Debt Service Capacity and Postwar Growth In

R E S T R I C T E D

FlE COpy Report No. EC-58 Public Disclosure Authorized This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein.

TNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

DEBT SERVICING CAPACITY AND POSTWAR GROWTH IN INTERNATIONAL PUBLIC INDEBTEDNESS Public Disclosure Authorized

August 27, 1957 Public Disclosure Authorized

Economic Staff Prepared by: Dragoslav Avramovic DEBT SERVICING CAPACITY AND POSTWAR GROWTH IN INTERNATIONAL PUBLIC INDEBTEDNESS

TABLE OF CONTENTS Page FOREWORD 1

SUMIlARY AND CCNCLUSIONS 3

PART I: CHANGES IN EXTERNAL PUBLIC INDEBTEDNESS DURING THE LAST DECADE

I. SCOPE 12

II. PRESENT LEVEL OF INDEBTEDNESS AND ITS DISTRIBUTION 12

III. GROWTH IN INDEBTEDNESS 14

1. Postwar Borrowing and Principal Repayments 15 2, Effect of Devaluation and Settlement of Foreign Claims on Growth in Indebtedness 18 3. Changes in Debt Outstanding 19

IV. PRESENT LEVEL AND POSTWAR GROWTH IN DEBT SERVICE 22

1. Increase in the Rate of Interest 25 2. Increase in Principal Repayments 26

PART II: GROWTH IN INCOME AND SAVINGS

I. INTRODUCTION 29

II. SAVINGS AND fUWSFER ASPECTS OF DEBT SERVICE 29

III. GROWTH IN REAL INCOME AND GROWTH IN DEBT SERVICE 30

1. Growth in World Income 30 2. Ratio of Debt Service to Total Income 32

IV. GROWTH IN PER CAPITA INCOME 37

V. DEBT SERVICE ANTD SAVINGS 42

1. Ratio of Debt Servige to Savings 42 2. Rates of Savings 46 (a) Current Level of Savings 49 (b) Postwar Changes in Savings Rates 50 Table of Contents (continued) Page

PART III: GROWTH IN EXTERNAL RECEIPTS A1N BALANCE OF PA'IVIMTS FLEXIBILITY

I. INIRODUCIION 54

II. GROWTH IN WDRLD TRADE AIM PAMI;ENTS

1. Value and Volume of World Trade 54 2. Supply of Creditor Countriest Currencies 56 3. Ratio of Investment Income Earnings to Creditor Countries' External Payments 59

III. RATIO OF DEBT SERVICE TO EXTERNAL EARININTGS OF DEBTOR COUNTRIES

1. Postwar Changes in the Ratio 63 2. Present Level of tlhe Ratio 68 3. Comparison Between Present Ratios and Ratios in the Past Periods of Foreign Lending 72 4. The Significance of Debt Service Ratios 76

IV. GROWITH AND SIRUCTURAL CHA1'IGES IN EXPORTS 1. Importance of Growth of Ecports 79 2. Growth in the "Real" Value of Excternal Earnings in the Postwar Period 80 3. Growth in Volume of Exports 83 4. Changes in the Structure of Exports 89

V. BALANCE OF PAMZEqTS FLEXIBILITY AM TIlE PROBLELVI OF ADJUSIMRIT

1. Types of Required Adjustment 95 2. The Problem of Lcng-run Adjustment (a) Postwar Growth in Imports 96 (b) Pattern of Import Growth 99 (c) The Process of Adjustment 101

3. The Effect of Short-term Disturbances (a) The Postwar Experience 103 (b) Methods of Adjustment 106 (i) Use of Monetary Reserves 106 (ii) Selective Curtailment of Imports 109

CONCLUSION 112 - iii -

LIST OF TABLES

PART I Page Table I Public External Debt of 52 Countries as of December 31, 1955 13 Table II Regional Distribution of Gross Borrowing of 36 Countries (Group "A"), 1946-1955 15 Table III Gross Borrowing, Principal Repayments and Net Capital Repayments and Net Capital Inflow of Major Debtors, 1946-1955 17 Table IV Decrease in External Public Indebtedness, 19h5-1955 21- Table V Regional Distribution of Debt Service Payments for 50 Countries in 1955 23 Table VI Effective Interest Rates by Regions, in the Post-war Decade 25 Table VII Growth in Components of Debt Service Payments, 1946-1955 26 Table VIII Gross Borrowing, Principal Repayments and Net Capital Inflow on Public Account in 24 non- European Countries, 1949-1955 28

PART II

Table I Distribution of Group "A" Countries According to Rates of Growth in Real Deot Service and Real Income in the Postwzar period 32 Table TT Ratio of Debt Service to Gross Income 34 Table III Postwar Rates of Growth in Real Income 38 Table IV Rates of Growth in Inccme and Output 41 Table V Proportion of Gross Savings Absorbed by Debt Service 43 Table VI Postwar Gross Savings Rates 47 Table VII Changes in Gross Rates of Remaining Savings in the Postwar Period 51

PART III Table I Value and Volume of World.Exports, 1913-1929 and 1937-1956 55 Table II Postwar Growth in Commodity Imports of Creditor Countries 57 Table III Investment Income Receipts of Main Creditor Countries as Proportion of their Aggregate External Payments, 1946-1955 59 Table IV Investment Inccme Receipts of I-ain Creditor Countries as Proportion of their External Payments, 19201s, 1930's and 1950's 61 - iv -

List of Tables (continued) Page

Table V Changes in the Ratio of Public Debt Service to Current Account Receipts, 1946-1955 65 Table VI Proportion of Current Account Receipts Absorbed by Debt Service 69 Table VII Ratios of Investment Inc me Payments (Public and Private) to Current Account Receipts of Major Debtor Countries in the 1900[s', 1920 s and 1950ts 73 Table VIII Ratios of Public Debt Service to Exports in Eight Latin American Countries in the 1920 s', 1930's and 1950's 75 Table 'IX Postwar Increase in the "Real" Value of Current Account Receipts Remaining after Service Payments 81 Table X Rates of Growth in Export Volume 84 Table XI Changes in the Export Structure of Selected Debtor Countries 90 Table XII Postwar Annual Growth Rates in Imports and their Relationship to Income and Export Growth 96 Table XIII Share of Capital Goods in Total Imports 99 Table XIV Postwar Short-term Declines in Current Account Receipts 104 Table XV Ratio of Official Gold and Foreiga Exchange Reserves to Total Imports (c.i.f.) 206 - v -

LIST OF APPENDICES PART I Page

Appendix I Coniments on Table I ...... 115 Appendix II Growth in Debt Outstanding by Regions, 1945-1960, (Group "A") ...... 16 Appendix III Public Debt Outstanding by Countries, (Group "A"), 1945, 1950 and 1955 ...... 117 Appendix IV Debt Service Payments in 1955, (50 Countries, Group "A" and "B"). .. .. g.. . 118 Appendix V Growth in Debt Service by Regions, 1946-6D, (Group "IA"t) ...... 120 Appendix VI Debt Service Payments, 1946, 1950, and Projected Annual Average for 1956-6), (Group "A" and "B" Countries). .0 ...... 122 Appendix VII Effective Rates of Interest., (1946-59), Average Effective Periods of Repayment (1946-55) and Proportion of Present Debt Scheduled to be Repaid in 1955-60, (Group "A" and "B" Countries). .. 125

PART II

Appendix I Sources and Methods for Table I ...... 127 Appendix II Sources and Methods for Tables II, III, IV, V, and VI ...... 128 Appendix III Postw^^ar Growth in Agricultural and Industrial Production ...... 136

PART III

Appendix I Sources and Methods for Tables III and IV ...... 137 Appendix II The Calculation of the Public Debt Service Ratio .. 138 Appendix III Sources arnd Methods for Table IX ...... 139 Appendix IV Sources and YMethods for Table XI .* so go 144 Appendix V Sources and Methods for Tables XII and XIII . .. .. 153 Appendix VI The Share of Capital Goods and Cansmer Manufaebures in Total Imports *. ..* 156 FOREWORD

It is well known that the postwar decade has witnessed a substantial increase in the foreign public indebtedness of a great number of I.B.R.D. member countries. The purpose of this paper is to obtain a comprehensive view of this increase in debt and, on the basis of selected statistical indicators, to relate growth in indebtedness and the resulting increase in service payments to the rise in the economic potential of borroling countries, which has taken place during the last decade,

The paper is divided into three parts. The first part describes the postwar growth and present level of outstanding public debt and of public debt service payments. The second part reviews the postwar changes in income and savings in relation to growth in service payments. The third part analyses the external aspect of debtor countries? economic growth and discusses the problem of the transfer of debt service.

The analysis covers primarily public external debt!/ and public debt service payments. However, wherever possible, service payments on private account are also discussed in order to throw some light on the magnitude of the total financial charge on the debtor countries' economies.

The findings embodied in this paper lead to some general conclusions regarding the postwar relationship between growth in debt and growth in economic potential. However, they should not be construed to indicate the future debt-servicing capacity of particular countries and, by the same token, they should not be interpreted to provide a conclusive measurement of the relative international position of particular countries with respect to their future debt servicing capacity. The paper deals only with the past experience; future debt servicing capacity primarily depends on economic prospects which may differ from past experience. Also, the paper is limited to an examination of a selected set of statistical indicators, which do not include all the elements which actually influence the flow of service payments, such as, for example, domestic public finance considerations. No attempt has been made to directly analyse debtor countries' past financial policies or to forecast future policies; in practice, of course, these policies often exert a determining influence on the fulfill- ment of external financial obligations.

For practical reasons the period covered by the analysis is the postwar decade which ends with the year 1955. Consequently, except in a few instances, the paper does not take into account changes which may have occurred since 1955p either in outstanding indebtedness or in the economic trends in borrowing countries.

21 For a precise definition see page 12. -2-

The study was undertaken exclusively on the basis of material readily available within the Bank. As a result it should be borne in mind that the statistical findings presented in the paper can only indicate broad orders of magnitude. In some instances, the figures are hardly more than an informed guess based on scattered and unreliable evidence. Information on debt is in some cases incomplete and possibly inaccurate. Statistical indicators of economic growth, particularly in less developed countries, suffer greatly from diversity of concepts, coverage and reliability. For these reasons, all statistical information, particularly when it involves inter-country comparisons, should be accepted with a great deal of caution and as providing only rough illustrations.

Nevertheless, it was felt that these orders of magnitude were interesting enough to be recorded, on condition that they be clearly recognised as mere approximatioms. The findings are, of course, subject to revision and comments would be appreciated. iJ

Dragoslav Avramovic Economic Staff

j The author wishes to acknowledge the assistance by several members of the Economic Staff in preparing tlhis study, more particularly that provided by Mr. Ravi Gulhati, the Statistics Division and the Foreign Investment Division. -3-

SU14MARY AN)D CONCLUSIONS

1. The major finding emerging from the analysis contained in the paper which follows, is that the postwar increase in external public indebtedness was accompanied by considerable economic advance in tlhe majority of debtor countries and that a very large part of the present international debt structure appears to rest on firm foundations. There are exceptions to this general finding; several countries had a poor growth record or their development effort appears to have been misdirected, and in a number of countries exceptionally good terms of trade or emergency external assistance which may not be lasting, were an important factor in enabling growth in income. Most debtor economies, however, have succeeded in developing their economic potential to a level which, barring an international depression, appears fully capable of supporting the existing amount of extemral public debt and leaves a margin for further borrowing, provided growth trends are not substantially modified in an adverse direction.

Postwar growth in indebtedness and its present level

2. External public indebtedness at the end of 1955 of 52 countries which include five-sixths of the Bankts membership, was estimated at the equivalent of U.S. $22,709 million. The largest part of indebtedness, $'15.0 billion or twJo-thirds of the total, was concentrated in Europe, with the United Kingdom, Germany and France as leading debtors. The aggregate public debt of Latin-American countries amounted to $2.8 billion, with Brazil and Mexico owing more than one-half of the Latin-American total. The outstanding debt of countries in Asia and the Middle East was estimated at $2.4 billion, with Japan and India as main debtors. The Australian debt amounted to 'lM4 billions while the African economies, with the Union of South Africa and the Federation of Rhodesia as largest debtors, owed $1.1 billion.

3. The dollar equivalent of the aggregate outstanding indebtedness of 36 countries for which a fairly complete record of indebtedness is available,lJ, increased from $7.7 billion at the end of 1945 to $18.3 billion at the end of 1955, - a rise of 137% within the decade. By far the largest part of the increase, four-fifths of the total, was due to the..rise in the European debt, resulting from borrowinng for reconstruction purposes in the iwake of the Second World War. The indebtedness of twenty- four non-European countries did not increase appreciably during the first half of the postwar decade. Since then their indebtedness rose under the impact of development lending and by the end of 1955 reached a level 69% above that recorded at the end of 1950.

However, outstanding indebtedness did not increase in all countries. In terms of dollars it showed a decline for Chile, Denmark, Uruguay,

1/ This group consists of twelve European and twenty-four non-European countries. W4ith the exception of two countries (Lebanon and Turkey), it includes all debtors of the Bank as of December 31, 1955. Australia and Honduras. This was the result of a devaluation of the currencies of non-dollar creditors and of a high rate of principal repayments.

Postwar growJth in debt service and its present level.

4. Debt service payments increased during the postwar decade at a faster rate than debt outstanding: between 1946 and 1955 aggregate debt service payments of 36 countries rose from sp68 million to $4.,765 million, or almost trebled, cormipared to a rore than two-fold rise in outstanding indebtedness. In absolute terms, the European service payments increased somewhat more thanl the non-European; however, relative to the rise in debt outstanding the increase in the non-Europoean debt service was much more pronounced. The fast rise in debt service payments was partly due to the resumption of payments on defaulted prewar bonds undertaken by a number of countries and partly to a rise in the effective rate of interest. But a more important factor appears to have been the heavy repayment of medium-term credits that took place during the last few years. Gross borrowing by the twenty-four non-European countries still remains above the level of their principal repayments, resulting in a continuous net capital inflow on public account; but since principal repayments rapidly rose betwreen 1953 and 1955 while gross borrowing remained unchanged, the annual rate of net capital inflow on public account appears to h ave declined during 1954 and 1955 from the peak reached in 1953.

5. Debt service payments during 1955 of a sample of 50 countries %/ amounted to the ecquivalent of U.S. $2,o49 million. Almost three quarters of this total was repayment of principal, while the remainder constituted interest charges. The effective interest rate paid in 1955 on total debt outstanding was very low for debtor countries as a whole, about 2.5%; for non-European countries it was slightly above 3%. The average effective interest rate will inevitably increase in the futare as proceeds from recent lending become an increasing proportion of total debt outstanding.

6. The distribution of the aggregate debt service among geographical regions was somewhat different from the distribution of debt outstanding, reflecting differences in effective interest rates and particularly in schedules of repayrnent. The Latin-American countries which owed 12% of the aggregate debt, paid 25% of the aggregate debt service in 1955, while the share of other regions, particularly Europe, in the total debt service was lower than their share in aggregate indebtedness. Despite this, however, the European economies were still responsible for 565' of total debt service payments.

g/ This sample is almost identical with the sample for which aggregate outstanding indebtedness is given under paragraph 2, above. -5-

World economic growth

7. The increase in debt outstanding and in debt service occurred against the background of a powerful upswing in world economic develop- meat, xhich was reflected in rapid growth of income, in an increase in investment and in a substantial expansion of international trade. Be- tween 1946 and 1955, world manufacturing output rose by more than 8o%i, mining output by 6&! and agricultural production by 33%; the value of world exports increased by 15057 and their volume probably doubled. Investment and savings levels rose in the majority of countries. Growth in external debt can thus be viewed as an integral part of the overall and vigorous development of the world economy during the last decade.

Growth in income

8. Growth in per capita income is one of the basic long-run conditions for successful servicing of external indebtedness. The performance of debtor countries suggests that, with a limited number of exceptions, this condition was fulfilled during the postwar period. In Europe, the completion of reconstruction opened the way for an unprecedented growth in per capita income, which averaged above 4% per year. While there were considerable inter-country differences, with Germany and Austria leading the European group, none of the European countries appears to have had an income growth rate per capita below 2/ per year. High rates of growth were also recorded in the African debtor countries and in Australia - countries which enjoyed substantial private capital inflow since the war. In Latin-America as a whole, growth rate in per capita income during the post-war decade appears to have surpassed 3% annually. In part, this was due to an improvement in the terms of trade in a large number of Latin- American countries. In Asia and the Middle East, growth in general was slower than in other regions, but a large number of countries still achieved an annual increase in per capita income above 1%. Japan, the largest debtor country in the area, increased its output at a rate comparable to that of the fastest groiing European economies. India, the second largest debtor, succeeded in raising its income at a rate above that which was expected when its development program was inaugurated.

9. However, in the latter two areas, Latin-America and Asia and Mtiddle East, there were exceptions. In several Latin-American countries - Panama, Bolivia, Haiti, Argentina - income per capita appears to have stagnated or declined. In the Asian and Middle-Eastern area Burma and probably Indonesia, do not appear to have registered an advance in per capita income compared with prewar, and in Iran income per capita probably showed a decline in a part of the postwar period. In Palistan and Egypt the growth rate in income was only slightly higher than the growth rate in population. The countries in which income per capita either stagnated or rose very slowly, accounted for about 4% of the aggregate debt service paid in 1955. _6-

Growth in savings.

10. In the majority of countries for which data are available, growth in income was associated with growth in savings remaining available after service payments. The increase was most widespread in Western Europe; and Western European countries achieved in the mid-1950's rates of savings higher than at any time since the First Wlorld lWar. Another group of countries where the increases appear to have been impressive were the African debtor economies. In Asia, Japan maintained a very higlh savings rate and India apparently raised its savings level. Several other countries showed some advances in their generally low savings levels. There are indications that savings rates also rose in a number of Latin- American countries, including Mexico, Colombia and Peru. Australia may have experienced a slight decline recently, but its savings effort remains substantial - above 20% of gross national product.

11. On the other hand, stagnation in savings rates at a low level has probably persisted in some Asian a-nd Latin-American countries, (Indonesia, Iran, Bolivia, Haiti). In Chile, the savings rate declined, probably under the impact of chronic inflation, while in Brazil and EcuadDr the rate of savings does not appear to have risen despite a very high rate of growth in income.

