Chapter

III World Payments Situation in 1957

Author(s):
International Monetary Fund
Published Date:
September 1958
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Main Trends in World Trade

WORLD industrial production (excluding countries of the Soviet area), which had increased by 11 per cent from 1954 to 1955 and by 4½ per cent in the following year, grew by only 2½ per cent from 1956 to 1957. The seasonally adjusted index of production remained on a plateau throughout the first three quarters of 1957, and declined in the last quarter. In the United States industrial output was much the same in 1957 as in 1956, declining in the last quarter after having been fairly stable for about a year. In other industrial countries, output rose by the same percentage, 6 per cent, from 1956 to 1957 as from 1955 to 1956; but flattened out from the second quarter of 1957. The experience of individual countries varied considerably; while Japan’s output expanded by 17 per cent, and large gains were also achieved by France and Italy, the changes in output in Canada and Belgium were similar to that in the United States.

The growth of world trade from 1956 to 1957 was much less than in preceding years. The volume of world exports, which had risen by some 10 per cent from 1954 to 1955, and by 8 per cent in the following year, rose by 5 per cent from 1956 to 1957. In recent years world trade has grown markedly relative to world production. Save from 1955 to 1956, however, when the ratio of imports to production increased in most countries, this has been due largely to the fact that in the United States, where this ratio is much lower than in most countries, industrial production has been growing more slowly than in the rest of the world. The fact that trade increased less from 1956 to 1957 than from 1955 to 1956 is to be explained partly by the exceptional factors operating to expand trade in 1956, and partly by the slowing down in 1957 in the rate of expansion of economic activity.

The decline in the rate of growth of international trade was common to the exports of both industrial and nonindustrial countries affecting their volume as well as their value (Table 6). The rate of growth of the volume of exports of industrial countries, which had been 10 per cent in 1956, fell to 8 per cent in 1957. The corresponding rates for the volume of U.S. nonmilitary exports were 16 per cent and 9 per cent. The year-to-year rate of growth of the exports of industrial countries remained considerably greater than that of the exports of nonindustrial countries. The decline in the latter (from 5 per cent to 2 per cent) resulted from the leveling off of their exports both to the United States and to other industrial countries. There was, however, an expansion of the trade between nonindustrial countries, which had barely risen between 1955 and 1956, and a sharp rise in their exports to the Soviet area. The volume of world trade in manufactures continued to rise until the second quarter of 1957; trade in raw materials and foodstuffs declined each quarter from the last quarter of 1956.

Table 6.Value, f.o.b., of World Trade, 1955-57(Value figures in billions of U.S. dollars)
Percentage Increase
1955195619571954 to

1955
1955 to

1956
1956 to

1957
World exports182.891.698.710118
Exports of industrial countries247.854.560.3131411
Exports of nonindustrial countries335.037.138.4663
Trade of industrial countries
With each other
Total21.224.627.6181612
Between OEEC countries414.115.717.2181110
Exports of OEEC countries4 to U.S.2.12.52.622204
Exports of U.S. to OEEC countries43.74.65.3212515
With nonindustrial countries
Exports of industrial countries25.728.631.29119
Exports of nonindustrial countries525.026.727.0671
With Soviet area6
Exports of industrial countries0.91.31.5193517
Imports f.o.b. from Soviet area71.11.41.429274
Sources: Based on data from International Monetary Fund, International Financial Statistics, and Statistical Office of the United Nations, International Monetary Fund, and International Bank for Reconstruction and Development, Direction of International Trade.

Excluding exports of the Soviet bloc and Mainland China, and U.S. military exports.

Total exports of the United Kingdom, Austria, Belgium-Luxembourg, France, the Federal Republic of Germany, Italy, the Netherlands, Norway, Portugal, Sweden, Switzerland, and Japan, and nonmilitary exports of the United States.

All other countries, excluding the Soviet bloc and Mainland China.

Other than the nonindustrial countries, Denmark, Greece, and Turkey.

Partly estimated.

Including Mainland China.

C.i.f. values of imports from the Soviet area, which consist mainly of European industrial countries’ imports from Eastern Europe, have been reduced by somewhat less than 10 per cent in all years.

Sources: Based on data from International Monetary Fund, International Financial Statistics, and Statistical Office of the United Nations, International Monetary Fund, and International Bank for Reconstruction and Development, Direction of International Trade.

Excluding exports of the Soviet bloc and Mainland China, and U.S. military exports.

Total exports of the United Kingdom, Austria, Belgium-Luxembourg, France, the Federal Republic of Germany, Italy, the Netherlands, Norway, Portugal, Sweden, Switzerland, and Japan, and nonmilitary exports of the United States.

