AUSTRIA Public Disclosure Authorized

L' A Q')7 L.Ar. .3 -a _ v~STRICT'ED Public Disclosure Authorized

This report is restricted to use within the Bank.

iNTERNA TliONAL BANK FOR RECONSTRUCTION AND DEVELOPMENiT Public Disclosure Authorized

THE ECONOMY OF AUSTRIA Public Disclosure Authorized

June 18, 1954 Public Disclosure Authorized

Department of Operations Europe, Africa and Australasia CURRENCY EQUIVALENTS

U. S. $1 - 26 Austrian Schillings Schill,r.E, 1 = Ta $04*n nS

Schilling 1,000,000 = U. S. $38,460 THE ECO!"TOIs OF AUSTRIA

Table of Contents

Page Basic Data Charts

Surniary and Conclusions

I. The Evolution of the Austrian Economy The Inter-War Period

The War and the Postwar Period 3

Inflation 3 Stabilization 5 II. The Structure of the Austrian Ecorioy 8

The Direction of Investment 8 The Balance of Payments 13

External Debt 16

III. Present Situation and Problems 18 The Future of Investment 18

The Capital Market 20 A "Non-Competitive Economzy" 21 IV. Coniclusion 22

Statistical Appendix Tables 1-14

Iap AUSTkIA

Basic Data

Area: 32,377 square males Population: 6,960.000 Nafional Income (1952): 62 biilion schilliings or 2.6 billioni US Income ner IHead: US 'A370

S-tructure of econozg:

Sectors , of labor force % of gross national product p-nr Ardu cad Agriculture 33 15 Manufacturting 26 hhl Commerce 9 8 I1;c UTilit; Ie; 6 9 Others 26 24

I '.JU ItJ.V.iC TpotLaIl nu,inLI ar 3,30G,ooo Total ,,aoun 75 bi'o schiling-I.~LV

Ownership of Industry:

Industry Percentage of Employees in each Sector employed uy; Government Private ;nterprise

Leather, textiles, clothing) Paper, quarries, giass ) 0 100 Construction 10 90 Forests and Agriculture 10 90 Metal-working 10 90 Chemicals 10 90 Finance and Insurance 20 80 .'uminium 70 30 Hining 75 25 Transport and cori-munications 85 15 Iron and steel production 95 5 Electricity generation 95 5

TOTAL ACUIiY 20 80 Total PxPorts (1952): 12,955 blilon SChillings of which

Lumber 19.6% Base metals 20.2% Machinery and vehicles 12.5% Pulp, paper and paper products 9.6%

Total IMports (1953): 13,268 billion schillings of which

Food and feeding stuffs 25% Raw materials 17% Coal and coke 16% I'tchinery and vehicles 15%

ForeinExchange Reserves (millions of dollars or equivalent)

January 31, 1954 Gold and Dollars 217.4 Phrch Credit to EPJ 60.3 2?7.7

External Debt (millions of dollars or equivalent)

June 30, 1953 Total 102.6 Of when Trhol lr Debt 23.09 AUSTRIIA

BALANCE OF PAYMENTS (MILLIONS OF U.S. DOLLAR EQUIVALENTS)

0 200 400 600 800

1949 EXPORTS (f.o.b.) --- FOREUUIGNI GRANT IAID

PAYMENITS XXXXXXXXXXXXXXXXXXXXXXXXXX EXPENDITURES

1950 ~~~~~~~~~~¾-IMPOR,TS (c.i.f)

fPrrriPTC Z/, x/ Z I Z

'PA Y M-E NT-S

RECEIPTS

PAYMENTSrv¼YMY ViYYY)YY

RE'CEIPTS i nrt7 PAYMENTS

1953 (Prelim.) RECEIPTS

PAYMENTS xMM

FOREIGN EXCHANGE ASSETS (MILLIONS OF U.S. DOLLARS)

300Q r i i-i- ----i---r p i I I I I I I II I I I I - 30 END OF MONTH 250[ [250 2001 1 I200 CREDIT T P

I00{ 0

D ~~J D J D J D J D 6/16/54 1951 1952 1953 1954 Mn 012 ~~~~~~~~~~~~~~~~~~~DOn-Ccrnnmrc Staff AUSTRIA

SUPPLY ^N USE O'R'SDUCi i = 1 (BILLIONS OF SCHILLINGS)

...... ABSOR T O 1I I IL '....TI SUPP GLY:_.-onc!lK::r::sl ' '::-UB IMPORTS7GXPORTS '.

GSROSS 1RI

...... 15 A ...... X E I U E o I.~~~~~~~J

1$'> L""'MERCE6~'REOUCE +4O.Z.~52 ._i i,'.' o .... ~~~~~~~~~~~~~~~ M AUFlhAOTRHI I IO I VILWII

>... AGRICULTURE II MIIUII AE I T i1 PRODUCTION_ PROD I:

|.t. ANDOHANDERICEAFS 8 I l A~AL |A3L PRIVATE jUL(A' 151 -N 1CONSUMPTION0 Lj' H.. I GR S 9I,.... 0I ~~~~~~~~~~~~~~~~52 1MANUFACTURING AND HANDICRAFTSII 1 [7*~~33 (INDEX,100) ~1937 ~ 7

PRODUCTION (INDEX, 1937:: 100) 2501 1 1 1 Pr50 YEARLYI-- --- S ~~~~~. ,,--- .. ;,.....11 *V DURABLE GOS,,

2165200

No. [ 8.74 DURALER BL GOODS*..O Dm -O-D -

100 ------I ~~~~~~~~~AGRICU LTIURAL PRODUCTIO 50 ..... I L 1-50 InAn ~Ie%Ae IlJ%^'1'9-15 6/16/54 No_.874 ItDR r - Ec-conomi c CSa f f AI Ie`11`nIA

USE OF RESOURCES (AT i95i PRiCES) (BILLIONS OF SCHILLINGS) 80- 80 YEARLY _BALANCE OF PAYMENTS DEFICIT]

I f +- - :~~ t- GROSS INVESTMENT 60 60 ~~ ~GOVERNMENT CURRENT EXPENDITURE

CONSUMPTION 40 20 20

olI A 1 1 [ I M1 1, I ,~I I, I 1949 1950 1951 1952 1953 1954 GOVERNMENT REVENUES AND EXPENDITURES (BILLIONS OF SCHILLINGS)

0 5 10 15 20 25 - INVESTMENT r V R5 RE , I I I T k_COUNTERPART FUNDS 1951

1952

8(Forecast)

MONEY SUPPLY AND WHOLESALE PRICES

(!NDEXL., 194- 100)J

0 YEARLY | NT LYI I _ L WHOLESALE PRICES*"(VIENNA) 3

200 [ -t 200

------MflNFEY` - VS-- Io o00MNE UPL 100

O w I IIi I' I' I I I I I I I I Io '37 Z46 '48 '50 '52 '54 J D J D J D J D 1951 1952 1953 1954 *Money supply;chonge in series "All goods

6/16/54 No. 87R .1 w ~~~~~~~~~~~~~~~~~~~~ ~~~DflL InrD - LLIUfIfEconoric StuffI AUSTRIA TIVrAIrDAr%~.Al ~~VT~DMAI AbTPI A

TOTA EL/ X1-ERNX lE I AL LADE: VALU E (BILLIONS OF SCHILLINGS)

YEARLY TOTALS - 1.5 is / ~~~~~~~~~~~~_,4,IMPORTS (ci.f.)

o' , -i X : ;5o7,4 X1.0

50 ,f/ -" ":~ EX7OTS [VLI 5 ~ j

MONTHLY-| -t Scale is 1/12 of annual cle 0 ,> l l l 1 ,11/1,, I 1,,1,11111,,,11,,11,|1,I scle 1,1, 0 TOTAL EXTERNAL TRADE: VOLUME (1937 WEIGHTS) ( INnFX. 194R :IfOO 4007 r1 - 400 YEARLY I FMONTHLY I 7

3ooH200 L;/~-1 gIV 1200300 100 fTlvIMPORTS/ 1100

O ______I I*i _ _,i I _ liii iii 1 1II , I 11111III I 11I I TERMS OF TRADE (INDEX, 1948 Ioo) 150F-- I 1 ---- 150 YEARLY| | j MONTHLY T f T 5

}° HJ~ 4 I1 ~ I L - 100

'37 '46 '48 '50 '52 '54 J D J D J D J D 1951 1952 1953 1954

Vn^Mrin rMv A eA A ^rI I-&Tl&IA A ^LI ILA I IM AMrI r.ArIjr%I Q DI Mnrc. yr LJvcO Ili A r,Iu Im-runlS BY AKrn A vrP.- unlvIN3^I%R IFLI (PERCENT OF TOTAL) (PERCENT OF TOTAL) I vU I- IFr//A/ M MK~~~oTHER~ A Ar/F/F 80% IHWD - 80E Li Li J4E"ASTERN TLI 1Liil Lim h h E~ 40%H {H-N--HN---i4-400/

0 20 / 0/

011937 i950 1951 1952 1953 1937 1950 1951 1952 1953 0 6/16/54 No. 876 IBRD - Economic Staff - i -

SLTfl.4TRV ANLA r'0\CTLTvTSJTQTC>

1, The Republic of Austria is somewhcat smaller than Cuba and has a population of 6.9 million people. Although the standard of living is fairly low by Vestern standards (equal to U.S.8!s370 per capita), Austria iS rnot un.favored with natural resources. Thirty-seven per cent of the land area is forested and lumber is the most important export. There are also important deposits of iron ore, bron'm coal, magnesite and oil, and finally a large hydroelectric powter potential.

2. Nevertheless when the little republic vras born after the first world war, there were many who fearea that the infant would never survive. Its head wg,as too big and its body too small; at that time, it is true, Austria did suffer from an underdeveloDed agriculture and an over- developed civil service. Mluch has since been done to cure the former defect but the latter still, to some extent,remains. However, with some help froma t'he League of Nations, kustria did survive although in the inter-war period it was never entirely free from all economic ills. In the twenties it had to rely on external loans to pay its way and in the thirties, even as late as 1937, it suffered from heavy unemployment.

3. But the war and the European Recovery Program have wrought great changes in the Austrian economy. There has been a very great increase in industrial production as a consequence of the investment by the Germans in wrar industries and of the investment by ERP in expanding and converting these and other industries to peace time production. As a result the view that Austria can never be a viable economy is no longer seriously advanced.

