendants of upcoming court dates and advise them of delinquency in the payment of fines. The system, based on color-coded postcards mailed automatically to defendants at various stages of the collection process, resulted in significant increases in fines collections, as scheduled court appearances, and conformity with installment payment agreements.

Some Determining Factors in Soviet-Japanese Relations

T HE STRAINED ATMOSPHERE created by the September I976 MIG incident and by a dispute over territory and fishing rights early in I977 led some observers to predict a serious deterioration in SovietJapanese relations. That they were unduly pessimistic was shown late in the spring of I977 when and Moscow signed an interim agreement regulatingJapanese fishing in the Soviet 200-mile economic zone and a new five-year trade and payments agreement. In fact, what has been most noteworthy about Soviet-Japanese relations in the past two decades is not such vacillations but strong underlying continuity. While long-standing Japanese mistrust of the U.S.S.R. and persistent Soviet intransigence on the territorial issue have prevented any dramatic improvement in relations, the growing economic interdependence of the two countries has also made a serious breakdown unlikely. This article examines the factors that have produced this basic continuity, focusing in the final section on recent developments and their implications for Soviet-Japanese relations in the late I970's. One major obstacle on the Japanese side to a significant improvement in relations has been mistrust of Soviet strategic aims. In part, this is rooted in memories of historical conflicts. Equally important, for the Japanese military the U.S.S.R. now represents really the only plausible threat. Japanese planes have to scramble almost daily to challenge the Tokyo express-Soviet planes approaching Japanese territorial skies. Even before September 6, I976 when a defecting MIG-25 penetrated Japanese air defences to land in Hokkaido, a Japanese Defence Agency (J. D. A.) study warned that the recent transfer of MIG-25's to the Soviet Far East necessitated an improvement in Japan's air defences.1 Increasing Soviet naval strength and activities in the waters around the Japanese islands have also persuaded the Japanese maritime self-defence forces of the need to im-

Import Possibilities for India Under Rupee Payment Agreements

Import Possibilities for India Under Rupee Payment Agreements

Ervaringen met de Europese betalingsunie van betekenis voor de ontwikkelingslanden

The European Payments Union (EPU) can be credited with two achievements. It restored partial convertibility and so made multilateral trade liberalisation possible and it strengthened the economic cooperation between participating countries. There was, on the other hand, a risk involved, namely that a sheltered, soft currency, high cost area would be created as a result of the regional aspect of EPU and the automatic character of its credits. This danger was averted because of special factors: the prevalent ideal of worldwide convertibility, the multilateral surveillance, the competitiveness of the area, pressure of the American aid-giver etc. Care should be taken that as many of these factors as possible should be present when a group of less developed countries concludes some sort of payments agreement, particularly because some of the factors are almost certain to be absent. If, however, prospects are favourable, developed countries could use part of their aid to further payments agreements among groups of less developed countries. In so doing they would stimulate the creation of larger markets in the less developed world, so vital for its development. Moreover, in this way donor countries would be able to influence the economic performance of the less developed countries.

Payment Agreement between the U.S.S.R. and Iran

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Foreign Aid to Indonesia and Its Political Implications

FOREIGN AID is primarily a tool with which donor governments seek to produce political results of benefit to themselves. In recent years economists have engaged in much research on the economic aspects of aid, but little has been done to assess its political effects. This article examines the case of Indonesia, a country receiving substantial aid from many governments, Communist, Western and non-aligned. First, an outline is presented of the sources, amounts and utilization of aid received by the Indonesian government; then follows an examination of the short-term and longer-term effects of the aid on the political situation within Indonesia. In December i949, the Netherlands recognized Indonesian sovereignty over all of the former Netherlands East Indies except West New Guinea. The United States agreed to continue its scheduled delivery of Marshall Plan aid to the archipelago and the new Indonesian government was granted $40 millions with which to purchase vital consumer goods, especially rice and textiles. A year later the Netherlands extended a credit of $53 millions to help Indonesia meet its current debts to the Netherlands,. During the first six years of full independence, Indonesia received aid from Western countries, though in generally decreasing amounts. From i95i to i955 inclusive, the United States, as the foremost donor, granted approximately $7 millions a year as technical assistance, and loaned $9i.8 millions for various development projects. This low level of aid was due not only to American reluctance to grant more, but also to hesitancy on the part of the Indonesian governments to give any indication that they were aligning themselves with the West. The first Ali Sastroamidjojo cabinet, which held office from July I953 to August I955, was led by the nationalist party, PNI. It excluded the generally pro-Western Masjumi and the democratic socialist party, PSI, and it received, and became dependent upon, the parliamentary support of the Indonesian Communist Party, PKI. Aid from the United States declined markedly, but at the same time the Indonesian government began to seek normal relations with the Sino-Soviet countries. In the first half of i954, embassies were opened in Moscow and Peking. The Communist countries, which were just embarking on a policy of wooing the non-aligned nations, reciprocated with both trade agreements and offers of aid. In i952, Indonesia and Hungry signed a trade and payments agreement which was renewed in July I954. In I954 also, similar agreements were

