exchange controls and established a single fluctuating rate of exchange for all transactions in foreign currencies. Thereafter the value of the guarani fluctuated between 90 and 115 guaranies per U. S. dollar. It was anticipated that after a transitional period, during which the guarani was to be free to find its own level, a new par value would be established for it. To support its new exchange system, Paraguay concluded an 11million-dollar standby arrangement with the International Monetary Fund and the United States Treasury.

Before August 12, 1957, imports could enter Paraguay only after the importer entered into an exchange contract that was, in effect, an exchange-and-import license. After that date, imports were no longer subject to this restrictive type of control. Paraguay did, however, retain the advance-deposit system for imports, with the intention of abandoning it as soon as the country's external financial position had reached equilibrium. For the purpose of determining the advance deposit for various classes of imports, 5 categories of goods were established. As originally established in August 1957, the required advances for the 5 categories were, respectively, 5, 50, 100, 300, and 400 percent of the f.o.b. value of the commodities. In March 1958 the required deposits for the first 3 categories were increased to 10, 60, and 110 percent, respectively. At about the same time a number of commodities were transferred from the categories requiring smaller deposits to the categories for which larger deposits were required. Included in the transferred commodities were sewing machines, certain motor vehicles, and certain textiles and textile products. Advance deposits were not required for imports of wheat, wheat flour, petroleum fuels, newsprint, and certain other imports; or for imports from Argentina, Bolivia, Brazil, and Uruguay. The reforms of August 1957 involved only one change regarding exports. At that time a 15-percent ad valorem tax was levied on exports; the tax was to be eliminated at the rate of 1.25 percent per month during 1959.

Paraguay's 1946 trade agreement with the United States is on a bilateral basis. The duties that Paraguay bound to the United States in that agreement were established when the Paraguayan guarani had an exchange value of 3 gold guaranies to the U.S. dollar, compared with a current value of about 110 paper guaranies to the U.S. dollar. Paraguay has never increased the import duties on its trade-agreement items to compensate for the greatly reduced exchange value of its currency. In 1952, however, Paraguay increased the specific duties on nonconcession items to compensate for the depreciation of the guarani." In June 1958

74 In September 1952 Paraguay increased all specific duties (except those on wheat and wheat flour and on items in its bilateral trade agreements) by 400 percent, or 5 times the original duties. This meant that, in terms of United States currency, a rate of 15 guaranies per U.S. dollar replaced that of 3 guaranies per U.S. dollar. Additional ad valorem rates on nonconcession items were increased from 6 percent to 8 percent and from 11 percent to 15

percent.

it went still farther and adopted a system-described below-for converting specific duties to take account of the depreciation of the guarani. Under this system, Paraguay, by use of a foreign-currency conversion table issued each month, converts into U.S. dollars (which in this procedure serve simply as units of account) the specific duties on virtually all nonconcession items. To determine the amount of the duty to be imposed, the dollars are then converted into guaranies at the rates specified in the conversion table.75 The stated purpose of this practice is to enable the Government to obtain the same revenue, in terms of purchasing power, as was yielded by the old duties when the Paraguayan currency had a much higher exchange value. Duties bound against increase in bilateral trade agreements are exempted from the application of the conversion rates. In June 1958 Paraguay also imposed an additional import duty of 15 percent ad valorem on certain items of wearing apparel.

Peru

For some years Peru has maintained exchange stability by purchasing surplus supplies of dollar certificates, which represent export proceeds, at the rate of 19 soles per U.S. dollar, and by selling exchange at the same rate during periods of shortage. Thus, in effect, it pegged the certificate rate at 19 soles per U.S. dollar.76 Because of this stability, Peru's currency could be described as substantially convertible," and in exchange practices Peru moved into a twilight zone between countries of the dollar and those of the nondollar category. At the same time, Peru continued to employ-although in a relatively mild form-the types of trade controls characteristic of countries that do not have freely convertible currencies. It imposed quotas on imports of some commodities (especially motor vehicles), maintained a multiple-exchange-rate system, and levied higher import duties on less essential commodities than it did on those that were

75 For example, a specific duty of 10 guaranies had already been increased fivefold, or to 50 guaranies, by the action of September 1952. By the action of June 1958 a 50-guarani duty is converted into U.S. dollars at the rate of 15 guaranies per dollar (see preceding footnote), or to an equivalent of $3.33. Application to the 50-guarani duty of the conversion rate of 105 guaranies per dollar (the rate established in June 1958 in the conversion table for the following month) results in a duty of 350 guaranies.