All other countries, excluding the Soviet bloc and Mainland China.

Other than the nonindustrial countries, Denmark, Greece, and Turkey.

Partly estimated.

Including Mainland China.

C.i.f. values of imports from the Soviet area, which consist mainly of European industrial countries’ imports from Eastern Europe, have been reduced by somewhat less than 10 per cent in all years.

The imports of nonindustrial countries continued to grow faster than their exports, as can be seen from the fact that the exports of industrial to nonindustrial countries rose considerably more in value than the exports of nonindustrial to industrial countries. Import surpluses maintained for a number of years have placed considerable pressure upon the reserves of some of the primary producing countries; the increase in these surpluses in 1957 was to a considerable extent linked with the increasing flow of capital and grants by industrial countries, particularly the United States.

The volume of trade between industrial European countries continued to increase by about 7 per cent per annum—a little faster than industrial production—but there was a marked slowing down in the rate of growth of trade between the United States and industrial countries in Europe. From 1954 to 1956, the dollar value of trade in both directions had expanded at an annual rate of over 20 per cent. From 1956 to 1957, the increase in the value of exports from industrial OEEC countries to the United States was only 4 per cent; while the value of U.S. exports to industrial Europe, which were swollen by abnormal purchases of petroleum and cotton, increased by 15 per cent. Despite the absence of growth in U.S. output between 1956 and 1957, U.S. imports of finished manufactures rose in value by some 13 per cent; but since the United States purchases from industrial countries considerable quantities of raw and semimanufactured materials, for which demand declined, the increase in the value of total U.S. imports from other industrial countries was relatively small, and was largely accounted for by the rise in imports from the Federal Republic of Germany and Japan.

Some indication of the effects of the relative export competitiveness of various industrial countries is provided by the data relating to manufactured exports given in Table 7. These exports from Germany, Italy, and Japan continued to grow three times as fast as those from the other leading exporters of manufactures, and accounted for nearly half of the growth of world trade in manufactures from 1956 to 1957. The rate of expansion was similar in France and in Austria—the expansion in France, which was in large part a result of rapidly rising exports to the French overseas territories, contrasting sharply with the deterioration in 1956. While Austrian, Italian, and, to a lesser extent, German export prices rose rather less than the average, the availability of ample capacity and manpower was an important factor in fostering the rapid growth of exports from these countries. The slackening in the rate of expansion of Japanese manufactured exports seems to have been confined to ships, exports of which had trebled from 1955 to 1956.

Table 7.Industrial Countries: Percentage Increase or Decrease (-) from Previous Year in Volume of Industrial Production, of Imports, and of Manufactured Exports, and in Unit Value of Manufactured Exports, 1956 and 1957
ProductionImportsManufactured

Exports
Export

Unit Value
19561957195619571956195719561957
Japan122172723201343
France129156–61341
Italy2881311181711
Germany, Federal Republic of861212171632
Austria34671418163
Sweden3467131133
Switzerland1561162
Norway4438–11711311
Netherlands421352425
United Kingdom–12–146243
Belgium-Luxembourg611213–324
United States539211964
Total642.59710943
Total, excluding United States6610810933
Sources: Production and import figures are based on data from International Monetary Fund, International Financial Statistics. Data on manufactured exports, except those for the United States and Norway, were supplied by the Statistical Office of the United Nations.

Estimate based on figures for manufacturing and mining in International Financial Statistics.

Volume of imports estimated on basis of value and price data.

Changes in volume and unit value of total exports.

Export figures based on staff estimate.

Trade figures are based on data from U.S. Department of Commerce, World Trade Information Service, Statistical Reports. Figures relate to nonmilitary exports of semifinished and finished manufactures, as defined in U.S. trade statistics.

Changes in weighted averages for countries shown. The weights for production data are values added to manufacturing and mining industries in 1953; the weights for trade are values of imports and manufactured exports, respectively, in 1953.

Sources: Production and import figures are based on data from International Monetary Fund, International Financial Statistics. Data on manufactured exports, except those for the United States and Norway, were supplied by the Statistical Office of the United Nations.

Estimate based on figures for manufacturing and mining in International Financial Statistics.

Volume of imports estimated on basis of value and price data.

Changes in volume and unit value of total exports.

Export figures based on staff estimate.

Trade figures are based on data from U.S. Department of Commerce, World Trade Information Service, Statistical Reports. Figures relate to nonmilitary exports of semifinished and finished manufactures, as defined in U.S. trade statistics.

Changes in weighted averages for countries shown. The weights for production data are values added to manufacturing and mining industries in 1953; the weights for trade are values of imports and manufactured exports, respectively, in 1953.

