p. 2). The World Bank's mandate is to encourage capital investment for development within member countries, and is to be accomplished by either channeling the required funds from private sources, or by making direct loans from its own resources (Oliver, 1989, p. 24). The two institutions are expected to complement one another in their activities.
Initially, member countries of the IMF were required to adhere to an agreed exchange rate regime, in which fluctuations in the international exchange values of currencies were to be confined within a range of + 1.0 percent of the par value of the currencies (Heller, 1993, p. 80). The par values of currencies were stated in terms of the United States dollar, which, in turn, was linked to a specified gold value.
The system worked relatively well for about two decades. The weakening value of the United States dollar in the late 1960s, however, resulted in a major revision of the currency exchange regime at the Smithsonian Conference in 1971 (Heller, 1993, p. 101). At this meeting, new par values were established, which had the effect of devaluing the United States dollar by 10.0 percent, and increasing the fluctuation range for foreign exchange to + 2.5 percent.
The crude oil price and supply shocks of the mid 1970s and other economic difficulties experienced by many of the developed countries soon made it apparent that the new regime would be unworkable. Consequently, the Second Amendment of the Articles of Agreement was accepted by member nations of the IMF and became effective in 1978 (Heller, 1993, p. 134). The Second Amendment, the protocol under which the IMF functions in the 1990s, effectively ended the organization's role in currency exchange rate control.
With implementation of the Second Amendment, member nations were free to adopt exchange rate arrangements of their own choice (Heller, 1993, p. 151). The result has generally been a situation characterized by...