4a During the reconstruction period after the second wI!orld wgar Austria suffered from a serious inflation in spite of the reeeint of large amountl;s of foreign aid. Mionetary stability wvas only achieved in 1952 after an eight-fold rise in prices since 1945. The basi-c cause of the inflation was the lovr level of production and consumption resulting from the dis- organization of economic life by the war. The foreign aid was nearly all devoted to investment and so had little immediate effect on consumption. But by 1951 the gradual rise of the standard of living reduced the pressure for wtage increases and made it possible to restrict credit and stabilize the currency, Tt is safe to say that the causes of the postwar monetary instability in the Austrian economy have by nv vforked them-- selves out; any renewval of the inflation would have to stem from other causes and of this there is no sign. The only possibility of further inflation that mirrht be mentioned arises out of the Aer ncreased unemployment; if the government were forced to act prematurely or too violently wi th anti-sll mp policies it riight touch off another wage-price spiral. But, to judge from present attitudes this is improbable.

5. The balance of payments has also shown a remarkable recovery. In 1953 Austria had a substar.tial SUrplUs in E.P.U. and the overall current balance of payments closed with a surplus eqiivalent to `7115 rmillion. - ii -

MIheA-dona ps+io^n,1-^1AltzrgZT ,v isn"mre irffie11+t, A.Ausriq1Q dolla1,r imn4oH _q in 1953 are estimated to be about '.T75 million. Almost half of this total. is food and feeding stuifs w.hiwch before the war came from Eas+ern T..vurope; As long aB the American occupation continues (fron which Austria acqu .reV; sor..le 1^,.28 +0 ;30.,..llor_1 er year th+V la eiiss be fairly> small -- say, between 2'10 and $20 million per year. But if a state treaty 'rvere toO be signed an'" U.S. fCorces .Yritidir(awcnr fror, JAustria, there. -.¢ol" certainly be transitional difficulties which might requi-re some special act on to overcome.

6. Ihile it is not likely that the present substantial su-rplus positUcl of Kustrias balance of payments will be maintained for very long, it is reasonab'le to expect that, providing appropriate econo-mic policies are followed, the international accounts wvill not become a serious problem. Austria's debt record is good. The present external debt is low; based on the settlement agreed at the recent Rome conference it amounts to only approximatel.y 'ilO2 million. This amount is equal to h4%of the national incomie, a proportion Nvhich may be compared to 7,% for France, 20% for Germany and 8CO for Southern Rhodesia. The present external debt of Austria in money terms is only about a third of what she was able to service pre-war. In view of the general decline in the value of money, the real burden compared to pre-vwar is even smaller than this. Total service on her present debt will represent only 2 - 3% of her international earnings in the peak year. There is thus no ouestion of the ability of the economy to carry additional debt. It would be easier for Austria to service a debt in European currencies; hcruever, she has been accumulting dollar exchange reserves rapidly over the last tw^.o years and her present hard currency holdings amount to nearly :!200 million. ;s her present dollar debt is only `,17.3 million, the possibility of d-'isbursin.mZ Dart of a loan in dollars should not be excluded on credit%-worthiness grounds alone.

7. There is some risk attached to lending to a country wrhich is partial- ly occupied by a potentially hostile poaer. The purely economic effects of the Soviet occupationaJathough onerous,are not sufficient to impair Austrials ability to repay debt. 'There are now virtually no restrictions on economic relations between the Russian zone and the western zones. Present Soviet policy interferes little in normal economic lif6 except for retaining control of ex-German assets and in preventing agreement upon a state treaty. The only risk is therefore that of a reversal of Soviet policy with the object of dividing the country as in the case of Germany. This would not appear to be probable. TW. VrflN(T- rfm STPPTAT:

r. THE EVOLUTIONG OF THE, PRESENT AUST7TIA1\N ECONOM.1Y

The Inter4iar Period

1. Aince the dismemberment nf thp A.ustro-Hungarian Fmpire after the first world wrar, the economy of present day Austria has faced a suc- cess_.ion of crises~q T+. hA never yet. bheen abhle to mqinta.ir aq s+iitatinr of satisfactory economic stability for more than a short time, although this has been due much more to the course of world events +inn +.topmr inherent defect in the economy itself. Austria had only just emerged frnm th.e period of reconstruction after the first war anod postw.1ar inflation when it vras caught in the depression of the 1930's. After the de- YN¶~mc!ainn ^nM +h_ +kft~41 en-~ vrv A rn,ov n~l + 4.-A - - 4 -- --P Austria into the German war economy. Since 1945 there has been another periodSU 4. .e4ttW-,+4o-, a-ain acc panied by severe -i>rt -ui. F -or the last eighteen months, however, the monetary situation has been fairly

G.2.3 LAM.1.i.,Dui.gr4 theUl±t; ~LIAMIrterI-vratIVd.L- - VWL1LLJUjpe -.2 JtUOiA-Je UL..ri-osdeal - WittUZ-- - -i CVUi0.LUULcLU±tW PIoQg1ret III adjusting itself to its nevr situation but the environment in which it had to operate was very far frorii favorabie. The economic nistory Of tne nexV country began with a run-away inflation in the years 1919 to 1922 which a governrnent, lacking any belief in the country's ability to exist at all, did little to arrest. 1onetary stabilization was re-established in 1922 by means of the Geneva Protocols and the first League of Nations sponsored loan.

3. After the currency stabilization Austria's progress was slow.T and difficult. By 1925 it was estimated that total output was still only 80e of the 1914 level. Unemployment was a persistent problem particularly in the decllning vwar industries and in those industries which formerly catered for a domestic market but wiich now faced new tariff barriers in the new countries of Eastern Turope. The industrialization policies of the Danubian states made it difficult for Austria to achieve a satisfactory level of exports and forced it to try to find alternative markets. At first Austria tried to encourage trade by pursuing a low tariff policy. But thIs could not be successful in the circumstances of the time and later she turned to an increasing degree of protectionism, which was afforded not only to certain industries but also to agriculture. As one result there was a marked increase in agricultural output and productivity which reduced Austria's dependence on imported food. In this period much wrras done to rectify the relative neglect of agriculture in Austria which had occurred owing to the concentration of the agricultural activities of the Empire in Hungary. In particular there was a substantial increase in stock raising and the dairy industry, both of which are suited to the country's natural conditions.

4. But in spite of these more hopeful developments, Austria did not succeed, in the period before the depression, in entirely eliminating an - 2 -

adverse balance of payments* This lhn itself might not have been dangerous had it not happened that the deficit was largely made up by foreign short- term advances to Austrian banks Thus thme barking system was very r-oa-r_ able at the onset of the depression.

5* The depression affected Austria severely, particularly with regard to foreign. trade upon rwhich the little country was heavily dependent. Unemployment rose to about 30% of the labor force in 1933. The course of the depression was complicated by the failure of the Credit-Anstalt in 1931 and the subsequent foreign exchange crisis. The shock to confidence vh ich resulted led to a ra,id writhdr awal of foreign credits. Later in the same year, after the suspension of foreign payments by Germany and Hungary, a flight of capital began which compelled Austria to introduce exchange control. But even with this protection, in June 1932, transfer on external debt payments h1ad to be suspended for about a year.

6. Austrials recovery from the depression, at least in its financial and monetary aspect, was fairly rapid and complete. In 1932 exchange control was relaxed to permit private clearings between exporters and importers so that the schilling was allovwed to find its ovn level. Laterr, in 1934, the new "de facto" value of the schiUling was officially recog- nized by the Austrian National Bank. By that time Austria had returned to an almost completely free foreign exchange market. In 1933 the Austrian Government Guaranteed Loan wras floated which was used to repay some of the short-terni debts and to clear up some of the Credit-Anstalt arrears. Austria's short-term foreign debt, which was 1,290 mnillion schillings in 1932 (Vl199 million) was thus reduced to only 47 million schillings in 1937 (`i8-8 million). At the same time the total foreign debt was considerably reduced. Repayment of capital and devaluation of other currencies reduced the total external debt from h 250 million schillings (1;655 million) in 1932 to 1,880 million schillings in 1937 (,4;354 million).

7. Iloreover, during the recovery period the balance of payments was in much bctter shape than it had been in the 1920's. "'ith the revival of international trade, exports increased rore rapidly than imports so that the adverse trade balance was reduced to a figure vrhich could easily be covered from invisibles, in particular the great increase in tourist trafEfic whlich occurred at this time. Consequently, the exchange reserves of the Austrian National Bank rose to a comfort-able level and when in 1936 three neighboring countries, Czechoslovakia, Italy and Switzerland, devalued their currencies it proved possible for Austria to maintain the value of the schiLling.

8. By 1937, therefore, Austria had succeeded in establishing itself as an econosV which was servicing its debts and generally paying it w ay. In fact, alone among European debtor countries, Austria was able to obtain commercial credits on the London market On the other hand the economy sti]l suffered from a high level of unemployment. By 1937 industrial production had recovered to the 1929 level but there were approximately 320,000 unemployed as compared with only 200,000 in 1929. Thus a price was paid for solvency. But that such a price was necessary is less a critic'-."-a of the hustrian e c n r.o- is'.4 elJf th",anr o,' tnle iLnLer- national economic conditions of the time.

The ',Tar andu tUhe Postivar nerlodU

9. Austria was one of the safest areas in which the Germans could buiLd up their war industries. During the war there *,as a vast increase of 4eav-y indUustry in Austria. Between 1938 and 1944 steel production vwas doubled, aluminum production increased from 4,000 to 72,000 tons and electric -power production increased from 2.0 billion to 5.6 billion klrh. The oil output from the Zistersdorf fields was stepped up from 30,000 tolls to around 1 million.

i0. Towards the end of the war, as German armament industries w.ere trans- ferred to Austria and as the Allies acquired air bases nearer to the country, it became subject to increasing air attack. In 1945 there was considerable fighting in thle eastern part of the country and after the German surrender the Russians, who initially occupied much more of the country than their present zone, removed as v:ar booty a great deal of machinery and railway equipment. Thus in 1946 in spite of all the German investment in industrial expansion, industrial production was less than 70% of the pre-Anschluss level.