More than half the increase in U.S. exports of manufactures in 1957 occurred in trade with Latin America and was closely associated with the large outflow of U.S. capital to that area. Netherlands exports of manufactures grew very little from 1955 to 1957, and Swiss exports expanded less in 1957 than in 1956, largely because of increasing shortages of manpower and capacity in both these countries, especially in the metals and machinery industries, and in the context of heavy domestic investment. The expansion of Belgian and Norwegian exports was limited by slackening demand for metals, which form a large proportion of their exports of manufactures.

The relatively slow growth of U.K. exports in recent years can to some extent be explained in terms of their area distribution and commodity composition. The United Kingdom sells a much smaller proportion of its exports in the fast expanding European market, and a much larger proportion in the relatively slowly expanding sterling area market, than do most other industrial countries. However, its share of exports of manufactures to both these areas declined in 1957, and the U.K. share of total world exports also fell for each of the major groups of manufactured export goods. The expansion of U.K. exports was also hampered in 1957 by the events of Suez. Average U.K. export prices of manufactured goods in general did not rise more than those of most other countries, and indeed rose less than the prices of some of its competitors; this was due partly to the high proportion of the total volume of exports which consisted of textiles and other consumer goods, the prices of which generally rose less than those of other manufactures. U.K. prices of machinery appear to have risen relative to German prices.

Price Developments and Export Receipts of Primary Producers

Average world market prices for primary products, after advancing to a peak early in 1957, declined throughout the rest of the year. The decline was moderate in the first half of the year, as the prices of certain products, e.g., wool and sugar, were still rising or had not yet shown any marked downward trend. In the second half, however, it became steeper and much more widespread. By the end of the year the prices of many primary products were well below their level at the end of 1956.

Particularly after mid-1957 the course of raw material prices was determined largely by the flattening out and subsequent decline in world industrial production. The virtual cessation of purchases for strategic stockpiles and the expansion of productive capacity, particularly for metals, were factors tending to intensify the price decline. The weakening of food prices was caused mainly by a falling off in import demand associated with larger cereal and sugar crops in importing countries, and by the disappearance of shortages in the coffee market and of the temporary fillip to sugar and tea prices given by the interruption to traffic through the Suez Canal.

Market prices of primary products in general declined during 1957, but for the year as a whole they were still higher than in 1956. For this reason and owing to the fact that the movement of prices obtained by exporters tends to lag behind market quotations, the f.o.b. export prices of primary producing countries in 1957 as a whole appear to have been some 1½ per cent higher than in 1956. Over the same interval of time, however, the export prices of industrial countries rose by more than 3 per cent. Moreover, freight rates probably increased on balance between 1956 and 1957. Tramp rates fell some 20-30 per cent, owing to the diminishing scarcity of shipping, but liner rates continued to rise because of increasing costs. Therefore, the average terms of trade of primary producing countries—which of course covers a considerable diversity in the experience of individual countries—may have deteriorated by some 2 per cent from 1956 to 1957, following a decline of 5 per cent in the previous year.

After a temporary improvement late in 1956 and early in 1957, the terms of trade of the primary producing countries deteriorated throughout the rest of the year as the decline in the prices of their exports was accompanied by higher prices for many of their manufactured imports. The corresponding improvement for industrial countries, however, did not show up in the trade statistics until late in 1957; because of rising freight rates and the time taken in shipping primary products, the import prices (c.i.f.) of these products in the industrial countries continued to rise for some time after their export prices in the producing countries had begun to fall. Preliminary data indicate continued deterioration in the terms of trade of primary producing countries in the early months of 1958.

Movements in the prices of tropical foodstuffs were widely divergent in 1957, ranging from a 20 per cent decline for mild coffee to a 70 per cent rise for cocoa. For the year as a whole, the price of Brazilian types of coffee declined by only 2 per cent, but the volume of Brazil’s coffee exports fell by 15 per cent. Early in 1958, increased caution on the part of buyers caused a further weakening of prices, despite export limitations under the Mexico Agreement which had been concluded in October 1957 by seven coffee producing countries. Although increased exports of other products partly offset the decline in earnings from coffee, the total export receipts of major coffee exporters as a group were some 5 per cent lower in 1957 than in the previous year (Table 8).

Table 8.Trade of Primary Producing Areas,1 1956 and 1957(Value figures in billions of U.S. dollars)
Exports f.o.b.Imports c.i.f.
19561957Percentage

change
19561957Percentage

change
Major countries exporting
Tropical foods
Coffee2.552.43–52.412.53+5
Other foods23.003.20+73.473.84+ 11
Other agricultural products37.417.89+68.589.11+6
Metals and rubber3.963.84–33.784.02+6
Petroleum5.575.83+43.604.42+23
Major countries with
diversified exports10.6011.04+413.4214.45+8
Total33.0834.23+335.2538.37+9
Source: Based on data from International Monetary Fund, International Financial Statistics.