12. The incomplete evidence that is available suggests that public debt service rose faster than either income or savings in the majority of countries; as a result, the ratio of debt service to both income and savings tended to increase over the decade. Despite this rise, the portion of income absorbed by debt service remained low as the decade drew to a close: in the majority of countries it amounted to less than 1% of yearly gross income and only in one country (Israel) it was above 2%J. The ratio of public debt service to savings was, of course, considerably higher. In two out of a sample of 40 countries, debt service absorbed more than 10% of gross savings; in another group comprising one-quarter of the sample, the proportion varied between 5 and 10%, while in more than twjo-thirds of the sample it remained below the 5% level. 13. In terms of capacity for future growth in income, rates of available savings attained towards the end of the post-war decade, may be considered fairly high. In 27 countries, gross savings amounted to more than 15%3 of gross product; this group, consisting-half of European and half of non-Earopean countries, paid 70% of total debt service payments in 1955. In another group, comprising 8 countries and responsible for close to one-quarter of the total world debt service payments, gross rates of available savings varied between 10 and 15%. - 7 -

Growth in external earnings in relation to growth in debt service

14. Besides absorbing a part of domestic income and savings, debt service also represents a claim on foreign exchange earnings. The expansion in international trade and payments which took place since the war substantially facilitated the transfer of debt service. The supply of creditor countriest currencies 1/ consisting of their import payments, capital outflow and grants, rose by about 6% per year between 1948 and 1955. Their investment income receipts (on both public and private account) rose somewhat faster, and, as a result, tle ratio of investment income earnings to aggregate external payments of a group of creditor countries rose moderately from 5.8% in 1946 to 6.6% in 1948 and 7.5% in 1955. In the United States alone, the increase in the ratio was much more pronounced, from 5.8% in 1946 to 10.7% in 1955. The available evidence indicates that tlle U.S. ratio in the mid-1950's was somewhat lower than in the late 1920s; in other creditor countries, the present ratios are only one-half the level recorded in the inter-war period.

15. In the majority of debtor countries the value of current account receipts rose at a fairly high rate; and while debt service payments generally increased faster than current account receipts, they did not prevent receipts remaining after service payments from growing. As in the case of income and savings, in the majority of debtor countries debt service was paid out of a part of the increment to external receipts, thus allowing for an increase both in debt service and in foreign exchange resources available to debtor countries after debt service was met.

16. For the group of 36 countries for which a fairly complete debt record exists, the proportion of aggregate current account receipts absorbed by aggregate public debt service payments increased only moderately during the decade; from 3.0% in 1947 to 3.7% in 1955. This slow change in the aggregate ratio, however, was a combined result of mutually offsetting movements in the ratios of particular countries and of particular regions. In DErope as a whole, the ratio did not change; it amounted to about 3% both at the beginning and at the end of the decade. Starting from an extremely low level, the ratio in Asia increased and in 1955 armounted to 2.5%, which was still below the overall average. In African countries, the ratio also rose, but its 1955 level was still comparatively low, about 2.0%. In Australia, the ratio declined substantially, from 17% in 1946 to 5% in 1955, as a result of a doubling of current account receipts and of a reduction in the absolute amount of service payments. In Latin-America the reverse process took place. The value of exports of goods and services increased considerably during the decade but the amount of debt service rose, in percentage terms, much more. g/ United States, United Kingdom, France, Belgium-Luxemburg, Netherlands Western Germany aid Canada. - 8 -

The ratio of debt service to current account receipts increased from less than 3% in 1946/47 to slightly above 8% in 1954/55.

17. While data are not strictly comparable and therefore estimates are of limited validity, it appears that the present levels of the ratios of debt service to external receipts are lower than in the earlier periods of foreign lending. In countries for which long series are available - Canada, Australia, Argentina, Japan, Indonesia and India - the present proportion of external earnings devoted to investment income payments (both public and private, but excluding repayments) is much smaller than either at the turn of the century or in the boom era after the First Wlorld War. There are also indications tlhat, with the exception of petroleum exporters, the present levels of the proportion (again both public and private, bult excluding repayments) in countries t'hich now have highest ratios are lower than the levels recorded in countries1Tiich were largest debtors in tlhe past. Finally, in a group of eight Latin-American countries, (Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Peru, Uruguay), the aggregate ratio of public debt service payments (including repayments) to exports in 1954-55 appears to have been about 25% below the aggregate ratio that prevailed towards the end of the 1920's, in 1928-29.

18. From the long-run point of view, more important than the level or the change in the ratio is the rate of growth in external earnings remaining available after debt service has been paid. Despite postwar increases in debt service, the "real" value of these earnings (i.e. after adjustment for changes in the import price level), rose at a very high rate in the vast majority of debtor countries: in two-thirds of a sample of 48 countries, the annual rate of increase was above 5%. Together with capital inflow, the increase in the remaining current account receipts provided substantial resources for import growth and thus enabled a fast rate of growth in real income.

19. However, there were exceptions; in several countries, the "real value of external earnings remaining after service payments failed to rise. In addition, in some cases the increase in external earnings was based on an improvement in the terms of trade ratlher than on a rise in the volume of exports; and to that extent a part of the increase in these countries' imports and incorae depended on factors which may prove to be temporary.

Growth in the Volume of Exports

20. Countries in Which export volur,ie declined or rose less than 1% per year during the postwar period, were mostly Latin-American; Honduras, Chile, Argentina, Brazil, Bolivia, Guatemala, Haiti. I/ In other areas, decline or slow growth was recorded in Egypt, Pakistan, Yugoslavia, India.

Low growth rate, below 2%1' per year, was observed in Cuba, Panama and Uruguay. - 9 -

These eleven countries together accounted for about one-fifth of the aggregate public debt service payments made during 1955.

21. A multitude of factors were responsible for the failure of exports to increase. In a group of countries, the slow growth of the export sector was a part of the slow growth in the overall economy (Argentina, Haiti, Bolivia, Panama, and to a smaller extent Uruguay, Pakistan, Egypt). In some of these cases, both the stagnation in exports and the overall slow growth may have been partly due to a low level of international demand for a country t s chief export commodity (Pakistan, Bolivia, Egypt, Uruguay). Slow growth in exports also resulted from a deliberate channelling of productive factors into import substituting industries rather than into the export sector (India, Yugoslavia, Brazil, Argentina). Frequently, it was a consequence of the excessive pull of the domestic market, associated with inflationary pressures. In addition, in some of the countries which had a continuous and substantial improvement in the terms of trade, this may have had a retarding effect on efforts to increase the volume of exports.

22. An absence of growth in the volume of exports lasting a decade or so, does not necessarily imply difficulties in servicing external indebtedness. Over the long-run, however, this is unlilcely to be a sustainable position, particularly in countries with high income growth targets or in countries which do not have a widely diversified natuLral resource base. Income growth is almost invariably associated with growth in imports, requiring growth in export volume. From this point of view, if export volume does not increase in some countries it will have unfavourable long-run implications.

23. INhile the absence of growth in export volume in a number of cases is an unfavourable development, it should be emphasized that in a considerable majority of debtor countries the volume of exports increased at a very high rate. out of a sample of 50 countries, a group of twenty- six countries achieved export volume increases at a rate above 5d per year; and in an additional group of ten countries the volume of exports rose at rates varying between 2 and 5% annually. These two groups of countries paid almost four-fifths of the aggregate world public debt service during 1955.

The problem of long-run adjustment

24. The postwar expansion in income and in capital accumulation was accompanied by a substantial growth in debtor countries' volume of imports, which was financed partly out of their own external earnings and partly out of capital inflow. One of the most expansive items in import growth were purchases of capital goods; towards the end of the decade they almost invariably represented a major share of total imports. - 10 -

25. If debtor countries were faced with a decline in the rate of growth in their external receipts (through a decline in capital inflow or through somewhat less favourable terms of trade), this wrould unavoid- ably reduce their rate of development by affecting both the availability of investible resources and the supply of foreign exchange. Given a willingness to accept lower income growth targets or ambitions, room for some adjustment to such a situation appears to exist in the majority of countries. Since they have achiieved during the postwJar period very high rates of growth in income, the adjustment would take place from a relatively high rate. The rate of domestic savings which has already been achieved should assure a minimum income growth in a number of countries; and a reduction in the growth rate in capital goods imports, which would be associated with lower development targets, would release foreign exchange required to assure the flow of otlher import components. It is, of course, a matter of conjecture whether debtor countries would be willing to undertake the necessary adjustment in time or would try to adhere to goals wrhich could not be attained with the available resources. But behaviour in times of stress rather than in normal times is the real test of servicing capacity.

The effect of short-term disturbances

26. IWiile the postwar period was singLlarly free of prolonged distrubances in international trade, a number of debtor countries occasionally suffered temporary declines in their external earnings. Out-of a sanple of 51 countries, sixteen countries experienced one or two-year declines amounting to betwTeen 10 and 20% of their current account receipts, while in another group of sixteen countries declines were above 20%. Declines usually occurred as a result either of a fall in prices of primary products or of a reduction in the volume of agricultural exports. In all cases the affected countries succeeded, relying partly on their own and partly on external resources, to overcome the declines writhout defaulting on tleir long-term debt obligaticns.

27. Non-BLEropean debtor countries continue to be vulnerable to temporary fluctuations in their external receipts. Some countries have succeeded in expanding exports of those primary prodhcts for which international demand may be expected to be strong over the long run; and this tends to improve their long-run growth prospects. On the other hand, while mid-inco-me European countries stepped up considerably their exports of mamufactured products, only a few non-European countries made advances in this direction. on balance, their dependence on a narrow range of primary products did not diminish during the last decade; and this remains a source of weakness in so far as short-rin disturbances are concerned.

28. The present capacity to overcome such disturbances varies greatly from country to country. In general, debtor countriest monetary reserves - their first line of defence - did not increase as fast as imports during the postwar decade, although the 1955 level of reserves relative to imports appears higher than in the late 1920's. At the end of the postwar decade, reserves were quite large in the Asian and Middle- eastern countries where the median ratio of reserves to annual imports was close to 70% and considerably lower in the Latin-American area where the median ratio was slightly above 30%. In the African and European countries, the median ratio amounted to somewhat above b0%. Debtor countries had considerable leeway to curtail relatively flexible imports of consumer manufactures and capital goods. The median value of the share of these imports was about 50% for non- European countries.

Conclusion

29. The findings in the paper do not lead to the ccnclusion that in all cases a further increase in indebtedness would be easy to sustain. They indicate, however, that it would be an error to construe the increase in international indebtedness which has taken place over the last ten years as excessive or to believe that in the majority of countries a ceiling on borrowing has been reached. They indicate further that the position of individual countries varies considerably and that each case should be appraised on its merits. Such an appraisal, of course, must aecessarily include not only a review of past performance but also a forecast of future prospects - a subject which is not dealt with in this paper. - 12 -

PART I

CHANGES IN EXTERNAL PUBLIC INDEBTEDNESS DURING THE LAST DECADE

I Scope

External debt discussed in this paper comprises, unless otherwise specified, the long-term debt owed or guaranteed by public bodies in debtor countries. It includes debts of central and local governments, of public agencies and state-owned enterprises. External debt is defined as all debt which is contracted and payable externally. Grants- in-aid as well as loans granted by foreign governments but repayable in local currency are not treated as external loans. Short-term debts with a maturity of less than one year, as well as any obligations arising from drawings on the resources of the International Monetary Fund are excluded. Medium-term indebtedness is included. For the purpose of this paper, both disbursed and undisbursed amounts of contracted loans are regarded as outstanding indebtedness.

II Present Level of Indebtedness and its Distribution

At th7 end of 1955, the outstanding external public debt of 36 countries') for which fairly complete information is available, amounted to the equivalent of US $ 18,329 million. This group of countries (Group "A") includes the majority of the world's most important borrowers during the last ten years. It also incl es all except two of the debtors of the Bank as of December 31, 1955.V/In addition, the public debt outstanding of another group of 16 countries, for which data are probably incomplete (Group tB?'), amounted to the equivalent of US $ 4,380 million. The grand total of both groups of countries, 52 in all, thus reached the equivalent of US $ 22,709 million. This was the approximate aggregate external indebtedness on public account on December 31, 1955 of aLmost all prinsipal debtor countries, which include five-sixths of the Bank's membership. -

Table 1 gives the country distribution of this grand total. Countries are classified by continental areas. within this main grouping, an additional classification is made on the basis of income levels.

1/ Including two dependent territories, Federation of Rhodesia and Nyasaland and Belgian Congo. 2/ Lebanon and Turkey. 5/ Members not included are: Afghanistan, Canada, China, Dominican Republic, Jordan, Korea, Syria, Turkey, The United States and Viet-Nam. Ta.ble I Public External Debt os,'52 o-zn 'ries as of December 31. 1955 Debt Outstand- Debt Outstand- % ing (thousands of the ing (thousands of the of US $ equivalent)total of ITS $ euivalent) total Grand Total 22.i7O8.2% 100,0 Iran (B} _ ~~~~Iraq (BJ 172,460 -75 I Eurone 14,963.35o i5i89 Israel (B) 360,515 1.59 (1) Highand mid-Income countrieslL4 664i85 64.6 Pakistan (A) 181,785 0.80 Austria (A)v 259,146 1.14 Philippines (B) 76,888 0,34 Belgium (A) 446w 376 1.97 Thailand (A) 70,637 0.31 Denmark (A) 251.984 1.11 Finland (A) 292,177 1.29 V Western Hemisphere 2,824.985 12 44 France (A) 2631,671 ll.q9 (1) Mid-income countries 202,911 0.89 Germany (Western) (B) 3;14,124' 13.67 Argentina (B) 9,364 0.04 Iceland (A) 16,965 0.07 Cuba (B) 55,719 0.25 Italy (A) 681,450 3.00 Uruguay (A) 131,381 0.58 Luxemburg (A) 17,342 0.08 Venezuela (B) 6,447 0.03 Netherlands (A) 531,607 2.34 (2) Low-income countries 2,622.074 11.55 Norway (A) 347,476 1.53 Bolivia (B) 37,028 0.16 Sweden (B) 46,071 0.20 Brazil (A) 1,046,414 4. 61 ,^ United Kingdom (A) 5,920,196 26.07 Chile (A) 313,543 1. 38 t(2) Low-income countries 416.765 1.84 Colombia (A) 281,079 1.24 Greece (B) 86,950 0.38 Costa Rica (B) 33,419 0.15 Yugoslavia (A) 329,815 1.45 Ecuador (A) 59,254 0.26 II Africa 17093,903 4.82 El Salvador (A) 28,263 0.12 Belgian Congo (A) 316,564 1.39 Guatemala (A) 21,171 0.09 Ethiopia (A) 32,583 0.14 Haiti (A) 42,225 0.19 Federation of Rhodesia (A) 368,410 1.62 Hondluras (A) 4,200 0.02 Union of South Africa (A) 376,346 1.66 Mexico (A) 478,944 2.11 III Australia 1,400,084 6.17 Nicaragua (A) 22,730 0.10 III Australia 6.17 ~~~~~~~~~~~~~~Panama(A) 20,463 0.09 IV Asia and Middle East 2,426.667 10.68 Paraguay (A) 17,974 0.08 (1) Mid-income countries 654.855 2.88 Peru (A) 215,366 0.95 Japan (A) 627,855 2.76 Lebanon (B) 27,000 0.11 (2) Low-income countries 1,771,812 7.80 ] For comments see Appendix I, Burma (B) 62,344 0.27 / The letters A and B indicate whether a country Ceylon (A) 59,470 O.26 is in the "A group" (complete data) or in the Egypit (B) 1,161 0.001 "B group" (possibly incomplete data). India (A) 4860378 2.14 y According to subsequently received information public Indonesia (B) 1.32 e d00X154q uUtasnt tSa 1t9Jclc5 aicunted to the Source:eqaivale1BRD o_c U.S.an m 1 0D s Source: IBRD., E-conomic Saf sta titfs ivsin While it is likely that the indebtedness of countries outside Europe is somewhat underestimated, Table I may still be taken to reflect, with an acceptable degree of accuracy, the present distribution of external public debt. This distribution has two major features.

In the first place, the size of the European debt relative to debt of other areas is very large: $15.0 billion against $7.7 billion. Even if the European low-income region (Greece, Yugoslavia) is excluded, the debt owed by the high and mid-income countries of Western Europe still represents 64%o of the total recorded external public indebtedness of 52 countries. Some Western European countries have historically carried a relatively large external debt. But particularly since the Second World War, the size of the European debt has greatly increased and it has been distributed over a larger number of countries. In comparison with Europe, the aggregate debt of Latin-America ($2.8 billion or 12% of the total) and of Asia and the Middle East ($2.4 billion or 11%) appear to be relatively modest.

Secondly, the indebtedness is very heavily concentrated in a small number of debtor countries. Partly, this is a result of the large Euro- pean borrowing immediately after the Second World War. The aggregate debt of three Western European countries - United Kingdom, Western Germany and France - amounts to $11.7 billion or 51% of the total indebtedness recorded for 52 countries. The aggregate debt of the top six debtors (the above three countries plus Australia, Brazil and Italy) amounts to $14.8 billion or almost two-thirds of the total debt. The remaining 46 countries, or 88% of the total number of debtors, owe only one-third of the total world indebtedness recorded in the table.

III Growth in Indebtedness

At the beginning of the postwar decade, the level of indebtedness was relatively low. It consisted of unpaid balances of earlier borrowing, incurred mostly in the 1920's when the continents of Europe (particularly its central and southeastern areas), Australia and Latin-America were the main receivers of external capital. Starting from this initial level, indebtedness increased considerably during the postwar decade. Growth in indebtedness was the result of several factors operating in different directions. The most important of these was new borrowing incurred during the period under consideration. In addition, some indebtedness was ineuw>Od as a result of settlements of various foreign claims (nationalization, funding of interest arrears, reparations,etc). Against these factors working for an increase in outstanding indebtedness, must be placed two which exerted a downward impact on growth in debt. The first factor was the repayments of principal, maintained since the war with great regularity and in substantial amounts. The second was the 1949 devaluation of the currencies of non-dollar creditor countries, which had the effect of reducing the dollar equivalent of indebtedness. - 15 -

In view of their importance, postwar borrowing and principal repayments are reviewed first. The impact of other factors - settlement of claims and the effect of devaluation - will be discussed later.

1. Postwar Borrowing and Principal Repayments

Gross borrowing by 36 countries (Group "A")!./ in the ten years 1946-55 totaled $18.2 billion. Table II shows the regional distribution of borrowing in four time periods and also over the whole decade.

