Chapter

III: Payments Developments in the Principal Regions

Author(s):
International Monetary Fund
Published Date:
September 1956
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United States

WITH the rapid recovery of the U. S. economy from the recession of 1953–54, U. S. imports of goods and services in 1955 were substantially greater than in 1954. The net external expenditures of the U. S. Government also rose considerably. The over-all deficit in the balance of payments, as measured by net transfers of gold and dollars to official holders (including international organizations) in the rest of the world, fell from $1,465 million in 1954 to some $1,100 million in 1955 (Table 5). Apart from an increase in nonmilitary exports of goods and services, reflecting increased pressure of demand, improved payments positions, and reduced dollar discrimination in the rest of the world, there was a sharp decline in the net outflow of private capital.

Table 5.United States: Summary of Balance of Payments, 1954 AND 1955(In millions of U. S. dollars)
19541955Change
Private transactions
Merchandise: Exports, f.o.b.112,81414,2641,450
Imports, f.o.b.–10,354–11,516–1,162
Trade balance2,4602,748288
Service (including private donations), net1,2141,324110
Capital movements 2–1,324–767557
Balance, private transactions2,3503,305955
Government transactions, net 3-3,993-4,844-851
Errors and omissions178451273
Gold and dollar transfers to official holders in rest of world 41,4651,089-376
Sources: U. S. Department of Commerce, Survey of Current Business, June 1956; Board of Governors of Federal Reserve System, Federal Reserve Bulletin; International Monetary Fund, International Financial Statistics.

Includes disposals of U. S. Government surplus commodities under (I) the provisions of the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480, 83rd Congress), (2) Section 550 of the Mutual Security Act of 1953 and Section 402 of the Mutual Security Act of 1954, and (3) authority of the Commodity Credit Corporation Charter Act (1951). The estimated export values of these disposals were approximately $375 million in 1954 and $1,045 million in 1955.

Total U. S. private capital, foreign long-term capital including estimated private holdings of U. S. Government securities, and change in U. S. short-term liabilities to private foreign holders.

U. S. military expenditures (including offshore purchases), grant aid other than military, net U. S. Government foreign lending, net income from U. S. Government foreign investment, miscellaneous government services (net), pension transfers, and certain sales of government goods and services not financed by military aid. Disposals of U. S. Government surplus are excluded (see footnote 1).

Includes official holdings of gold and short-term dollar balances and estimated official foreign holdings of U. S. Government securities. Official holders include international institutions.

Sources: U. S. Department of Commerce, Survey of Current Business, June 1956; Board of Governors of Federal Reserve System, Federal Reserve Bulletin; International Monetary Fund, International Financial Statistics.

Includes disposals of U. S. Government surplus commodities under (I) the provisions of the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480, 83rd Congress), (2) Section 550 of the Mutual Security Act of 1953 and Section 402 of the Mutual Security Act of 1954, and (3) authority of the Commodity Credit Corporation Charter Act (1951). The estimated export values of these disposals were approximately $375 million in 1954 and $1,045 million in 1955.

Total U. S. private capital, foreign long-term capital including estimated private holdings of U. S. Government securities, and change in U. S. short-term liabilities to private foreign holders.

U. S. military expenditures (including offshore purchases), grant aid other than military, net U. S. Government foreign lending, net income from U. S. Government foreign investment, miscellaneous government services (net), pension transfers, and certain sales of government goods and services not financed by military aid. Disposals of U. S. Government surplus are excluded (see footnote 1).

Includes official holdings of gold and short-term dollar balances and estimated official foreign holdings of U. S. Government securities. Official holders include international institutions.

Gross national product for 1955 exceeded that for 1954 by almost 7 per cent, with industrial production rising by 11 per cent. Accompanying this expansion, the volume as well as the value of total imports into the United States increased by slightly less than 11 per cent. The volume of imports of finished manufactures increased by 20 per cent, reflecting the continued success of Western European and Japanese manufacturers in re-establishing and expanding their markets in the United States and the rapid rise of consumers’ expenditures which characterized the U. S. recovery in 1954–55.

The volume of industrial raw material imports rose slightly more than manufacturing production between 1954 and 1955, the increase being particularly marked between the second halves of the two years. In the first half of 1955, the increase in raw material consumption was met, to a large extent, from domestic public and private stocks and from rapidly expanding production, especially of minerals; there was also a reduction of imports for the U. S. Government stockpile. In addition, serious difficulties developed in the overseas supply of several raw materials. In the second half of the year, however, stocks were rebuilt and supply limitations abroad became less serious.

The volume of food imports rose in 1955 by only 4 per cent, though here again the movement accelerated in the second half of the year. In the first half, as uncertainties about coffee prices induced U. S. importers to deplete their inventories far below normal levels, imports were 11 per cent less than in the first half of 1954. In the second half, increased consumer demand led to restocking; the volume of coffee imports was almost 60 per cent, and of total food imports 25 per cent, higher than in the corresponding period of 1954.

The effects of increased volume upon the value of crude and semimanufactured imports were reinforced by rising prices; but for imported foodstuffs, price declines were so sharp that the effects of increased volume were more than offset, and their value declined by more than 6 per cent.

The volume of U. S. nonmilitary exports rose by 10 per cent from 1954 to 1955. Most of this increase was a response to rapidly rising demand from Canada and Western Europe where domestic expansion was especially large; it was much more pronounced in raw materials, and especially in foodstuffs, than in finished products. Excluding cotton exports, which fell steeply, the value of exports of raw materials and foodstuffs combined rose by over 20 per cent. Exports of coal, iron and steel products and scrap, paper raw materials, and grains showed especially strong advances. Exports of finished manufactures increased in volume by only 7 per cent. While exports of machinery, automobiles, and chemicals rose substantially, textile products, faced by intensified competition from Europe, Japan, and India, showed no increase at all.

Increased sales under U. S. Government programs for the disposal of agricultural surpluses considerably exceeded the increase in U. S. agricultural exports as a whole from 1954 to 1955. The total export value of disposals under these programs in 1955 was more than $1 billion, sales against local currencies rising by some $310 million, and disposal through various types of donation and through commodity barter arrangements rising by some $360 million compared with 1954. It is impossible to determine how large exports would have been in the absence of these programs, but they were probably stimulated to some extent by disposal conditions which were especially favorable to the recipient countries.

The increase from 1954 to 1955 in the U. S. commodity trade surplus was supplemented by higher receipts on service account. While there was a substantial increase in U. S. expenditures on travel and transportation, net income from foreign investments rose even more.

A large part of the decline in the outflow of private capital from 1954 to 1955 (Table 6) was due to the cessation of the abnormally large net short-term capital outflow of 1954. In 1954 there had been a considerable accumulation by Latin American countries of short-term trade debts. Some of these countries, notably Colombia, continued to accumulate payments arrears in 1955, but others, including Brazil, reduced their short-term indebtedness, part of which was converted into medium-term debts to U. S. banks. On balance, there was a net inflow of $25 million of short-term private funds from Latin America in 1955, compared with a net outflow of $310 million in 1954. Partly as a result of temporary uncertainty about the future of sterling, there was an inflow of funds from the United Kingdom in 1955, in contrast to the outflow in 1954.

Table 6.United States: Private Capital Movements, 1953, 1954, AND 1955(In millions of U. S. dollars; no sign indicates outflow, minus sign indicates inflow)
195319541955Increase (+) or Decrease (–)

from 1954 to 1955 in Capital

Flow to Foreign Countries
U. S. direct investments721664679+15
New issues of foreign securities270309124-185
Redemptions by foreign borrowers-139-124-203-79
Other U. S. long-term capital-316135359+224
Foreign long-term capital 1-104-94-313-219
U. S. short-term capital-167635194-441
Foreign short-term capital 23–201–73+128
Total2681,324767-557
Sources: U. S. Department of Commerce, Survey of Current Business, June 1956, and International Monetary Fund, International Financial Statistics.

Including changes in estimated private holdings of U. S. Government securities.

Change in U. S. short-term liabilities to private foreign holders.

Sources: U. S. Department of Commerce, Survey of Current Business, June 1956, and International Monetary Fund, International Financial Statistics.

Including changes in estimated private holdings of U. S. Government securities.

Change in U. S. short-term liabilities to private foreign holders.