The countries in each category are listed in Tables 19, 21, 23, and 25.

Cocoa, tea, sugar (cane), bananas, oilseeds, and vegetable oils.

Textile fibers, livestock products, grain, and tobacco.

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

The countries in each category are listed in Tables 19, 21, 23, and 25.

Cocoa, tea, sugar (cane), bananas, oilseeds, and vegetable oils.

Textile fibers, livestock products, grain, and tobacco.

The steep rise in the “world” price of sugar in late 1956, when demand was greatly intensified by speculative buying, was reversed in mid-1957 with the recovery of domestic production of sugar in importing countries. Average prices for the year, however, were nearly 50 per cent above the 1956 level. The advance in tea prices which also followed the closure of the Suez Canal was comparatively moderate and short-lived, and was followed by a sharp decline early in 1957. Cocoa prices continued through the first quarter of 1957 the decline that had been under way since 1954. Revival of demand was mainly responsible for the subsequent upturn; late in the year, short crops in West Africa led to a sharp advance, and for the year as a whole cocoa prices were some 15 per cent above the 1956 average.

The export earnings of most of the major exporters of tropical foodstuffs other than coffee were higher in 1957 than in 1956, largely on account of higher prices but also because of a larger volume. The export receipts of the major exporters of oilseeds and oils, however, declined as a result of lower prices and, in the Philippine Republic, a smaller volume.

The sharp rise of wool prices which started at the beginning of the 1956-57 season continued into the first half of 1957, when prices were some 25 per cent higher than in the first half of 1956. Despite a sharp downturn in the last quarter—which continued at a more moderate rate into 1958—average prices in 1957 were some 10 per cent higher than in the preceding year. The prices of other livestock products changed much less than wool prices, and in general were lower than in 1956. The effects of these movements on the receipts of major exporters of wool and livestock products varied widely. For some countries in that group, expanded sales of nonagricultural products, including manufactures, contributed to higher receipts or offset the decline in earnings from livestock products.

Except for a sharp decline in the prices of extra long staple cotton, there was little change during 1957 in the prices of vegetable fibers. The same is true of the prices of wheat and rice.

The commodities whose prices declined most sharply from 1956 to 1957 were some of the nonferrous metals, especially copper. The price of tin, which was supported by purchases for buffer stocks, supplemented late in the year by drastic export restrictions, declined only moderately. The price of rubber, after a slight and short-lived rise following the Suez events, kept declining at a moderate rate through 1957. On the average for the year, rubber prices were some 8 per cent lower than in 1956.

The export receipts of the major exporters of metals and rubber as a group were roughly 3 per cent less in 1957 than in the previous year. Losses were heavily concentrated on the countries exporting mainly copper; exporters of tin and rubber were able to offset, partly or wholly, the effect of somewhat lower prices for these products by expanding other exports.

The prices of petroleum and its products rose after the Suez events, and the increased export receipts of major petroleum exporters in 1957 were, to some extent, the result of these higher prices. Expansion of volume from Middle Eastern sources was hampered through part of the year by the blockage of the Suez Canal and of the oil pipelines.

Balance of Payments Developments and Reserves

The surplus of other countries in their transactions with the United States, as measured by the transfer of gold and dollars from the United States to official reserves elsewhere, has declined gradually for several years from the high figure of about $2.3 billion reached in 1953, and in the last quarter of 1956 there was a deficit. For the 12 months ended September 1957, the deficit amounted to almost $2 billion. The transfer of gold and dollars to the United States ceased in the last quarter of 1957, but for the calendar year as a whole it amounted to some $1.4 billion. Roughly half of that amount, however, flowed back to the reserves of countries other than the United States during the first four months of 1958 and this movement continued after the end of April.

The transfer of reserves from other countries to the United States in 1957, which occurred despite a further increase in U.S. private capital exports from the high level of 1956, appears to have been attributable in part to a movement of private short-term funds to the United States which occurred in two waves, one in the last quarter of 1956 provoked by the events of Suez and the other in mid-1957 as a result of expectations of exchange adjustments of sterling and other European currencies; in part to abnormal demands for U.S. petroleum, cotton, and wheat; and in part to the natural trade effects of an intensification of inflationary pressures in 1956-57 in various parts of the world, combined with a slowing down of economic growth in the United States. The remarkable recovery in the payments balance of the rest of the world with the United States which occurred in the last quarter of 1957 and, more strongly, in the first quarter of 1958, appears to have resulted partly from the reaction upon U.S. exports of the various steps taken in other countries in 1957 to rectify their adverse payments positions and to reduce the pressure of internal demand, and partly from some reflux of the capital which had flowed into the United States during the previous year, together with a renewed rise in U.S. capital outflow. At the same time the volume of U.S. imports was well sustained. All these developments in the balance of payments of the United States were reflected first in the deterioration from 1956 to 1957 of the global payments balances of both industrial and nonindustrial countries for the year as a whole (Table 9), and later in an improvement in the reserves of countries other than the United States in the last quarter of 1957 and early 1958.