76 In 1946 the Peruvian sol was assigned an initial par value of 6.50 soles per U.S. dollar. Under Peru's present exchange system, this par value has not been applied to any transactions. However, Peru's action in establishing, but not using, a par value for its currency illustrates a general observation made by the International Monetary Fund: "Several Fund members have found unsatisfactory the complex multiple currency systems with which they have been experimenting for varying periods of time; however, finding it difficult to change immediately to a unitary fixed rate system governed by a par value, some of them have in recent years tried to ease the transition by first establishing a free exchange market in which the rate is allowed to fluctuate. Peru established two such free markets in 1949, . . ." (International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1958, p. 131.)

77 See Operation of the Trade Agreements Program (8th report), p. 134, footnote 4.

more essential. These controls were designed primarily to restrict imports for balance-of-payments reasons.

During 1957-58, Peru's external financial position deteriorated; in January 1958 its reserves of gold and foreign exchange reached the lowest level in 8 years. This situation resulted from unusually large imports during 1957, a sharp increase in foreign-exchange commitments, and declining prices of some of the country's principal exports, notably minerals and metals. At this juncture Peru, with the support of the International Monetary Fund, decided upon a new approach to its financial and trade problems. Instead of tightening its exchange restrictions, it was able-with outside financial help to relax them. At the same time, however, Peru made more use of other forms of trade control than formerly. In January 1958 the country ceased to support its important certificate. market, thus freeing the sol to find its own level. Freeing the certificate rate from control did not, however, involve abandonment of "certificate exchange" for most trade transactions. Peru continues to employ the certificate-exchange system in the sale of foreign exchange for most imports and certain invisible items and in the purchase of export proceeds in U.S. dollars and sterling. Foreign exchange derived from exports is converted into exchange certificates; these certificates are negotiable in the certificate market and may be used for merchandise imports and certain nontrade transactions. For imports and exports not covered by the certificate rate there is also a fluctuating draft market rate.

Once the sol had been freed from control it was clear that Peru could not expect to maintain the value of its most important currency-the certificate sol-at anywhere near its former pegged value without outside financial assistance. With outside help, however, Peru hoped to maintain an orderly exchange-certificate market with a minimum of import restrictions. The assistance immediately made available to Peru amounted to 60 million dollars-25 million dollars from the International Monetary Fund as a standby fund on which Peru is free to draw; 17.5 million dollars arranged for in an exchange agreement with the United States Treasury; and 17.5 million dollars in credit negotiated by Peru with a number of private United States banks. Following the decision to permit the Peruvian sol to find its own level, the certificate rate declined somewhat as Peru's gold and foreign-exchange reserves declined. To strengthen its stabilization program, the Peruvian Government initiated a series of fiscal and credit measures. Such measures included instructions to banks to restrict extension of credits for financing imports of luxury items, and steps to prevent increases in the prices of such imported basic foodstuffs as flour, rice, and meat.