The net outflow in 1954 of about $225 million of private long-term capital (excluding U. S. direct investments abroad) was succeeded in 1955 by a net inflow of approximately $35 million. U. S. purchases of newly issued foreign securities, including IBRD bonds, declined substantially; there was a sharp increase in redemption of long-term obligations by Canadian borrowers; and there was an accelerated net inflow of foreign capital to the United States, especially from the European continent. The sum total of these movements was only partially offset by an increase in medium-term bank loans, especially to Latin American borrowers, and by U. S. purchases of outstanding Canadian securities. A tightening U. S. credit position and growing opportunities for profitable domestic lending, the continued upward movement of U. S. stock exchange quotations, and the improving foreign exchange position in continental Europe appear to have exerted a strong influence on these movements.

U. S. direct investment showed little net change, with some increase in Western Europe and the overseas sterling area. As investment projects in oil and metals were brought to completion, direct investment elsewhere tended to decline.

The effects of the reduction in private capital exports on the net supply of dollar funds to the rest of the world were more than offset by a rise of over 20 per cent in net U. S. Government expenditures abroad (Table 7). Economic grant aid increased by some 13 per cent, despite a decline in aid to Europe from $1 billion to $800 million There was an increase of some $250 million in aid to the Far East arising largely out of the Korean reconstruction program, and an increase of about $150 million in grants to overseas sterling area countries.

Table 7.U. S. Government Foreign Transactions, 1 Net, 1954 and 1955(In millions of U. S. dollars; no sign indicates outflow, minus sign indicates inflow)
19541955Increase from 1954 to

1955 in Dollar Supply

to Foreign Countries
Grant aid other than military1,6471,865218
Foreign lending: Long-term30637569
Short-term, net108343235
Repayments of long-term loans-507-41691
Military expenditures2,6032,804201
Miscellaneous transactions–164–12737
Total3,9934,844851
Source: U. S. Department of Commerce, Survey of Current Business, June 1956.

Excluding military aid transfers of military goods and services and disposals of U. S. Government agricultural surplus commodities (see Table 5, footnote 1).

Source: U. S. Department of Commerce, Survey of Current Business, June 1956.

Excluding military aid transfers of military goods and services and disposals of U. S. Government agricultural surplus commodities (see Table 5, footnote 1).

Expenditures by U. S. military agencies, especially in Western Europe, continued to rise from 1954 to 1955. Owing to the temporary accumulation of local currencies in exchange for agricultural surplus commodities, much of which it was intended subsequently to convert into longer-term loans, U. S. Government short-term capital outflow more than trebled.

The record of transactions between the United States and other parts of the world showed a substantial increase from 1954 to 1955 in the U. S. surplus with Canada, the disappearance of the 1954 deficits with the United Kingdom and Latin America, and a substantial increase in the deficits with Japan and primary producing areas outside Latin America.

Trade with Canada and Western Europe expanded considerably in both directions, but U. S. exports increased more than imports and increased trade surpluses were supplemented by reduced capital outflows or increased capital inflows. In relation to continental Western Europe however, unlike either Canada or the United Kingdom, the increased U. S. surplus on private account was offset by an increase in U. S. Government expenditures. Trade with the overseas sterling area expanded in both directions, and the U. S. deficit rose as U. S. Government expenditures increased. Trade with Latin America as a whole showed little net change, and since its capital exports declined, the United States had an over-all surplus with that area.

The increased deficits of the United States with the remaining areas-mainly non-sterling countries in the Far East, Middle East, and Africa-were attributable to a substantial expansion in their exports to the United States, together with a considerable increase in their receipts of aid.

In the first quarter of 1956, the U. S. balance of payments deficit with the rest of the world, according to preliminary figures, was more than $400 million. The net transfer of gold and dollars to the rest of the world was thus nearly double the average quarterly transfer in 1955. This was not accompanied by any significant change in the balance of trade. Industrial production, which had expanded during the previous year, remained the same in the first quarter of 1956 as in the last quarter of 1955. There was a small increase in gross national product. Both the volume and the unit values of U. S. imports were slightly higher than in the previous quarter. The volume of U. S. exports fell somewhat, but export unit values rose sufficiently to increase the value of exports. The private current account surplus thus changed little. Net U. S. Government expenditures abroad were below the quarterly average in 1955. The increase in the U. S. deficit was entirely attributable to a sharp revival of the net outflow of private U. S. capital. In continuance of a trend that had appeared in the last quarter of 1955, both direct investment and the net outflow of long-term portfolio capital, mainly to Canada and Western Europe, increased and the total net outflow of private capital, estimated at more than $300 million, was nearly 60 per cent greater than the average quarterly outflow in 1955.

Industrial Continental Western Europe

There was a very large increase from 1954 to 1955 in output and income in the industrial countries of continental Western Europe, while at the same time an already favorable balance of payments was maintained and even slightly improved. The total product of this group of countries rose by some 6 per cent and their industrial production by 11 per cent, the biggest increases taking place in the Federal Republic of Germany and Austria, and the smallest in the Scandinavian countries. (See Table 8; figures for the United Kingdom and Japan are included in this and other tables for purposes of comparison.) The expansion was most marked in the metal and chemical industries; production of textiles was practically the same as in 1954.

Table 8.Industrial Continental OEEC Countries, United Kingdom, and Japan: Percentage Increases from 1954 TO 1955 in Volume of Industrial Production, Imports, and Exports
Industrial

Production
ImportsExports
Industrial Continental OEEC Countries11 115 113 1
Austria133912
Belgium-Luxembourg9616
France101212
Germany, Federal Republic of142115
Italy81115
Netherlands71210
Norway442
Sweden7117
United Kingdom5128
Japan9 2424
Source: Based on data from International Monetary Fund, International Financial Statistics.

Change in weighted average of country indices.

Manufacturing production.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Change in weighted average of country indices.

Manufacturing production.

The increasing pressure of demand was accompanied by a relaxation of quantitative trade restrictions and even, in some countries, of tariff barriers; in most countries, the volume of imports, and especially of imports of raw materials and finished manufactures, rose more sharply than industrial production. This was particularly true of Austria, the Netherlands, and Sweden. Imports of raw materials for the metal trades showed a large increase, while imports of textile materials remained practically unchanged.

The export volume also increased from 1954 to 1955 somewhat more than industrial production. This was achieved-despite some decline in the degree of preference enjoyed in various markets by European over dollar exports-by virtue of the increased competitiveness of most continental exporters. The factors underlying the competitiveness of industrial countries in export markets have been discussed in an earlier section.

The gross 1 terms of commodity trade declined slightly in most countries, with the exception of Sweden and Belgium. This was more than fully accounted for, however, by the advance in ocean freight rates.

As a result of the very large increase in the c.i.f. value of imports, the gross trade deficits of continental Western European countries increased in the aggregate from almost $1,700 million in 1954 to $2,200 million in 1955 (Table 9). The value of their exports to the dollar area rose by one sixth, but as their dollar imports increased by more than one fourth, the increase in their trade deficit with the dollar area (Table 10) exceeded the increase in their over-all trade deficit. Exports to the United States rose to much the same extent as those to other industrial countries; exports to the rest of the dollar area increased more thin those to most primary producing countries. The expansion in dollar imports, however, was more than twice the increase in imports from other areas.

Table 9.Industrial Continental OEEC Countries, Untted Kingdom, and Japan: Trade and Payments Balances and Official Reserves, 1954 and 1955(Value figures in millions of U. S. dollars)
Official
OfficialReserves2
TradePaymentsReserves2

as Per Cent
BalancesBalances1(year end)of Imports
19541955195419551954195519541955
Austria-43-18899-554123576340
Belgium-Luxembourg-235-54-461001,0461,1464141
France-40 3110 35029151,3692,12032 345 3
Germany, Federal Republic of6773227434382,6823,1205854
Italy-801-849461321,0411,2374346
Netherlands-444-5205271,2821,2894540
Norway-436-455-2791381651415
Portugal-97-114497665671189168
Sweden-193-263-29-84784702724
Switzerland-75-18267191,8371,856141124
Total-1,687-2,1931,4561,56410,95012,4315049
United Kingdom-1,676-2,413584-6462,7982,15630 420 4
Japan-770-4611273781,0221,3384354
Source: Based on data from International Monetary Fund, International Financial Statistics.