11. Austria ended the war with both industrial and agricultural production severely curtailed and, like most other countries, with far too much money in relation to the available goods. The principal tasks were, therefore, to re-establish a stable currency. to revive industrial and agricultural production and to achieve a balance on international account. In addition to these problems there were the complications arising from the quadripartite occupation and the lack of trade with Eastern Europe. However, broadly speaking. it is fair to say that with the hel- of the European Recovery Program, all these objectives have now been achieved. Certainly production now exceeds the pre-war level and the currency has been successfully stabilized. As long as substantial foreign aid was received some balance of payments deficit on current accoLunt was to be expected but in 1953 the current balance closed with a surplus for the first time since the war and there is a reasonable prospect that an equi- liorium can be maintained. The prospects for maintaining dollar balance are much less clear; this narticular prnhlem will be discussed later. Inflation

12. Stabilizing the currency proved more difficult than restoring the level of production. Total industrial production (though not agricultural nroduetion) had recovered to the 1937 level by the end of 17L8 but it took three more years before the inflation was brought under control. The first step towards monetary stabil4zation was the currency reform of late 1945 which withdrew reichmarks from circulation and substituted Austrian schillin-s thus separating the lustlrian monetary systemi from the German and preventing any further inflow of reichmarks. After this measure the note circulation wn,as about three and a half times the pre-wa:r level but it soon began to expand. In November 19h7 another currency - 4 -

reform took place based on an exchange of three old schillings for one nevw one vrith certain exceptions. At the same time certain old blocked bank deposits were written off and new deposits were partiallyr an temporarily blocked. A capital levy on war wealth was imposed and special arrangements were made with the occupying powers 0

13. But idespite these meastires. the inflation continued. it +ruets that the rate of investment was much higher than before the war. It rose steaciilv from 13d? of available resources n l9118 to over 2 n 1951. Also, during most of this period, consumption was held belovr prewar !egveis. Elit the 4--ortant poi.t was that halIf of the total invest_ ment in these four years was financed from external sources. Conse- quently, ar.y attempt to I "jsn, n+ T - con+rol' '"~~ -in-Mation by s1cruing davwin .4. ,,4L '1 -L ~ .. ~ tU-l-eJL rate of investment would have prolonged the period during which Austria would be deperdent- upon outside aid. Also if a cut in the rate of in-vestient haci succeeded in slowing down the irflation, it would probably have reduced the rate of domest4c sa-ving because, by reducing inflationary profits, it would have redistributed income in favor of people who save less. In oher words, the high level of investmernt was, in this case, as much a result of the inflation as a cause of it. The only way in which the i4flation c ould have been prevented while maintaining the rapid rate of recovery would have been for consumption to have been held down to the necessar-y low- level by deliDerate governmental measures such as additional taxation or forced saving. This was politically quite out of the question. un the contrary the political situation was such that deliberate measures were taken, not to reduce consumption, but to attempt tc' increase iti by a series of liprice-wage agreements". After the start of the Furopean Recovery Program the FRP authorities tried to use the re- lease of futnds from the counterpart account as a deliberate means of influencingr the monetary situation. During the first two years the counterpart; fund thus took over those functions of attempting to stabilize the economy by influencing the total of spending which are usually the responsibility of the budget. The almost complete failure of this attempt illustrates how difficult it would have been to prevent the inflation. As long as the standard of living remained depressed, small changes in the rate of investment could have little effect. Later on the counterpart fund was administered as a purely investment fund and the responsibility for overall financial policy was shifted on to the central government and the budget.

14. Although therefore there was a direct connection between the inflation and the rate of investment this alone would not have been sufficient to bring about the eightfold rise in prices which actually occurrei. The principal responsibility for the severity of the inflation rests upon the five price-wage agreements w,hich took place, at approximately yearly intervals, between 1947 and 1951. The explanation of the persistent policy of attempting to control the symptoms of the inflation (price and wage movements) by legislative action has to be sought in the nature of what can only be described as the politico-economic organization of the country. In Austria all the principal economic interests -- labor, agriculture, industry and commerce _- are organized into "Chambers" which -5-

exercise great political influence. In fact they have had, in the post- wiar period, more pcwer than the government itself. The price-wage agreements were agreements betwreen the Federation of Trades Tnions and the Chamber of Commerce. The Trades Unions secured wage and salary increases which were far in excess of the available goods arnd sfe rvices at official prices. The Chambers of Commerce and Industry tried to pass off as much as they could onto the conslmer. in the last price-vrage agreements the Unions even secured wage increases whlich were supposed to take into account the secondar- reacti-ons of wage inrcreases themselves . The attempt on the part of each of these groups to regain its pre-war standard of livilng in a situation where thlis w,as a physical irmpossibilitr thus turned into an officially organized price-wage spiral which forced up -es pr i and wgsin _aseries of arbit-ra-,- - -Irlss

S"tab'ilizati onn

15. That such a policy was sel'-defeating was finally obvious to all. After the fifth price-wage agreement in 1951 it wias generally agreed that a sxth-such agreement would probably destroy all confidence in the schilling. At the same time the pressure for further wage increases was lessening as the standuar of living once again reached pre-war levels. The Government then began to institute a more restrictive credit policy. Ihe l.UJnistry of Finance and the Austri.an National Bank made an agreement, in April 1951, with the Association of Austrian Banks and Bankers -rhich imposed higher liquidity requirements. In two subsequent agreements the restrictive measures were strengthened, ceilings being placed on outstanding credit and credit lines.

16. The rate of credit expansion fell off sharply in 1952, particularly in the second half of the year. `rhereas in the years 1949, 1950 and 1951 the increase ln comnercial credit outstanding (excluding reconstruction credits from ERP counterpart funds) had been 5L.;, h0% and 33%, in 1952 the increase was only 4%. In fact during the second half of the year there was an actual drop in outstanding credit. How- ever, this dievelopment was only partly due to the deliberate policy of the banks wvhich played an important part in bringing about a change in the psychological atmosphere but there was clearly at the same time some fall in the demand for credit. The declining tendency of world prices for raw materials and the arrival of imports paid for in 1951 were other factors slo*ring down the expansion. Throughout 1952 the liouidity ratioso of the joint stock banks were always comfortably above the required minimum. Bank deposits increased more rapidly than credits, a movement which has persisted ever since. During 1953 bank deposits increased by 34% vwhile outstanding credits increased by 17'.

17. The result of all these developments was the breaking of the wage- price spiral and the ultimate establishment of monetary stability. The index of wholesale prices, wvhich reached 8hh (1938 _ 100) in May 1952 had fallen to 777 by July 1953. The cost of living declined from 694 to 6ho over the same period. At the same ti-me there has been a great improvement in the balance of payments. Austria, wvhich had been a system- atic debtor in E.P.U. untt mid-1952; became a creditor. 'The oa - 6 -

position als tooke a ,I.trked +urn 4f.teb1-. ver

18 The Austrian budget has not playued a role in the inflation. Governr:ment The has been carrying out a program of investment consisting ]argely of capital ependiture on the Feceral railrways. This program has been financed partly from couniterpart funds and partly from surplusets on: thle current Qua-e-; the over-al budget deficit has usually small. been fairLy The folloving table gives the budget position for the last al years. sever--

Federal Government Finance

(Billions of Schillings)

1950 1951 1952 1953 1954 (budget (fore- estimate) cast) Current Revenue 11.2 16.4 19.8 21.9 20.7 21.4 - 21.6 Current Expenditure 10.7 15.9 19.6 21.0 21.4 21.L Current Surplus 0.5 0.5 0.2 0.9 -0.7 0 - 0.2 Investment 1.6 1.5 1.8 1e6 1.1 1.1 Over-all Tieficit 1,1 1.0 1.6 07 1.8 0n7 - 1.1

Financed by: Counterpart

funds 0.95 0.9 1.3 0.8 - borrowing 0.15 0.1 0.3 - 1.8

* Deficit

19. In 1952, vwhen the problem wvas still one of hold-ng back inflatvion, the government severely cut the investment program and imposed. extra taxes. It was only after much argument 7ithin the c-oalition go-ernm,enlt that this revised budget was agreed upon. Towards thne end of 1952, the government found it impossible to aeree unon a budget for 1953 an.d the resulting crisis precipitated an election. In the absence of new mates, the esti- 1952 budget was largely used for 1953j wit-h favorable financial results. On the face of much worse it, the budget for 195lh shows a nosition than in any recent year; insted of the usua' curent supl-us a current deficit is shovwn. Also, the amount of borrowing necessary meet the over-all to deficit increased. But in la-ge part, the deVeriora- tion is only apparent. The Finance I.iinistry pursues a most conservative policy in its budgetarv estimates The results are usually the budgetary better than estimates. A reasonable forecast for 1954 is that the - 7 - current bucdget will either be balanced or show a small surplus. This conservative policy has the incidental result of dampening dovn pressure for tax reductions and for greater government appropriations. But in part, the 1954 budget represents the use of the government finances as a deliberate exnansionarv force for the first time in the nost-war neriod- The large increase in Austrian foreign exchange reserves in 1953 does iustifyr soTme slight measure of Pynansion in the etnnnormr This can he avenr- done, of course, but the 1954 budget is still rwithin the limits of vwhat iav hp. desirahle.

20. 1El.h.ateier mn have been the We A-.qPm in .4us+rian finne-.-a policies in other sectors, the Austrian Government has shown ability in handling s+.c f; ai'ceII 1 a -ff 'CTh4a a n + b ona,r.- 4c++ Vis2a1-, no imAo .v,;tr+ w__ .~~ __. . ._v., ..v*wW..-Jv .^ - tV.vS-J L.Lt. U J- Iii? the two coalition parties but the net result has been good.

21. One difficult problem is that of the Federal Railways which are at present run directly as a vern- et Department. The railw-ays suffer from a heavy load of pension payments and, being a government operation in a cowt;y919;Vere ureploly ti is a senlitLive problem, IL-1,x1-1- IndVe t U lUX more people than are really needed. The first steps have already been taken, in the form of preli.ary studies, towards the eventual recrgani-- zation of the railwtays. It is hoped that by placing them under an inde- pendlent rui-ivn 1 wOuid be nossiluLe to Dursue a soLund transport- tariff policy and in the end elimirate the persistent deficit in the railway accountss. In the meantime, rates are Deing increased to reduce the deficit. - 8 -

II. THFE STRUCJTUPE OF TEE AUSTRIAN ECONOMY

The Directicon of ITnvstment

22.- nliring the years 19Q8 to 1952 the level of investment in Austrip was high but a large part of the total was represented by the schilling counter- Prt Of ERPP4re,re aido Af.sstria has a1moc+s a }v11Jn do r +.h. form of direct and indirect aid. From 1949 to 1952 the total of vid received was eo,uivalen+ t,o bout i$% of t+,Ua total -,.et 4,.estr,et +i ,a Tor tice not all the counterpart funds were released for investment but even those fun,ds wh4chere not released directly for in4vetmen-t , o ever- theless facilit,ated investment indirectly, for instance by relieving the

U.J U'-U1 061UJ51LLJ- 4 UfA -- 11-nr.LW 't-Cf1ULaUJ UA&.LU11Cd.J-- L1U~U.LI-, X 4f SV.,U- - J.LJQ.LLU1&" 4 --¢oU

23. Apeart1 from counterpart fudsu, the only impOrtant sourUe o CapJ.aL. for industry wes from retained earnings since there was no functioning capital market. Hence the ERP authorities were in the key position of controlling the only investible funds which could be freely moved from one sector to another. in order to make the best use of this opportunity an "Investment rrogram" ir the three years 1950 to 1952 were drawn up. This program was an attempt to coordinate all public and nrivate investment; it was made possibie Dy tne strategic importance of the funds controlled by the ERP Central Bureau who couild make their allocations conditional upon additional financing by the enterprises concerned. In this way it was possible, to some extent, to prevent capital being utilized for less essential uses. 24. The problem which faced the investment planners and the way in which they attempted to meet it can best be seen from the statement of "Basic Prin- ciples?" upon wlhich the program was built up. It stated that, "The selection of concrete investment projects was determined primarily by the extent to which they could be expected to contribute as soon as possible to the balancing of Austria's foreign account. However, this guiding principle had to be reconciled with the necessity of finishing, as far as this appeared justifi- able from a technical and economic viewpoint, those large-scale projects, the implementation of which has already been initiated and is already far advanced." This last remark referred to hydroelectric power and the basic iron and steel industry. The program also had other principles such as en- couraging small and medium sized enterprises and maintaining employment.