Of even greater significance was Peru's action with respect to import duties. In the latter part of 1957 the International Monetary Fund recommended that Peru generally increase its import duties in order to provide

additional governmental revenue. The Fund also suggested that Peru might reduce the demand for dollars by increasing import duties on luxury goods. At various times during the second half of 1957 and the first half of 1958, Peru increased the specific duties on a number of items, including certain plate glass and specified types of phonograph records. It also levied. an additional duty (1 percent of the c.i.f. value) on imports of all commodities except those on which it has granted concessions under the General Agreement, on commodities already on the free list, on medical and pharmaceutical specialties, and on commodities in a few other categories. Peru also exempted a number of essential commodities from import duties and other charges; included were beef and mutton offal, certain equipment for the oil industry, and sulfur. In May 1958, however, Peru fundamentally changed its policy with respect to import duties. It increased its specific duties by applying a surcharge of 50 percent to imports of general merchandise and 100 percent to imports of luxury goods; in June 1958 it increased the specific duties on luxury goods to 200 percent of the basic rate. Basic foodstuffs, medicines and pharmaceuticals, items essential to the printing industry, and special containers for milk were exempted from the duty increases.

In its tariff revision of May 1958, Peru provided for the application of the new duty increases to items listed in its schedule of concessions in the General Agreement on Tariffs and Trade. However, since the rates of duty specified in the Peruvian schedule were bound against increase, Peru did not make the new rates effective on concession items until June 9, 1958, after a special Intersessional Committee of the Contracting Parties had granted Peru a waiver of its obligations under article XII of the General Agreement.

Peru has applied import quotas very sparingly. Except for motor vehicles 78 and commodities imported from Eastern Europe and Communist China, all imports are permitted freely. Peru does not require licenses for imports, and maintains no other import controls except those implied in the separate uses of certificate exchange and draft exchange and in the relatively mild restrictions associated with the advance-deposit requirement. Advance deposits are required of importers that open documentary letters of credit through commercial banks, for all imports except wheat, meat, milk, and fats. Importers are required to deposit in foreign currency 25 percent of the value of commodities imported for production, and 50 percent of the value of all other imported commodities. For raw materials, up to 50 percent of the local currency equivalent of such advance deposits may be financed by the banks, but banks are not permitted to extend credit for nonessential imports.

78 Peru's motor-vehicle import quota for 1958 was larger than that for 1957. However, when the country's foreign-exchange situation became acute, the quota for the year beginning Oct. 1, 1958, was reduced to 50 percent of that for the preceding 12-month period.

Uruguay

Throughout 1957-58 Uruguay experienced an acute shortage of foreign exchange. The critical exchange shortage that developed in 1957 resulted from the operation of the revised exchange system that was established in August 1956.79 Under that system a large number of essential commodities-including basic foodstuffs, raw materials for industry, and building materials—could be imported without quota restriction and at the overvalued rate of exchange of 2.10 pesos per U.S. dollar. As a result, imports of these commodities increased greatly. With respect to exports, Uruguay's principal problem involved wool. Wool normally accounts for nearly 60 percent of Uruguay's total export trade, but at the close of the 1957-58 wool-marketing season only half of that season's wool clip had been sold. Exports of wheat were abnormally small in 1957-58 because of poor harvests, and exports of meat declined sharply because of dwindling cattle herds and unprofitable operations in the meat-packing industry. Two large American-owned packinghouses in Uruguay closed down. Paralysis of the wool trade was the principal cause of the weakening confidence in the peso and the rapid decline in its value, although inflation, rapidly rising living costs, and growing unemployment were contributing factors.

The problem of exports, and especially the Government's failure to overcome the impasse created by the refusal of producers to sell their wool, completely dominated Uruguay's actions in the field of foreign trade during 1957-58. Because of diminishing exports and repeated declines in the value of the peso, drastic action was necessary to restrict imports. The measures taken to control imports, however, were simple and direct, compared with the numerous and largely ineffective measures adopted to stimulate exports.

Exports of wool from Uruguay virtually ceased in October 1957 (the beginning of the new wool clip), largely because producers refused to sell their wool in the face of what they regarded as wholly unsatisfactory rates of exchange. The background for this situation was the highly intensified competition in the international wool market that resulted from declining world prices for wool. Specifically, the wool producers maintained that the exchange rates applicable to the proceeds from their exports of wool did not cover costs and a normal profit. The Uruguayan Government, on the other hand, attributed the poor condition of the export market for wool

79 See Operation of the Trade Agreements Program (10th report), pp. 154-155.