As measured by changes in reserves of gold and foreign exchange, in the net EPU position (i.e., including credits granted to, and deducting credits received from, EPU), and in the net IMF position (i.e., quotas less holdings of members’ own currencies).

Reserves of gold and foreign exchange including EPU credit balances.

Trade balance with foreign and overseas areas. The ratio of reserves to imports relates to total imports of Metropolitan France and not to imports of the franc area; in 1954 the ratio of reserves to franc area imports was 52 per cent.

In this ratio imports are total imports of the United Kingdom and not imports of the sterling area. In 1954 the ratio of reserves to sterling area imports from non-sterling area countries was 29 per cent; the ratio of reserves, including the gold and dollar reserves of the overseas sterling area countries, to sterling area imports was 38 per cent.

Source: Based on data from International Monetary Fund, International Financial Statistics.

As measured by changes in reserves of gold and foreign exchange, in the net EPU position (i.e., including credits granted to, and deducting credits received from, EPU), and in the net IMF position (i.e., quotas less holdings of members’ own currencies).

Reserves of gold and foreign exchange including EPU credit balances.

Trade balance with foreign and overseas areas. The ratio of reserves to imports relates to total imports of Metropolitan France and not to imports of the franc area; in 1954 the ratio of reserves to franc area imports was 52 per cent.

In this ratio imports are total imports of the United Kingdom and not imports of the sterling area. In 1954 the ratio of reserves to sterling area imports from non-sterling area countries was 29 per cent; the ratio of reserves, including the gold and dollar reserves of the overseas sterling area countries, to sterling area imports was 38 per cent.

Table 10.Industrial Continental OEEC Countries, United Kingdom, and Japan: Trade with the Dollar Area, 1 1954 and 1955(Value figures in millions of U. S. dollars)
19541955Percentage Change
ExportsImportsBalanceExportsImportsBalanceExportsImports
Austria3870-3247110-63+24+57
Belgium Luxembourg286386-100342434-92+20+12
France263483-220324575-251+23+19
Germany, Federal Republic of566831-2657131,200-487+26+44
Italy201349-148251467-216+26+34
Netherlands233501-268246611-365+6+22
Norway63142-7968162-94+8+14
Portugal323203543-8+9+34
Sweden122195-73138283-145+13+45
Switzerland225242-17232267-35+3+10
Total2,0293,231-1,2022,3964,152-1,756+18+29
United Kingdom1,0121,731-7191,1522,352-1,200+14+36
Japan4001,182-7816091,114-505+52-6
Source: Statistical Office of the United Nations, International Monetary Fund, and International Bank for Reconstruction and Development, Direction of International Trade.

Defined to include the United States, Canada, dollar countries of Latin America, and the Philippine Republic.

Source: Statistical Office of the United Nations, International Monetary Fund, and International Bank for Reconstruction and Development, Direction of International Trade.

Defined to include the United States, Canada, dollar countries of Latin America, and the Philippine Republic.

This expansion of dollar imports, in so far as it exceeded the general expansion of European imports, appears to have been due to three main factors: the inability of European productive capacity to satisfy fully the demand for certain items of which North America was the chief potential exporter; a poor European grain harvest in 1954; and a removal or reduction of discriminatory restrictions on dollar imports. It is impossible fully to disentangle the effects of these three factors, but the last, though of increasing importance as time went on, was probably less important than either of the other two as an explanation of the change from 1954 to 1955.

Formal dollar liberalization was adopted or extended by most members of the OEEC. In most of these countries it had been preceded, and in others it was accompanied, by informal relaxation of licensing restrictions. Whereas most of the earlier dollar liberalization had affected scarce materials (such as metals, scrap, paper raw material), liberalization was also extended, first by the Netherlands and later by such countries as West Germany, Sweden, and Denmark, to consumer or near-consumer goods, in relation to which the effects of liberalization might have been expected to be greater. The expansion of dollar imports was on the whole greater in West Germany and Sweden, where dollar liberalization had been increasing fairly rapidly over the whole 1954–55 period, than in Belgium-Luxembourg, where it had been accomplished earlier, or in France and Norway, where it had not yet made great progress.

On the other hand, an examination of the commodity composition of the increase in dollar imports indicates that it was concentrated to a considerable extent on such products as grains, which were affected by the poor European harvest, and nonferrous metals, coal, steel products, paper, pulp, etc., for which European demand outran supply and imports from other nondollar sources were not easily available. This is true to a substantial degree even of West Germany and the Netherlands, where dollar restrictions have been declining most rapidly.

There were, however, several commodities, e.g., coffee, vegetable oils, and possibly cotton, where liberalization clearly increased dollar imports. The fact that imports of manufactured goods from the United States increased by as much as 25 per cent, against an increase of 17–18 per cent in such imports from other industrial countries, may also indicate the influence of liberalization. The rise in U. S. exports of manufactures to Europe appears to have accelerated toward the end of 1955.

The trade of continental industrial countries with each other benefited from the general expansion of European demand for industrial products. In the favorable environment created by the maintenance and extension of European trade liberalization-and despite increased competition from dollar supplies-this trade expanded by some 18–19 per cent. European imports from the United Kingdom, however, increased much less sharply.

The same tendency that has already been noted for the trade of primary producing countries with the industrial countries in general to expand less rapidly than the trade of the industrial countries among themselves is also to be discerned in the trade of the continental industrial countries. The value of their trade (on an f.o.b. basis) in both directions with primary producers as a whole increased by some 5 per cent only, with, however, marked differences between the different categories of primary producers.

Despite the deterioration in their aggregate trade balances and an increased net outflow of funds on capital account, in the form both of new investments and of repayments to the United States and to the International Bank for Reconstruction and Development, the already substantial payments surpluses of the industrial continental OEEC countries showed a further increase from 1954 to 1955 (Table 9). Larger receipts from U. S. Government military expenditures and rising net receipts from invisibles-especially travel and freight-account for this increase.

The direct balance of the continental OEEC countries as a whole (including their dependencies) with the United States changed little from 1954 to 1955. The increases in U. S. Government military expenditures and in lending to finance surplus disposals was sufficient to offset the decline in grants and the deterioration of the continental balance with the United States on private transactions.

Individual Countries

The trade balances with the dollar area of practically all the industrial countries of continental Western Europe deteriorated from 1954 to 1955. While for most countries the over-all balance also deteriorated (Table 9), the balances of France and Belgium-Luxembourg improved, and those of Italy and Norway changed only slightly. In certain countries, increased domestic supplies of import-competing goods or the comparatively mild pressure of demand kept the expansion of imports down, both absolutely and in relation to the expansion of industrial output. It was in these countries that, broadly speaking, the balance of trade improved or deteriorated only a little.

The over-all payments surplus of France showed a very large increase from 1954 to 1955. The figures used in Table 9 for estimating France’s payments balance include, however, a certain amount of gold acquired by the French authorities from net dishoarding by French residents, and to that extent overstate the surplus on foreign transactions.

The sharp expansion of exports in 1955 was the most important foreign trade development in France. Output increased considerably, and there were relatively few bottlenecks. Despite substantial wage increases, the existing degree of competitiveness was sustained by large increases in productivity. French exports of foodstuffs, steel, and coal increased sharply as European demand for these products was especially active. French imports, particularly of raw materials and machinery, also increased, but proportionately less than exports. In contrast to developments in trade with foreign countries, the trade of Metropolitan France with the outer franc area did not expand, mainly because of developments in Viet-Nam and in North Africa.

In considering the significance of France’s large payments surplus in 1955, it should be borne in mind that the French balance of payments in that year was still supported by receipts from U. S. Government expenditures totaling nearly $1 billion, an amount which is likely to be reduced in 1956. At the beginning of 1956, the French payments picture deteriorated as inflationary pressures re-emerged and crops suffered heavy frost damage. As a result, imports increased sharply, exportable supplies of foodstuffs and coal dwindled, and there was an adverse movement in the leads and lags in financing merchandise trade. Finally, France’s trade balance is still dependent, to some extent, on the maintenance of import restrictions and the support given to exports by rebates of certain taxes and social security charges.