25. The practical execution of these policies in Austria has been cri- ticized on the grounds that too much emphasis was placed on the expansion of highly capital intensive basic industries and not enough on Ilirdustries pro- ducing consumer goods. It was asserted that this tendency tied up capital in long term 'roiects longer than was necessarv and, since it did not lead to a rapid increase in the output of consumer goods, it added to the inflation. In order to evaluate this criticism it is necessarv to see exactly how the division of investment between basic and final industries was made. This is shown in the following table: Invrestment iw 11o4 9 A W4_^ Td._ i _:_

TOtQ1a-L lvet O,I which investment, Investment from counterpart funds (in,mnllions oI SChi.LliingS)

Coal Mining 225 186 IIetal industries (including heavy non-ferrous metal ore mining) 170 131 Basic iron and steel (including iron ore mining) 1,088 700 Wood processing 1/ 188 99 Electric power 2,910 1,410 Chemuical industry 2/ 98 31 Other mining 100 13 Basic industries 4,779 2,570

Pape rlp76 In 490I Glass 41 25 '__ -Toprcss--/ -0- I Electrical industry 120 60 Iron anrd meetal processing 458 220 Textile and clothing 685 240 Chem-ical industry j/ 392 124 Miscellaneous 700 100 Final Industries 3f267 1,313

U.andT. i 0,U408,U046.L

1/ 65% incluided in "basic," 35% in "final" 2/ 20% inCluded in "baSiG;" 28 in "flinall

Source: Austrian Investment Program. These figures represent planned, nct actual, investment. H.owever,-nr the releases follo-wed *he plan very closely and there is no reason to believe that any signi- fiTh,tt change took place in the rer.i.,der.

26. It is immediately apparent that the concentration on basic industries is due to invsestment in the iron and steel ,dustry and in power. Since the former is among the industries which have contributed most to increasing Austria's exorts+,the arvsnent thtt Autri~1 investinent has been misdirected or has added to the inflation is in fact a critictsm of the power program. Now i+ could be p51usi-Ly axgued that a period ui acute inilation and reconstruction when everything must be done to increase output and exports as rapidly as poss-ble is not the best time to devote large capital outlays to the construction of expensive hydro-power plants. However, the shortage of power an -ustria at the end Of the war was very severe and was in fact largely responsible for the slow recovery of the years 1945 and 1947. So that in any case it would hna-ve been necessary to increase the output of electric power although in theory quicker and cheaper results might have been obtained by - 10 -

building thermal plants. However, this would have required greater imports of fuel which would have increased the difficulty of balancing the international accounts. Furthermore, it is very doubtful whether concentration on a form of power requiring less investment per installed kilowiatt would really have had any effect on the severity of the inflation, which was due fundamen- tally, not *to excessive investment, but to the lack of any force capable of preventing money wages from rising.

27. The effect of postwar reconstruction in furthering the general inclus- trialization of the country can be seen in the changes in the composition of the national output.

Austria - Gross National Product (billion of schillings in prices of 1951)

l96281952

Sch. fi Sch. f

Agriculture 7.1 15.7 10.1 15.2 Manufact'uring 7 3A.2 29.0 3 Construction 3.1 6.8 4.4 6.7 Gornerce- 'A 13.7 8.2 5. 1 Transport and Communications 2.7 6.0 3.6 5.4 E1ectr1city, gas and water 1.6 3.5 '2.1 3.1 Public Administration, Banking an_A Tns,,ranc 1 fri "I r , 1 7 fe Miscellaneous 5.2 11.5 6.7 10.1 TOTAL 45.2 100.0 66.6 100.0

Tiarn in the sprce of foui'r years there ws a sa4g4414ca tincrease ;n the importance of manufacturing industry, and it is notable that this ooccu rr eAd huardly, at all'at tAhe exLpen-sVe ofL a-g-J.-Cultur-e %-& at. theexens Public Administration, Transport and Communications and Miscellaneous.

These~~ l1ate ~V4 aAzetivtaC9 u.LV.LV-JJVQ.4wer QLAJ.J.VWs UU.L.JJ4I C.LI VVJIpn=f-to All L .Jt.LVJI ALJI,t 4dur-4gUl1.LtL. at 4 WMI he-r_ piL'JU:8 in which their contributions to the national product are measured, rise less tb, t.. a-toag asestee.e 29. It iE; somewhat more daificult no assess the effect Of the reconstruction programi on the balance of payments but the following table gives an indication cif now far the ERP investment was related to those sectors which have shown the greatest increase in exports since 1937. - 11 -

ERP Investment and Changes in Exports

ERP Increase in Value of the Investment volume of' change in exp!orts 1949 to exports over in 1952 schi2lings 1952 (M.Soh) _93? - < _ ; il ionna Basic iron, steel and metal industries 1,083 4 58.5 4 801

Paper and pulp 683 - 20 _ 363 Iron and steel processing 248 1 87 + 769 Textiles 235.4 - 33.5 - 294 Chemical industry 193 . 252 4- 258 vWood and furniture lLO 4- 40 4. 30.2 Electric goods industry 97 I 4 - 15

30. The expenditure upon the basic metal industries anid on the iron and steel processing industry has clearly produced results in the form of increased exports. On the other hand the paper and pulp and textile industries have not yet recovered to their prewar level of extorts. The investment in the textile industry wms devoted to the elimination of certain bottleneckh in the structure of the industry and to the modernization of slant. As a result of this effort the index of textile production (1937 = 100) reached 110 in 1951 and then declined to 94.5 during the textile recession in 1952. The volume of extorts of textiles and clothing were, however, less than 60% oil the 1937 figure, a fact which reflects the loss of export markets in eastern Europe. But imports of textiles and textile raw materials were much lower by volume than they were in 1937 although the much greater rise in raw material prices than th.ose of finished textiles means that the industry as a whole is a net drain upon the balance of payments whereas in 1937 it produced a net; surplus.

31. The case of the paner and uulp industry is somewhat similar. It i's one of Austria's most important export industries but its capital equipment at thR And of the war Twp almost nll obhsn1e.e Wi+.bhrnnt c inTt ment in new equipment the Austrian paper industry would have been unable to comnete. abro.nd. RowPlirr it w hhnopd fhnt thA invet.ment. nrnornam i4i(11id bring about a considerable increase in production and exports. Although there have been increases since 1949 they are well belou expectatIons. For- tunately, the high prices received for paper and nulp have enabled them to maThtna-n +>. relstive position in rela n total? expor+s. InT-Ps-, 4r 1951, a particularly good year, the value of paper and Dulp exports amounted for 171% oe-, tbe v.ralio of totai+.ql nv-n^rtsa, asV' to .Ya.1017.. T Ir 145 owing to lower orices and reduced exports, this proportion fell back to 10.

32. Apart from the direct investments in the principal export industries development of power resources is an obvious necessity for expanding industry.

InvestWment , "I oal 1£r.LL1g Jbka-S Led.t in.creasedL pIrod--vLcutln whCieh is JupOrL saving. The investment of about 850 million schillings in agriculture helped bo restore production and hence reduce imports oI iooda Unfortunately mUCih of the best agricultural land in Austria is situated in the Russian zone of occupation; had this not been so, it is probable that the recovery program - 12 - would have devoted more funds to agricultural development than in fact it did. Forestry, whichiois of reatr imorrtance t+o Austria for lumber and wodA products together with paper and pulp account for over 30% of total expo:'ts, rece4vedpA 216 m4511ionaeAs 114Y ofd aeJ. -.iS'A . T1his e4r.itAte 4i not serve to bring about any immediate increase in exports for it was used .,Pilyfo 4the open4,g- -upof -leasaccssile -- or areas whose ou"u w;;uld Jl1O&.LL.1LL)' J.%J.L "Liu Vp..jJ3L.Li% LLkJ LJ.h &U0 Q ~ L ' L .L.'..VQUV LWALV Q JIA3J W'L%A. be offset by the cessation of overcutting in the nore eesily accessible areas. The tourist industry received 273 llion schillings spei-it ainly on the restoration and modernization of accommodation for visitors.

33. The effects on the structure of Austrian economy of the war and the reconstruction program can thus 'be summarized as firstly, a considerabie increase in industrial production and secondly, a shift in the composition of industry away from finished consumer goods towards the products of iron and steel, metal and engineering industries. This can be seen most clear:Ly from the indices of industrial production. BY 1953 the production of durable goods had increased by 115% since 1937, while the increase in the production of non-durable goods was only 30%, The composition of exports has naturally been affected by this development; a point which is somewhat camouflaged by the fact that the prices of Austria's "traditional" exports-lumber, wood products, pulp and paper--have risen more than those of the new industries. Consequently, the relative importance of the "traditional" exports in the total of al:l exports is now actually greater than it was in 1937.

34. The expansion of total industrial production by 70% has been accompanied by a growth of the industrial labor force of 60%, which represents an increase of productivity of only 6% since 1937. Although this may seem small, productivity has been increasing steadily from the low levels of the early postwar period when industrial employment was considerably larger than prewar but production was lower. Productivity only regained the 1937 level in 1951 so that the increase of 6% above that level occurred in two years.