Table II Regional Distribution of Gross Borrowing of 36 Countries (Group "A"), 1946-1955 (in millions of US $ equivalent)

Two years Two years Four years Two years Ten years Region 1946-1947 1948-1949 1950-1953 1954-1955 1946-1955

% of % of % of % of % of Amount total Amount total Amount total Amount total Amount total

Europe 8 694 95 956 60 1,447 35 19270 38 129367 68 Africa ` * 8-9 7 528 13 238 7 861' 7 Australia 279 3 265 17 241 6 190 6 976 5 Asia 24 * 46 3 519 12 647 19 1,237 7 Western Hemisphere 149 2 225 14 1,422 34 998 30 2,793 15 Total outside Europe 457 5 625 40 2,710 65 2,073 62 5,867 32

Grand total 36 countries 9,151 loo 1 581 loo 4,157 100 3,343 100 18,234 loo

* negligible.

For a list of countries in each region, see Appendix II.

Source: IBRD, Economic Staff, Statistics Division.

1/ Data are not available for the other 16 countries (Group "B"). - 16 -

Two major waves of foreign lending can be identified during the last decade. The first wave was associated with the financing of reconstruction and meeting temporary deficits in current supplies and inventories in the wake of the Second World War. Borrowing was concentrated almost exclusively in Europe. Outstanding amounts of these reconstruction loans still loom very large in the world's total public debt and are the major cause of the still existing concentration of indebtedness in a few Western European countries.

The second wave of postwar borrowing started around 1950 and still continues. It is composed of development loans which are widely dispersed, with the IBRD as a major source of finance. Countries outside Europe have been the main borrowers. Their rate of development borrowing, starting from a very low level early after the war ($230 million per year), increased considerably in the subsequent period and during the last few years amounted to one billion dollars annually./

The amounts of borrowing shown above, were not reflected in their entirety in the increase in debt outstanding. Principal repayments absorbed, directly or indirectly, more than one-third of the total capital made available in the form of loans.2/ Against a ten-year borrowing of $18.2 billion, the group of 36 countries repaid an amount equivalent to US 4 6.9 billion.2/ The difference of 111.3 billion, or 62% of the aggregate gross borrowing, was the net capital inflow on public account - representing the main element in the growth in debt outstanding.

There are considerable inter-country differences with regard to gross borrowing, repayments and net capital inflow. These differences are shown in Table III.

/ These figures relate to twenty-four non-European-countries- which are included in Oroup "A". / Grants are not within the purview of this paper. S/ The European countries accounted for almost three-fifths of this total ($4.2 billion) and Latin-America for another one-fifth ($1.4 billion). The Australian repayments were close to one billion dollars and those of Asia and Africa a little more than one-third of one billion. - 17

Table III Gross Borrowing. Principal Repavments and Net Capital Inflow of MaJor Debtors, 1946-1955 (Group "A": 36 Count-ies) (in millions of US $ equivalent)

Grosse¶ Principal Net Capital Inflow Repayments Country Borrowing.!/ Repayments on Public Account af Proportion Europe percentage United Kingdom 5,964 1,097 4,868 18 France 2,663 1,138 1,525 43 Italy 880 299 582 34 Netherlands 874 595 279 68 Belgium 543 257 286 47 Yugoslavia 485 190 295 39 Finland 339 178 161 53 Norway 322 179 143 55 Denmark 201 208 - 7 103 Other Countries 96 53 43 55 Total: Europe 12.3627172 LI9 AL

Non-European Countries Brazil 1,336 593 743 44 Australia 976 928 48 95 Mexico 538 335 202 62 India 509 47 462 9 Japan 387 184 203 47 South Africa 301 35 266 12 Colombia 291 126 165 43 Fed. of Rhodesia 282 29 252 10 and Nyasaland Belgian Congo 242 4 238 2 Pakistan. 203 22 181 11 Peru 179 51 128 28 Chile 172 188 -17 110 Other Countries 451 172 279 38 Total: Non-European 5.867 2.715 3152 46 Countries Total (36 Countries)18234 .011325 8

I/ Including refunding issues. Source: IBFD, Economic Staff, Statistics Division - 18 -

As mentioned already, European countries were the main receivers of capital on public account in the first half of the postwar decade. Cutside high income economies of Western Europe, very few governments succeeded in borrowing significant amounts in the early postwar years; Italy and Australia, followed by Brazil and Mexico, were the most important borrowers. During the second half of the decade Australia, Italy and particularly Brazil continued to borrow on a large scale, maintaining their place as leading importers of capital on public account. At the same time, however, several other countries - India, Yugoslavia, Japan, Union of South Africa, Colombia and Federation of Rhodesia - became major borrowers.

By and large, the main borrowers were also the countries who contributed most to the flow of principal repayments. But repayments as a proportion of total amount borrowed were much higher in some countries than in others. In Europe, the repayments relative to borrowing were highest in Denmark, Netherlands, Finland and Norway. Outside Europe, the Chilean repayments surpassed the amount borrowed, and repayments made by Australia absorbed, directly or indirectly, ^ lion's share of the gross public capital inflow. Relative to borrowing, repayments were also heavy in Mexico, Japan and Brazil. Cn the other hand, repayments absorbed a very small part of gross borrowing in India, Pakistan and in the African debtor countries (Belgian Congo, Federation of Rhodesia, Union of South Africa).

2. Effect of Devaluation and Settlement of Foreign Claims on Growth in Indebtedness

It was stated above that the net capital inflow on public account of $ 11.3 billion represented the main element in the postwar growth of indebtedness of 36 countries (Group "A"). The other factors influencing growth in indebtedness were the 1949 devaluation of non-dollar currencies and some obligations which were contracted since the war as a result of the settlement of foreign claims, unrelated to current borrowing. A few countries con- verted interest arrears on defaulted ptawar loans into new bonds. Some countries settled their obligations inctred during the war (reparations, lend-lease deliveries). Another group oc' countries contracted external public debt as a result of nationalization of foreign assets. The total debt incurred by 36 countries (Group "A"), on account of these settlements has been estimated at g 937 million.4 This would have resulted in an

2/ The main items are: Japan $227 million (reparations); Netherlands $187 million (war obligations); Austria $163 million ($150 million reparations and $13 million arrears); Mexico l;1O8 million (nationalization); Italy 094 million (interest arrears and war obligations); Yugoslavia $68 million (nationalization); Finland $44 million (war obligations). Since Germany is not in our sample of 36 countries, her settlements of prewar debts and reparations are not included. Reparation obligations by Finland and Italy are also excluded. - 19 -

increase of over-all indebtedness higher than capital inflow, had it not been for the offsetting effect of devaluationNt

The simultaneous devaluation of the currencies of some creditor countries in September 1949 - the pound sterling, the guilder and the French and Belgian franc - had the effect of reducing the dollar value of the debt held in these currencies. To the extent that devaluation was a post facto recog- nition that European currencies had depreciated since the prewar period and that their rate of depreciation had been faster than that of the US dollar, this reduction in the dollar equivalent of indebtedness contained a real component.2/ The devaluation of European currencies vis-a-vis the US dollar was, of course, not an accurate measure of the fall in the real value of these currencies and the nominal reduction in the dollar equivalent of indebtedness only imperfectly indicates the gain that accrued to the countries owing debts in currencies that had devalued.

In addition to this gain which was reflected in the devaluation of non- dollar currencies, the debtor countries have benefited from the rise in the dollar price level since the prewar, and also from the rise in prices in all creditor countries since 1949. As a result, the increase in indebtedness in 1946-1955 in real terms is smaller than suggested by the nominal amounts discussed below.

3. Changes in Debt Outstanding

Under the impact of factors described in the previous two sections, external public indebtedness of 36 countries (Group NA") rose from $7.7 billion at the end of 1945 to $18.3 billion at the end of 1955 - a rise of 137% within the decade.

Changes in indebtedness over the decade and their regional distribution are shown in Chart I.3/

1/ In addition to devaluation, there was another factor, though of less importance, tending to reduce growth in indebtedness. During the last decade, several countires have been buying their outstanding prewar bonds at prices lower than their face value. As a result, their nominal indebtedness was reduced by amounts higher than their cash principal repayments. Since these countries continued to borrow new money, the purchase of outstanding bonds below face value was reflected in a growth of indebtedness smaller than their net capital inflow. 2/ Since non-dollar debt was mainly sterling debt, a comparison of changes in price levels in the United Kingdom and in the United States is sufficient to illustrate the above. Percentage Increase in wholesale Prices Percentage Increase in Import Prices 1937-46 1946-Sept.1949 1937-Sept.1949 1937-46 1946-Sept.1949 1937-Sept.1949 U.K. 61 32 112 97 37 170 U.S. 4O 27 78 62 27 105 Source: IMF, International Financial Statistics. 3/ Underlying data are given in Appendix II. GROWTH IN EXTERNAL INDEBTEDNESS ON PUBLIC ACCOUNT, 1945-1955 36 COUNTRIES (DEBT OUTSTANDING AT END OF YEAR IN BILLIONS OF U. S. DOLLAR EQUIVALENTS) 20 15 TOTAL, 36 COUNTRIES EUROPE DEVALUATION OF NON-DOLLAR CURRENCIES DEVALUATION OF // NON-DOLLAR CURRENCIES _ /// _

15 10

10 0

5 0 I0 TOTAL NON-EUROPE

O DEVALUATION OF

5 - 05

NON-DOLLAR CURRENCIES_

DEVALUATION OF 1 ASRLADEVALUATIONNON-DOLLAR CUR RENC IES t//A%/i7iON-DOLLAROF2 CURENIE NON-DOLLARICURRENCIES LLULi0 I ~~~~~~~~~~~~~~2 IzZZZZZZZ1 AFRICA DEVALUATION OF l AFRICA NON-DOLLAR CURRENCIES

0 '45 '47 '49 '51 '53 '55 '45 '47 '49 '51 '53 '55

1265A IBRD-Economic Staff - 21 -

The Chart reveals a year by year increase in overall indebtedness, except in 1949 when the dollar equivalent of the debt declined owing to the effect of devaluation. By far the largest part of the increase was due to growth in European debt: out of a total increase in debt of $ 10.6 billion, the rise in European debt accounted for more than d 8.1 billion. This was in large part due to reconstruction borrowing in the early postwar period. In recent years, European principal repayments have exceeded new borrowing by substantial amounts and as a result European debt stopped increasing after 1950. This was so despite the fact that several countries - Italy, Austria, Yugoslavia, Norway, Finland - continued to raise loans for development purposes.

The indebtedness of 24 non-European countries increased by $ 2.5 billion over the decade. The Ghart shows that their debt did not show any appreciable increase in the early postwar years. Up to 1948, it rose by about $ 70 million annually. Since 1950, however, the rate of increase in indebtedness has risen considerably to an average level of 4p540 million annually. At the end of 1955, the aggregate indebtedness of these countries was 69% above that recorded at the end of 1950. As may be expected, postwar growth in indebtedness varied greatly from country to country.j/ Although indebtedness rose in a very large number of cases, the distribution of the aggregate increase in debt of $ 10.6 billion was heavily concentrated in five countries - the United Kingdom, France, Brazil, Italy and India. And these countries were amongst the largest ten debtors at the end of the decade. However, outstanding indebtedness did not increase in all countries. From the sample of 36 countries (Group "A"), a decline was recorded in five countries as shown in the following Table.

Table IV Decrease in External Public Indebtedness. 1945-1955 (in thousands of US $ equivalent)

Country Debt Outstanding Amount of Percentage _ December 31 Decrease Decrease 1945 1955 Australia 1,760,514 1,400,0848/ 360,430 20 Chile 425,892 313,543 112,349 26/ Uruguay 153,379 131,381 21,998 14 Denmark 272,135 251,984 20,151 7 Honduras 5,430 4,200 1,230 23 Source: Appendix III

a/ June 30, 1955. l Probably incomplete. i/ Probably overestimated.

I/ See Appendix III. - 22 -

It is probable that indebtedness also declined in a few countries for which complete data are not available. Venezuela and Iraq are well known cases. For most of these countries the fall in outstanding indebtedness was due to a high rate of cumulative principal repayments which exceeded new borrowings during the decade. In Australia, the decisive factor was the devaluation of the pound sterling. Australia's principal repayments were very heavy during the postwar period, but her gross borrowing was somewhat larger and surpassed by a minor margin the cumulative principal repayments. As a result of devaluation, however, the dollar equivalent of indebtedness showed a substantial absolute decline.

IV Present Level and Postwar Growth in Debt Service

Against an aggregate indebtedness of $ 22.7 billion held by 52 countries (Group "A" & "B") at the end of 1955, there was recorded an aggregate debt service of $ 2 billion in the same year.Y/ Thus, the world aggregate debt service was equal to 9% of the outstanding debt. Almost three quarters of the debt service consisted of principal repayments and the remainder of $ 557 million constituted interest payments. This implies that actual interest payments amounted to about 2.5% of the outstanding debt.

The detailed country-w7ise distribution of debt service payments in 1955 are shown in Appendix IV._ The following table summarises the salient features of the present level of debt service:

1/ Debt service data are not available for Egypt, Iran and Cuba which are included in the sample of 52 countries for which outstanding indebtedness is shown in Table I. On the other hand, Turkey is excluded from Table I but its debt service payments are included in the above estimate. The amounts involved in all these cases are relatively small.

2/ The data shows a remarkable country-wise concentration of service payments, which corresponds to the concentration of outstanding indebtedness. France, United Kingdom, Brazil, Germany and Australia pay more than half of the aggregate debt service of 50 countries. Table V Regional Distribution of Debt Service Pavments for 50 Countries in 1955 (Group "A" and "B")

Percentage of Percentage of Total Debt Region Debt Service Total Debt Service Outstanding (in thousands of US $)

Europe 1,144,780 55.9 65.9 Africa 59,664 2.9 4.8 Australia 102,850 5.0 6.2 Asia & Middle East 217,743 10.6 10.7 Western Hemisphere 523,611 25.6 12.4

Total, 50 countries 2,048,648 100 100 Source: Appendix IV and Table I.

The Table reveals the heavy share of European debt service; but whereas its outstanding debt is 66% of the world total, its debt service is a considerably smaller share of the aggregate service payments. In contrast, Latin-America holds 12% of the debt and pays 26% of the debt service. These discrepancies can be explained in terms of differences in the pattern of interest rates and particularly of maturity schedules, which influenced the regional growth of debt service in the postwar decade. Owing to the lack of data, it was not possible to examine the postwar growth in the debt service of this large sample of 50 countries. Adequate information was available for the 36 countries included in Group "A", and for which growth in outstanding debt was analysed in the preceding section. Chart II shows the aggregate and regional growth in debt service for these countries throughout the postwar decade. It also shows the projected levels of debt service for the period 1956-1960, on the basis of information available in late 1956.1/

/ Underlying data are given in Appendix V. Growth of debt service by countries (Group "A") is shown in Appendix VI, which also contains data for group "B" countries to the extent that they are available. GROWTH IN DEBT SERVICE PAYMENTS, 1946-1960 (BILLIONS OF U.S. DOLLAR EQUIVALENTS) 2.0 TOTAL, 36 COUNTRIES EUROPE 1.0

1.6

l1.4 . z z ' .4j:Re5r2

1.6TOTAL 7 (OAL ONEUOP 1.2 - 0

1.08A w ...... s 5 > - ...... - 1.4 ITRS .8

1. 111.0 4 ...... ^ /88 ~ ~...... ~~~~~~~~~~~~~~

.2 . .

AFRICA |||.2

.4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ......

.2 ..... 0... .~~~~~~~~~~. O- ~~~~~~WESTERN , 0 I 0

AUSTRALIA .T NO-URP

.2 .Lo2

'46 '48 '50 '52 '54 '56 '58 '60 '46 '48 '50 '52 '54 '56 '58 '60

1266 A BRD- Economic Staff The remarkable feature of postwar deve'lopment has been a fast growth in debt service - faster than growth in debt outstanding. The aggregate service of 36 countries (Group "A") rose from $608 million in 1946 to $1,760 million in 1955. This increase of 190% compares with a rise in outstanding indebtedness of 137% in the same period. The relatively fast growth in debt service can be expl ned in terms of (a) resumption of service on defaulted prewar bonds;, (b) a trend towards increasing interest rates; and (c) a concentration of principal repayments in the last few years of the decade. The last two factors are discussed below.

1. Increase in the Rate of Interest Actual annual interest payments in the first few years of the decade amounted to about 1.5% of the gutstanding debt. The generally low rate of "effectivet" interest payments2( was partly a reflection of the still existing defaults and partly a result of a lag between additions to indebtedness and starting of interest payments. It was also due to the fapt that reconstruction loans carried an exceptionally low rate of interest j/Both in Africa and Australia, the effective rate of interest payments was considerably higher. As development lending came into the picture, effective interest rates climbed upward in most regions. The following table shows these rates for two time-periods in the postwar decade and the projected rate for 1956-59. Table VI

Effective Interest Rates by Regions, in the Postwar Decade (36 Countries: Group "A"t) Regions 1946-48 1953-55 1956-59

Europe .8 2.3 2.5 Africa 3.3 3.3 4.2 Australia 3.8 3.7 3.8 Asia .8 3.1a/ 3.0 Western Hemisphere 1.9 2.7 3.7 Non-European Countries 2.7 3.4 3.8 Group "'A" 1.5 2.6 2.9 Source: Appendix II and V.

a/ Only 1955. 1/ Debt service on defaulted prewar bonds was resumed in Austria, Chile, Colombia, Ecuador, Italy, Japan, Mexico, El Salvador, Haiti, Thailand and Peru. Costa Rica and Germany, which are not included in Group "A", also resumed service on defaulted bonds. 2/ The "effective" rate of interest payments is calculated by expressing the amount of interest payments made during the year as a percentage of the average of debt outstanding at the beginning and at the end of that year. In addition there were cases where very low interest rates were agreed to in the settlement of formerly defaulted debts and where interest is not segregated in service payment schedules. -26-

In the last few years of the decade, the"effective"linterest rate for all 36 countries had increased to 2.6% and for non-European countries to 3.4%. This relatively low level is expected to increase in the future. The projected rate for the next four years is close to 4% for non-European countries. In fact, since new loans are being floated at rates considerably above the past effective level, the actual rate of interest payments in the coming years is likely to be above the projected rate.