The payments balance of Belgium-Luxembourg improved by almost $150 million, from a deficit in 1954 to a surplus in 1955. This was fully accounted for by the decline in the trade deficit. A high level of world demand for steel increased both the prices and the volume of steel exports, and other exports also expanded considerably. Equally important, however, was the smallness of the expansion in imports, which was partly attributable to the comparative absence of inflationary pressures. The trade deficit of Belgium-Luxembourg was somewhat smaller than in 1954.

West Germany in 1955 continued to be outstanding in Western Europe with respect to the rate of growth of productivity and real income; though not increasing its share of export markets as rapidly as in previous years, it was again one of the European countries with the greatest expansion of exports. Nevertheless, its payments surplus declined from $743 million in 1954 to $438 million in 1955. This was more than fully accounted for by the deterioration in the visible trade balance. While the volume of exports rose by 15 per cent, that of imports rose by fully 21 per cent. This import expansion reflected, in the main, a considerable increase in the pressure of demand on domestic resources in West Germany. Partly as a result of a tightening of domestic credit, the expansion of imports slowed down in the second half of 1955, when the inventory accumulation which had characterized especially the first half of the year fell off. In the latter part of the year, exports also increased more rapidly than imports. For the year as a whole, there was an increase in foreign payments on account of restitution and a decrease in receipts from U. S. Government aid. There was also a substantial change in “errors and omissions,” and the changes in net foreign payments appear to have been offset by a decline in the net capital outflow. The trade surplus with the United Kingdom and continental EPU countries increased, while with the dollar area and the overseas sterling area there were increased trade deficits.

Real income and demand in Italy continued to increase substantially in 1955, but there still was a large reserve of unemployed manpower. Despite a sharp increase in exports, the trade balance deteriorated slightly, but this was more than offset by an increase in tourist receipts, in military dollar expenditure, and in a net inflow of capital, particularly from Switzerland. Thus the over-all balance of payments yielded a surplus in 1955, and official monetary reserves continued to increase.

The payments surplus of the Netherlands, already reduced in 1954, dwindled further in 1955. While exports continued to expand rapidly, demand pressures stimulated imports even more; there was a moderate deterioration in the visible trade balance, but this was compensated by an improvement in earnings on invisibles. Inward capital movements, mainly by way of continued large purchases of Netherlands securities against U. S. dollars, tended to offset outward capital movements. Foreign issues in the Netherlands capital market were larger than in previous years, while official debt repayment declined.

The balance of payments of Austria deteriorated from 1954 to 1955, while those of Norway and Switzerland showed an improvement. The sharp increase in Austrian imports exceeded the continued strong growth of exports. Norwegian and Swiss reserves increased as a result of greater receipts from invisibles and capital transactions, even though the trade balance worsened in both countries. Though the current account deficit of Sweden more than doubled, its payments deficit was kept within very narrow limits, partly because of leads and lags in payments. The deterioration in Austria was associated with high pressure of demand, a considerable expansion of imports, and the adverse initial consequences of the State Treaty. However, in the first four months of 1956, the Austrian balance of payments improved. The position of Norway was strengthened by increased freight earnings resulting from higher freight rates and increased shipping activity.

United Kingdom and the Sterling Area

The United Kingdom’s gold and foreign exchange reserves, which had risen by almost £210 million in 1954, declined by some £230 million in 1955 (Table 11). All this decline took place in the second half of 1955.

Table 11.International Transactions of the United Kingdom and the Overseas Sterling Area, 1954 and 19551(In millions of pounds sterling)
U.K. Transactions with
Total U.K. TransactionsOverseas sterling areaNon-sterling countries
19541955Change19541955Change19541955Change
Current and investment accounts
Visible trade-192-352-1601014+4-202-366-164
In visibles2397249-148262201-6113548-87
Investment account-176-135+41-223-94+12947-41-88
Errors and omissions3-25175+20090+90-2585+110
Change in sterling liabilities to non-sterling countries 489-93-18289-93-182
Total93-156-24949211+16244-367-411
Overseas sterling area transfers-164-137+27164137-27
Equal:
Overseas sterling area gold production, net5-200-216-16200216+16
Plus:
Other current and Investment account of overseas sterling area with non-sterling countries, balance532+27-5-32-27
Plus:
Adjustment for overseas sterling area repurchases from IMF and change in overseas sterling area gold and dollar reserves3147+16-31-47-16
Change in sterling liabilities to overseas sterling area115-74-189115-74-189
Change in U.K. gold and foreign exchange holdings 6208-230-438208-230-438
Sources: United Kingdom Balance of Payments 1946 to 1955 No. 2 (Cmd. 9731) and Fund estimates.

Preliminary.

Includes defense aid of £50 million in 1954 and £44 million in 1955.

Rounded figures (Cmd. 9731); regional allocation estimated by the Fund.

Excluding change in liabilities to IMF.

Overseas sterling area (OSA) gold production less nonmonetary consumption of gold in OSA gold producing countries.

Includes changes in official gold and dollar reserves, change in EPU debit balance, repayment to IMF (£40 million in 1954), and change in holdings of other non-sterling currencies.

Sources: United Kingdom Balance of Payments 1946 to 1955 No. 2 (Cmd. 9731) and Fund estimates.

Preliminary.

Includes defense aid of £50 million in 1954 and £44 million in 1955.

Rounded figures (Cmd. 9731); regional allocation estimated by the Fund.

Excluding change in liabilities to IMF.

Overseas sterling area (OSA) gold production less nonmonetary consumption of gold in OSA gold producing countries.

Includes changes in official gold and dollar reserves, change in EPU debit balance, repayment to IMF (£40 million in 1954), and change in holdings of other non-sterling currencies.

These reserve movements may be explained in terms of the balance of payments of the sterling area as a whole with non-sterling countries. Of the deterioration of £440 million, referred to above, only about £30 million corresponds to a decline in the non-sterling surplus of the overseas sterling area. The remainder is accounted for by a substantial decline in the United Kingdom’s own balance with non-sterling countries, including movements in sterling liabilities (Table 11).

The decline of about £30 million in the non-sterling surplus of the overseas sterling area was due partly to the fact that the balances of the sterling area countries with non-sterling countries decreased by more than the increase in their gold production, and partly to a slight increase in the rate at which the sterling area countries accumulated gold and dollar reserves of their own and repurchased their currencies from the Fund.

There was an increase of some £60 million in U. S. Government expenditures in the overseas sterling area and a somewhat higher capital inflow from European countries, while the current balance of overseas sterling area countries with non-sterling countries probably showed a moderate decline. Their current balance with the United Kingdom, on the other hand-as far as can be estimated in view of the statistical uncertainties-probably improved slightly, so that their over-all current balance cannot have deteriorated greatly.

While the export earnings of overseas sterling area countries varied according to the nature of their export products, their recovery, in comparison with 1954, was somewhat better than for most primary producing countries. The value of exports rose by some 9 per cent, and of imports by about 11 per cent, from 1954 to 1955. The imports of some of the colonies increased by an even higher proportion; and in some of the independent sterling area countries, high demand pressures had to be restrained by intensified import restrictions. While exports to non-sterling countries, especially to Japan and to the United States, rose much more than exports to the United Kingdom, the proportion of overseas sterling area imports drawn from these countries also increased, following the relaxation of restrictions on imports from these sources.

As far as is known, the decline of £410 million in the United Kingdom’s own balance on all transactions with non-sterling countries from 1954 to 1955 was fairly evenly shared between the current and the capital account, but the substantial movement in the “errors and omissions” item (Table 11) makes it impossible to be certain of this.

The deterioration in the United Kingdom’s current balance with non-sterling countries was probably accompanied by some deterioration in its current balance with overseas sterling area countries also. As already shown (Table 8), the expansion of industrial production and of exports between 1954 and 1955 was less in the United Kingdom than in most other industrial countries. A slight decline in the U.K. share of the exports of manufacturing countries as a whole might have been expected in view of the slower rate of growth of U.K. productivity. The decline was intensified by the heavy pressure of home demand. This pressure, which was particularly strong in the metal-using industries, was also in part responsible for the expansion of imports, which much exceeded the expansion of either exports or industrial production. The unfavorable harvest of 1954 and the rebuilding of domestic stocks drawn upon in 1954 also tended to increase U.K. imports.