35. Recorery in agriculture has been much slower than that in industry. In 1952 agricultural production was only 95% of the 1937 level; but in 1.953 the prewar figure may have been exceeded for the first time, In most of the principal crops there has been a nmrked fall in the ares under cultivaticin although in most cases there has also been an offsetting increase in yields. There are still fewer cattle and pigs than in 1938 though numbers.are increasing.. The main cause of the low level of agricultural output has been a fall of some 13% in the agricultural population. The expansion of industry has drpwn rpnlep nff' tha land intn the townn. This of oniirs is A norm.l PnrMni paniment of economic development but in Austria it had been accelerated uintil rvrnntly rarfnitif all, low nrpnrie pidl +.t farmor- UTnt.il 101fl prInes of agricult.rmal products were generally below wiorld prices in marked contrast to the pre.ar si+.uat1o.n wAhen ferm rwices were sometImee two or th.ree rnImes as high as external prices. However, prices in Austria have been steadily increased while world prices have shown a decl_ring tendency. Consequently, some farm prices, for instance for cereals, are now once again higher than 4 uni 1 A r . non - 13 -

36. The movement of population from agriculture into industry is, however, a movement from a sector where productivity is low. to one whprA it t8 higher. Therefore, even though agricultural output is now no higher than bAfore the war and there seemq to have heen no increas in i n ductivity, nevertheless over the whole econorm there has been an increase in national ouput per head. The natIonal produt is probably 30% higher than before the war. But because of the increase in population (about 3-1/2%) ard the gr-eater use res^4"^M" "e+s, icr-ease in. the standrd of living has not been as great.

The Balance of Payments

37. The receipt of substantial foreign aid by Austria was reflected in her balance oL payRM0ents. Lhe following urief table gives the general picture.

(Millions of U.S. 8) 1248 19492 1951 1952 1953

Imports (c.i.f.) -490 -604 -482 -655 -654 -547 Exports (f.o.b.) 207 291 332 454 507 538 Services (net) 16 17 18 25 80

Current Balance -267 -296 -132 -176 -104 + 71 Foreign Aid 280 300 183 222 104 38

38. The current deficit in 1952 was noticeably smaller than thEt of 1951 and in 1953 there was a considerable surplus. The largest pert of the improvement came from a substantial fall in imports. This was partly the result of increased domestic food production. In 1953, total imports were reduced by $107 million of which a drop in imports of food and foodstuff,s amounted to $60 million. An increase in tourist traffic was largely responsible for the rise in invisible receipts. But there was also a general fall in the demand for imports owing to internal economic conditions, When a strong inflation is brought to an end there is usually a reaction; the economic situation in 1953 in Austria may be described as "quasi-deflationary.t' Production and consumption were probably no higherp on the average, than in 195.2 but there appears to have been a fall in investment and so9m reduction in stocks. -At the same time there was some revival in savings which, because it was not accomrenied by an increase in internal investment, led to an increase in liquidity. In effect, therefore, the-absence of a local cepital market and the desire of savers to retain their savings in liquid form, meant that the econonm invested in higher foreign exchange reservesinstead of in. internal canital enuinmenit. While the recent rise in foreign exchange reserves is, of course, a great improvement it should not be regarded; without nualification; as a demonstration of the strength Of1 the Austrian econommy. The qualification lies in the reduced level of innter- nal Investment, Which to some extent made it possiblej and in the faet that employment was not as high as m-iost Austrians would like to see it. In this - 11f -

context the desire of the Austrian Government to encourage an inflow of foreign capital is easily understandable for it would enable investm'ent and employment to be increased without endangering the balance of payments. Towards the en-d of last year there was a strong recovery in the level of production and the seasonal decline in January and February of this year was less than, normal. Also the rise in excnange reserves has slowed down considerably but it has not ceased altogether.

39. The improvement in Austria's balance of payments position is reflected in its E .P.u. position. For the first two years of E.P.U.Ms existence Austria incurred consistent net deficits which amounted by the end of June 1952 to the equivalent of $142 million. These deficits were met first i'rom an initial credit balance equal to $80 million and then from "Special Resources" allocated by the United States. But after June 1952 the E.P.U. position was reversed and Austria began to run a surplus which, apart from tne first quarter of last year, she has continued to do ever since. Her accounting surplus with E.F.U. now exceeds her quota ($70 mill.ion) by $4+8.6 million and special arrangements have been made to deal with the excess. Within E.P.U. Austria normally has a surplus with both Italy and Switzerland. Her larges-t deficit is with Germany. With the improvement of her E.P.U. position Aulstria has adopted certain import liberalization measures. S-xty per cent of her imports ceame under the 'iberalization measures of M1.rch this year, and. it is hoped that the proportion can be extended to 75% by July.

40. The improvement in Austria's trade balance from the end of the war until 1953 was the result of rising exports and higher invisible earnings; the volu.me of imports has remained fairly stable from 1l94 to 1952. The problem of achieving international balance has been made m.ore difficult by a deterioration in the terms of trade. Exports; in the first ha7f ef 10953 were worth about 25% less in terms of imports than they were in 1937.

41. Thae effect of the war and the recovery program on the nature of Austria's exports has alrendv beenriscused The following table illustrates these changes in summary form: Austria. Exrorts

1 1953 Million Sch.- M4114^-l ch.k * Base metals (mainly iron and steel) 159.6 13.1 2,617.7 20.2 Lumber 130,1 0.7 2,532.4 .9.6 Yachinery and vehicles 118.6 9.7 1,614.8 12.5 Pulp;. naer 8ndi aper products 133.6 A11.0 1,23 9.6 Ivetal goods 67.0 5.5 692.6 5.4 Textlles 164.5 13.5 8O.. 6.9 Chemical products 33.1 2.7 576.2 4.4 1e1 . 3.% es ~z 780.2 -.1

1,217.0 100.0 12,9j5.3 lC0.0 Volume Indices 100 146 - 15 -

42. The c:hanges in the percentage figures from 1937 to 1953 reflect the effects both of volume ancl price changes. For example, the increase in the relative importance of lumber exports is due almiost entirely to the fact that their prices have risen much more than those of exports as a whole. On the othez hand, the increase in the share of base raetals is d2ue almost entirely to a real increEse in the volume of exports. Exports of pulp and poper have maintained their relative position only because high nrices have offset the fall in volume. The decline in the share of textiles is largely due to a fall in volume. For the remaining three cateeories;, mchinery and vehicles, metal goods and chemical products, the rise would have been even greEter had their export prices risen as much as the general average.

43. Of AustriaIs imports in 1953, 25% were food and feeding stuffs, 17% raw materials such as cotton, wool and non-ferrous met&l ores, 16% coal and coke and 15% machinery and vehicles, Imnprts of'machinery and v,,ehicles were, in fact, higher than exports under the same heading.

44. The outlook for Austria's exports appears to be still good; her lumber exports shoulld be well maintained and i the p>rospects of m,any of her other exports will denend upon her continuing ability to compete in world markets, there have been no grs for"s uneasiness on this le-vel so far except as concerns the textile and paper industries where further modernization may be required, Exports from Austria!s newly expanded heavy industries have so far been increesing satisfectorily. However, the immediate motive for the initial ex n nsion of these industries was a strategic calculation by the Germans which may not have been in accordance with the underlying econoii-c conrditions. On the other hand, Austria does possess natural resources for the industries (with the exception of coking coal) and the recessery skilled labor force. Also, a course of action which rnight have been economically less favorable for the Germans, who had the alternati-ve of expending the Ruhr industries, might well be correct for Austria, considered as an economic unit for which this alternative does not exist.

45. While the surplus position of 1953 was brought about by unusually low imports which cannot be eXpected to continue, particularly with increasing liberalization, there need be no reason why, given appropriate internal policies End assuming no large drop in the level of world demand for her exports, Austria's recently attained external equilibrium should not be maintained. The prospects for the dollar balance are less clear. The dollar deficit was $100 million in 1951 and $67 million in 1952. The dif- f-culty is the familiar one--the absence of supplies of food and feeding stuffs from Eastern Europe, Almost half of the total dollar imports irnto Austria consist of food and feeding stuffs; in 1952, $61.5 million out of a total of $132 million. Other important dollar imports are cotton, machinery, tobacco, chemical products and, sometimes, coal. Dollar coal imports depend largely on the amount of coal Austria can obtain from the Ruhr. (They do not depend on domestic production. Austrian production is all brown coal and output is now at an economic maximum.) Machinery imports can be expected to decline together with the fall in investment and with the growth of Austria's own production. But in the end the dollar balance depends on the non-dollar availabilities of foodstuffs and Austria's domestic output. In 1953, owing mainly to greatly reduced imports of food and coal, the dollar deficit was very much smaller. But even if the favorabli conditions of 1953 do not continue, the resulting doller deficit is unlikely to be Lkrge; something probably in the neighborhood of Al to $925 million for the next few years. This is a small sum by comparison with Austria's present dollar exchange reserves of 2-17 million. 46. The conclusion of a State Treary would have a great influence on Austria's economic position and upon its doller position. The withdrawal of U.S. troops would deprive Austria of dollar earnings amounting to nearly $30 million a year. There would be some compensating general benefits from the removal of the Russian occupation but they would be unlikely to be of a kind that would have much effect on the dollar balance. It is difficult to obtain any clear picture of the effect of the Russian occupation on Austriafs balance of payments except for the oil fields. The output of the oil fields is now about 3 million tons per year, of which the Russians remove about half. The remaindeir is sold to Austria and is sufficient to cover local requirements. For the rest, the Russians control some 350 enterDrises employing around 150,000 persons. Some of the output is sold in Austria but a large part is simply removed in closed trains. On the other hand, some raw materials are brought into Austria. In the absence of any information on what these values are, it is impossible to make a'judgment about the effect of this Russian enclave on the balance of payments. In any case the value of these enter.- prises to Austria is unlilcely to bear any relation to their value to the Russians since their output and raw materials would have to be !bought and sold under entirely different market conditions.

47.i Another consequence of a state treaty would be that Austria would :rCo- bably have to payw $150 million eouivalent in com-odities to the Son Un-"Lon as reparations. On the whole, therefore, the immediate effect of a treaty upon Austria might well be unfavorable, The-re w.ou1ld be (a) the loss of dollars for military expenditure, (b) the reparation deliveries, and (c) a demand for investment to rehabilitate the Eastern zone. On the other hand, it would be not unreasonable to expect that a state treaty will only be siLgned if there is an improvemnnt in internation.al relations which wou'd probabl bring with it some resumption of east-west trade. Providing that eastern Eu-rope cn produce somethi.ng to sell, this would lbe ol consLderab- benefi't to Austria. Nevertheless, as things stand at present it is probable that some special assistance woul'd necessary to tide Austria over the transitional difficulties brought about by a treaty.