The rise in the effective rate of interest payments was not the main factor leading to the postwar growth in aggregate debt service. This is shown in the following Table. Table VII

Growth in Components of Debt Service Payments. 1946-1955 (in millions of US $ equivalent) (36 countries: Group "All)

Europe Non-Fliropean Countries Total 36 Countries

1946 1955 Increase 1946 1955 Increase 1946 1955 Increase 1946-1955 - 1946-1955 1946-1955 Int. 52 258 396 115 207 80 167 465 178 Amort. 277 670 142 164 625 281 441 1,295 194

Total 329 928 182 279 832 198 608 1,760 189

Int.- Interest payments Amort., Amortization payments Source: Appendix V

In the aggregate increase of debt service of $1,152 million over the decade, the increase in interest payments accounted for about one-fourth. In non-European countries, interest payments in 1955 were less than double the level at the beginning of the decade.

2. Increase in Principal Repayments

The postwar growth in debt service was primarily due to the rapidity of principal repayments. Aggregate repayments increased during the decade faster than either debt outstanding or total debt service. Partly, this was due to the fact that postwar long-term borrowing envisaged a "grace" period with respect to amortization. As a result, principal repayments began to gather momentum only after this "grace" period had expired. But of more importance was probably another factor. A number of countries in various regions, but particularly in Latin-America, relied to a considerable extent - 27 - on medium-term credits whose quick maturity accelerated the tempo of principal repayments. This relative shortening of the effective maturity of Latin-American debt can be expressed in another way. At the rate at which loans were being repaid at the beginning of the decade, it would have taken on the average 28 years to repay the entire Latin-American debt, (Group "A") provided no new debt was incurred. In contrast, the corresponding average for the last three years of the decade was 11 years. A similar shortening of the average effective period of repayment on outstanding debt,also occurred in the rest of the sample, but to a somewhat lesser extent.L! And whereas scheduled repayments over the five years 1956-1960 will amount to more than one-half of the Latin-American debt outstanding at the end of 1955, the corresponding repayments in the same period will amount to about one-third of, the Asian debt and less than one-fourth of the debt in other regions.. 2 The past evolution of principal repayments in Latin-America, together with an increase in the rate of amortization in Asia and Africa, account for the fact that debt service iF the non-European area as a whole increased somewhat faster than in Europe.3 Principal repayments in 24 non-European countries rose from $164 million in 1946 to $625 million in 1955. This increase of 281% compared with a 142% increase in Europe. Even more striking was the fact that the 1955 level of principal repayments of non-European countries was only slightly lower than that of Europe, despite the fact that the latter's outstanding indebtedness was almost 80% higher. While the 1955 level of non-European principal repayments was exceptionally high as a result of very heavy Brazilian payments, the fact remains that non-European debt service rose much faster, relative to growth in debt outstanding, than did that of Europe. While principal repayments rose rapidly during the last few years of the decade, the amount of gross borrowing of non-European countries,after a sharp increase in the previous years, appears to have remained unchanged since 1953. Net capital inflow was maintained, but its annual rate recently tended to decline. The following table shows the difference between gross borrowing and principal repayments in non-European regions for years since 1949.

1/ The average effective period of repayment is calculated by dividing the average of debt outstanding at the beginning and at the end of the year, by the amount repaid during the year. In the 22 countries outside Latin- America (Group "A"), the average effective period of repayment fell from 32 years at the beginning of the decade to 20 years at the end of the period. 2/ These regional aggregates conceal many inter-country differences. Appendix VII contains data by countries (both "All and "B" Groups where available) on average effective periods of repayment in 1946-1955, on the proportion of debt repayable in the five years 1956-1960 and on effective rates of interest payments in 1946-1959. 3/ This was so despite the fact that European interest payments rose, in percentage terms, faster than non-European interest payments. See Table VII. - 28 -

Table VIII Gross Borrowing, Principal Repayments and Net Capital Inflow on Public Account in 24 non-European Countries, 1949-19-5 (in millions of US $ Equivalent)

1949 1950 1951 1952 1953 1954 1955

Gross Borrowing 348 602 570 530 1,008 1,11o 963 Principal Repayments 394 185 131 167 245 358 625

Net Capital Inflow on Public Account -46 417 439 363 763 752 338

Source: I.B.R.D., Economic Staff, Statistics Division

The table shows that net capital inflow in 24 non-Earopean countries reached a peak level in 1953. The absence of an increase in 1954 and the sharp contraction in 1955 were due to a high level of principal repayments, particularly by certain Latin-American countries. Whether this is only a temporary setback in the upward trend of capital inflow of this type, or an indication that the peak of' postwar borrowing has already been reached,will depend on the future annual rate of gross borrowing. This rate would have to be considerably above the $1 billion level for net capital inflow to resume its upward trend. - 29 -

PART II

GROTH IN INC ONE AND SAVINGS

I Introduction

Part I of this paper analysed the present level of external public indebtedness and debt service and reviewed their growth over the postwar decade. The object of the second and third parts is to examine the economic development of debtor countries in the same period and to identify the major factors which strengthen or impair their capacity to service external indebtedness.

II Savings and Transfer Aspects of Debt Service~

While numerous non-economic elements may from time to time seriously influence the willingness to service external debt, the capacity to pay debt service ultimately rests on two economic factors. In the first place, the debtor country's economy must be able to do without an amount of domestic income and savings equivalent to the debt service. Secondly, the debtor country must also be in a position to convert such segregated savings into foreign exchange. And if debt service is increasing, there must also be an increase in both the capacity to save and the capacity to transfer savings.

There is a very close relationship, both in theory and practice, between the long-tern growth in income and internal savings on the one hand, and the increase in the capacity to transfer externally a part of domestic income and savings on the other hand. A sustained growth in income is dependent on growth in savings and the growth in savings is dependent on growth in income. Similarly, a sustained growth in income cannot be achieved unless the foreign trade sector of the economy develops fast enough to provide external earnings needed to satisfy growing import requirements and to finance other external outlay. And conversely, a high rate of over-alU growth, maintained over a long term, almost automatically implies an adequate rate of increase in the supply of commodities which either actually enter international trade or are at least capable of being internationally traded. Growth in income and savings and growth in transfer capacity are interdependent in the long-run and represent only different aspects of the process of economic growth. - 30 -

In the short run, however, a discrepancy may arise between income growth and the capacity to save and between the capacity to save and the capacity to transfer savings abroad. Despite a stagnation in savings, income may grow fast for a time if the terms of trade are improving and if the export sector is large in relation to total product. On the other hand, if inflationary fiscal and monetary policies are pursued, difficulties in the balance of payments are likely to emerge, even if growth in income and savings occurs. An inflationary situation results in an excessive pull of the domestic market for potential exports and particularly for imports. Thus the conditions necessary to assure a large or growing margin for debt service may be impaired despite a rise in income or even in savings V . Another case of a short-run discrepancy between the capacity to save and the capacity to transfer savings is found where a country's external receipts are suddenly and substantially reduced by a curtailment of foreign demand. In a country in which the foreign trade sector is small, the immediate impact on aggregate income and savings will also be small; however, the impact of the decline on the transfer capacity will be much greater. In any case, compensatory measures to maintain income and savings are likely to be hindered by the growing gap in the country's external accounts and the transfer of savings for debt service can be accomplished only at rising economic and social costs.

The analysis of change in debt servicing capacity over time therefore requires an examination of the performance of debtor countries in both the field of income and savings and the field of balance of payments. Part III of this paper deals with the latter aspect of the debt service problem. In this part, the income and savings record of debtor countries is reviewed. A complete analysis would also require an examination of the performance of debtor countries in the field of public finance, since the service of public external debt requires that the government secure command over savings, not merely that the economy generates adequate savings. It was not possible to include in this paper an examination of the performance in the field of public finance.

III Growth in Real Income and Growth in Debt Service

1. Growth in World Income

The postwar increase in debt outstanding and in debt service was associated with a considerable increase in income and investment in the great majority of debtor countries. Economic growth itself

J It should be noted, however, that if inflationary policies are pursued for a longer period, this affects not only the distribution of current output as between the home and the foreign markets but also the allocation of investment resources. The imbalance thus created is likely to result in a chronic lag of external receipts behind growing import requirements, which must eventually impede the growth in income and savings. - 31 - was to a considerable extent a consequence of the flow of foreign capital and grants, which supplemented domestic resources in the task of European reconstruction and in the development of Asia, Africa, Australia and Latin America. And both the growth in debt and the growth in income and investment were different aspects of the powerful upswing in world economic development which has taken place since the end of the Second World War.

In the period 1946-1955, world manufacturing production rose by 83%, mininj output by 58%, and agricultural production by approximately 33%. 1/ By applying the 1938 weights to each output component, v/ the postwar aggregate growth in world commodity production - manufacturing, mining and agriculture taken together - might be estimated at somewvhat below 55%. Since output of services usually expands at a rate closer to the rate of industrial than of agricultural output, the postwar increase in world real income was probably somewhat higher than the increase in commodity production. This increase in output indicates that growth in indebtedness was an integral part of overall economic growth. However, it was not possible for several reasons to compare directly the increase in world real income described above, with the increase in debt outstanding and in debt service shown in Part I of this paper. First, the aggregate increase in income relates to a much larger number of countries than Group "A" for which debt data are available. 3/ Secondly, while the increase in income is expressed in constant prices, the increase in aggregate debt outstanding (137% over the decade) and in aggregate debt service (190%) is shown in current dollar values. The "real't increase in debt outstanding and in debt service was considerably smaller, since the overall price level in creditor countries, as well as the level of export prices of debtor countries, rose substantially during the decade. In the United States, which emerged as the pre- dominant recipient of debt service payments at the end of the decade, ;/ wholesale prices rose by 1X1% and import prices by 62% between 19)46 and 1955. In the United Kingdom, the second largest creditor i/, wholesale j/ United Nations, MDonthly Bulletin of Statistics, for manufacturing and mining output; FAO, The State of Food and Agriculture 1955, for agricultural production. The U.S.S.R., Eastern Europe and mainland China are excluded. In 1938, the share of agricultural production in total world commodity output amounted to 55% and the share of mining and manufacturing to 45% (GATT, International Trade, 1954). The U.S.S.R., Eastern Europe and China are excluded. 2/' Since for many countries in Group "A" income data are not available for 1946, it is not possible to determine growth in their real income as a group. In 1955, the United States received about two-thirds of the aggregate debt service of 36 countries (Group "A"). i/ The share of the United Kingdom in the aggregate debt service receipts (Group "A") amounted in 1955 to 12%. prices rose, allowing for the offsetting effect of the devaluation, by 37% and import prices by 31%, within the same period. It should be pointed out that this price increase in creditor countries was concentrated in the early years of the decade and consequently affects to a lesser extent the "real" value of seririce payments contracted after 1950 v/. On balance, the statement may be hazarded that increase in the "real" value of debt over the decade was close to the increase in world real income, while the increase in the "real". value of debt service was considerably higher than the increase in world real income.

2. Ratio of Debt Service to Total Income

The above statement that "real" debt service increased faster than real income is roughly confirmed by a comparison of the two rates of increase for individual countries, included in Group "A". The following table shows the distribution of these countries according to whether growth in debt service was faster than, or equal to, or lower than the growth in income.

Table I

Distribution of Group "A" Countries according to Rates of Growth in Real Debt Service and Real Income in the Postwar Period

urowth Rate of Debt Growth Rate of Service approximately Debt Service Growvth Rate of Debt Service above equal to Growth Rate below Growth Growth Rate of Income of Income Rate of Income

Austria Ecuador Paraguay Finland Belgium Ethiopia i Belgian Congo Australia i U. K. Guatemala France b Haiti i Denmark India Honduras a Iceland Mexico Uruguay Italy Nicaragua Chile Luxemburg Pakistan Ceylon i/ Netherlands Peru Norway Japan Fed. of Rhodesia El Salvador U,of S.Africa Thailand Brazil Yugoslavia Colombia Panama

Number of countries - 24 3 9

a Decline in the "real" value of debt service i See Appendix I

Sources and Methods: Appendix I

g/ This statement relates to the overall price level in creditor countries. In particular debtor countries considerable increases in their export prices occurred after 1950. - 33 - In twelve countries, or one-third of the sample, the rate of growth in the "real" value of debt service was either lower or approximately equal to the rate of growth in real income. But in the majority of debtor countries, 24 out of 36, debt service in real terms appears to have risen faster than real income. Consequently in these countries the ratio of debt service to income tended to increase over the postwar decade.i/ This group of countries is now mainly responsible for the aggregate flow of debt service payments: 70% of the total debt service of the whole "A" sample was paid in 1955 by these countries. Faster growth in debt service than in income was in many cases the result of a very low level of indebtedness and of debt service at the beginning of the postwar decade. As stated in Part I of this paper, the world at large entered the postwar decade with a relatively modest amount of debt service. Service payments on reconstruction and development borrowing were superimposed on this relatively small initial base. There were even cases in which no debt service was paid at the beginning of the decade. Under these circumstances, the rate of growth in debt service, being infinite, was by definition higher than the rate of growth in income. / This fact suggests that a change in the ratio of public debt service to income, which occurred in the past period, must be considered in conjunction with the current level of the ratio - a level which results from its initial magnitude and from the change during the period under observation. The following table shows the ratios for the latest year for which data are available. In addition, the ratios of the projected annual average debt service in 1956-60 to gross income in the current year are shown. Since service payments on private capital are also a charge on domestic income, the ratios of total service payments (both public and private) are also indicated. The table includes both "A" and "B" groups of countries.

l/ This statement is derived indirectly from a comparison between the rate of growth in real income and the rate of growth in "real" debt service. Direct computation is not possible since income data are not available for many countries for the early postwar years. / This was the case in Austria, Japan and Pakistan. - 34 -

Table II

Ratio of Debt Service to Gross Income

(Group "AA"and "B", 50 Countries)

Country Year Service on External Public Debt Service on External as percentage of Gross Incomeaj Public Debt and In- come Payments on Private Investment/ as percentage of Gross Income v Year Given Projected 1956-6C0/ Year Given

1. Current Public Debt Ratio 1% or more

Israel 1953 4.21/ 2.8 4.5 Fed.of Rhodesia 1954 1.9 2.6 12.0 Chile 1954 1.6 1.4 3.6 Burma 1954 1.6 f/ 0.8 1.7 Yugoslavia 1954 L :57* n.a. Li . . Paraguay 1954 1.4 1.7 1.8 Mexico 1955 1.3 0.9 2.4 Netherlands 1954 1.21/ 0.512 2.51/ Brazil 1954 1.2 1.6 2.2 Panama 1954 1.2 0.8 7.8 Nicaragua 1953 LT.lJ.5.. .* JZ Australia 1954 1.ig/ 1.0 2.5v Norway 1954 1.0 1.2 1.4 Denmark 1954 1.0 0.7 1.3 Bolivia 1950 LLQ.. 7g LT.27

II. Current Public Debt Ratio below 1%

Haiti 1954 L527./T.7 o .9f Colombia 1954 0.9 1.2 1.1 Uruguay 1953 L.97 LT . L1.a7 Belgium 1954 0.8 0.4 1.6 Finland 1954 0.8 0.8 0.9 Ecuador 1954 0.8 1.4 3.5 Peru 1954 0.7 1.9 2.1 France 1954 0.7 0.5 0.9 Belgian Congo 1954 0.7 2.2 5.2 Cuba 1953 0.7 0.2 2.4 Iceland 1953 0.6 2.6b/ 0.8 United Kingdom 1954 o.6 0.5 1.6 Japan 1954 0.5 0.4 0.5 Lebanon 1953 Zo-.57 O.17 LL 7 Germany 1954 0.5 0.5 0.6 Italy 1954 0.4 0.3 0.5 Luxemburg 1954 0.4 0.4 n.a. Greece 1955 0.4 0.4 0.6 - 35 -

Country Year Service on External Public Debt Service on External as percentage of Gross Incomea Public Debt and In- come Payments on Private InvestmentbJ as percentage of Gross Income2. Year Given Projected 1956-60d/ Year Given

Indonesia 1952 0.4 0.6 0.9 South Africa 1954 0.3 0.9 3.3 Austria 1954 0.3 1.1 0.4 Costa Rica 1949 L .27 147 Z's27. Philippines 1954 0.3211 0.4 1.9 v Pakistan 1954 Zi:Y7-i/ foi7* .fi*l Ceylon 1954 0.2 0.3 1.4 El Salvador 1953 0.1 0.7 0.8 Thailand 1953 0.1 0.4 0.3 Guatemala 1954 0.1 0.2 0.6 Venezuela 1953 0.1 0.1 10.4 Argentina 1954 0.1 n.a. 0.3 India 1954 0.05i/ 0.1 i 0.2i2 Honduras 1953 0.05 0.2 6.1 Egypt 1953 Lt7.027 n.a. L.27 Sweden 1954 0.0231 0.02 0.1 Dominican 1955 - 2.4 Republic

aJ Gross national income increased by interest payments on public external debt. b It was not possible to include repatriation of private investment. c/ Gross national income increased by investment income payments (public and private) abroad. dJ Average annual public debt service scheduled for 1956-1960 as proportion of gross income in the year stated. Projected debt service according to information available in late 1956. / May include interest on private obligations. f/ Average debt service in 1954-1955; gross income in 1954. g/ Gross income and private investment income payments in 1954/55; average public debt service for 1954-55. h/ According to information available in April 1957. ij Service payments in 1955; gross income in 1954. j/ Average service payments in 1954-55; gross income in 1953/54. k/ Projected for 1956-1957 only. 1 Service payments in 1954; gross income in 1954/55. L/ 0.2 - 0.3 projected for 1960. Figures in brackets are crude estimates.

Source: Appendix II - 36 -

As might be expected, the portion of domestic income absorbed by both public and private service payments is considerably higher than the portion absorbed by public debt servicc alone. This is particularly the case in countries in which foreign capital is engaged in the exploitation of extractive industries and where foreign private investment accounts for a substantial share of total domestic investment (outstanding cases are Venezuela and the Federation of Rhodesia).

The main finding emerging from the table is that public debt service, despite the fact that in many countries it rose faster than income during the postwar period, absorbed only a small portion of total income at the end of the postwar decade. The highest level of the ratio in the sample of 50 countries was reached in Israel (above 4%). However, this is an extreme value and next in the descending order of magnitude are a group of countries with a level below 2%. The median size of the ratio for the whole sample is 0.65%.