In the United Kingdom’s over-all current balance, the decline in invisible transactions appears to have been almost as large as that in visible trade (Table 11). Despite the rise in freight rates, net earnings from shipping declined, owing to the increased use of both domestic and overseas shipping services to carry U.K. imports. Since U.K. interest rates rose during the year, interest remittances on sterling liabilities increased, while the resumption of oil operations in Iran and other expenditures abroad of an exceptional character led to a fall in net receipts from U.K. oil companies from abroad.

On both visible and invisible account, the deterioration in the U.K. current balance was more marked with non-sterling than with sterling area countries. This was due in large part to the increase in the share of U.K. imports drawn from non-sterling countries, in particular from the dollar area.

The net capital export from the United Kingdom to the overseas sterling area (excluding changes in sterling balances) amounted to some £220 million in 1954. The corresponding outflow in 1955 was probably no greater than £90 million, and it may have been less if part of the large “errors and omissions” item is attributable to the investment account. This decline, which was particularly noticeable in U.K. investment in South Africa, was probably attributable in large part to the high U.K. interest rates accompanied by relatively tight credit conditions and a scarcity of funds in the capital market. This appears to have affected the movement of short-term as well as long-term funds. As a result of all these developments, the sterling holdings of the overseas sterling area, which had risen by £115 million in 1954, fell by more than £70 million in 1955.

The development of the U.K. balance on investment account with non-sterling countries can be determined with much less certainty than that of capital movements to the overseas sterling area, because of a substantial change in “errors and omissions” (Table 11). In particular, there is no clear evidence that the relative tightening of credit in the United Kingdom had a significant net effect on the balance of capital transactions with these countries. On the other hand, U.K. sterling liabilities to these countries, which increased by about £90 million in 1954, decreased by over £90 million in 1955. Part of this change of £180 million may have represented a change in the movement of official holdings, but most of it was the result of a shift in the flow of autonomous short-term capital. Balances which had been built up in 1954, especially by residents of the dollar area, were withdrawn in 1955, possibly owing in part to diminished confidence in sterling.

Apart from seasonal movements, pressure on sterling increased on two occasions in 1955, one in the first and the other in the third quarter of the year. On both occasions, adverse movements in short-term funds accompanied a decline of overseas confidence in sterling. On the first occasion, the pressure relaxed after the U.K. authorities raised the bank rate in February and at the same time announced their intention to intervene in transferable sterling markets; in the second quarter, there was a small increase in reserves. On the second occasion, much heavier pressure on sterling ended in September after a statement by the Chancellor of the Exchequer at the Annual Meeting of the Fund, reaffirming the determination of the U.K. Government to maintain the par value of sterling at $2.80 to the pound; in the fourth quarter of 1955, reserves remained fairly steady (after allowance for payments of principal and interest on the U. S.-Canadian loans at the end of the year).

Japan

In Japan a number of factors, some of them temporary, combined to produce a large balance of payments surplus in 1955 (Table 9). Manufacturing production was more than 9 per cent above 1954, and, partly because of favorable weather, agricultural output was at record levels-almost 13 per cent above 1954. Rising world import demand and the diminution of adverse discrimination, especially in the sterling area, aided Japanese exports. Prices remained approximately stable. Relatively short delivery terms for iron and steel products and advantageous prices for synthetic fibers and miscellaneous other finished products, together with a generally favorable competitive position, raised Japan’s total exports by nearly 25 per cent in both volume and value, though exports of cotton goods other than clothing declined.

The volume of imports rose only 4 per cent, despite the much greater rise in industrial activity. There was an increase in import-saving food production, compared with 1954. Imports of textile raw materials declined, partly because of uncertainty regarding U. S. cotton price policy. Imports of machinery declined from the high level of the previous year when substantial imports were financed by an IBRD loan. These declines more or less offset increases in other raw material imports. The gross trade deficit declined considerably, and on a payments basis there was a surplus on trade account for the first time since the war.

Considerable changes took place in the geographical distribution of Japanese trade. Exports to the United States rose by 63 per cent, and those to continental Europe and the sterling area also rose considerably; exports to Indonesia and South Korea, however, were curtailed so that a better balance was achieved with these countries with which Japan has accumulated extensive short-term claims. Imports from the sterling area, which had fallen in 1954, both in absolute amount and as a percentage of total imports, expanded substantially, largely as a result of changes in Japan’s import licensing practices. Coincident with this development, and partly in consequence of it, Japanese imports from the United States and continental Europe showed an absolute decline.

Increased freight rates raised Japan’s net transportation outlay, and the balance on invisible account deteriorated accordingly. However, this was offset by the improvement in the trade balance, together with larger short-term foreign borrowing. Official reserves, which had risen by $127 million in 1954, rose by $316 million in 1955. In addition, Japan repurchased the yen equivalent of $62 million from the Fund.

Japan’s payments position continued to derive support in 1955 to the extent of some $550 million from UN and U. S. military expenditures in Japan; these special receipts were some $40 million smaller than in 1954. There were also substantial Japanese purchases of U. S. agricultural surplus products against payment in yen.

Countries Exporting Tropical Foods, Oilseeds, and Vegetable Oils

The export earnings in 1955 of countries depending to a considerable extent on coffee and cacao were in the aggregate well below the high 1954 level but only fractionally lower than in 1953. This was largely the result of the price movements of these two commodities. The average price for Brazilian coffee in 1955 declined to somewhat less than the 1953 average (Chart 1, p. 11); prices for Colombian and other mild coffees, as well as for cacao, though substantially lower than in 1954, were higher than in 1953. (Changes in the trade and the trade balances of these countries and of exporters of other tropical foods, oilseeds, and vegetable oils are shown in Tables 12 and 13.)

Table 12.Trade of Exporters of Tropical Foods, Oilseeds, and Vegetable Oils, 1954 and 1955(Value figures in millions of U. S. dollars)
ExportsImports
19541955Percentage

change
19541955Percentage

change
Exporters of coffee and cacao
Brazil1,5621,423-91,6301,307-20
Colombia657584-116726720
Other coffee producers 1474483+2434461+6
Dominican Republic120115-494112+20
Ecuador128122-5123108-12
Gold Coast294244-17199246+24
Total3,2352,971-83,1522,906-8
Exporters of other tropical foods 2
Cuba539594+10527535+2
Other Western Hemisphere 3177185+5246277+12
Ceylon377414+10282301+7
China (Taiwan)93123+32211201-5
Israel88880287326+14
Total1,2741,404+101,5531,640+6
Exporters of oilseeds and vegetable oils
French West Africa333300-10380384+1
Nigeria418370-11319380+19
Philippine Republic3963950545617+13
Total1,1471,065-71,2441,381+10
Total5,6565,440-45,9495,9270
Sources: Based on data from International Monetary Fund, International Financial Statistics, and national sources.

Costa Rica, El Salvador, Ethiopia, Guatemala, Haiti, Nicaragua.

sugar (cane), tea, bananas, citrus fruit.

Honduras, Jamaica, Panama.

Sources: Based on data from International Monetary Fund, International Financial Statistics, and national sources.

Costa Rica, El Salvador, Ethiopia, Guatemala, Haiti, Nicaragua.

sugar (cane), tea, bananas, citrus fruit.

Honduras, Jamaica, Panama.

Table 13.Trade and Payments Balances and Official Reserves of Exporters of Tropical Foods, Oilseeds, and Vegetable Oils, 1954 and 1955(Value figures in millions of U. S. dollars)
OfficialOfficial Reserves
TradePaymentsReservesas Per Cent
BalancesBalances 1(year end)of Imports
19541955195419551954195519541955
Brazil-68+116-123+34804832937
Colombia-15-88+67-1172571403821
Other coffee producers 2+29+13-6+15112127¨¨
Dominican Republic+26+3+8036363832
Ecuador+5+14-1-438343131
Cuba+12+59-27+394544938692
Other Western Hemisphere 3-52-61-2-117261¨¨
Ceylon+95+113+55+351692045866
Israel-202-238+26+2029491015
Philippine Republic-149-222-33-531981393623
Sources: Based on data from International Monetary Fund, International Financial Statistics, and national sources.

Measured by the changes in gross official reserves and net IMF position.

Costa Rica, El Salvador, Guatemala, Nicaragua.

Honduras, Panama.

Sources: Based on data from International Monetary Fund, International Financial Statistics, and national sources.