48. In the meantime the growing strength of the balance of payments position is demonstrated by the steady rise in the foreign exchange reserves of the Austrian National Bank since the stabilization of the currency. At the end of 1951 exchange reserves amounted to U. S. $55.2 million and in the Esuc- ceeding 18 months they increased to $155.9 million of which all but $23.4 million were in gold or dollars. By itrch 1954 total reserves, including credit extendled to E.P.U., amounted to $278 million. In addition to this, there is someu 40 mllion of so-called ?iBrussels goLd," i.e., gold which had been looted by the Germans and now restored to Austria) which is not carried on the centret'L bank balance sheet. Exterrnal Debt

49. At a conference held in Rome at the end of 1952 an agreement was con- cluded concerning the settlement of Austria's prewar external debt. The settlement provided for lowering the coupon rate, prolongation of amortization, and a simall write-roff of amortization payable to the powers who guaranteed the 1934-59 loan. This agreement covered all Austrian debt with the - 17 -

exception of two loans from Czechoslovakia which were not covered because Czechoslovakia did not attend the meeting. (See report on the "Public External Debt of Austria't).

50. The total external public debt of Austria, including the amounts agreed upon at the Rome Conference and the postwar debt, is estimated to amount to the equivalent of 102.6 million. The definite figure will noit be known until the process of validation of pre-World War II bonds has been completed. This includes the 4ustrian share of the debt of Austria- Hungary (A18.0 million equivalent) and the debt to Czechoslovakia (Ipl.75 million equivalent). This is a very moderate total for a country with a national income of V2.4 billion and exports equivalent to over t500 mill-Lon per year. The present total is less than half the pre-war Austrian external public indebtedness.

51. Service payments on the total debt will be equal to 1;7 million in 1954, the first year in which payments are to begin under the Rome agreement. In 1955 thev will rise to around 31l3.2 million. After 1955. the annual payments fail gradually from ';6 million per year to 54 million in 1962 and, more slowlyr, to <,3 million in 1975. The total U.S. dollar debl; amounts to $P23.9 million including q6 million Eximbank cotton credit extended in 1952. The service will be -2.8 million in 195X4,; `!R3 millin in 1955 and then a little over Il;million per year until 1963.

52. The burden of external debt upon Austria is therefore far from a heawv one with total service nvmnts equivalent1 to orly erl 1% o-f +t value of exports.' One important uncertainty in any decision as to how far A.ustria sh+ould go in 'A'"'+ furhe e debt lies ir, t 4hefac4-1-4 if a State Treaty were agreed upon, Austria would have to make reparations deliveries to the Soviet Union aounting to the equivalent of ^,5O million. This would nlaturally add substantially to the burden upon the economy. M i^lnr A Aanad A ¶¶nn 41,us4-e ofgosAr--P -ee upor. for th reparations.. and upon the length of time over which deliveries had to be made. (A period of~. 6-' yeas. wALVmentio.nLe .L Ae Udr V UbuLtL,t.L e itUU.1 LsnotI cILear t tUL.ivt4 would not be altered.) But in any case it would seem a reasonable assump- tion that if it were possible to ota- Sov eent to a re the western powers would ensure that its consequences were not such as to cau,s e- A4E-tr_`La to dde:fn-14 on i44ts wern-a'l d-t., - 18 -

III. PRESENT SITUATION AND PROBLEMS

53. Austria has now largely overcome her postwar reconstruction problems; production has been restored and in many cases greatly increased; the currency has been stabilized and a balance on international account is now Ln prospect. The problems which now have to be faced are of a different' nat1re For purposes of exposition they may be grouped under three headings although there are many interconnections between them, The fir-st goup are those concerning the decline in U.S. aid and the connected changes in the pace and direction of investment that -.nll be entailed. The second group concern:; the establishment of a capital market, which is now almost completely lacking. This is closely connected With the proble. of creat-;_ a satisfactor- banking structure and it naturally also has a bearing on the first problem, that of investment. The th-ird prlem, wh- ch car o e Uriefly mentioLUed here rather than discussed in detail, is concerned with what has been called +he1"no=cor-peti4"ve"l nature of t,he Austr-ian econo,,y. - U0.LU.L J.I.UitS .LL.1J1UI 1

The Fut ofIe IrVes-

LI. As has already been r,entioned, the rapid rate of investment which has occurred in Austria has been made possible by ERP aid. In 1953 there wasi a substantial fall in t"e aro-urLt of aid to A-ustria and in January 12' , the allocation of economic aid to Austria was discontinued. Thus for 1954 the dollar balance of payments -illbenefit only to the extent that there are some dollars still left 'tin the pipeline". It is unlikely that these will amount to much more than $15 million.

55. For this reason investment out of counterpart funds is lilkely to undergo a sharp decline. It is true that as a result of the early attempts to plan releases in accordance with the general monetary situation, a substantial amount of counterpart - some 4.5 billion schillings or the equivra- lent of $173 million - still remains in the counterpart account. The expenditure of this money would be inflationary just as its original accumulation was deflationary; it would merely be an expansion of local expenditure un- matched by increased production or imports. But at the same time the Bank mission received the strong impression that there would also be a corresponding decline in the demand for investment.- In many of the important industries - iron and steel, mining, aluninium, electrical equipment - the expansion programs which were envisaged at the end of the war are now virtually completed. (The one important exception is electric power). This impression has been confirmed by a provisional estimate that over the first three quarters of 1953 the gross amount invested in fixed assets was 14% lower than the corresponding figure for 1952.

56. A fall in investment will cause difficulties in the capital goods industries unless they can make offsetting increases in exports. Exporte of machineryr and equipment have increased more rapidly than exports as a whole - the volume of total ex:jorts in 1952 was about 9% greater than in 1937. whereas the volume of exports of capital goods had increased by 21j. - 19 -

Nevertheless, by far the greater part of the output of the capital goods industries has up to now been disposed of in the home market and it would be very difficult to increase exports sufficiently to compensate for any substantial fall in home demand.

57. It should be possible to increase investment in some of those 4ndus- tries which found it difficult to obtain counterpart funds in compeititon with the heavv industries - such industries as textiles, glass and ceranics, leather, woodworking, and small consumer goods industries. But although this may be- desirable it may n so be difficult. I+ is one thing to invest money in a steel industry to meet an existing demand; it is quite another thing to invesst the same amoun.t of money in a lag,e number of small industries in order to increase their efficiency and lower their costs.

58. In these circumstances it is likely that the problem now facing Austria is not one of a possible renewal of i4nflation but rather one of unemployment. A great deal will obviously depend upon the maintenance of a satisfactory level of exports and hence on conditions in the rest_ of Europe and in the world as a whole. But problems arising from conditions within Austria itself -will rerain. For the construction industry there is a large potential field of activity in housing. Housing construction has been proceed- ing at only about 20,000 units per year - far below requirements. The difficulty here is the existence of a rent-stop going back to the time of the first World War. Consequiently "as in several other -W;estern European countries), expenditure on rent is only about 5% of total consumption expenditure, a rid- iculously low figure. Almost all housing expenditure has therefore to be financed by the state. another possibility often suggested is the construction of an autobahn from Salzburg to Vienna. The Germans brought their autobahn from Frankfurt through lvlunich into Austria as far as Salzburg and under- took some of the preparatory work to continue it to Vienna.

59. But the most important remaining field for productive investment in Austria is clearly hydro-electric power. Austriats power potential is muach less developed than that of other l;estern European countries; the sites that remain to be developed are therefore more favorable in terms of the cost per unit produced than those of other countries. The prospects for investment elsewhere in the economy will depend a great deal on Austria's ability to compete on world markets and maintain her share of an expanding world trade. To judge from comparisons of productivity in agriculture with neighborinz countries much could be done to increase efficiency in Austria. But again this appears to require not only capital but social and organizational changes in agriculture, such as the consolidation of separate strips of land into individual farms. There are differences of opinion in Austria over whether or not an attempt should be made to retard the movement of population off the land. This problem would require more eareful invest:L- gation than the mission could devote to it.

60. All the same, if there is an increase in unemployment in Austria there will be much pressure both from outside and from the Sonial Frth4n the Government to increase government expenditure. But on the other hand the experi-An e of recent inflation is so vi:vid that the country is not in th.e mood to take any risks of its renewal.

The Capital Market

61. With the decline of U.S. aid which, since the war, has provided almost the only investible funds which could be freely channeled to sectors of high priority, the problem of building up a capital market comes into the fore- ground. A successful operating capital market requires two principal conditions; the existence of savings which are seeking investment and a mechan- ism whereby they may find their way into the hands of investors. At the moment in Aiustria, savings, other than business savings, have revived scme- what since the end of the inflation though they are still small. Savings deposits rose from 2.3 billion schillings in 1951 to 4.3 billion schillings by mid-1953. But naturally savers still prefer to keep their funds as liquid as possible. Hence arises the position that the banks are in a generally liquid condition while at the same time there is a demand from industry for long and medium term credit which cannot be met. A similar situation exists in Germany. The shortage of capital is reflected in the high level of interest rates. The standard rate charged by commercial banks is & %. Savings deposits carry 31% up to 4% aubiect to 12 months notice. The first substantial internal loan which has been floated since the war was the recent "Energy Loan" issued by the Verbundgesellschaft. the central Austrian power authoritv. This loan received various tax concessions to make it attractive to purchasers and mnrenover the repAnment conditions are to be increasd panri passu with aLn increase in the wholesale price of power. The loan itself was an unqualified succes-s. T+. was _nannoncntiA ; ACllP ndA hruaghtt in snme f%Qr million se1;hillinacs 'More recently it has been reported that the savings banks have agreed to sub- scrib 600 m-llio schillings for a lnf the rution… of theFer Railways. This loan carries interest at 6% and is for a period of 8 years.

62. However, the preference of savers for liquidity is a matter whichi needs ti.,,Le andu sIt-abile money t-o orvercom,e. But tlAiere are sever '" necessairy steps which must be taken if internal savings and investment are to be en- co-rage'. A veLy i.mportat poir,t .LS le-rel.e of'direct taxatmion. The inflation has lifted all taxpayers into the higher brackets. The increase of tOaxation on .-,oderateo incom,es h1as bjeer. paeocular'ly severe. TIn 19317 Zr with an income of 10,000 schillings would pay about 4% in income tax. In order tIuoh"a-ve ar, incomte of the sar.e purchasing at prsei-oe - - A re uch a man would have to earn 80,000 schillings, but the tax would now be 50%. Business irms are subject to iucoroe tax arid to otLher direct (property tax, corporation taxs etc.) which can lead in some instances to a complste confiscation of profits. The high ievei oI direet taxation is due not only to the government taking a considerable share of the national income (the Federal, local and social insurance budgets together are equivalent to about 30% of the national income) but also to the increase in the proportion of government revenue provided by direct taxation. The share of direct taxes in government current revenue has risen from 20% in 1937 to 37? in 1952, whereas the share of indirect taxes has declined from 58% to 4,%. The whole tax system is cumbersome and inefficient and in the opinion of many experts it could be simplified and tax rates lowered without causing any large fall in government revenue. - 21 -

63. Lower direct taxes would enable people to save more; other reformrs are needed before the savings can be invested in industry. The inflation has left the nominal value of the share capi4+l ov companies at far belowi its real value. Since there is a dividend stop only small dividends are paid despite high earnings. The Government has promIsed to take action for the revaluation of company balance sheets as soon as possible. Another matter which will have to be cleared up is the paymen't of compensation for industries nationalized in 1946. Until both these matters have been recti- fied an.y geat investment Ln shares by private persons is not to be expected.