In more than half the cases for which the projected ratios for 1956-60 are computed, the latter are somewhat higher than the ratios recorded in the past. The increases appear mostly in non-European countries. On the other hand, in 14 countries, half of them non-European, the projected ratios are lower than the current ratios. The projected increases in the ratios, although they change the comparative position of particular countries, do not affect the overall magnitude of the ratio. The median value for the whole sample remains the same, while the median value for non-European countries rises from 0.7 in the past to 0.8 in 1956-60. It should also be noted that projected ratios are computed on the basis of future debt service and present income; consequently, they do not take into account increases in income expected to take place during the next several years.

All other things being equal, the size of the ratio indicates the sacrifice which a debtor country is called upon to make in providing debt service. This may be particularly relevant in the context of a short-period decline in income. But from a long-run dynamic point of view, the severity of the sacrifice depends on whether the imported capital has been productively or unproductively employed and whether the income of the country is growing or stagnating. In a country in which per capita income fails to increase over a period of time, it is likely that social and political pressures will develop which may cripple the savings and transfer mechanism. Under these circumstances, even a small debt service (expressed in a correspon- dingly low ratio of service to income) may prove an intolerable burden in the face of other competing claims. On the other hand, as long as the incidence of increasing debt service falls on a part of the increment in per capita income and not on current levels of consumption - 37 - and investment, it is likely that contractual obligations will be easily fulfilled.'Y The higher the rate of growth in per capita income, the more likely it is that competiirg claims for increases in domestic consumption and investment will be satisfied pari passu with an increase in service payments.

IV Growth in Per Capita Income

If growth in per capita income is considered one of the basic long- run conditions for easier servicing of external indebtedness, the performance of debtor countries suggests that, with a limited number of exceptions, this condition was successfully fulfilled during the postwar period. This is reflected in Table III, iihich shows postwar growth rates in aggregate and per capita incomes!/ for 48 countries (Group "A" and Group "B"). Periods for which growth rates are computed vary according to the availability of data. As a rule, the reconstruction period is excluded.

The available statistics impose three limitations on the validity of the conclusions which may be drawn from the table. First, since the postwar period is relatively short, the impact of temporary factors on income growth is necessarily considerable. Secondly, in many underdeveloped countries the estimates of income are themselves subject to a wide margin of error. Thirdly, although countries are arranged according to the descending order of magnitude of growth in per capita income, the inter-country comparison is subject to important reservations due to the above two uncertainties. Despite these draw- backs, the table is presented as a rough indication of the postwar income growth performance of debtor countries.

1/ A rise in the ratio of debt service to income does not indicate whether or not "remaining" income (i.e. total income less debt service) on a per capita basis is unchanged. For example, a rise in the ratio from 1% to anywhere up to 8% in five years does not imply a stagnation in remaining per capita income, if total income is growing at a rate of 3% and population at a rate of l% per year. 2/ Since debt service payments continued to absorb a very small portion of income at the end of the decade, the discrepancy between the growth rates in income shown in Table III and the growth rates in "remaining" income is negligible and can be disregarded. See Appendix II. Table III

Postwar Rates of Growth in Real Income (48 Countries: Group "AA"and "B") Postwar Annual Average Percentage Rate of rowth Country Period (Compound)W' Total Income Per Capita Income

I Above 5% Per Canita

Federation of 1946-1955 13.0 10.0 Rhodesia Western Germany 1950-1955 9.3 8.4 Austria 1950-1955 7.4 7.4 Nicaragua 1948-1953 9.6 6.4 Japan 1951-1954 7.8 6.2 El Salvador 1946-1952 2.6 6. Greece 1951-1955 6.2/

II Between 1% and 5% Per Capita

Italy 1950-1955 5..5 4.9_ Belgian Congo 1950-1955 Z7.Q/ 4. Colombia 1945-1955 6.7 4.4 France 1949-1955 4.8_ 4.1 Venezuela 1947-1955 Z7.Q/ 4.0 Philippines 1949-1954 6.o° 4.0 Lebanon 1948-1953 Z6.2/ 3.9 Israel 1950-1954 11.8 3.9 Brazil 1945-1955 6.3 3.8 Finland 1947-1954 5.1 3.8 Sweden 1948-1955 A-.3_ 3.5. Yugoslavia 1948/49-1954/55 4.9/ /3./ Netherlands 1948-1955 4.5 3.3 Belgium 1948-1955 _ 3.5 - _ 3.1 - Iceland 1951-1956 0.-6. .0-4.0/ Peru 1949-1955 L4.0-6.Q/ /2.0-4.Q/ Ecuador 1950-1954 6.5 3.0 BurmE./ 1947/48-1953/54 4.0 3.0 Norway 1948-1955 3.5 2.8 United Kingdom 1948-1955 2.9 2.6 Thailand 1951-1956 4.5 2.6 Mexico 1945-1955 5.3 2.5 Australia 1947-1955 5.0 2.5 Turkey 1948-1955 $.3_ 2.5_ Paraguay 1950-1954 /4.-L/ - 39 -

Postwar Annual Average Percentage Rate of Gryowth Country Period (Comnound)2/ Total Income Per Capita Income

Union of South 1946-1]954 4.0 2.0 Africa Denmark 1948-1955 2.6 2.0 Costa Rica 1950-1955 5.0-6.0 1.5-2.5 India 1950/51-1955/56 3.2 1.9 Cuba 1946/47-1954/55 3.0 1.5 Chile 1946-1954 2.9_ 1... Ceylon 1947-1953 L4.2/ /1/g Honduras 1939-1953 4.0 1.0

III Below 1% Per Capita

Egypt 1939-1953 L2 .21_ L°e Pakistan 1950-1954 L1/ Uruguay 1949-1954 2.0 03 Argentina 1946-1955 2.2 0.0 Haiti n.a. n.a. O Bolivia n.a. n.a. -0. Panama 1950-1954 2.3 0.0 Iran 1950-1954 n.ea. Probably decline

a/ Figures in brackets are crude estimates 1/ Present per capita income lower than prewar i/ Estimated growth in output; income growth may have been somewhat higher Source: Appendix II The overall picture is undoubtedly very reassuring. Almost two-thirds of the sample had a growth rate in per capita income above 2% per year. Out of a total of 48 countries, only in eight countries income per capita stagnated or rose less than 1% per year. These eight countries - Iran, Panama, Bolivia, Haiti, Argentina, Uruguay, Egypt and Pakistan 2/ - were responsible for a minor fraction of the aggregate public debt service paid at the end of the postwar decade: their combined service payments in 1955 amounted to 2.3% of the aggregate payments of all countries included in the sample.2J

Postwar growth in income was the result of increases in output and of gains secured by some regions from improvements in their terms of trade. Increases in output took the form of a simultaneous expansion in both agricultural and industrial production. However, in almost all countries for which data are available, industrial production rose faster than either total output or agricultural production Y. This discrepancy in the sectorial rates of growth implies that the productive structure of most countries has become more diversified over the postwar period. In Latin America, the gross value of industrial production surpassed the gross value of agricultural production early in the postwar decade and in the mid-1950ts amounted to one-fourth of the total gross output. While the degree of industrialization remains considerably smaller in Asian and African countries, they also succeeded in expanding industrial output at a rate faster than in agriculture.

The growth rate in income was highest in the European countries. The completion of reconstruction opened the way for an extremely high rate of economic expansion. Between 1949 and 1955 the European aggregate income rose at a rate of more than 5% per year and per capita income increased by about 4.5% annually. Since the European terms of trade did not improve in this period, this increase in income reflected entirely growth in European output. While there were considerable inter-country differences, with Germany and Austria leading the European group, none of the European countries appear to have had a per capita income growth rate below 2% per year.

Pakistan experienced a deterioration in terms of trade in the period shown in the table, which reduced the rate of growth in income below the rate of growvth in output. Postwar growth rate is not available for Indonesia, but it is believed that per capita income in the early 1950's wras not higher than before the war. If Indonesia and Burma, in which per capita income is still below the prewar level, are added to the above group of eight countries, the combined public debt service of these ten countries amounted in 1955 to about 4% of the aggregate debt service of the sample. Data regarding growth in agricultural and industrial production are given in Appendix III. A high rate of growth was also recorded in Latin America. Aggregate income has been estimated to have increased during the ten years 1945-1955 at a rate above 5.5% per annum, and per capita income at slightly less than 3.5%. A part of this increase in income was due to an improvement in the terms of trade in a large number of Latin-American countries. In the area as a whole, aggregate output increased at a rate below 5% per year, and per capita output somewhat less than 2.5%.

The extent of gains from the improvement of the terms of trade varied from country to country. The following table isolates the effect of changes in terms of trade for six Latin-American countries which enjoyed substantial gains and for which data is available.

Table IV

Rates of Growth in Income and Output

Country Period Annual Rate of Annual Rate of Growth in Gross Growth in Gross National Income Domestic Output Aaereaate Per Caoita Aaaregate Per Capita Colombia 1945-1955 6.7 4.4 5.4 3.1 Brazil 1945-1955 6.3 3.8 5.5 3.0 Honduras 1939-1953 4.0 1.0 3.0 0.0 El Salvador 1946-1952 7.6 4.0 5.6 2.0 Ecuador 1950-1954 6.5 3.0 4.5 1.0 Nicaragua 1948-1953 9.6 6.4 8.0 4.8 Source: Appendix II

The improvement in the terms of trade occurred mostly in Latin America, but it was not confined to this region. A few other countries, particularly in Africa, enjoyed similar benefits. An estimate for the Federation of Rhodesia indicates that whereas aggregate output increased -t a rate of 10% per year, aggregate income rose at a rate of 13% annually.Al

The above table suggests that changes in terms of trade were an important source of windfall gains, which together with growth in output enabled these countries to realize high rates of growth in real income.

j2/ Burma also experienced an appreciable improvement in the terms of trade during the period 1947/48-1953/54, shown in Table III. Whereas aggregate income rose at 4% per year, output increased at about 2 1/4%. The change in the terms of trade had a similar effect on Ceylon: during 1947-1953 output rose at a rate of 2 3/4%, while income increased 4% per year. - 42 -

It is probable that this growth in output would not have occurred at the same rate, had the terms of trade not been exceptionally favorable. The effect of the latter was to alleviate the foreign exchange bottlenecks which might otherwise have impeded progress and to add to the amount of resources available for investment. However, it would be an exaggeration to ascribe the growth to this fortuitous factor only. Without domestic development efforts, the gains from the improvement in the terms of trade would have been exhausted without an apapreciable increase in real output.

Several Asian and Middle Easterm countries derived gains from terms of trade in a few years, but unlike Latin America, this region did not experience a sustained improvement over the whole period. Growth in income was generally slower than in other regions, but a large number of countries still achieved considerable growth rates. The economic expansion was extremely fast in Japan, the largest debtor in the region. Philippines and Thailand also achieved substantial increases in output. India, the second largest debtor, succeeded in raising its income at a rate above that which was expected when development programming was inaugurated.

A satisfactory growth in per capita income is one long-run condition for the successful servicing of external indebtedness. Another condition is growth in domestic savings. The higher the portion of income that is saved and the faster the growth of savings relative to income the easier it is to reconcile the claims of debt service and domestic capital formation. The following section analyses the ratio of debt service to savings and the postwar growth in savings.

V. Debt Service and Savings

1. Ratio of Debt Service to Savings

The proportion of gross savings!/ devoted to thle servicing of foreign capital is determined partly by the aggregate flow of domestic savings and partly by the role of foreign capital relative to the nationally owned capital in tlle country's economic development. A high ratio of debt service to savings implies that a large proportion of the currently generated savings are committed to providing a return to foreign capital,, while the remainder is available for domestic capital formation. The following table shows the current ratio of public and private service payments to gross savings (last coluimn). It also showis the current and projected ratios of public debt service to gross savings which remain after private debt service has been paid.

The concept of gross savings is defined in the ex-post sense. They are equal to the sum of gross domestic investment and the balance (positive or negative) on the current account of the balance of payments. - 43 -

Table V

Proportion of Gross Savings Absorbed by Debt Service (40 countries Group "A" & "B")

Country Year Service on External Public Service on External Debt as percentage of Public Debt and Income Gross Savingsa/ Payments onPr ivate investment_. as percentage of Gross Savings2/

Year Given Projected for l956-60o/ Year Given

I Current Public Debt Service Ratio Above 5%

Indonesia 1951/o22./ 20.7 15.6 30.1 Chile 1953_ 12.5 12.3 24.2 Mexico 1955 8.5 5.8 15.1 Nicaragua 1953 /5.37 /50.77 /X1.77 Burma 1554 7 8 .2 7 g/ - /f. CT 9 jg Brazil 1954 7. io.0 13.1 Yugoslavia 1954 /7.o7 n.a. /7.07 Federation of Rhodesia 1954 6.8 9.5 33.3 Denmark 1954 5.9 3.9 7.3 Pakistan 1954 /7.6 tP/ /9r.47 /9.! Ecuador 1954 5.7 1,0.1 22.r Philippines 1954 5.2V/ 5.4 23h71/

II Current Public Debt Service Ratio Above 1%

Uruguay 1950/53 4.8J/ 7.4 6.61/ Greece* 1955 4.8 4.6 6.4 Colombia 1954 4 7 6.4 - 7 Australia* 1954 4 5k-. h.3 1O.2 / Netherlands./ 1954 4.5 1.9 9.1 Belgium 1954 4.4 2.5 8.8 Norway* 1954 4.1 4.9 5.3 France 1954 3.8 2.9 4.8 Lebanon 1953 /T.57 /i. 97 /L. 17 United Kingdom 1954 3.S T3.r 9.2 Peru 1954 3.1 8.3 9.0 Finland* 1954 2.8 2.7 3.0 Iceland 1953 2.4 1o.6L/ 3.5 Belgian Congo 1954 2.4 7.8 16.4 Italy 1954 2.1 1.7 2.7 Japan 1954 2.0 1.7 2.3 W. Germany 1954 1.8 2.0 2.3 Thailand 1955 /1.67 r.67 /.57 Austria 1954 t I -5. 2 -1 9' Luxembourg* 1953 1.4 1 4 n.a. Ceylon*s 1953/54 1.4 27.7 .2_ U.of S. Africa* 1954 1.2 3.7 13.0 Guatemala 1954 1.2 2.2 5.8 As might be expected, the current ratio of public and private service payments to gross domestic savings varies considerably as between regions and countries. The median ratio for the whole sample of 39 countries is close to 9%. Seven non-European countries in the sample - Federation of Rhodesia, Indonesia, Nicaragua, Chile, Honduras, Philippines and Ecuador - have a ratio of above 20%. Last in the descending order of magnitude is another group of twelve countries with a ratio below 5%. This group consists in the majority of European countries.

The absorption of savings by total service payments is, of course, considerably higher than the absorption of savings by public debt service alone. The median ratio of the la,tter is 3.6%. Two countries have a ratio above 10% - Indonesia and Chile.-! In another group of ten countries the ratio varies between 5 and 10%. However, in more than half of the countries shown in the table, the ratios lie between 1 and 5%. Though exact computation is not possible due to lack of reliable data, it appears that the ratios rose in the majority of countries during the postwar period. In slightly more than one half of the sample, the projected ratios are above those recorded for the year given in the table. As in the case of projected ratios of debt service to total income, increases in the ratios oI debt service to savings appear mostly in non-European countries. The median value of the ratio for the whole sample rises slightly above 4%O For non-European countries, the projected median ratio is 5.6%, compared to the existing ratio of 4.5%. The rate of return on private investment is fairly elastic in relation to short-run fluctuations of economic activity. The other ratio - that of public debt service to savings - is a more accurate measure of rigidity built into the economic system by importing foreign capital. While the absolute level of savings will decline in the event of a depression or some other short-term fluctuation, the scheduled interest and amortization payments on public debt will still have to be made. Consequently, the ratio of public debt service to savings will rise and the remaining supply of savings to meet the demand for domestic capital formation will contract. In this sense, the ratio indicates the intensity of the strain to which an economy may be subjected in a crisis year. Of course, the ratio indicates this strain in a crude sense. The arrangement of countries in Table V, according to the descending order of magnitude of the ratio, does not permit the conclusion that the same order would r6main 4n a pefiod of crisis. All eountrie".ere not. su9d6pt1bl&-4t short-run declines' in:coomic activity to the same

1/ In addition, in Israel, which is not shown in the above table, savings in 1954 appear to have been smaller than public debt service payments. degree. In addition, there are important inter-country differences regarding the extent to which they are likely to undertakce ccmpensatory fiscal and monetary measures to stabilize the level of inccme and savings.!L/ Also, the present proportion cf savings to GNP varies considerably as between countries. The strain to which an economy is subjected in a crisis year may depend to a sigrnificant extent on the size of savings, remaining after debt service payments, in relaticn to the demand for domestic capital.

In the following discussicn an attermpt is made to directly focus attention on savings remaining after service payments. Such "remaining" savings are an im-portant variable not only in the ccntext of a short-run fluctuation in economic activity, but even more frcm the point of view of the long-run ecmncmic growth.

2. Rates of Savings

Lhe rate of income growth that can be achieved with domestic resources greatly depends on the level and chan:ue in remaining savings and the relatir)n they bear to total product. Since a given ratio of debt service (Dublic and private) to savings can be associated with either a low or a high level of remaininga savings, the magnitude of the ratio cannot be taken as an indicator of that level.2/ Further, a rise in the ratio over a period of time can be associated wi-th a rise in the absolute level of remaining savings and even with a rise in the proportion of the latter to aggregate income. For these reasons, the cutrrent and past rates of remaining savings shoullD be directly exarAined. The following table shows these rates for 4I countries.