Measured by the changes in gross official reserves and net IMF position.

Costa Rica, El Salvador, Guatemala, Nicaragua.

Honduras, Panama.

Brazil was affected by lower receipts from both coffee and cacao. The effects of falling prices of coffee outweighed those of a substantial increase in the volume of exports. The export volume of cacao was virtually unchanged at considerably lower prices. Moreover, the volume of cotton exports, which had been unusually high in 1954 on account of sales from government stocks, was considerably reduced in 1955, and cotton prices also were somewhat lower. Despite the decline in export receipts, Brazil’s statistical balance of payments improved from 1954 to 1955, for a reduction of the foreign exchange offered on auction markets was followed by a drastic cut in imports, and the drain on reserves was checked. The situation was still difficult, because internal costs had risen as a result of continued budgetary deficits, monetary expansion, and wage increases, and the flow of exports other than coffee was thus impaired. Measures to stimulate such exports were taken in May 1956.

In most other coffee and cacao exporting countries, the payments position deteriorated from 1954 to 1955. Largely with a view to securing additional capital goods to speed its development program, Colombia had previously increased its imports pari passu with a sharp rise in export receipts from 1952 to 1954. It was difficult to reverse this process; investment continued high, and the maintenance of imports at the 1954 level caused a severe drain on reserves. In an attempt to reduce import demand, a number of items formerly imported at the fixed exchange rate were shifted to the free market where the rate consequently depreciated, and monetary restraints were applied.

The four major Central American coffee exporters, Costa Rica, El Salvador, Guatemala, and Nicaragua, by expanding the volume of their exports offset the adverse effects of lower prices on their coffee earnings, the total of which actually rose slightly. A sharp rise in cotton sales increased the total value of the exports of Nicaragua by well over one third of their value in 1954. Imports in all four countries rose, partly on account of grain imports necessitated by poor harvests. In Haiti, lower prices and crop failures, which cut exportable supplies severely, caused a decline in export receipts. In the Dominican Republic, most of the decline in earnings from coffee and cacao was offset by higher receipts from sugar, and the value of total exports fell only slightly. An increase in imports, partly on government account, was largely financed by a decline in foreign assets of commercial banks and by some short-term borrowing.

In Ecuador, export earnings were reduced by lower receipts for coffee and cacao, only partly offset by a sharp rise in banana exports. Owing to high domestic incomes sustained by credit expansion, imports continued large through the first part of the year, and there was a considerable drain on reserves. In order to curb import demand, some goods formerly admitted at the official rate were shifted to the free market, advance deposit requirements were extended, and import taxes imposed on a number of commodities. Some decline in imports followed, which, with the seasonal rise in exports, brought temporary relief. Later in the year, reserves again began to decline.

In several countries supplying tropical foodstuffs other than coffee and cacao, the effects upon export earnings of comparatively slight price declines were much more than offset by increased export volume. Sugar prices were comparatively well maintained (Chart 1, p. 11), as demand was greater than in 1954, while output and offerings on the market were limited under the terms of the International Sugar Agreement. Consequently, earnings from sugar exports tended to be higher than in 1954. A rise in the value of exports of Cuba, mainly sugar, together with a slight change in imports, increased Cuba’s small trade surplus. Public works undertaken to sustain economic activity in the face of reduced sugar production had to be financed in part by borrowing abroad. China (Taiwan) improved its trade balance, mainly through larger sugar and rice exports.

Ceylon increased its export receipts for all three major export commodities, tea, rubber, and coconut products. This was due to large exports of tea early in the year, when prices were still at their peak, to expanded rubber exports at favorable prices, and to a high volume of coconut exports, which more than offset the price decline for that product. As import prices declined, the rise in the value of imports was small and the accumulation of reserves which had started the year before continued throughout 1955. In the first quarter of 1956, however, declining prices for tin and rubber caused a considerable reduction of export earnings and of the trade surplus.

Exporters of oilseeds were adversely affected by the sharp price decline for their products. The earnings of African producers showed the full impact of that decline (Table 12). The Philippine Republic, though highly dependent on trade in coconut products, was able to offset lower receipts for those products by increased earnings from timber and abaca; Philippine sugar exports were well maintained. Despite the stability of export earnings, Philippine imports rose sharply in response to high domestic demand induced by increased spending for development projects; the drain on reserves which had started in 1953 persisted through 1955. An import cut in the first quarter of 1956 resulted in a reduction of the trade deficit, and reserves increased slightly.

Countries Exporting Textile Fibers, Livestock Products, Grain, and Tobacco

The export earnings of the four major wool exporting countries, Australia, New Zealand, Argentina, and Uruguay, were adversely affected by lower prices for wool and for some of their other exports. This decline, together with internal inflationary pressure and the heavy pressure of import demand, caused a severe deterioration in the payments position of each of these countries. In Uruguay and Argentina, high domestic demand also competed for export goods and tended to reduce exportable supplies.

In Australia and New Zealand, there was a moderate increase in the value of exports (Table 14); a considerable expansion in their volume more than offset the effects of falling prices. Imports advanced sharply in both countries, mainly as a result of the increased pressure of domestic demand in a fully employed economy. In both countries the payments deficit was greater than in 1954 (Table 15), though the deterioration was mitigated by an increased inflow of capital. Both countries took steps intended directly or indirectly to reduce import demand and check the drain on reserves. Australia relied mainly on import restrictions. The restrictions introduced in 1954, when some that had been relaxed the year before were reimposed, were followed by further and more severe restrictions in April and October 1955. There was for some time little response to these restrictions. The effect of those imposed in October 1955 could not be expected, in any case, to appear before mid-1956, and in March 1956 the Government announced fiscal and monetary measures with the purpose of counteracting inflationary pressure.

Table 14.Trade of Exporters of Textile Fibers, Livestock Products, Grain, and Tobacco, 1954 and 1955(Value figures in millions of U. S. dollars)
ExportsImports
19541955Percentage

change
19541955Percentage

change
Exporters of wool and livestock products
Australia1,6561,751+61,8692,160+16
New Zealand683724+6688804+17
Argentina1,0621,000-69551,100+15
Uruguay249184-26273226-17
Ireland322309-4503572+14
Denmark9481,042+101,1631,173+1
Total4,9205,010+25,4516,035+11
Exporters of vegetable fibers, grain, and tobacco,
Egypt397402+1460557+21
Sudan116137+18137138+1
Uganda115118+137198+38
Greece152183+20330382+16
Turkey335313-7478498+4
Syria129128-1174179+3
Pakistan359401+12335290-13
Total1,6031,682+51,9852,142+8
Exporters of rice
Burma251227-10204180-12
Thailand283335+18312334+7
Total534562+55165140
Total7,0577,254+37,9528,691+9
Source: Based on data from International Monetary Fund, International Financial Statistics.
Source: Based on data from International Monetary Fund, International Financial Statistics.
Table 15.Trade and Payments Balances and Official reserves of Exporters of Textile Fibers, Livestock Products, Grain, and Tobacco, 1954 and 1955(Value figures in millions of U. S. dollars)
OfficialOfficial Reserves
TradePaymentsReservesas Per Cent
BalancesBalances 1(year end)of Imports
19541955195419551954195519541955
Australia-213-407-205-2841,1338356139
New Zealand-5-80-32-602391793522
Argentina+107-100+23-1118787679270
Uruguay-24-36-56-51178127 26558
Ireland-181-263+26-182602425242
Denmark-215-131-24+11431331211
Egypt-63-155+4-91732641159115
Greece-178-199+14+601171773546
Syria-45-50+5-30 37444 44325
Pakistan+24+111+30+4432637097128
Burma+47+47-87-20124926151
Thailand-29-1-29+242732978889
Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

November 1955.

Three quarters only.

September 1955.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

November 1955.

Three quarters only.

September 1955.

Up to the end of 1955, New Zealand relied exclusively on monetary measures, gradually intensified in the course of the year, to improve the payments position. Direct controls were at first actually softened: exchange allocation for importers was terminated on January 1, 1955, and import restrictions were gradually relaxed. Late in 1955, however, it was announced that import licenses for automobiles to be granted in 1956 would be reduced by one third, and certain goods were placed under license.