64, Finally, the whole question of the capital market is closely connected wi'th the problem of the banking structure. As in other continental European countries the banks have played a much larger role in the long-term financing of industry than is customary in Anglo-Saxon countries. A small mission, led by 4.Mlaurice Frere and consisting of Dr. Arthur .larget and Sir Otto Niemeyer, visited Austria last October, in order to investigate this pro.- blem and Make recommendations. Their report includes recommendations deal- ing with the National Bank, the reform of the banking system and with measures to reconstitute the money and capital markets. They stress the need for new statutes for the National Bank which would protect it from political pres- sures and give it adequate powers. (The National Bank is still operatingl under temporary legislation passed in 1945). As regards the commercial banks, the report is careful to point out that the existing structure is the result of long historical development and reform measures must clearly take this into account. No very drastic alterations in banking structure or practice are therefore proposed. Instead it is recommended that commercial banksl capital and reserves snould, within ten years, be equal to at least twice3 the amount of their participations, shareholdings, debentures and long-term advances. Within two years long-term advances should be converted to debentures of the debtor companies.

65. Toeencourage the growth of a capital market the report urges the establishment of a new investment corporation (or the adaption of an existing one). This corporation would take over the debentures resulting from. th! long-term advances of the commercial banks in exchange for its own bonds. It would also take over the administration of the RIP counterpart funnd accounts which are at present held by the National Banlc. The method by which this transfer would be accomolished is a complicated one but its consequences would be that the corporation would be provided with a supply of funds for investment and its bonds woul-d form an outlet for the accumiu= lating funds of the savings banks. The corporation would provide an indirect link between the supply of short-term capit-l and the demand from inrdustry for medium- and long-term capital. The report expresses the hope that the cornoration would not dominate the eapritall mrrket perm -ently tht it would be able to withdraw from the scene as an independent capital market developed.

A. !Non-Comppetitive Econonrr"11

66. That coMpetition within the Austrian economvr is a very feeble force is openly acknowledged, The Americans, concerned as they were with expending large sums of mr,oney to promote Austrian recovery, prepared a lengthy - 22 -

report entitled "Restraint of Competition in the Aust-rian *co".-11Is is not difficult to describe the situation that exists; what is not so easy

is to assess its results. Brieflyj .conric lower in,ustria is concen- trated in the hands of a few people and institutions. This is made possible by (a) the extensive ownership of light indust.ry by the chie comJmercial banks, specifically the Credit-Anstalt and the Laenderbank; (b) lar,e-scale nrat40nalizatJorn of heavy iAndustry and mining; (c) the existence of a "chamber state" whereby economic policies are made by quasi-official bodies represent- ing trade, industryu labor and agriculture, (d) compulsory organization cf commerce ancd agriculture in trade and farm associations exercising broad authority to prescribe price, production and distribution conditions; and (e) interlocking directorates. There are supposed to be some 500 cartels covering almost the entire economy. There is also a law, the "1Unbersagung- sgesetz" which makes it necessary to obtain a license in order to enter any trade. These licenses are granted by the local licensing authorities whc, can refuse one if "the conditions of competition.....would be unfavorably affected by the establishment of a business..0.." The local authorities are greatly influenced by the local chambers of coiamerce in interpreting this provision so that in practice an entrepreneur is in the position of having to obtain a license from his potential competitors before he can begin to operate.

67. Interest in these various methods of restricting competition has revived recently with the emergence of a buyers market and the prospect of a relaxation of import controls. Althougn the general situation comes in for much criticism the prospects for an improvement appear to be small. However, it is most difficult to obtain any reliable nicture of what the total effect on the economy actually is. The ECA report contains much description of the various organizations and cartels but surprisingly little about what their effects are on such important matv-ers as industrial productivity, technical progress, etc. The necessity to compete in export markets and against imports is, of course, an imrportant influence in the other direction. In arny case, although the uncompetitive nature of the econoiry may make it less adjustable and thus generally act as a brake unon nrogressp the bearing of this upon the creditworthiness of the economy would seem to be small - but with one proviso. The tightlv organized natulre of the main economic interests, although it is in no sense a cause of inflation, does make the economy peculiarly vulnerable if inflation develops for other reasons. In a stable situation all the various interests act as checks upon each other and the net effect on prices and wages is probably negligible- But once an inflation begins the basis of the equilibrium collapses and all sections combine in a sort of vast consnirar against the currency and the public at large. This does not mean that the Austrians are any less anxious to avoid an inflation thani another contry; it r.erely m + if' despi good intentions, one does begin, it is more difficult to control.

TT? rI'CTh'PT TTOC'(T\T

J1. vV ~Pj'I..WJU~r±'JL4

68. The wrar and the p>ostwar period of reconstruction have left Austria wiith an econormy considerably .-ore developed than it was in 1937. The reconstruction process was, however, accompanied by severe inflation and until 1951 the problem of mionetary stability remained unsolved. But with the credit restrictions and the stabilization of the schilling in 1952 this chapter ias cor i to an end and. Austria now has to deal with quite different problems. There are many which are the direct result of the inflation itself such as the reform of the tPx structure and the revaluation of the share-values of company and bank balance sheets.

69. The future prosperity of Austria, like that of all small countries, is greatly dependent upon an expanding volume of internetional trade. Within such a framework, Austria should be able to maintain a balance in her international accounts and at the same time provide for a satisfactory level of employment. To achieve this will be the easier the more Austria is successful in attracting external capital. But it is also important to ensure that future internal savings may be put to productive use in Austria instead of being held as idle funds in a country which is short of capital.

70. Apart from the war period the only interruption of payrments on Austria's external debt occurred in 1932 when the transfer of debt payments was suspended for a year. This was the result of the severe foreign exchange crisis which followed the failure of the Creditanstalt. But in view of the extremne difficulty of this period for Austria, the Drompt resumption of transfer as soon as it was possible and the successful negotietion of a debt agreement after World War II, the Austrian debt record can be regarded as satisfactory.

71. Austria's present external debt i9 unusuallyl1oTw at app,roximntely h102 million. It is less than a third of the prewar debt even in money terms so that, taking into accouznt the fall in the value of money and the rise ir. Austria's national income, the reduction in the real burden of external debt has been even greater. Service payments on the debt in the peak year are only 2% and 3% of annual foreign exchange earnings sothat even if the debt were substantiall- increased it would still not be an important factor in the total balance of payments. Service payments upon it would therefore be unlikel.-y to be affected even ifin the ifutue, Ausrasol none balance of payments difficulties owing, for example, to a sharp decline in world trade a.d hence for Austrian exports.

72. If, in additIon, Austria ursuaes a pol-cy of '-ncuring external debt for projects or programs which directly contribute to export earnings, a large expansion in her present external debt wo-uld not substantially afffect her creditworthiness.

73. The partial occupation of the country by the Soviet Union presents a risk of a different nature. The Russians have not attempted to divide the country into two parts as they have in Germany. The Soviet Zone of Austr-ia lies clearly to the west of the Iron Curtain and the boundery between it and the western zones is not an economic or political barrier; movement across it of persons and goods is uncontrolled. The Austrian Government has pursued a policy of avoiding any action which might lead towards a division of the country. Recent Russian policy has also moved towards relaxation of what few restrictions remained. However, there is naturally no guarantee that this trend might not some day be reversed although it appears very improbable at present. The possibility that the Soviet Union might attertDt to occupy the entire country is hardly one which can be considered apart from the possibility of a major war. Table 1

External Debt

Amount Cutstariding in ITS iv4illi.on Equivalent

1. Pre-Y-orl.d Wvlar I Debt

Share of Old Austria-Hungary Debt

a) Gold 17lorin Bonds 15.0 b) Swiss and French Franc Bonds 3.0

Sub-total 18.0 2. Inter-4;,ar Debt

a) Sterling 3onds 13.8 b) Swiss Franc Bonds 117 c) Dollar Bonds 6.6 d) Other Forei-n Currency Bonds d) Debt Paymaents in Arrears 11.9

Suib-total 49.2

3. Post- World War II Debti

1) Int6r-Governmelltal Loans

a) U.S. Government Loans 17.3 b) U.K. Government Loan 7.3 c) Debt to Swiss Govermnent 2.0 d) iNorwegian Government Loan 0.4

Suib-total 27.0

2) Swiss Brank Loan 8.4

GRP ND TOTAL 102.6 Ags,ri~~~(1cuivr I10.'+n4T( 8.5 1hl,en 110.,cif r f -f IO 9.8i , in

J.nGw A.; r 7L W ...... _LU a..n _L

tJCUL { V5W'UJV;CL t{J.LU- V,) ).lJ lCL .L U U r C.1

U4A-Lh _.LdUiJ . ULJL.14 4.C"IU4sf

LAQtS:W.11U 4*' 49L)- -44

o.dL)Iifhie r~ 1e4.0U

and Defense L.7 4.9 5.2 5.3 ijiscellaneous 5.8 6.3 6.7 6.7

TOTAL 5, 3 61.3 66.3 66.6

Source: ilustrian Institute for Economic -esearch Table 3

Gross National Expenditure

(billions of schillings at 1951 prices)

1949 1950 1951 1952

Consumption 42.1 45.3 46.2 4X6.7

Government Current Expenditure 7.5 7.7 8.2 8.6

Gross investm.nt 13.0 12.3 15.6 14.4

TOTAL 62.6 65.3 70.0 69.7

Less B3alance of' Payments Deficit X i,,n 3.7 3.1 Gross National E4npindi tiiure -.3 61c3 66.3 66.6

Source: h!ustrian Institute for :'.corioinic Research Tas'e 4

Exports - Principal Commodities

(Mrillin-ns of shl"s

1937 1951 1952 195.3 Base Metals (mainly iron and steel) 159.6 1,392.6 2,176.2 2X617.7

Luml'er 13O01 1,630.5 2,118.0 2,532.4

Pulp, Paper and Paper Products 133.6 1,609.3 1,112.1 1,243.8

Machinery and Vehicles 118.6 1,187.4 1,377.6 1,614J.8

Metal Goods 67.0 559.8 616.2 6924.6

Textiles 164.5 660.7 586.5 897..6 Chemical Products 33.1 452.3 427.4 576.2

Others 411.3 2,142.1 2,215.7 2.780.2

TOTAL 1,217.3 9,634.7 10,629.7 12,955.3

Export Volume Index 100 110 109 146

Source: Statistik des Aussenhandels O0terreiGhs Table 5

Imports PrinciDal Commodities

- L~L.V1 a1M. ,J .LH .