1/ It should be noted that whereas governmental ccmpensatory measures may successfully maintain the level of incorme and sa,rings in the event of such disturbances, they cannot by themselves solve the transfer problem. In fact the transfer uroblem may be aggravated, if co;mipensatory policies aro nursued in isolation or to a larger extent than in the extermel world. 2/ For example, in Indonesia tle ra-tio cf -publ-c and private service payments to savings of 30% is acccmpanied by remlaining savings which are less than 5,' of G11P. In contrast, in the Federatior. of1 Rhodesia the ratio of 33X; is acccmpanied by remri-ining savings which are 26k; of GNP. - 47

Table VI

Postwar Gross Savinas Rates (Remaining Gross Savings availabley fter Investment Income Payments and Repayments of Principal as Percentage of G.N.P.) Group "A" and "B" 4)2 countries

Country Current Rate Past Rate Year Rate Year Rate

I Current Rate Above 15%

W. Germany 1954 a7.2 1949 16-5_ Belgian Congo 1954 27. 1950 . Finland 1954 L27.WS 1948-49 /26-4 Luxemburg 1953 26.9 1949-50 27.2 Fed. of Rhodesia 1954 26. 0 b 1950. 21.9 Netherlands 1954 24.9' 1948-49 18.7 Norway 1954 24.4 1948-49 23.9 Iceland 1953 23.6 1948-49 23.4 Yugoslavia 1954 L22.W n.a. Union of S. Africa 1954 22.3 i 1948-49 11.3 Japan 1954 22.3 1948-49 22.5 Australia 1954/55-1955/56 22.2 1947/48-1948/49 23.4 Austria 1954-55 21.0W, 1948-49 14.4 Peru 1954 20 .9 J 1948-49 16.4 Sweden 1954-55 20.3_ 1948-49 -18.2 Argentina 1953-54 Z20.2/ 1948-49 L25. / Italy 1954-55 19.0 1948-49 15.9 France 1954-55 18.2 1949-50 19.2 E1 Salvador 1952-53 18.0 1946-47 10.0 Colombia 1954 18.00 1946-47 12.5 Burma 1954 L17. e/1948_49 Ll1. Belgium 1954 16.9 1948-49 15.3 Denmark 1954-55 16.9 1948-49 17.2 United Kingdom 1954-55 16.0 1948-49 13.2 Lebanon 1954 L15. 7 n.a. Honduras 1952-53 15.3 1948-49 12.3 Costa Rica n.a. 1950 L16.2/

II Current Rate Above 10% Uruguay 1950-53 Z14.9-1 n.a. Mexico 1955 14.1 / 1946-48 10.3 Brazil 1954 14. 9 1948-49 14.0 India 1954/55-1955/56 12.8 1950/51 9.9 Ecuador 1953-1954 i 2. 4 1950-1951 13.1 Nicaragua 1953 /80-007 Turkey 1954 11:0-12.7' 1948 Guatemala 1954-55 11.6 1948-49 9.Q - 48 -

Country Current Rate Past Rate Year Rate Year Rate

III. Carrent Rate Below 1_%0

Thailand 1955 1r9.37 n.a. Ceylon 1952-54 -9.2 1948-49 7.4 Chile 1953-54 8.0 1948 11.4 Greece 1954-55 7.4 1949-50- 5.0 Philippines 1953-54 6 6 1948-50 5.4 Pakistan 1953-54 /5.o70/ n.a. Indonesia n.a. 1951-52 3.4

a/ Of public debt only. / Gross savings in 1954 less amortization in 1955 as % of G.N.P. in 1954. c/ Gross savings in 1954 less projected amortization as % of G.N.P. in 1954. d/ Gross savings in 1954 less projected amortization as Haof G.N.P. in 1954; gross savings in 1955 less amortization in 1955 as % of G.N.P. in 1955. Gross savings in 1954 less average amortization in 1954-1955 as % of G.N.P. in 1954. f/ Gross savings in 1955 less projected amortization as d of G.N.P. in 1955. g/ Gross savings in 1954 less amortization of the average 1954-1955, as % of G.N.P. in 1954: gross savings in 1954 less amortization in 1954: 14.7%. h/ According to latest estimates, the rate of remaining savings in 1955-1956 amounted to 13-14%. i/ Gross savings before repayments of principal. Ti Probably includes monetized investment only.

Note : Figures in brackets are crude estimates.

Source: Appendix II The findings presented in the table should be considered highly tentative. Computation of savin-s rates are subject to wider margins of error than any other ccmputation in -the field -f national accounting. The statistics are often faulty and d--ferences in concepts are considerable. / A further complicationi is introduced by teraporary fluctuations which make it difficult to choose appropriate years iwithin the short span of the postiar period. Nevertheless, the data can probably serve as a basis for analysis so long as they are interpreted as broad orders of magnitude only. The findings which emerge are of two Icinds: those concerning current levels of savings rates and those concerning the change which has occurred in savings rates in the postwar period.

(a) Current Level of Savings

Debtor countries can be classified into three categories with respect to their current savings rates. In three-fifths of the sample, consisting of an almost equal number of European and non-Thropean countries, current gross savings are hig_her than 15% of CUTP. The median value in the category is above 20%. This level of savin-s is ccmparable to that experienced in the most progressive periods of econcmic history. Together with inflow of foreign capital and gains from chanses in terms of trade, coun-tries with this level of savings recorded very high rates of income growth, shown in Table ITI._/ Ihey were major debtors at the end of thle postwar decade: their aggregate public debt service pa2yments in 1955 amounted to 71%/, of- the total paid by all countries included in the sample.

Nlext in the desceneding order of magnitude is a category of seven non-Duropean cruntries and Turk'ey, in which the current rate of gross savings is between 10/a and 15, of total product. In the absence of inflows of foreign capital cnd gains from char.es in terrns of trade, gross remaining savings at this mediuLrm, level can yield a moderate rate of increase in per capita income, provided the capital-output ratio and population growth are not too high. The share cf these countries in the aggregate public debt service payrents in 19-5 armiounted to 22%.

The last category whf.ch consists of fi-e non- uropean countries and Greece, have low savings rates - below 10% of CUP. Alt'hough data are not available for Indonesia, Iran, 'Taiti and Bolivia, it is likely that they also fall into this category.2/ As a rule, th_s level of savings, unless su:pplemented by substantial inflows of foreign capital, is lilkely to prove insufficient to sustain a satisfactory growyth in per capita

1/ See Appendix II / Argentina was the only exception. Its low income growth rate iurs mainly cue to an inefficient allocation cf investible resources. 3/ 'Teseeleven countries accounted for 7% of the total public debt service payments maoe 6'uring 1955. income over the long-run. However, if terms cf trade are improving or if the capital-output ratio remains at a persistently low level, considerable growth rates may still be achieved, at least for scne ti-ne. This last factor was of particular importance during the postwar period in Philippines, Greece, Ceylon and probably Thailand: capital-output ratio was extremely low, rates of income rrowth fairly high and th ir 1 savings rates, although still at a lcw level, tended to increase. / (b) Postwar Changes in Savinr!s Rates

The notable feature of the postwar period wa-S an upward trend not only in the volume of savings pari passu with the volume of total output, but also in the propcrtion of resources devoted to future output. In two-thirds of the countries for w.hich data are available for both an early and late postwar year, gross savings as a proportion of total incorae showed an increase. In another one-fifth of these countries savings increased as fast as incormie, but there was no substantial change in the rate of savings. cinly in four or five countries, or less than one-seventh of the sample, growth in savings does not appear to have kept pace with income growth and conseqluently the rate of savings declined.

In order to appreciate the significance of these chan-ces, they should be considered in conjunction wTith the current levels of savings. The following tab.e classifies countries both according to the direction of change and according to the level cf savings attained at the end of the decade.

1/ India also recorded very low capital-output ratio during 1950-1955. - 51 - Table VII

Changes in Gross Rates of Remaining Savings in the Postwar Period (34 Countries: Group "A" and "B")

I N C R E A S E N 0 CHANGE High Medium Low High Medium Current Level Current Level Current Level Current Level Current Level (above 15% ) (above 10%) (Below 10%) (above 15%) (above 10) /Finland7 Mexico Ceylon A inlang Brazil VGermany Guatemala Philippines 4 Luxemburg -Ecuador7 Netherlands India Greece Norway Austria ANicaragu_i Iceland Sweden France Italy Denmark Belgium Japan United Kingdom /Kustralia7 Fed. of Rhodesia Union of S.Africa D E C L I N E Peru High Medium Low El Salvador Current Level Current Level Current Level Colombia (above 15%) (above 10%) (Below 10%) f H-ondurma7 Belgian Congo JEcuador7 Chile 73urma7 ~~~~~/Kustralia7 Argentina

Note : Brackets indicate crude estimates. In some cases of uncertainty a country is shown under two categories.

Source: Table VI Increases in savings rate occurred in all regions but not to the same extent. They were most widespread in the European region. Despite considerable inter- country differences, Western European countries achieved in the mid-1950's rates of savings higher than at any time since the First IWJorld War. In Southern Europe, Greece secured an increase towards the end of the postwar decade, but its current level is still rather low. In Turkey ]/ the savings rate showed an early postwzar increase, but it is doubtful whetler this trend was maintained in later years. Yugoslavia 1/ experienced extensive fluctuations in its high average level of savings.

y Turkey and Yugoslavia are not shown in Table VII. The African economies, under the impact of favorable external demand for their exports and substantial capital inflow, attained at the end of the decade savings rates comparable to those of lWestern Europe. The increase was particularly large in the Union of South Africa. In the Belgian Congo a decline in the rate of savings was recorded, but the present level still remains extremely high. Australia also might have experienced a slight decline recently, but its current savings are maintained at a rate above 20% of gross national product.

In the regions of Asia and Latin America, the record of post-war changes in the rate of savings was more mixed than in Europe and Africa. A number of important debtor countries achieved considerable increases or maintained high rates of savings. Japan was able to save throughout the postwar period a portion of income comparable to that of Europe. In India, the savings rate increased by more than one-quarter in the last five years. If this gain is maintained, India may have already accomplished the transition from the low savings to the medium savings rate category. Similarly in Latin-America, Peru, Colombia and Mexico, amongst other countries, showed sizeable increases in their rates of savings.

In contrast, there was a group of countries, who failed to increase their rate of savings. In Brazil and Ecuador, the rate of savings does not appear to have risen despite a very high rate of growth in income. In Chile, the savings rate declined, probably under the impact of chronic inflation. Data are not available for Haiti, Bolivia, Panama, Indonesia and Iran, but it is likely that their savings rates also declined or remained at a low level during the postwar period. It should be noted, however, that countries in which savings rates failed to increase, represent a fairly small minority of the total number of debtor countries.

The proportion of gross remaining savings to total product is not the sole determinant of the rate of growth in per capita income and the capacity to fuLlfill external financial obligations. Growth in per capita income also depends on other variables - governmental economic and financial policies, developments in the balance of payments, inflow of foreign capital, the capital-output ratio and the rate of growth in population. Thus, an extremely low capital-output ratio may enable a country with a low level of savings and investment to enjoy a relatively fast rate of growth. This happened in a number of Asian countries in the postwar period. On the other hand, the fact that the current savings rate is high does not exclude the possibility that a country will attempt to attain goals which cannot be reached with available domestic and foreign capital flows and embark upon a course of action leading to critical conditions at home and in its external accounts. Several such cases have occurred in the postwar period. Also, the fact that the current savings rate is high and the country has the objective capacity to adjust in a downmard direction if the inflow of foreign capit declines or the terms of trade become less favorable, does not imply that tne country will make the required adjustment. It may very well attempt to adhere to a high rate of growtl which it previously experienced under unusually favorable exteemal conditions. Since this target cannot be achieved with the reduced volume of available rescurces, the country may run into inflationary pressures, suffer a crisis in the balance of paynments and cunse.:uently impair its ca;acity to fu.lfill contractual oblir:ations.

Thle above analysis of the high postwar rates of growth; in inccme (Table III) and considerable rates of savings (Table 17I) attained towards the end of the decade, suggests tlhat, barring an international depression, t-le majority of countries have considerable rcom to make the recuired adjustme.nt, if and when the need arises. -1hether debtor countries will in fact make such an adjustment is a question which cannot be considered within the scope of this paper. - 54l -

PART III

GROUTH IN EXTERNAL RECEIPTS AIND BALAYTCE OF PAYMENTS FLEBHILITY

I. Introduction

Postwar growth in income, investment and savings occurred against the background of a powerful upswing in world trade and payments, which substantially facilitated the transfer of debt service. This does not mean that all debtor countries shared in the expansion of world trade to an equal degree. Rates of growth in world demand and trade for particular commodities differed widely, and in a number of debtor countries domestic policies were not conducive to export growth. On balance, however, external market conditions for economic growth and for transfer of debt service were good throughout the postwar decade. Prices of internationally traded goods showed a sustained strength, and the majority of countries succeeded in expanding their exports at a considerable rate.

This part of the paper analyses the performance of debtor countries in the field of foreign trade and relates it to growth in their debt service. It also reviews briefly the general conditions in world payments that prevailed during the postwar decade.

II. Growth in World Trade and Pa-ments

1. Value and Volume of World Trade

Both the value and the volume of world trade increased at a very steep rate during the last ten years. The value of world exports 2/ in 1955, which amounted to $84.1 billion equivalent, was 152% higher than the value of exports in 1946 ($33.4 billion). Within the same period, the volume of world trade probably more than doubled.2 These figures reflect, of course, the tremendous upsurge of trade during the reconstruction period immediately after the war. But even after the reconstruction was com- pleted, the rate of growth in trade remained extremely high. The prewar volume of trade (1937) was surpassed in 1949 and in the six years between 1949 and 1955, the volume of world exports rose by one-half, while their dollar value showed an even greater increase. The yearly rate of growth in the volume of world exports in the post-reconstruction period amounted to 7%, and in value it was close to 8%.

1/ Excluding the USSR, Eastern Europe and Mainland China. / The vcflume of world exports in 1946 has not been estimated. Between 1947 and 1955, however, the increase in volume amounted to 70%, while the increase in value between 1946 and 1947 was 44%. Since a considerable part of this latter increase must have been due to a rise in volume, it is virtually certain that the over-all volume of world exports at least doubled between 1946 and 1955. Table I

Value and Volume of World Ex-ports, 1913-1929 and 1937-1956

A. Post-World War I

1913 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929

Value of 18.3 n.a. / 24.2a/ ] 25.1 30.7 29.3 31.4 32.5 32.7 exports, bil. $

Volume of 100 n.a. 82W J 97 96 110 113 118 world trade 1913 = 100

B. Post-World War II lst halft/ 197 19L6 1947 1948 1949 1950 1951 1952 1953 1954 1955 1256

Value of.2/ 24.2 33.4 48,3 53.8 53.5 56.5 76.5 73.8 77.5 77.5 84.1 90.9 exports, bil. $

Volume of'W 100 n.a. 93 97 104 118 132 131 139 146 157 167 exports 1937 - 100

_/ 1921-23 average hl 1921-25 average c/ Excluding the USSR, Eastern Europe and Mainland China V/ Annual Rate

Source: League of Nations, Annuaire Statistigue, various issues; League of Nations, Review of World Trade, various issues; League of Nations, Industrialization and Foreign Trade, 1945; IMF, International Financial Statistics; United Nations, Monthly Bulletin of Statistics; IBRD, Economic Staff, Statistical Tables on Economic Growth. The strength of expansive forces operating during the last decade is best seen in ccmparison with the decade following the First World War. While between 1913 and 1929 the value of world exports had not quite doubled, it rose almost four-fold between 1937 and 1956. The present volume of world trade is more than 6D% higher than in 1937; at the peak of the 19201ts, it was less than 20% above the 1913 level. 2. Supply of Creditor Countries t Currencies

The vigorous expansion in wiorld trade during the last ten years was largely determined by a high and sustained rate of increase in economic activity in developed countries. Despite numerous obstacles, either in the form of quotas, foreign exchange restrictions or tariffs, imports of developed countries rapidly rose in response to continuing growth in income. Moreover, the expansion of imports was even faster than growth in aggregate income. While the present proportion of income spent on imports is still below the prewar in scme cases, including the United States, this proportion tended to rise during the postwar decade, thus reversing the trend which had prevailed in the inter-war period ard during the war years.l/

The following table shows the increase in the value and volume of commodity imports in 1948-l955 of seven developed countries who are also the main international creditors. It also shows separately, the increases in the value of their imports from developed countries and from other regions.

1/ Between 1948 and 1954, the ratio of conmrodity imports to national income (or gross product) rose in the United States, Canada and thirteen European countries for which data are available, including the United Kingdom, France, Germany, Belgium and the Netherlands. In all countries for which data are available, the ratio declined between 1929 and 1937, while in many cases an additional decli-ne took place between 1937 and 1948. Despite the postwar increase, the ratio in 1954 was lower than in 1937 in the United States, Belgium, France, Austria and Finland. In the other ten countries, the 1954 ratio was higher than the ratio in 1937. - 57 -

Table II

Postwar Growqth in Commodity Imports of Creditor Countries

Country Index Index NTumber Index NTumber Index Number Number of of Value of of Value of of Value of Volume of total Imports Imports from Imports from Total Im- (1955) Developed Coun- other Coun- ports ;955) tries a/ (1955) triesb/(1955)

Base Year 1948

United States 132 159 185 143 Canada 161 174 180 143 United Kingdom 136 130 153 115 France n.a. 136 138 134 Belgium & Lux. 142 143 144 139 Netherlands 220 171 180 151 W. Germany c/ 204 215 200 249 Total : above countries d/ n.a. 154 169 138

aJ North America and OEEC countries. b/ All other countries excluding U.S.S.R. and Eastern Europe. c/ Base year 1950. d/ Including their intra-trade.

Source: U.N., I.MI.F., I.B.R.D.: Direction of International Trade, Vol.VII No. b I.R.F.: International Financial Statistics.

Between 1948 and 1955 the value of imports creditor countries 28 3 of rose from ,; . billion to "'3.7 billion, or by 54h. Import volumes also increased at a substantial rate; except in the United States and Canada, they kept pace with or increased faster than import values. The table also reveals that, with the exception of Western Germany, the expansion of creditor countries' imports from each other and from other developed countries was considerably faster than the expansion of imports originating in Asia, Africa, - 58 - Australia and Latin-America. / Even so, the value of creditor countries' imports from the latter regions showed between 1948 and 1955 an annual growth rate of close to 5%.

It should be noted that with the exception of the United States, the creditor countries listed above were playing a double role in the postwar period. They were making substantial debt service payments to the United States and at the same time were receiving service payments from other regions. Growth in the U.S. imports from developed countries directly facilitated debt service payments of the latter and indirectly contributed to the movement towards increased de facto convertibility, thus alleviating the world transfer problem. On the other hand, the increase in imports of the United States and of other creditor countries from Asia, Africa, Australia and Latin-America, furnished the latter with foreign exchange and enabled them to meet their external financial obligatIons.