Table 9.Payments Balances1 of Countries Other Than the United States, by Major Groups, 1955, 1956, and 1957(In millions of U.S. dollars)
195519561957
Industrial countries2
United Kingdom–645–557–549
Germany, Federal Republic of4411,2151,353
Other industrial OEEC countries1,125–717–773
Japan379168–678
Total1,300109–647
Nonindustrial countries3
Exporters of
Coffee–83144–146
Other tropical foods–7610–154
Other agricultural products–579148–9
Petroleum122490426
Metals and rubber94–46–230
Exporters of diversified commodities249–344–1,031
Total–273402–1,144
Source: Based on data from International Monetary Fund, International Financial Statistics.

Measured by changes in gross official reserves of gold and foreign exchange (with adjustments for the United Kingdom and Japan as indicated in Chapter V, page 87, footnote, and Table 18, footnote 6, respectively), in net EPU positions, and in net IMF positions.

Based on balances for individual countries shown in Table 18.

Based on balances for individual countries shown in Tables 20, 22, 24, and 26. The countries in each category are listed in those tables.

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

Measured by changes in gross official reserves of gold and foreign exchange (with adjustments for the United Kingdom and Japan as indicated in Chapter V, page 87, footnote, and Table 18, footnote 6, respectively), in net EPU positions, and in net IMF positions.

Based on balances for individual countries shown in Table 18.

Based on balances for individual countries shown in Tables 20, 22, 24, and 26. The countries in each category are listed in those tables.

The payments surplus of industrial countries other than the United States has been falling year by year since 1954, and in 1957 there was a sizable deficit. The United Kingdom moved into payments deficit in 1955; its deficits in the two following years were somewhat smaller than in 1955 because of substantial surpluses on current account. Deficits appeared in the Netherlands and France in 1956. In 1957 the French deficit increased and there was also a deficit in Japan (Table 18). The Federal Republic of Germany has been a marked exception to the general trend; its surplus has been rising for several years, and in some degree has been the counterpart of the deficits of other European countries.

The comparative fortunes of these industrial countries with respect to their payments surpluses and deficits depended to a small extent on special factors affecting the demand for their exports, but mainly on the comparative degree of inflationary pressure which these countries maintained and, in some countries, on large and disequilibrating capital movements.

Thus the continuance into 1957 of the large payments surplus which Germany had already attained in 1956 was due partly to the strong demand for Germany’s exports, partly to the capital inflow (which is discussed below), and partly to the steps taken to curb the inflationary effects of the accumulation of reserves. The disinflationary influence of a budget surplus, such as had been felt in 1956, was removed in 1957, but open market operations and new minimum reserve requirements offset to a large extent the impact of the large payments surplus on bank liquidity.

The slight deterioration of Belgium’s trade and payments balances was the result mainly of some increase in the value of imports, the expansion of exports being limited by the unfavorable markets for Belgium’s principal export products. The much larger declines in the balances of France and Japan, however, were attributable largely to internal causes. In Japan, various budgetary and other steps were taken to relax demand pressure and to discourage imports, and the balance of trade and payments recovered to a considerable extent in the second half of the year. Pressure of demand in France, based largely on a steep rise in private investment and a substantial increase in government expenditures, persisted throughout the year. The payments balance of the United Kingdom was to a considerable extent affected by the conditions prevailing in other sterling area countries which, on balance, led to a considerable running down in 1957 of their sterling holdings.