Impediments to ECE Clearing Operations

Bilateralism, that malfunctioning vehicle for East-West trade, has acquired increased horsepower in recent years. Credit extensions, more liberal provisions in trade and payments agreements, and greater use of convertible currencies have given greater maneuverability to the system of bilateral balancing. Further lubrication was added in June, 1957. Under the auspices of the United Nations Economic Commission for Europe (ECE), a multilateral clearing union was instituted. Designed to reduce some of the friction to trade caused by attempts to balance trade bilaterally, the compensation system offers an opportunity for countries to apply a credit with one trading partner against a debit with another. Its primary effect will be to strengthen bilateralism in East-West trade. An understanding of how the clearing union will influence East-West trade and payments can be gained from an examination of its method of operation, its operation to date, obstacles to East-West clearing, and country attitudes toward the new system.

The Use of Bilateral Agreement Currencies for Trade with Third Countries

M OST TRADE for which payment is made through a bilateral payments agreement consists of goods originating in one partner country and destined for the other. This, clearly, would normally be expected, in accordance with the rules applying to a bilateral trade and payments relationship. During recent years, however, the payments channels between various pairs of bilateral countries (A and B) were frequently used to settle trade transactions of a different nature, involving trade between one or both of the partners with a third country (C). This situation arose if a payment through a bilateral agreement account was made from B to A1 either for the import of goods into B, originating not in A but in C, or for the export of goods from A, destined not for B but for C. It is clear, however, that in both cases there had to be some further arrangement which closed the transaction. Conceivably, a direct payment was made by A to C (case 1 in Diagram 1), or, alternatively, a direct payment was made by C to B (case 2 in the diagram). In such cases, the total three-cornered transaction consisted of one direct commercial transaction and two transfers, both of which were in conflict with normal currency prescription regulations. It is also possible that one of the bilateral partners might have acted as a commercial go-between, re-exporting or selling in transit C's goods to the other partner (case la in Diagram 1), or the other partner's goods to C (case 2a in the diagram), while itself arranging payment in either direction. Under these conditions, there would not have been any direct contacts, either commercial or monetary, between the country of origin and the country of destination of the goods concerned. The total arrangement would have consisted of a transit transaction (which might or might

Current Usage of Payments Agreements and Trade Agreements

T WO MAIN FORMS of inconvertibility may be distinguished. Inconvertibility on resident account (internal inconvertibility) means that persons or firms in a country whose currency is inconvertible (hereinafter called an inconvertible country) are not permitted to use the currency of their country to make to nonresidents (wherever the nonresidents may be) payments at their own discretion and for any purpose not specifically prohibited for reasons of public order. Similarly, they are not permitted to receive payments freely from any source outside their own country. Inconvertibility on nonresident account (external inconvertibility) means that nonresidents receiving proceeds in the currency of the inconvertible country, or having claims therein, are not permitted to use that currency freely in all parts of the world and for any purposes, whether to obtain goods and services from the inconvertible country or to exchange the currency received for other currencies. Formally, inconvertibility on nonresident account among inconvertible countries-not, of course, vis-a-vis the United States and other dollar countries-is organized largely on the basis of bilateral agreements between governments or central banks. These agreements are usually referred to as bilateral payments agreements.1 In Western Europe, nonresident inconvertibility has been organized since mid-1950 on the basis

M. N. Trued and R. F. Mikesell Postwar Bilateral Payments Agreements. Princeton Studies in International Finance, n° 4. International Finance Section. Department of Economics and Sociology. Princeton, Princeton University, 1955, 92 p. + tabl., $ 0.75.