Growth in commodity imports of creditor countries was the major source of the increased supply of the creditor countries' currencies at the disposal of debtor countries. The additional sources were payments for services, net capital exports / and grants. In the seven countries listed in the table, they rose from $12,8 billion in 1948, to $18.2 billion in 1955, or by 42%. Creditor countries' imports of services were rising throughout the postwe.r decade along with their comnodity imports0 Capital exports and grants were at a very high level at the begimning of the decade under the impact of the U.S. government's financing of postwar reconstruction. After a temporary decline, the aggregate flow of capital exports and grants has again been rising in recent years. Under the impact of these three factors - growth in commodity imports, rise in service payments and flow of capital exports and grants - the aggregate external payments of seven creditor countries increased from $41.2 billion in 1948 to $61.8 billion in 1955, or by 50% in seven years. This implied a substantial rate of growth in the supply of creditor countries' currencies - about 6% per year.

l/ The discrepancy between the two rates of expansion becomes considerably smaller if the whole postwar period is considered. Between 1946 and 1955, the aggregate imports of the United States, United Kingdom, France Belgium-Luxemburg and the Netherlands, rose by 135%. Their imports from developed countries increased by 154% and from the rest of the world (excluding the USSR and Eastern Europe) by 125%.

2/ Short-term capital outflow is not included. Receipts on account of principal repayments are deducted from gross long term capital outflow. - 59 - 3. Ratio of Investment Income Earnings to Creditor Countriest External Payments The fast increase in the aggregate supply of creditor countries' currencies was accompanied by an even faster rise in their earnings from foreign investment. As a result, the ratio of creditor countriest aggregate earnings to these countriest aggregate external payments was rising auring the last ten years. And conversely tj,ere i2as an increase in the proportion of debtor countriest aggregate external receipts that had to be devoted to payments of foreign investment income. Table III Investment Income Receip tsa/of Main Creditor Countries as Proportion of Their Aggregate E-terna Payments. b/ 19461-l955 (in percentages) Country l9146 1947 1948 1949 1950 1951 1952 1953 1954 1955

United States 5.8 6.o 7.9 8.3 8.9 8.9 8.2 7.9 10.0 10.7 United Kingdom 8.8 8.4 7.8 6.6 8.7 6.6 7.5 7.4 7.6 7.3 France c/ 3.3 4.3 4.3 4.1 2.8 2.o 2.7 3.0 2.8 3.3 Canada 2.2 1.3 1.8 2.o 1.9 2.4 2.6 2.7 2.5 2.4 Belgium-Luxemlrrg n.a. n.a. 4.8 4.2 3.6 3.8 3.7 3.7 3.9 4.2 Netherlands n.a. n.a. 5.8 7.8 4.9 5.1 6.2 5.7 5.9 5.4 Total / 5.8 5.8 6.6 n.a. 7.0 6.4 6.6 6.5 7.3 7.5 West Germany n.a. n.a. n.a. n.a. n.a. n.a. 0.2 0.4 0.4 0.7

a/ Investment income receipts which are transferred from abroad on private or public accounts. Repayments of principal are excluded. b/ Imports of commodities and services, private remittances, pensions and other transfers; net long-term capital outflows; grants-in-aid. c/ Franc Zone; French overseas territories are excluded. d/ United States, United Kingdom, France and Canada in 1946-1947; United States, United Kingdom, France, Canada, Belgium-Luxemburg and the Netherlands in 1948-1955. Weighted averages. Since the ratio for W. Germany was not available before 1952 and was exceptionally low for later years, the inclusion of Germany's small investment income receipts and very large aggregate external payments would introduce a downward bias in the calculation of the total ratio. The total ratio including W. Germany would be 6.3% (1952), 6.o% (1953), 6.6% (1954) and 6.7% (1955).

Source: Appendix I - 6o -

The total ratio of investment income receipts to the aggregate external payments of the above mentioned creditor countries as a group, rose from 5.8% in 1946 to 7.550 in 1955. It was not possible to include receipts on accoumt of principal repayments in the numerator. If this were done, the overall level of the ratio wiould be higher and it is likely that the postwar increase in the ratio would be greater since amortization payments on public account rose somewhat faster than total investment income payments.

It should be noted that the increase in the total ratio was exclusively due to developments in the United States receipts and payments. A doubling of the U.S. aggregate external payments from $13.3 billion to $23.4 billion between 1946 ard 1955, was accompanied by a three-fold rise in its investment income receipts, from j~o.8 billion to $y2.5 billion. As a consecuence, the U.S. ratio increased from 5.8% to 10.7%. In contrast, in other creditor countries, where postwar capital exports wrere much smaller than those of the United States, investment income receipts rose at a much lower rate and in general kept pace with growth in their external payments.

The above discussion indicates that investment income receipts of creditor countries represented a higher proportion of their aggregate external disbursements at the end of the postwar decade than immediately after the war. However, there is some evidence to suggest that the current level of the ratio is considerably lower than the level encountered in the decades following the First lWorld W^Jar. Table IV shows the ratios of investment income receipts to aggregate external payments for three years in the 1920's , 1930's and 1950's for the United States and the Netherlands. It also shows the ratios of investment income receipts to imports of goods and services for a larger group of creditor countries. Table IV

Investment Income Receiptsai/of Main Creditor Countries as Proportion of Their Fxternal Payments, 1920's, 1930's and 1950's

A. Ratio of Investment Income Receipts to Aggregate External Payments

1920's 1930ts 150's 1927 1928 1929 1936 1937 1938 1953 1954 1955

United States 14.7 15.2 16.6 15.7 12.8 18.1 7.9 10.0 10.7 Netherlands 13.0 12.7 12.4 20.6 16.5 n.a. 5.7 5.9 5.4

B. Ratio of Investment Income Receipts to Imports of Goods and Services

United States 17.1 18.5 18 2 15.7 2.8 18.1 13.0 15.8 16.0 United Kingdom n.a. n.a. 18.8h/ 21.3 /18.9-n.a. 8.2 8.4 8 0 France n.a. n.a. n.a. n.a. 16.2 18.8 3.1-el 3.0-' 3.4:'c Belgium-Luxemburg n.a. n.a. n.a. n.a. 8.0 n.a. 3.8 4.0 4.4 Netherlands 14.2 13.3 12.7 21.1 17.0 n.a. 5.9 6.1 5.5

a/ Investment income receipts which are transferred abroad on private and public accounts. Repayments of principal are excluded. 2/ Ratio to commodity imports only. c/ Franc zone. French overseas territories are excluded.

Sources and Methods: Appendix I. It should be noted that the reliability of the statistical data for the earlier periods is limited and it may well be that the past ratios contain an upward bias. But it is not likely that the margin of error invalidates the basic conclusions. - 62

It is not surprising that the ratios were generally much higher in the 1930's than at present. Those were depression years, when external payments of creditor countries, both on current and on capital account, were at a low level. However, the ratios were also higher in the late 1920 ts, at the peak of the inter-war business cycle. The present U.S. aggregate ratio of 10.7%1 compares with the 1929 ratio of 16.6%; in the Netherlands, the aggregate ratio in the 1920's of 13% was more than twice as high as the level prevailing in the last few years; and in the United Kingdom, the present ratio of investment income to imports is only one-half of that recorded in the late 1920ts. The aggregate payments of creditor countries, i.e. the supply of their currencies, appear to have reached, relative to investment income earnings, a much higher level at the end of the decade 1946-1955 than at the end of the decade after the First World W4ar.

It should be noted, however, that in the case of the United States, the comparison is less favorable if investment income receipts are related to imports of goods and services only, i.e. disregarding grants and capital exports (Table IV, B). The 1955 ratio of 16.0% is still lower than the 1929 ratio of 18.2%, but the difference between the two is much smaller than between the ratios to total external payments, discussed above (10.7% against 16.6%). This brings out the importance of the U.S. grants and capital exports for the present aggregate supply of dollars in favor of the outside world and the role they play in facilitating the flow of debt service oayments on dollar indebtedness.

The above discussion dealt with the transfer problem in the perspective of creditor coumntries' currency disbursements, relating these countries' foreign investment receipts to these disbursements. The discussion sheds somne light on the over-all balance of payments framework within which the world at large had to maintain investment income payments during the last decade. This is only one side of the picture, however. 1lore significant for purposes of this paper is the examination of the transfer problem in the perspective of the performance of debtor countries. Such an examination will in addition allow special attention to be paid to service payments on external public debt and will permit principal repayments to be treated along witl investment income payments. - 63 -

III. Ratio of Debt Service to External Earnings of Debtor Countries

1. Postwar Changes in the Ratio

The aggregate value of exports of goods and services of 36 debtor countries (Group "A")I/ rose faster during the postwar decade than their external public indebtedness. Their combined current account receipts increased from less than 1~18.3 billion in 1946 to about $46.7 billion in 1955, or by more than 155% in nine years.2/ The aggregate external public indebtedness of the same group of countries rose from $7.7 billion at the end of 1945 to $18.3 billion at the end of 1955, or by 137% in ten years. The postwar rate of growth in aggregate current account receipts was higher than the rate of growth in aggregate external public debt.

The picture is somewhat different if growth in current account receipts is related to growth in debt service instead of to growth in debt outstanding. Debt service rose at a faster rate than the value of exports of goods and services. The aggregate service payments on public debt of 36 countries increased from $608 million in 1946 to $1760 million in 1955 or by 190%, as compared to a 155% increase in their current account receipts. Consequently, debt service payments absorbed a higher proportion of current account receipts at the end of the decade than at the beginning. Since data for current account receipts are not available for 1946 for several countries, it is not possible to calculate the aggregate debt service ratio to current receipts for that year. In 1947, the ratio amounted to about 3.0%. By 1955, the ratio had increased to 3.7%.

This increase in the aggregate ratio is obviously quite moderate. The slow rise in the ratio during the period as a whole can be taken as another indicator of the strength of expansive forces operating in international trade since the war: the sust&ined. growth in export earnings of debtor countries as a group, prevented a significant increase in the ratio despite the fact that the aggregate debt service almost trebled during the postwar decade.

2/ United Kingdom, France, Belgium-Luxemburg and the Netherlands are included in this sample. These countries are large-scale creditors and are treated as such in the previous section. But as shown in Part I, they are also major debtors on public account. In cases where data for 1946 and 1955 were not available, the 1947 and 1954 figures were used. This reduces the magnitude of the 1946- 1955 increase in external earnings. Consequently, the difference between the growth in external earnings and growth in public debt outstanding was in fact greater than shown in the text. - 64 -

This slow change in tile aggregate ratio, however, was a combined result of mutually offsetting movements in the ratios of particular countries and of particular regions. In Europe as a whole 1/ the ratio did not change; it amounted to about 3% both at the beginn' g and at the end of the postwar decade. Starting from an extremely low level, the ratio in Asia 2/ increased considerably and in 1955 amounted to 2.5%, but this was still below the overall average for the whole group of 36 countries. In African countries,3/ the ratio also rose substantially, but its 1955 level was still comparatively very low1, about 2.0%. In Australia, the ratio declined substantially, from 17% in 1946 to 5% in 1955, as a result of a doubling of current account receipts and of a reduction in the absolute amount of service payments. In Latin-America, 4/ the reverse process took place. The value of exports of goods and services increased considerably during the decade, but the amount of debt service rose, in percentage terms, much more. The ratio of public debt service to current account receipts increased from less than 3% in 1946- 1947 to slightly above 8% in 1954-1955. 5/

The following table gives a country-by-country review of changes in the ratio of public debt service to current account receipts for the "All group of 36 countries. Countries are divided into three categories according to the direction of change in the ratio.

1/ Austria, Belgium-Luxemburg, Denmark, Finland, France, Iceland, Italy, the Netherlands, Norway, United Kingdom, Yugoslavia. 2/ Ceylon, Ind a, Japan, Palistan, Thailand. V/ Belgian Congo, Ethiopia, Federation of Rhodesia and Union of South Africa. 4/ Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mlexico, Nicaragua, Panama, Paraguay, Peru. 5/ In 1955, the ratio amounted to somewhat above 10% and in 1954 to 6e. The sharp increase in 1955 was due primarily to heavy repaymen-ts made by Brazil. If the latter item had been held at the 1954 level, the ratio for the whole group in 1955 would have amounted to about 7.0%. The level of about 7.0 - 7.5% is also projected for 1956-196D on the basis of the end-1955 indebtedness and the 1955 value of current account receipts. - 65 -

Table V

Chanees in the Ratio of Public Debt Service to Current Account Receipts / 1946-1955. in nercentaaes (GrouD "A". 36 Countries)

A. Rising Ratioas

Country 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955

Brazil n.a. 2.1 2.4 5.0 3.6 1.6 2.5 4.4 7.9 19.2 Yugoslavia n.a. n.a. n.a. n.a. n.a. 5.8 13.5 24.1 16.4 13.1 Haiti n.a. n.a. n.a. n.a. n.a. 0.7 0.3 0.9 4.2 9.5 Mexico 1.5 1.9 5.0 4.1 5.7 5.2 4.8 4.8 6.1 7.1 Colombia 1.9 2.9 2.7 2.7 2.5 2.7 3.1 4.2 4.0 6.8 Peru 0.4 1.2 1.7 2.4 2.8 2.8 2.4 3.4 3.1 5.4 Pakistan ------0.1 0.6 5.42/ Uruguay 3.3 3.6 3.8 3.2 2.1 3.1 3.2 2.9 3.7 5.1 Nicaragua 305 3.2 7.1 1.8 5.0 0.4 2.7 4.4 4.9 4.9 Paraguay 3.8 4.4 9.7 10.0 8.9 7.0 5.6 5.0 5.8 4.9 Japan ------4.7 3.5 4.2 Ecuador 0.9 1.3 1.5 2.5 1.3 2.0 2.9 3.8 2.7 3.6 Austria - Q.4- 0.3 0.4 0.7 0.9 1.0 0.7 1.2 2.8 Federation n.a. hl.4/ n.a. n.a. 2.1 2.0 3.1 2.7 2.9 2.8 of Rhodesia Netherlands 0.7 2.9 2.3 2.0 4.9 4.5 3.8 3.7 5.4 2.3 United Kingdom 0.5 1.9 1.1 2.4 0.7 2.2 1.9 2.4 2.5 2 2d Union of South 0.6 0.5 0.6 0.8 0.5 0.6 0.6 n.a n.a 2.0 Africa Belgian Congo n.a. n.a. 0.6 0.8 0.7 1.0 1.0 1.2 1.3 1.6 Panama n.a n.a 0.8 0.9 19.o 0.6 o.6 0.8 2.5 0.7 Iceland 0.4 0.2 0.1 0.2 0.9 0.6 0.9 1.0 1.1 n.a.

B. Fairly Stable Ratiose/

Chile 10.7 4.0 4.9 7.4 7.0 7.2 6.8 6.4V' 7.0-d/ 8.0/ Denmark 3.5 2.7 2.9 2.0 2.1 3.0 4.5 4.8 3.3 3.3 Norway 3.7 2.1 2.6 2.3 2.7 2.6 2.7 2.8 2.9 2.3 Italy n.a. 2.3 1.9 1.5 3.0 2.3 2.6 1.9 3.0 1.8 Belgium-Luxemburg 1.2 1.3 2.0 1.3 1.5 1.7 1.6 1.5 2.3 1.2 Thailand 1.3 1.1 0.5 5s5 0.3 0.6 0.7 0.7 1.7 1.0 - 66 -

Country 1946 1947 1968 1242 12 1951 1952 15 1954 1955

Guatemala 0.2 0.1 0.1 0.2 0.1 0.5 - 0.2 0.7 n.a. India 0Z2 Q.4Z/ 0.9 0.2 0.6 0.2 0.7 0.8 0.8 0.7 Ceylon n.a. 0.7 0.6 0.6 0.5 0.4 0.5 0.4 0.4 0.5 Ethiopia n.a. n.a. 0.3 0.6 1*2 5.4 2.3 4.3 0.9 0.4

C. Declinina Ratios /

France 29.6 4.5 6.7 5.4 5.3 4.9 6.3 5.5 7.0 6.7 Australia 17.2 15.5 11.4 22.2 3.9 3.3 3.8 3.8 6.0 5.1 Finland 4.3 7.8 5.0 5.4 4.8 4.9 3.6 n.a. n.a. 2.9 El Salvador 0.7 2.7 2.2 1.5 1.4 1.1 0.4 0.4 0.7 1.0 Honduras 0.8 0o.6 0.7 0.5 0.6 0.1 0.2 0.1 - -

a Goods, services and private remittances. The concept used is that of "gross" receipts. For the ratios of public debt service to "net" receipts (i.e. after deduction of private investment income payments) see Appendix II. ]./ The average ratio in 1954-1955 higher than the average ratio in 1946-1947 by more than one-half percentage point. c/ Ratio to commodity exports only. V Ratio to commodity exports plus estimated invisibles. e/ The avera-e ratio in 1954-1955 equal to the average ratio in 1946-1947 or the difference between the two averages not more than one-half percentage point. f/ Undivided India. g/ The average ratio in 1954-1955 lower than the average ratio in 1946-1947 by more than one-half percentage point.

Source: Debt service from IBRD, Economic Staff, Statistics Division; current account receipts from I1F, Balance of Pasments Yearbook, various issues. - 67 -

In the first category of twenty countries, or 56% of the whole "A" sample, public debt service ratios at the end of the postwar decade were higher than at the beginning. I/ The increases occurred at different rates and at different levels of the ratio. As might be expected, countries in this category with rising ratios were major debtors at the end of the decade; their aggregate debt service payments amounted to about 60% of the total payments made by the whole "A" group during 1955.

The second and third categories are also large, however. In the second category, which consists of eleven countries or 30% of the sample, the ratios were fairly stable: their level at the end of the decade was equal to or only slightly different from the level that prevailed in the early postwar years. In addition, there is a third category of five countries or 14% of the sample, in which the ratios declined over the decade. It is interesting to observe that a considerable number of non-European countries belong to the categories with stable or declining ratios: in almost two-fifths of non-European countries included in the sample, external earnings increased as fast or faster than public debt service payments.

2/ The criteria for classification of countries into categories are necessarily somewhat arbitrary. As indicated in the footnotes to Table V, two-year averages at the beginning and at the end of the postwar period w-ere compared and a change of one-half percentage point from one average to the other was taken to indicate the direction of change. If only single years were compared (instead of two-year averages), several countries would change their position (Panama and E1 Salvador would shift to the "stable" category and Chile and Norway to the "declining" category), thus slightly reducing the overall increase in the ratio. Also, if a change of a full percentage point was taken to indicate the direction of change (instead of one-half percentage point), several countries would shift from the categories with rising and declining ratios to the category with stable ratios. If this was done, the number of countries with rising ratios would be smaller than the number of countries in the other two categories. Cn the other hand, if no minimum magnitude of change was required to indicate the direction of change, several countries would shift from the category with stable ratios to the other two categories. On balance, the number of countries with rising ratios would be larger than indicated in Table V.