The fluctuations in the payments balances of the United Kingdom, the Netherlands, and Germany from the fourth quarter of 1956 to the first quarter of 1958 were much influenced by exceptionally large and irregular movements of short-term funds, a large part of which resulted from the “leads and lags” of trade payments. These movements also had some influence on the French balance. Part of the pressure on sterling and part of the surplus of the United States and Germany in the fourth quarter of 1956 were attributable to movements of funds arising out of fears generated by the events of Suez. While this crisis abated after a few months, confidence in sterling remained low in the first half of 1957, largely owing to the belief that prices and wages in the United Kingdom were tending to rise more rapidly than in competing countries; and there was a substantial outflow of long-term capital from the United Kingdom to the United States by way of various gaps in the exchange control systems of some sterling area countries. In the middle of 1957, the effects of adverse capital movements and of speculative increases in imports were added to the influences which were weakening the payments position of France. The de facto devaluation of the franc in August and the rapid rise of German reserves led to a widespread belief that the deutsche mark might be revalued and sterling and other European currencies depreciated; this, in turn, led to heavy outflows of funds from the United Kingdom and the Netherlands and large inflows into Germany and the United States. It is estimated that outflows of this kind from official reserves in the third quarter of 1957 were of the order of $600-700 million in the United Kingdom, and of about $175 million in the Netherlands; the inflow into Germany and into the United States may have amounted to $500 million in each case.

The crisis of confidence was resolved partly by the firm statements on exchange rate stability made at the Annual Meeting of the Fund in September, and partly by the further stiffening of financial policies in the United Kingdom, France, and the Netherlands and the relaxation of German credit policy. The provision of international financial assistance in a variety of forms helped to alleviate the pressure on reserves, and in the fourth quarter of 1957, and still more in the first quarter of 1958, there was a reflux of short-term funds from the United States and Germany to the United Kingdom and the Netherlands.

The aggregate trade balance of the nonindustrial countries deteriorated by $1 billion from 1955 to 1956 and by $2 billion from 1956 to 1957. While from 1955 to 1956 increases in their capital imports and in certain invisible receipts were so great that the aggregate payments balance actually improved, only part of the deterioration in the trade balance from 1956 to 1957 was offset by improvements in other items. The payments balance thus deteriorated by $1.5 billion, from a surplus of $400 million to a deficit of more than $1.1 billion.

The trade balance for each of the main categories of primary producing countries shown in Table 8 deteriorated from 1956 to 1957, imports increasing significantly even in the two categories where there was an absolute decline in export receipts. In each group, inflationary pressure played a part in stimulating imports. In the two groups where exports declined, the rise in imports reflected in part a lagged response to increased export earnings in 1956.

For exporters of petroleum and of metals and rubber, the payments balance (Table 9) deteriorated significantly less than the respective trade balance, largely owing to increased capital or aid received. Though most exporters of metals and rubber were adversely affected by reduced export earnings, imports also rose considerably in some of them, particularly Chile and Rhodesia. Among the “diversified” exporters there was a somewhat smaller capital flow into Canada and some rise in the net outflow of funds from South Africa. India’s payments deficit rose from $410 million in 1956 to nearly $700 million in 1957, as its development program was pushed ahead faster than the growth of resources and foreign loans would permit; and Mexico and Peru, which had payments surpluses in 1956, had substantial deficits in 1957, mainly as a result of a widening trade gap.

The over-all payments position of the group of countries which export textile fibers, livestock products, grain, and tobacco, which had greatly improved in 1956, deteriorated in 1957. Better export demand and a slackening of internal demand pressure combined to bring about a big improvement in Australia’s balance of payments, but the volume and prices of exports were falling in early 1958. Turkey’s trade gap was narrowed, as export earnings rose and imports were reduced through more stringent restrictions. There was, however, considerable deterioration in the balances of New Zealand, Argentina, Pakistan, Burma, and Uruguay.

The net addition to the gold and dollar reserves of countries other than the United States, which amounted to $1.8 billion in 1954 and to $1 billion in 1956, declined to less than $300 million in 1957 (Table 10). Indeed, as mentioned above, the official gold and dollar reserves of the rest of the world were reduced by $1.4 billion as a result of transactions with the United States, to which short-term capital movements made a substantial contribution. This, however, was more than offset by substantial drawings from the Fund and by an exceptionally large net contribution to gold reserves from current production and Soviet sales. The rest of the world received some $890 million from the Fund in the calendar year 1957 in drawings (net of repayments and new gold subscriptions), compared with $480 million in 1956, while the excess of new gold production and Soviet sales over consumption and hoarding is estimated at $800 million in 1957, against less than $500 million in the previous year. Gold production outside the United States and the Soviet area increased between 1956 and 1957 by some $40 million, and Soviet sales are thought to have been about $100 million higher in 1957 than in 1956. Despite rumors of currency devaluation, there was considerably less gold hoarding in 1957 than in 1956.