M. N. Trued and R. F. Mikesell Postwar Bilateral Payments Agreements. Princeton Studies in International Finance, n° 4. International Finance Section. Department of Economics and Sociology. Princeton, Princeton University, 1955, 92 p. + tabl., $ 0.75.

Recent Latin American Experience with Bilateral Trade and Payments Agreements

N THE PERIOD between World Wars I and II, Latin America had a consistent export surplus in its balance of payments with Europe, which was approximately offset by a deficit on invisible account resulting mainly from European shipping and investment earnings.' At the same time, there was a Latin American import surplus and a deficit on invisible account with the United States. The usefulness of this over-all picture is very limited, however, since the positions of individual Latin American countries varied widely. The southern countries of South America traditionally had very large export surpluses with Europe, and import surpluses with the United States, the former financing the latter; while in many of the other Latin American countries, export surpluses with the United States were accompanied by import surpluses with Europe. After World War II, the countries in the first group were anxious to regain their export markets in Europe, where, however, most countries were short of dollars. They therefore entered into a number of bilateral payments agreements under which payments in convertible currencies occur only in exceptional circumstances, viz., when swing ceilings have been exceeded. Since this elimination of the need to pay for imports in convertible exchange leads to discriminatory import licensing in favor of countries with which payments agreements are in force, other Latin American countries also signed a number of

A Note on Payments Relations between Latin American and EPU Countries

PART OF LATIN AMERICAN TRADE with countries of the European Payments Union is conducted on a dollar basis, part on a sterling basis, and the remainder on the basis of other currencies. The payments, clearing, and compensation arrangements of Latin American countries with Europe differ widely from country to country and are subject to frequent change, making difficult a precise division of Latin America into "dollar area" and "nondollar area" countries. Some Latin American countries which have "Bilateral Accounts" with the sterling area are "dollar countries" insofar as continental European countries are concerned. Other Latin American countries, however, which are classified in the "American Account" group of the sterling area, have bilateral arrangements with some continental countries. Certain bilateral payments agreements between Latin American and European countries provide that freely disposable U.S. dollars shall be used as the means of effecting commercial payments (e.g., the agreement between Uruguay and Italy and that between Peru and Western Germany). Other agreements, in contrast, employ the U.S. dollar as a unit of account ("restricted" dollars); the mechanism of current settlements, however, is designed to avoid payment in freely disposable U.S. dollars, and only final settlement at the termination of the agreement is to be effected in freely disposable U.S. dollars, other agreed currencies, or gold. (See Table 1.) With countries that are classified in the American account group by the U.K. Exchange Control, U.K. trade is in effect conducted on a dollar basis, under a mechanism whereby the United Kingdom makes payments in sterling which is convertible into dollars whenever the recipient country so requests. In this group are the Central American countries, the Caribbean countries, and Colombia, Venezuela, Ecuador, and Bolivia. The Latin American countries included in the American account group of the sterling area do not coincide exactly with the countries

A Possible Intra-European Payments Scheme

THE General of the Committee of European Economic Co-operation (July-September, I947), which prepared the way for the European Recovery Programme, included a Report of the Committee of Financial Experts , in which transferability of European currencies was advocated. There followed the of the Committee on Payments Agreements (27th September, I947). The Committee of Experts had taken the view that transferability must ultimately rest on the principle that the amounts owed to a country in excess of the margins provided for by payments agreements should be convertible into gold or United States dollars . The Committee on Payments Agreements had before them a Benelux proposal for settling in gold or convertible currency the balances in excess of the credit margins laid down in the payments agreements to the extent that the surplus countries are entitled to ask for such a settlement (i.e., to make current payments to countries outside the group ). The subsequent sad history of the attempts to evolve a satisfactory scheme suggests that it might have been wise to learn to walk before any attempt was made to run. This article is aimed at a strictly limited objective. Its object is to discuss a particular proposal for an Intra-European Payments Scheme. While, so far as is known, the proposal has not been put forward in the precise form in which it is presented here, it bears a close family relationship to proposals which have been published2 and no serious claim for its originality is advanced. The discussion will be based on simplifying assumptions, some of them perhaps extreme and cavalier, but it is only in this way that it is possible to avoid the confusion which has attended the elaboration of the actual Payments Agreements for I948-49 and for I949-50. No serious attempt will be made here, except by implication, to appraise these actual Agreements, one reason being that it is still far from clear how they are intended to operate.3