Despite inflationary pressure, Argentina maintained the volume of its major exports in 1955, but as a result of reduced prices export receipts declined. This, together with a sharp rise in imports, resulting mainly from the necessity for replenishing stocks depleted by the severe restrictions of previous years, caused a severe deterioration in Argentina’s payments position. The substantial devaluation carried out in October 1955, together with the higher internal prices for agricultural products decreed toward the end of the year, is expected ultimately to increase export supplies by stimulating production.

Uruguay’s export receipts declined from 1954 to 1955 on account of declines both in price and in volume. Reduced supplies of cattle and rising domestic demand brought about a severe decline in exports of meat. Wool exports, though lagging earlier in 1955, revived in the last quarter under the stimulus of an exchange bonus. Restrictions, supplemented by depreciation of import rates in September, led to a reduction of imports which was not, however, sufficient to prevent a rise in the trade deficit and a sharp decline of reserves. Inflation which persisted throughout the year exerted continuous pressure on the balance of payments.

In contrast to most other exporters of foodstuffs, Ireland and Denmark were favored by a small rise in the prices of their exports. In Ireland, however, the value of exports fell and, as imports rose considerably, there was a drain on reserves which continued well into 1956. With a view to curbing imports, a special import levy on a wide range of consumer goods and restrictions on hire purchase were announced early in 1956. Denmark, on the other hand, improved its payments position in 1955. However, this was mainly the result of an increase of 18 per cent in exports of Danish industrial goods, against 5 per cent for agricultural products. Imports rose only slightly, and the prolonged drain on reserves which had prompted a series of anti-inflationary measures was reversed in mid-1955. The trade balance and the reserve position continued to improve in the early months of 1956.

Exporters of vegetable fibers, grain, and tobacco (Table 14) were less affected by declining prices than most other agricultural exporters. Higher prices for tobacco, jute, and long-staple cotton largely offset the effects of price declines for the other products of these countries. In Greece and Turkey, mainly on account of the large share of tobacco in their export trade, average export prices actually rose. Through a considerable increase in its exports and in net invisible earnings which more than offset the rise in imports, Greece substantially improved its payments position. This, together with aid from the United States, added considerably to Greek reserves. In spite of larger earnings from tobacco and some other exports, the total exports of Turkey declined, partly as a result of a poor grain crop which sharply reduced exportable supplies. Imports, on the other hand, rose, so that there was a deterioration in the adverse trade balance. Early in 1956, the Turkish Government announced a program of fiscal and monetary measures designed to achieve internal stability. Syria’s exports, though adversely affected by a poor grain crop, were maintained at the 1954 level by a considerable increase in cotton exports. Continued high imports during the first half of the year, however, caused a drain on reserves, which later subsided as a result of declining imports, increased royalties on the use of oil pipelines, and financial assistance from Saudi Arabia. A restrictive monetary policy may have assisted in reducing imports. Egypt’s exports lagged in the first part of the year, but gained considerably in the last quarter when cotton trade was revived, partly under the stimulus of bilateral agreements. Consequently, export receipts for the year as a whole were slightly greater than in 1954. Owing, however, to a sharp rise in imports, partly on account of governmentally sponsored development projects, the trade balance deteriorated and a considerable drain on reserves ensued, which continued into 1956.

Pakistan’s payments balance increased slightly in 1955. In the first part of the year, export earnings were greater by 5 per cent than in the first part of 1954, mainly on account of some increase in jute prices and expanded sales of jute manufactures. Receipts from cotton exports declined because of lower prices and volume. Imports were almost the same as in the first half of 1954. On July 31 the rupee was devalued. In the five months, September 1955-January 1956, exports were greater by roughly 7 per cent than in the corresponding period in 1954–55. This was mainly the result of increased cotton earnings with jute exports rising only a little. Imports in the same five months were down by over 40 per cent. These developments suggest that the devaluation may have helped in moving Pakistan’s major export commodities, and in curtailing import demand. However, other factors also affected the volume of imports, for there is still a high degree of import restriction in Pakistan.

Both Burma and Thailand were affected by reduced prices for rice, though the volume of their rice exports increased. Thailand indeed maintained its export receipts from rice; earnings from rubber exports almost doubled, and the total value of its exports was considerably greater than in 1954. Imports remained fairly stable, in part because of the elimination of preferential exchange rates for certain products, and the improved payments position permitted replenishment of reserves, which continued in the early months of 1956. In Burma, which is more dependent than Thailand on rice, the volume increase was not sufficient to offset the effects of lower prices; it is estimated that receipts declined both from total exports and from rice exports. Imports were reduced in the second half of the year by more stringent restrictions and the slowing down of Burma’s development program; the drain on reserves was thus halted. Difficulties in selling rice led Burma to conclude a number of bilateral payments agreements with Mainland China and Eastern European countries. The critical exchange shortage, which developed early in 1956 and led to a drawing on the Fund, resulted in part from the fact that roughly one fourth of Burma’s official reserves at that time represented bilateral balances which could not be used for settlement with other trading partners.

Countries Exporting Rubber, Metals, and Petroleum

Exporters of rubber, metals, and petroleum were favored by sharply rising demand for their products in industrial countries, and the value of their exports rose substantially from 1954 to 1955 (Table 16). For the countries exporting mainly rubber or metals, the increase in export receipts resulted entirely from higher prices (Chart 1, p. 11); owing to supply limitations, the aggregate volume of their exports was lower in 1955 than in 1954. In contrast, the much more moderate rise in the export earnings of the countries exporting petroleum was due entirely to an expansion of volume, petroleum prices being stable.

Table 16.Trade of Exporters of Rubber, Metals, and Petroleum, 1954 and 1955(Value figures in millions of U. S. dollars)
ExportsImports
19541955Percentage

change
19541955Percentage

change
Exporters of rubber and metals
Bolivia7274+ 37589+ 19
Chile401472+ 18343376+ 10
Belgian Congo397454+ 14371379+2
Rhodesia 1411484+ 18393435+ 11
Malaya1,0161,358+341,0261,249+22
Indonesia856932+9629604-4
Total3,1533,774+202,8373,132+ 10
Exporters of petroleum
Venezuela1,6901,912+ 131,0021,050+5
Netherlands Antilles773803+4966980+ 1
Trinidad and Tobago153167+9146172+ 18
Brunei and Sarawak228254+ 11163177+8
Iraq489520+6204269+32
Kuwait720830+ 15
Saudi Arabia800811+ 1200175-12
Total4,8535,297+92,6812,823+5
Total8,0069,067+ 135,5185,955+8
Source: Based on data from International Monetary Fund, International Financial Statistics.

Federation of Rhodesia and Nyasaland.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Federation of Rhodesia and Nyasaland.

Price increases for rubber and metals varied widely, ranging from 70 per cent for rubber to not more than 3 per cent for tin. These differences, as well as differences in the extent to which individual countries succeeded in expanding their output and their exports, account for the great inequalities in the rates of increase of their export earnings.

Bolivia is the only exporter of metals whose trade balance deteriorated in 1955 (Table 17). Export earnings rose slightly. A decline in tin exports resulting from reduced output was more than offset by increases in export values of other metals, owing to larger volume and in some cases higher prices, and more significantly, by growing exports of petroleum products. A high rate of internal inflation was mainly responsible for the sharp rise in Bolivian imports and the resulting increased trade deficit. Notwithstanding expanded U. S. aid, Bolivia’s reserves were further depleted. The free rate of exchange depreciated by more than 50 per cent in 1955.

Table 17.Trade and Payments Balances and Official Reserves of Exporters of Rubber, Metals, and Petroleum, 1954 and 1955(Value figures in millions of U. S. dollars)
OfficialOfficial Reserves
TradePaymentsReservesas Per Cent
BalancesBalances 1(year end)of Imports
19541955195419551954195519541955
Bolivia-3-15-13-5116157
Chile+58+97-26+4439831122
Indonesia+227+328+21+592483073951
Venezuela+688+862-2+544755294750
Iraq+285+251+52+53233294114109
Iran+1+10186205
Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

Chile also suffered severely from inflation, but continued severe restrictions kept the expansion of imports within moderate limits. This, together with increased export receipts, mainly on account of high copper prices, raised the trade surplus by nearly $40 million. External reserves, instead of falling, as in the previous year, increased, and short-term liabilities were reduced. The comprehensive program of fiscal and monetary measures which was adopted early in 1956, and the reforms of the Chilean exchange system and the stand-by agreement with the Fund which were made at the same time, are reported elsewhere.