Table 10.Official Reserves of Countries Other Than the United States, 1954-57
Official Reserves

at End of Year

(billion U.S. dollars)
Official Reserves

as Per Cent of

Imports c.i.f.
19541955195619571954195519561957
United Kingdom2.802.162.172.3730202021
Germany, Federal Republic of2.643.084.295.6458536575
Other industrial OEEC
countries8.249.248.528.2548483834
Japan1.021.341.511.0243544724
Total industrial
countries14.6915.8116.4917.2944413836
All other countries13.6613.5713.9213.2139363429
Total28.3629.3830.4130.5041383633
Gold reserves12.8213.3513.6914.24
Dollar reserves6.977.898.578.26
19.7821.2322.2622.50
Credit balances in EPU1.110.991.091.27
Deposits with BIS0.470.410.420.41
Other reserves17.006.746.656.32
Total28.3629.3830.4130.50
Sources: Based on data from International Monetary Fund, International Financial Statistics, and Board of Governors of the Federal Reserve System, Federal Reserve Bulletin.

Including errors and omissions.

Sources: Based on data from International Monetary Fund, International Financial Statistics, and Board of Governors of the Federal Reserve System, Federal Reserve Bulletin.

Including errors and omissions.

Reserves of foreign exchange other than dollars declined by some $150 million during 1957. EPU balances increased by some $180 million; reserves held in sterling may have declined by some $350-400 million, while holdings of deutsche mark and yen increased by nearly $300 million. These movements suggest a net decline of some $250-300 million in all other reserve holdings.

The total reserves of countries other than the United States rose in 1957 by less than $100 million, in contrast to $1 billion in 1956. Since the imports of countries other than the United States increased by roughly 10 per cent between 1956 and 1957, the ratio of reserves to imports fell from 36 per cent at the end of 1956 to 33 per cent at the end of 1957. This ratio has been falling since the end of 1954 when it amounted to 41 per cent. Also since that date there has been a decline in the secondary reserves held in the form of potential access to Fund resources. The decline in the total of the net positions of countries other than the United States in relation to the Fund (i.e., the member’s quota less the Fund’s holding of its currency) from the end of 1954 to the end of 1957 amounted to $1.1 billion, or more than 1 per cent of 1957 imports.

Measures to Deal with Balance of Payments Disequilibria

In 1957, as in previous years, payments difficulties arose mainly as a result of excessive demand pressures in the deficit countries. An important role, however, was played in certain important industrial countries by disequilibrating capital movements, often of a speculative kind, and, in many primary producing countries, by export price declines which, whether or not they were considered temporary, at any rate called for adjustments that countries would find it very difficult to make all at once. Where payments deficits arise because of such temporary factors as reversible or nonrecurrent capital movements, or where time is required to enable more fundamental measures of adjustment to take effect, it may be appropriate to finance the deficits by the use of reserves or by borrowing.

The need to draw on reserves was therefore particularly great in 1957. However, in many deficit countries, reserves had already been reduced to a low level by the end of 1956. It is therefore not surprising that 1957 was remarkable for the extent to which countries resorted to international financial assistance from various sources as a means of alleviating pressure on their reserves. The principal source of such assistance was the Fund, which in the course of the year provided almost $980 million to member countries, including substantial sums to France, India, Japan, the Netherlands, and Argentina. In addition, the Export-Import Bank of Washington made loans to countries in payments difficulties, including notably the United Kingdom and Japan. The reserves of the United Kingdom also benefited from the postponement of interest and capital repayments due on the North American loans, and from the special sterling deposit acquired by Germany against its future debt repayments. Various primary producing countries with payments deficits, notably India and Chile, also borrowed from a variety of sources.

Among the industrial countries in a deficit position, only France resorted to an exchange rate adjustment. A de facto devaluation of 16⅔ per cent was carried out in two stages, in August and October; at the same time, export subsidies and special import duties, which in recent years had applied to a substantial proportion of French import and export trade, were removed, and the combined effect of the steps thus taken represented in large measure a formal adjustment to exchange conditions that had existed for some time.

Most industrial countries seek to avoid resort to import restrictions as a means of correcting payments difficulties, but this is not easy when their difficulties are severe. In the course of 1957, France and Japan intensified their restrictions, both by increasing the extent to which importers are required to make deposits in advance of payment for imports, and by more direct measures—France imposing stricter import licensing and Japan greatly reducing the exchange allocated for imports.

In the third quarter of 1957, the desire to protect reserves brought about an interruption in certain countries of the trend toward increasing freedom of capital movements. In July, the United Kingdom brought under control the acquisition of foreign currency securities by U.K. residents from residents in other parts of the sterling area. Restrictions were later imposed on the use of commercial credits in London by nonresidents. Similar measures adopted by the Netherlands were relaxed in the fourth quarter of the year. In Belgium, while freedom of capital movement was fully maintained, some modifications of the existing regulations were adopted in October to prevent an outflow of capital from bearing unduly on official exchange reserves.