Organization for European Economic Cooperation

In July 1949, negotiations for a European payments agreement to finance international trade, which had been delayed by a dispute between the United Kingdom and the United States over currency convertibility, were blocked by a difference between the Swiss and the United States governments regarding the terms of Switzerland's participation. The Swiss government had refused to sign the bilateral agreement with the United States which all other members of the Organization for European Economic Cooperation receiving dollar aid had done, on the ground that it needed no dollar aid for itself and that the bilateral agreement would give the United States a right to check on the Swiss economy. The payments committee of the OEEC Council had attempted to bring Switzerland into the payments plan to widen the area of more liberal trade, urged by the United States. The committee's proposal that half of Switzerland's trade surplus be financed by a grant of dollars and half by trade credits on the terms of the Economic Cooperation Administration as advanced by Switzerland to her debtors was submitted to the Swiss Federal Council. Following the statement by the Economic Cooperation Administration that dollars could not be had without signature by Switzerland of a bilateral accord with the United States, the Swiss Federal Council refused to sign the accord.

The British Payments and Exchange Control System

I. Bretton Woods and convertibility, 212. — II. The Exchange Control Act of 1947, 214. — III. Sterling balances, 216. — IV. Sterling area agreements, 218. — V. The American Account, Transferable Account and Bilateral areas; and their relative importance, 222. — VI. Payments agreements with the Transferable Account area, 226. — VII. And with the Bilateral area, 230. — VIII. Administrative Transferability, 233. — IX. The intra-European payments agreement and American aid, 234.

Bank for International Settlements

The eighteenth annual report of the Bank for International Settlements, which reviewed the period from April 1, 1947, to March 31, 1948, called for abandonment of the wartime type of direct controls on prices, production and trade, and the restoration of a functioning price system, operating under well-controlled monetary regimes. The report, the most comprehensive ever issued by the Bank, dealt in detail with such topics as 1) recovery and set-back in 1947, 2) restoration of monetary order, 3) price movements, 4) the tense position of international trade, 5) foreign exchange rates, 6) production and movements of gold, 7) international credit conditions and the trend of interest rates, 8) European payment agreements, multilateral monetary compensation and the European Recovery Program, and 9) current activities of the Bank. Reference was made to the fact that the Bank for International Settlements had acceded to a request to act as technical agent for the Agreement on Multilateral Monetary Compensation, signed in Paris on November 18, 1947. Practical compensation operations under this agreement were begun in December 1947.

Short-Run Equilibrium in the Balance of Payments

The field of foreign exchange, of all the branches of economics, has probably been most radically transformed by the events of the past two years. Not only have blocking restrictions and other limitations on capital movements become almost universal but the whole mechanism of exchange rates has been changed by the institution of an official monopoly of exchange dealings in most countries of the world. Thus, for example, the international movement of gold has ceased to be associated primarily with gold-shippingpoint arbitrage. Forward exchange premiums and discounts have lost their customary significance, and their fluctuation no longer induces a flow of interest-arbitrage or swap funds. Finally, the negotiation of bilateral payments agreements and the institution of other discriminatory policies have divided what was once a global balance-of-payments problem into a number of individual segments, broken down on a basis of more or less independent geographical and currency areas. These manifold institutional changes would in themselves indicate the advisability of reconsidering the theoretical and technical aspects of international financial relationships, with particular reference to the interpretation of balance-of-payments estimates. It might be remembered in this connection that the last general discussion of the subject was inspired by the great controversies over the transfer of large unilateral payments, at first in connection with long-term investments (e.g., Hobson, Williams, Viner), later with respect to the specific problem of German reparations (Keynes, Ohlin, et al.). Today these controversies have an archaic and academic ring, although they explain the preoccupation with capital movements as a whole which has characterized most presentations of the balance of payments during the past -5 years. The practical problems of foreign exchange at present, however, are