By far the largest absolute and relative increase in export earnings accrued to Malaya, chiefly on account of the sharp rise in receipts from rubber exports. This was mainly the result of higher prices, but there was also some increase in the volume of exports. Imports rose much less, part of the rise consisting of imports of rubber for processing and re-export. The trade balance, which had been in deficit in 1954, showed a considerable surplus in 1955.

Indonesia also profited from higher rubber prices, but the increase in total export earnings was limited by a decline in volume and by lower prices for export goods other than rubber. Imports were less than in 1954, largely because of greatly reduced rice imports in the first three quarters. Rising internal food prices, however, necessitated increased rice purchases abroad, which were largely responsible for the increase in imports in the last quarter of 1955 and the early months of 1956. This increase and sharply declining rubber export receipts resulted in a trade deficit and declining reserves in the early months of 1956.

All the petroleum exporting countries shown in Table 16 increased their export receipts. Venezuela, whose resources are being rapidly developed, doubled its production of iron ore; exports of products other than oil, however, still account for only a small portion of Venezuela’s export trade. Domestic prices remained stable, and imports, though larger than in 1954, rose considerably less than exports. As a result, both the trade surplus and foreign reserves rose sharply. There was little change in the trade balance of Iraq; although imports rose more than exports, there was a considerable export surplus, and the accumulation of reserves continued. In Iran, oil production recovered sharply from the low level of previous years and, in spite of a rise in imports by some $35 million, foreign exchange reserves increased.

Other Countries, Including Countries with Diversified Exports

Tables 18 and 19 summarize trade and reserve developments in a number of countries which do not fit conveniently into any of the categories listed above. They differ widely in economic structure and the extent to which their natural resources have been developed, and the exports of most of them are more diversified than those of any of the primary producing countries that have already been examined.

Table 18.Trade of Exporters of Diversified Commodities, 1954 and 1955(Value figures in millions of U. S. dollars)
Exports f.o.b.Imports c.i.f.
19541955Percentage

change
19541955Percentage

change
Canada 14,2264,595+94,5495,165+14
Union of South Africa and South West Africa 29501,054+111,3581,485+9
India1,1821,269+71,2971,361+5
Mexico 3670804+20789884+12
Peru245268+9250300+20
Yugoslavia240257+7344441+28
Finland681788+16656769+17
Source: Based on data from International Monetary Fund, International Financial Statistics.

Exports adjusted to exclude military end-items.

Exports and imports for 1954 corrected to exclude trade between Union of South Africa and South West Africa.

Exports adjusted for undervaluation of customs figures.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Exports adjusted to exclude military end-items.

Exports and imports for 1954 corrected to exclude trade between Union of South Africa and South West Africa.

Exports adjusted for undervaluation of customs figures.

Table 19.Trade and Payments Balances and Official reserves of Exporters of Diversified Commodities, 1954 and 1955(Value figures in millions of U. S. dollars)
OfficialOfficial Reserves
TradePaymentsReservesas Per Cent
BalancesBalances 1(year end)of Imports
19541955195419551954195519541955
Canada-323-570+127-441,9541,9104337
Union of South Africa-408-431+121-484163683025
India-115-92+63+501,7821,791137132
Mexico-119-80-17+2572014352549
Peru-5-32+7-456522217
Finland+25+19+66+82112193228
Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves and net IMF position.

Exports of Canada increased in 1955 by almost $400 million and their value almost equaled the peak figure recorded in 1952. There was a substantial expansion in export volume, and also some increase in average export prices. Both the volume and prices of grain exports declined, but this was far more than outweighed by the expanding volume and higher prices of exports of industrial materials-metals, lumber,, pulp, newsprint, and chemicals.

The sharp upturn in Canadian economic activity in the second quarter of 1955, which followed the minor recession in 1954, gave rise to a considerable increase in Canadian imports, which was particularly pronounced in the third and fourth quarters, and continued in the first quarter of 1956. The growth of imports exceeded the expansion of exports, leading to a deterioration in the trade balance and increasing the current account deficit. With the narrowing of the differential between Canadian, and U. S. interest rates in 1955, there was a decline in the net inflow of long-term U. S. capital into Canada, which is more fully described in Chapter IV.

In the balance of payments of South Africa, there was a small reduction in the current account deficit, accompanied by a sharp decline, from $210 million to. $20 million, in net capital inflow. In contrast to 1954, the net capital inflow in 1955 was not sufficient to cover the current account balance, and official reserves declined.

The slight improvement in the current balance was the result of a rise in exports by over $100 million and in gold production by $60 million, largely attributable to earlier investments in new gold mines and uranium plants. Atomic energy material contributed $45 million to the rise in total exports, while receipts for wool fell slightly, in spite of a substantial rise in export volume. Rising economic activity, pressure on domestic prices, and relaxation of import controls for both capital and consumer goods were the main reasons for the rise in imports.

The decline in net capital inflow was mainly in private capital, where a net inward movement of over $150 million in 1954 was succeeded by a net outflow of almost $10 million in 1955. This was attributable partly to the near completion of investments in the new gold mines and uranium plants and partly to the rise of interest rates in London above the South African level.

India’s balance of payments in 1955 showed a stronger position than in 1954. Both exports and imports were higher, and India was able to increase its foreign exchange holdings, even after repurchases of rupees from the Fund. The value of exports was greater than in 1954 by 7 per cent. This was mainly the result of an increase in the volume of exports, mostly of raw materials-vegetable oils, shellac, and raw cotton. Exports of tea and cotton textiles declined, while exports of jute manufactures increased moderately. The increase of 5 per cent in the value of imports, resulting partly from higher prices, was concentrated mainly on capital goods, industrial materials, and machinery, closely linked to India’s development program. Imports of grain, partly on government account, were somewhat less than in 1954. During the second half of the year, however, in an effort to check rising food prices, the Government released grain from stocks accumulated earlier, and early in 1956 announced its intention to build up additional food reserves through purchases of wheat from the United States and other sources and of rice from Burma.

The balance of payments of Mexico showed a striking improvement in 1955, resulting largely from a considerable rise in net receipts on current account, and from large-scale repatriation of private capital. Excellent coffee and cotton crops permitted a sizable expansion in the volume of their exports, far outweighing the effects of lower prices. Larger exports of silver and fuel oil and higher prices for metals further added to the increase in export receipts. Net earnings from tourist traffic also showed a substantial gain. The increase in imports was concentrated on capital goods; food imports were reduced as favorable crops provided larger domestic grain supplies. The rise in the current surplus and the return of flight capital more than doubled foreign exchange reserves in the course of the year; by the end of December they had reached the record figure of $435 million.

In Peru, average export prices remained virtually unchanged, but an expanded volume of trade increased exports by roughly 9 per cent. After a period of stability under the Government’s stabilization program of 1954, pressures recurred in the second half of 1955, arising from increasing public and private investment and expanding business activity sustained by bank credit expansion. As a result, imports for the year as a whole increased far more than exports. This reversed the previous growth of reserves which, after having reached a peak of $58 million at the end of July, declined to $47 million by February 1956. Reserves subsequently recovered by the end of April to $53 million, primarily because of favorable markets for mineral exports. Moreover, late in 1955 the Government slowed down the rate of public investment and adopted measures of credit restraint with a view to checking the rising domestic demand.

Yugoslavia’s trade balance and payments position deteriorated considerably from 1954 to 1955. A high level of internal demand, caused by a high rate of investment in the industrial sector, as well as the poor grain crop in 1954, limited expansion of exports, and were largely responsible for a sharp increase in imports of both capital and consumer goods. As in 1954 the largest part of the trade deficit was covered by U. S. grants and by U. S. credits, financing the sale of surplus foodstuffs. Late in 1955, the Government took new and more energetic steps to slow down the rate of industrial investment and to raise agricultural production.

Finland profited from the high level of demand in 1955 for timber, pulp, and paper, and was able to expand exports at somewhat higher prices. Imports rose by roughly the same amount; the current account surplus was only slightly below that of 1954 and reserves increased somewhat. A general strike early in 1956 hampered the expected further expansion in output and exports.

Import prices c.i.f.; export prices f.o.b.

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