For the most part, however, industrial countries continued, as has become the rule over the past five or six years, to use disinflationary financial measures as a means of dealing with, or forestalling, payments difficulties, and, especially in some countries, for checking capital outflows. In general, such policies served a double purpose, in that they also tended to curb price increases that were undesirable for domestic reasons; in some countries, however, anxieties regarding the possible effects of these policies on production and employment began to be felt toward the end of the period. The disinflationary measures adopted by France, Japan, and the Netherlands, the three countries whose payments balances continued to deteriorate most seriously during the early part of 1957, included increases in taxation, reductions of public expenditure, restrictions on the expansion of bank credit, and increases in interest rates.

In the primary producing countries that were in payments difficulties, import restrictions and exchange rate adjustments played a much more important role than in industrial countries in a similar case. However, corrective action usually included, and in some countries consisted entirely of, monetary and fiscal measures to curb credit and to slow down the pace of development expenditure. Among the countries that relied exclusively on disinflationary policies to reduce their deficits are Haiti and Cuba. On the other hand, policies aimed at disinflation were combined by some other countries with exchange depreciation (e.g., Colombia and Bolivia) or with import restrictions (e.g., the Philippine Republic and Turkey).

Among the countries that made considerable use of import restrictions, sometimes combined with other internal measures, as a means of limiting their external deficits are India, Argentina, Uruguay, and, in the first half of the year, Colombia. In India, imports of consumer goods were particularly restricted, and for certain capital goods imports licenses were granted only on condition that importers obtained medium-term or long-term credits abroad. In Argentina, licenses were granted for certain imports on a deferred credit payments system.

A number of primary producing countries adjusted to internal inflation or to the fall in export prices by depreciating their exchange rates. Finland formally devalued by some 28 per cent in September 1957. By adopting a new exchange system in February 1958, Egypt effectively devalued its currency by 21 per cent for most transactions except those with certain Middle Eastern countries and the Soviet area. In the course of 1957 Colombia and Paraguay replaced import restrictions by a free exchange market. Central bank support given to the free rate in these two countries, and also in Bolivia and Chile, where free exchange markets had been established in 1956, led to exchange losses. Peru, after sustaining exchange losses from pegging the exchange rate, abandoned intervention early in 1958, and the exchange rate was left to find its own level.

In several countries, e.g., Argentina, a reduction in the prices of certain exports was one of the purposes for which taxes or exchange surrender requirements (aforos) were adjusted.

Of those countries that have been in substantial external surplus, only the United States and the Federal Republic of Germany are large enough for their policies to have a substantial effect on the payments problems of other countries. In both these countries, domestic financial policies were applied primarily with the aim of maintaining internal monetary stability. Both countries, however, pursued policies in the field of external finance in 1957 and 1958 calculated to relieve to some extent the payments difficulties of other countries.

The United States, in addition to maintaining foreign aid and government purchases abroad at a high level, lent considerable sums to the United Kingdom in 1957 in the form of a drawing on the Export-Import Bank credit of February 1957 and of a postponement of debt service on the intergovernmental loan of 1946. Export-Import Bank loans to Chile, Colombia, and Japan served the purpose of relieving payments pressures; in addition, the United States made exchange agreements providing for stand-by credits—which have not actually been drawn upon—with a number of Latin American countries.

In the Federal Republic of Germany a variety of measures was undertaken to damp down the payments surplus. The remaining restrictions on foreign investment were relaxed, so that German residents are now free to export capital in any form, including the purchase of securities anywhere in the world. There was some further liberalization of trade with certain areas. There has been no relaxation of Germany’s policy of agricultural protection, but customs duties on a wide range of manufactured products were reduced in the latter part of 1957. There was some increase in transfers abroad on account of debt repayment and restitution. Of greater quantitative importance was the rise in prepayments for defense imports, some of which were made to countries in deficit, notably the United Kingdom. However, the amount of such advances fell sharply in the third quarter of 1957, just at a time when speculative pressure on the reserves of other countries was at its height. Another official act helping to mitigate payments difficulties elsewhere was the acquisition of an advance deposit in sterling held against future debt repayments to the United Kingdom.

Once the recession had set in in the United States, the easing of credit and the substantial lowering of interest rates exerted an influence on the outflow of funds for commercial and other purposes, and the balance of payments position of several other countries was thus to some extent strengthened. In Germany, too, interest rates were reduced, partly with a view to bringing the conditions of the money and capital markets into line with those prevailing abroad. In Germany, however, long-term rates have been so high that there has been little inducement for capital to flow abroad; the continuance of official measures for the export of capital therefore remains a matter of considerable importance.

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