1937 1951 1952 1953 Food and Feeding Stuffs 426.4 3,516.3 3,832.7 3,091.3 Coal and Coke 101.8 2,209.3 2,194.2 2,074.0

Miachinery and Vehicles 76.7 1,550.9 1,862.5 2,022.5

Chemicals 69.5 940.7 849.2 875.8 Cotton 75.7 589.2 358.o 416.1

Wool 53.8 536.2 347.2 618,0 Others 651.4 4268h.5 4,515.0 4,170.8 TCTAL 1,5>.3 14,028.1 13,958.8 13,268.5

IMPJu.p VVuJeol Lrdex 100 iuo 101 92

Sorce: Statistik des Aussenhandels usterreichs Table 6

Imports bvy Country of Crigin

(Percentage of Total)

1937 1950 1951 1952 3953

I.Testern Germany 16.1 16.6 16.8 21.6 28.h

United Kingdom 4.5 707 11.7 9.6 5.8

Italy 565 7.2 4.7 6.1 7.2

3 el ,in --Luxembourg 1.9 3.1 4.9 3.9 2.8

P?rance 2.8 2.7 5.4 3.8 4.1

Switzerland 3.2 4.1 4.3 3.7 4.3

Netherlands 2.0 2.7 3.1 3.4 2.1

Total "'Kestern Europe" 36.0 44.1 50.9 52.1 5h.7

Yug,oslavia 7.9 2.3 2.4 4.4 1.9

Poland 4.6 4.6 3.8 3.9 4.0

Czecho31ovakia 11.0 4.3 3.3 3.1 1.9

Hun-ary 9.1 2.2 2.0 1.7 0.9

Turkey 1.6 1.4 0.7 1.4 1.4

East Gerniany - 0.5 1.1 1.3 1.5

Total "Eastern Europe" 34.2 15.3 13.3 15.8 11.6

United States 6.0 23.2 22.2 18.3 12.5

Source: Statistik des Aussenhandels tsterreichs Table 7

Exports by Country of Destination

(Percentage of Total)

1937 1950 1951 1952 1953

V.estern Germany 14.8 15.3 14.2 20.1 19.7

Italy 14.2 13.4 11.0 13.1 16.3

United Kingdom 5.3 3.7 8.8 7.0 6.9

France 4.3 2.8 4.6 5.5 3,5

Switzerland 5.1 5.2 6.1 5.1 .2

Netherlands 1.7 4.4 5.4 2.9 4z.1

Belgium - Luxembourg 1.6 1.8 1.8 .2 1.9

Total VWestern Europe 47.0 46.6 51.9 55.6 56.6

Yugoslavia 5.5 4.0 3.0 5.2 4.1

Czechoslovakia 7.2 6.1 5.3 3.9 1.7

Poland 4.4 3.1 4.4 3.6 3.1

Turkey 0.6 1.5 1.2 2.5 2.0 Hungary 9.1 3.6 1.6 2.0 1.3

Roumania J.6 1.1 _.9 1.2 1.3

Total Eastern Europe 32.4 19.4 16.4 18.4 13.5

United States 2.5 5.6 6.0 5.1 5.8

Source: Stetistik des Aussenhandels Osterreichs TABLE 8

Dollar ImDorts

(US b millions)

12Q 72Q51 192

Food eaid Feeding Stuffs 62.0 64.3 61.5

Coal eHne Gole - 21.5 22.1

Base Tetals 4.6 6.7 9.5 Machinery and Transport Equip- ent 21.1 1l

___ quipme .LLO4.

Gotton 10.4 14.1

Tobacc:o 3.2 3.1 3.3

Gh1-mLem4ccls 6.4 4.3 3.2

Others 44.* 19.3 13.5

Total 132.2 149.3 132.4

Source: (,ustrian Institute for Economic Research TABLE 9

Balance of Payments

(In Millions of US ts Equivalent

1949 1950 1951 1222 1Q5Z Exports (f.o.b) 291.5 331.9 453.8 507 537.7 Imports (c.i.f.) -6QL2 -L81.6 -655.0 -654 -547.5. Trade Balance -312.2 -149.7 -201.2 Services

Tourism (net) 0.9 11.4 17. 25 52.9 Shipping and Transport (net) 0.7 - 8.8 - 15.6 - 19 U.S. 1,Military Expenditure )2L.5 !19.1 22.0 32 2..-) Other (net) .. ) 7.17 )2 Total Services (net) 26.1 21.7 27.4 45 81.3 Balance on Current Account -286.1 -128.0 -173.8 -102 / 71.5 Private Capital - 0.5 - 0.5 - 0.8 - - Official Financing

1) Donations G.A/!.;sB.A 194.2 119.5 127.6 91 38.5 OEEC Drawing Rights (net)95.6 45.7 - - EPTT vpecial Resources end Initial Credit Balance - L8.2 9t.8 12 I! rp4. - - A Total 291.L4' 8S3. 222.4 103 2) Long-Term Capital Ex-Im Bank - 0.8 - 2.3 - 3.4 - 10 _ Loan and U.S. Surplus property Credits 6.5 - - - - Other Loans - - - 4 9.7 3) Short-Term Capital EPU Credit Balance - - - - 10 - 41.4 Net Foreign Exchange - 11.4 - 10.5 - 27.6 - 48 -10o8.3 "!et Errors and Omissions 1.2 - 42.3 - 10.8 f 61 / 30

IncludesT British surpluLs property and relief credits - 1.3 million in 1949 and 0.2 million in 1950.

Source: International Financial Statistics, EliP Bureau, Austrian IThstitute for Economic Research. mnAIE i0 .LfDI Z JAJL

Dollar Ba-ance of Payments

(In millions of U.S. $ equivalent)

1951 1952

Exports 34.6 33.8 Imports (f.o.,.) 125.2 114.5

Trade Balance - 90.6 - 80.7

Services (Net) _ 5.2 18.3 Of thich U.S.Military Expenditure 22.0 32.1

Current Dollar Balance _ 95.8 - 62.4

Official Amortization - 3.4 - 3.9

Private Short-Term Capital - 0.5 - 0.4

Net Settlement with E.P.U. - 17.1 + 18.2

Total - 116.8 - 48.5

U.S.Aid 125.3 85.1

Movement of reserves (Increase = _ ) + 1.0 - 40.6

Errors and Omissions - 9.5 + 4.0

Source: Austrian Institute for Economic Research fl'AnT' I I ±1-LJ4ALJ) LA.

U. p, U. rPosin

t~LIn v'1 .l~lo[1s Ci U.S. $jp)

Surplus or Cumulative Net Deficit Deficit since July 1,1950

1952 ist Quarter - 6.1 - 136.7

2nd Quarter - 5.8 - 142.5

3rd Quarter +14.2 - 128.3

4th Quarter +19.5 - 108.8

1953 1st Quarter - 6.2 - 1)5.0

2nd Quarter +14.4 - 100.5

3rd Quarter +49.4 - 51.0

4th Quarter +22.0 - 28.9

1954 January + 5.7 - 23.2

February + 4.9 - 18.3

March + 6.7 - 11.6

April + 5.2 - 6.4

Settlement of Net Deficit

Cumulative Net Deficit - 6.4 "Initial Balance" 80.0 "Special Resources" L5.0 Cumulative Accounting Position 1I8. Settlement b-y credit 66.3 Settled by gold 52.3

Source: I.F.S. TABIE 32' Production (1937 = o010

Industrial Production Agricultural Productic- Durable Goods Non-Durable Go s

1948 109.9 ?5.0 66

1949 1516 98.3 79 1950 178.6 117.3 9)

1951 210.6 1,7.6 90

1952 2228 0.* 95 1953 215.6 130.1

1954 ( Fe'l...) 2093.u40.1

Source: Austrian Institute for Economic Research TABLE; 13

Prices and Wares

(Mlarch 1938 ' 100)

1948 1949 1950 - -952 i251

WT7holesale F'rices 325 416 551 740 822 776

Cost of Living 321 411 465 595 696 658

Net Earnings of Labour2! 283 369 426 581 681 686

Export Pricee/ 304 387 530 709 799 727

Import Prices 323 409 621 905 950 999

2! Base hugust 1938

2/ Base 1937

Source: Austrian Institute for Economic Research BanK Deposits and Outstanding Credit

(Millions Schillings)

Deposits Outstanding Credit

Current Savings Total Total Of Which Reccn- struction Credits

1949 5,331 1,540 6,871 5,910 719 1950 6,577 2,083 8,660 9,279 1,722

1951 8,380 2,359 10,739 13,660 3,291h 1952 9,030 2,994 12,023 16,870 5.016

1953 10,670 4,317 1J.987 18.967 6,mLJ March 1954 13,049 5,925 18.974.

Note: Annual figures are averawes. Final figireq refer to end of month

Source: Austrian Institute for Econonmiic Reseach and Austri&n National Dark. AUSTRIA

PRINCIPAL INDUSTRIES B Ca

0 20 40 60 80 100 S 0 V I E MILES JOCHIENSTEIN o 20 40 60 80 Machinery j DANUBE R 0 40 60 so 10 >LIN Pig Iron \ Electrical Equipment KILOMETERS QD Chemicals ) VIENNA Mach inery Alumminum Brown Coal Steel - r own Coal Brown Coal Textiles YBBS-PERSENBEUG Textiles Paper Steel Z N E Brown Coal

* SALZSURG0 E R A L R < Q I Hard Coal

Steel Iron Steel ~~ BREG1NZ Brown Coal )% Textiles Copper WESTERN ZONES Steel ) 0 Textiles Copper Paper Electrical Pig Iron Lead, Zinc--- "1I-rNSBRUCK IKAR IMachinery Electrical

-r4 t ODUND ETZTAL C KAPRUN II Brown Coal -ROD|ND - ~ Q LUENERSEE GA VERHUNT Iron \ J :

<~~~~~~~~~~~~~~~~~~ DAALM S D REISSECK-KREUZECK B rown Coal g;

Lead, Zinc * K LAGE RT\

ELECTRICITY GENERATORS OVER 100, 000 KW. A L HYDRO THERMAL In operation 0 * in construction OyU l G Projected 0 co