These modifications of the overall picture, which would result from the application of only slightly different classification criteria, basically reflect the fact that in a considerable number of countries both changes in the ratios and their levels were very small during the postwar decade. _ 68t.

2. Present Level of the Ratio

The preceding analysis dealt vith the changes in the ratio of public debt service to current account receipts, that took place during the last ten year. It indicated that, on balance, the ratio tended to rise, although at a slow rate. Since in many cases this upward movement resulted nrimarily from the extremely low level of service payments at the beginning of the period, the significance of the rising tendency should be considered in the context of the present level of the ratios and of their projected magnitude in the future. The following table arranges 52 countries (thus including not only Group "A" but also Group "B") according to the descending order of magnitude of the present ratio of public debt service to current account receipts. It also shows the projected level of this proportion in 1956-1960. Finally, the table shows the present ratio of total service payments, on both public and private account, to current account receipts. This last ratio approximately represents the total charge on debtor countries' external earnings, arising from previous foreign capital inflows.4/

a/ As in the case of other retios,one item is left out: principal repayments of private debt. It is unlikely, however, that this omission substantially affects the overall picture. - 69 -

Table VI

Proportion of Current Account Receiptsa/ Absorbed by Debt Service (Group "AA"and "B", 52 Countries) Service on External Public Debt and In- Country Year Service on External Public come Payments on Debt as percentage of Current Private Investment2/ Account Receipts as percentages of Curr- ent Account Receipts Year Given Projected for 1956-1960wf Year Given

I Current Public Debt Service Ratio Above 5%

Brazil 1955 19.2 11.3 24.6 Israel 1954 16.8 7.7 18.3 Yugoslavia 1955 13.1 n.a- 14.0 Haiti 1955 9.59, 10.4 12n3 Turkey 1954 7.1 n.a. n.a. Mexico 1955 7.1 4 8 13.5 Chile 1954 7X> 6.4:V 16.W Colombia 1955 6.8 6.1 9.0 Lebanon 1953 6.7 3.6 24.1 France 1955 6 7 4.4 8 5 Burma 1955 5@9 3.1 6 .6 Peru 1955 5 4 7 8 11.5 Pakistan 1955 5:4Z 5 1W n.a. Australia 1955 5.1 5.3 13.2 Uruguay 1955 5.1 5.7 7.1

II Current Public Debt Service Ratio Above l1

Nicaragua 1955 4.9 3.8 13.8 Paraguay 1955 4.9 6.5 6.3 Bolivia 1955 4.6 4.9 7.5 Japan 1955 2 2.6 5 2 Indonesia 1955 3:;Y 4X0 9.8 Ecuador 1955 3.6 5.5 17.7 Denmark 1955 3.3 1.9 4.1 Greece 1955 3.0 2.9 4.1 Finland 1955 2.9 2.8 3.2 Federation of 1955 2.8 3.6 21.0 Rhodesia Austria 1955 2.8 4.1 3.2 Norway 1955 2.3 3.1 2.9 W. Germany 1955 2.3 2.5 4.1 Netherlands 1955 2.3 1.0 5.0 Philippines 1955 2.2 2.3 14.3 United Kingdom 1955 2.2 2.2 7.4 - 70 - Service on External Country Year Service on External Public Public Debt and Debt as percentage of Current Income Payments on Account Receipts Private Investment S/ as Percentage of Curr-

______e'nt Account Recei-pts Year Given Prolected for l956-L9604' Year Givep

Union of South 1955 2.0f/ 2.5" 11.6f Africa Cuba 1953 1.9 0.7 7.1 Italy 1955 1.8 2.1 2.8 Belgian Congo 1955 1.6 4.1 13.0 Costa Rica 1954 1.5 2.5 13.3 Belgium- 1955 1.2 1.1 3.3 Luxemburg Iceland 1954 1.1 4.2W 1.5 El Salvador 1955 1.0 2.3 7.0 Thailand 1955 1.0 2.3 2.9

III Current Public Debt Service Ratio Below 1%

Iran 1955 n.a. n.a. 20.4 Argentina 1954 0.9 n.a. 1.9 Panama 1955 0.7 1.4 14.6 India 1955 0.7 1.81/ 4.3 Guatemala 1954 0.7 1.2 3.3 Ceylon 1955 0.5 0.7 4.5 Ethiopia 1955 0.4 3.0 2.7 Venezuela 1954 0.2 0.21 27.5 Iraq 1954 0.1 36.4 Sweden 1955 0.1 0.1 0.6 Honduras 1955 - 0.9 18.72 Dominican 1955 - 9.6 Republic a/ Goods, services and private remittances. The concept used is that of "gross" receipts. For the ratios of public debt service to "net" receipts (i.e. after deduction of private investment income payments) see Appendix II. bJ Average annual public debt service scheduled for 1956-1960 as proportion of current account receipts in the year stated. Projected debt service according to information available in late 1956. ./ It was not pofsible to include repatriation of private investment. / May include some payments on private account. Probably incomplete. e/ 8.0% in 1955. f/ Ratio to commodity exports plus estimated invisibles. g/ Average for 1954_1955. jn/ Ratio to commodity exports only. ji/ According to information available in April 1957. Projected debt service in 1957-1961. Al 3.0% in 1960. j2/ Projected debt service in 1956-1957 only. 2! 1953 Source: IBRD, Economic Staff, Division of Statistics, for public debt service, DIF, Balance of Payments Yearbook, for investment income payments and for current account recelpts. - 71 -

As may be expected, there are considerable inter-regional and inter- country differences in the level of the ratio of total service payments (both public and private) to external earnings. There are six countries in which the total ratio exceeds 20a: Iraq, Venezuela and Iran, where foreign petroleum investment plays a dominant role in the economic structure; the Federation of Rhodesia where foreign investment in copper mining occupies a similar place in the economy; Lebanon which is a major center of capital movements in the Middle East; and Brazil, which was a large- scale borrower since the war, particularly on public account. Next in the descending order of magnitude is a group of fifteen countries, almost exclusively non-European, in which the total ratio varies between 10 and 20%. In Europe, the total ratio is much lower; its median value amounts to less than 4%.

Total service payments absorbed a much higher proportion of current account receipts than public debt service only. Despite the fact that the latter increased more rapidly than current account receipts during the postwar period, the median value of the public debt service ratios of the whole sample was in 1955 about 2.8%.I/ In non-European countries alone, it amounted to 3.2%. Only in three countries/ - Brazil, Israel and Yrgoslavia - the proportion of current account receipts absorbed by public debt service exceeded 10%.

The median value of the projected public debt service ratios is only slightly higher than the median value of the present ratios: 3.1 compared to 2.8. The increases are very small in the median values for both European and non-European countries. / Out of 49 countries for which data is available, a decline in the ratio is projected in eighteen countries (twelve of them non-European), while in additional four countries (two non-European) the ratios remain the same. It should also be noted that countries with a projected decline in the ratios accounted for more than one-half of total debt service payments made in 1955.

2/ This median ratio of 2.8% for 52 countries in group "All and "B" is smaller than the aggregate ratio of 3.7% for the "A" group of 36 countries, given on p. 11. The difference is explained by the fact that the latter ratio represents a weighted average of a smaller sample of countries. g/ Debt service data on Turkey is incomplete. The ratio shown in the table (7.1% in 1954) may be an underestimate and it is possible that the ratio in fact exceeded the 10% level. / The projected ratios of debt service to income and savings were higher than current ratios, as stated in Part II (pp. 8 and 17). In most cases, the current ratios related to 1954, when debt service payments were lower than in 1955. - 72 -

The actual magnitude ofthe future ratios will be determined, of course, not only by the presently projected debt service, but also by debt service arising from indebtedness wilich may be contracted in the future. It will also be determined by future increases in external earnings. And to the extent that present export prices are believed to be above their long-term "normal" level - as in coffee - a decline in prices may cause an increase in the ratio in countries dependent on such commodities.

3. Comparison Between Present Ratios and Ratios in the Past

At this point, it may be useful to ccmpare the present level of the ratios with those encountered in the past periods of foreign lending. The comparison has serious statistical limitations; data for the earlier periods are largely estimates with varying degrees of reliability. Also, since general conditions at present are vastly different from those in the past - particularly in view of the expectation that a deep world-wide depression wrill be avoided in the future - the economic significance of the comnparison is necessarily restricted. Nevertheless, the comparison gives some historical perspective to the present relationship of service payments to external earnings. Table VII compares the ratios for major debtor countries in the 1950's with those prevailing before the First World IWlar and in the late 1920's, - periods in which economic activity was also at a high level. Service payments include both public and private investment income. Due to lack of data for the earlier periods, principal repayments are excluded in all cases. - 73 -

Table VII

Ratios of Investment Income Payments (Public and Private) to Current Account Receipts of Major Debtor Countries in the 1900's. 1920's and l950's1" (in percentages)

Country 1900's 1920's 219502s

Canada 20.9 16.3 8.5 Australia 20.4 22.8 8.1 Argentina 35.7 20 6 o.6 Japan 11.7 3.2w 2.0 Indonesia n.a. 22.6 3.5 India n.a. 9.9:/ 4.0

Iraq n.a. 41.21/ 33.1 Venezuela n.a. 31.3 / 27.3 Union of South Africa n.a. 17*ib/ 10.4 Costa Rica n.a. l0.9 / 16.2 Federation of Rhodesia n.a. n.a. 20.2 Chile n.a. n.a. 13.7 Ecuador n.a. n.a. 13.0 Belgian Congo n.a. n.a. 11.7 Philippines n.a. n.a. 11.5

i Unless otherwise indicated, averages for the periods. 2/ 1930's i/ Undivided India

Periods: 1900's: Canada 1900-1914; Australia 1904-1914; Argentina 1895-1900; Japan 1904-1914 1920's: Canada 1925-1929; Australia 1925-1929; Argentina 1926-1929; Indonesia 1925-1929; Japan 1936; India 1929/1930; Iraq 1938/39; Venezuela 1938; Union of South Africa 1938; Costa Rica 1938. 1950ts: Canada 1950-1955; Australia 1950-1955; Argentina 1950-1954; Indonesia 1950-1952; Japan 1954-1955; India 1954-1955; Iraq 1952- 1954; Venezuela 1954; Union of South Africa 1955; Costa Rica 1950- 1954; Iran 1955; Federation of Rhodesia 1954-1955; Chile 1950-1954; Belgian Congo 1953-1955; Ecuador 1954-1955; Phillipines 1954-1955. Sources: For ratios in 1900's and 1920's, with the exception of the Union of South Africa in 1938 and Japan in 1936, David Finch, Investment Service of the Underdeveloped Countries, IMF Staff Papers, September 1951. For ratios in 1950's, for the Union of South Africa in 1938 and for Japan in 1936, IMF, Balance of Paments Yearbook, various issues. Three findings emerge from the table. First, in all countries for which long series are available - Canada, Australia, Argentina, Japan, Indonesia and India - the present proportion of external earnings devoted to investment income payments is much smaller than either at the turn of the century or in the boom era after the First World War. Secondly, in the petroleum exporting countries, which had highest ratios in the 1950's, these ratios appear now lower than before the war. However, they are higher than the ratios recorded in countries which had highest ratios in the first decade of the present century. Thirdly, with the exception of petroleum exporters, the present level of the ratios in countries which now have highest ratios, is lower than the level registered in countries that were largest debtors in the past.

In the above table the present and past ratios of both public and private investment income payments were compared, but principal repayments were excluded. Another comparison which can be made, this time for a group of Latin-American countries, covers the past and present ratios of public debt service alone. The ratios include both interest payments and principal repayments. Private investment income payments had to be excluded. Since data on invisible receipts are not available for the prewar period, debt service is related to commodity exports alone. This latter adjustment does not introduce significant distortions, however, since invisible receipts play a minor role in these countries' total external earnings. The ratios are compared for the late 1920's, for the early 1930's and for the most recent years. Table VIII

Ratios of Public Debt Service to Ex=orts in Eiaht Latin-American Countries in the 1920ts. 1930's and 1950's (in percentages)

Year Araentinaa Bolivia Brazil Chi Colombiaa Cuba Peru Uruguav

1926 10.0 7.3 13.2 5.5 2.7 3.1 2.6 7.6 1927 7.9 6.1 14.4 8.7 4.4 2.7 3.2 9.2 1928 8.9 8.5 14.6 9.5 8.1 3.3 6.0 8.5 1929 10.4 7.8 16.5 9.2 11.9 3.6 7.4 9.5

1930 18.2 13.5 23.5 1 .O/ 14.0 T931= 8 6.1 9.4" 222.9.7 193, 22.5 24.5 28.4 32.9 15.6 13.4 16.3 22.4 19326_Y 27.6 50.0 41.0 102.6 21.8 18.1 21.4 36.3 1933" 30.2 38.5 45.1 81.9 29.6 22.4 21.7 31.3

1953 n.a. 12.7 4.8 7.0 4.7 2.1 4.3 3.1 1,954 0.9 19.7 8.4 7.7 4.3 n.a. 3.8 4.1 l955 0.2 5.3 20.8 8.7 7.4 n.a. 6.5 6.4 1956-606i n.a. 5.7 12.3 6.o 6.6 0.8 9.3 6.5

a/ In the 1920's and 1930's, debt service of national mortgage banks is included. 2/ Scheduled public debt service as a proportion of exports. Bolivia, Peru, Chile, Brazil and Uruguay defaulted during 1931; COolojir6a during 1932; Argentinaaiid Cuba partially in 1933. W Projected yearly average debt service in 1956-1960 as a proportion of exports in 1955. !/ -Probably underestimated.

Sources: Debt service in the 1920's and 1930's from Peterheinz Werhahn, Kapitalexport und Schuldentransfer im Konjunkturverlauf, Jena 1937. Debt service in the 1950's from IBRD, Economic Staff, Statistics Division. Ecport data in the 1920's and 1930's from League of Nations, Review of World Trade. Export data in the 1950's from International Monetary Fund, International Financial Statistics.

Note: Since debt service data for the 1920's and 1930's are only crude estimates, their comparability with the figures for the 1950ts is strictly limited. Therefore, the conclusions that emerge from the table must be accepted with considerable caution. - 76 -

The present levels of the public debt service ratios appear generally lower than in the late 1920's. Of the whole group of eight countries, only Brazil had a 1955 ratio substantially above that of 1929. In Argen- tina and Cuba, the recent ratios were far below those recorded in the late 1920's, while in the remaining five countries - Bolivia, Chile, Colombia, Peru, Uruguay - the ratios were moderately lower in 1955 than in 1929, on the average by about one-fourth. Taking the whole group of eight countries as a unit, their aggregate debt service absorbed in 1928-1929 an average of 9.8% of their aggregate export earnings. This compares with 7% absorbed during 1954-1955.4/ The average level of the retios in the mid-1950's was thus about 25-30% lower than the average level in the late 1920's.l/

4. The Significance of Debt Service Ratios.

The ratio of service payments to current account receipts is frequently used by economists in analysing debt servicing ability. While the importance of all other elements - like overall growth prospects, savings potential, balance of payments position, adequacy of economic and financial policies - is fully recognized, the size of the ratio is nevertheless often cited as the most tangible element supporting further lending when it is low or limiting further lending when it is high.

As stated in Part II of this paper, the debt service ratio indicates the sacrifice which, all other things being equal, the debtor country is called upon to make. The higher debt service is in any country (whether expressed in relation to income, savings or exports), the more of a sacrifice ex post is involved in making service payments. Whether a country is willing to bake this sacrifice depends on its appreciation of the effect of p1st b o%rnag.i on- its economic growth, on the expectation of the future role of capital inflow in its development, and on the general atti- tude which a country takes towards its financial and other obligations.

j2/ Since debt service data for Cuba were not available for 1954 and 1955, the 1952 and 1953 data were used. If Cuba were excluded from the computation, the aggregate ratios for the remaining seven countries would amount to 10.7 in 1928-1929 and 7.9% in 1954-1955. / Two-year averages were used to reduce the effects of temporary fluctuations, particularly in the Brazilian repayments. 31 There is also some evidence to suggest that in Austria and Greece the present public debt service ratios are much lower than in the late 1920's. - 77 - If it were assumed that a country could ignore the past and future contribution of foreign capital inflow to its welfare and that it could take an extremely short-sighted and narrow view of the concept of sacrifice, the willingness to pay debt service would vary inversely with the size of the ratio of debt service to income, savings and external earnings. The higher the ratio, one could say, the greater the temptation to believe that it "pays"l to default.

This would be an unfair and extreme assumption, however. While this is not the place to consider all factors determining the willingness to service external debt, one thing may be said. The willingness is undoubtedly influenced by the capacity to pay. This capacity depends on the country's economic performance and on the relationships between the magnitude of debt service and the flows of its income, savings and foreign exchange earnings. The debt service ratio is one -way of expressing these relationships. Like any short-hand economic indicator, it has both its merits and disadvantages.

The use of the ratio may be based on both long-run and short-run considerations. On the one hand, the ratio may be taken to imply a long-run curtailment of external earnings which would otherwise be available for financing domestic consumption and investment requirements; and if these competing claims are strong (which is likely in a developing economy), the debtor country will find it more difficult to continucusly service foreign debt if the proportion of its foreign exchange earnings which is absorbed by debt service payments is growing. On the otlher hand, a high ratio of debt service to external earnings may be conceived to imply a considerable short-run rigidity in the debtor country"s balance of payments. When export receipts fall either because of a temnporary decline in extemral demand or as a result of some short-run unfavorable development in the debtor country's economy, the entire impact of the fall must be borne by imports; and the higher the ratio of service payments to "normal'? external earnings, the greater the danger that service payments will prove unbearable in a period when extemral earnings contract shiarply. 1/

The ratio is, generally speaking, more useful when applied in the latter sense, i.e. as a reflection of the short-run rigidity in the balance of payments. For this purpose the familiar distinction must be drawn between service obligations which are fixed and those which are variable. Variable obligations result from equity investment in export industries; sLch obligations are likely to decline as external receipts fall. Loan capital with a contractual service schedule carries wiith it a fixed service commitment regardless of fluctuations in external receipts. Conseouently, the size of the debt service ratio indicates the pressure to wlich the debtor country will be ex- posed in periods of downward fluctuations. Of course, bothz the magnitude of the strain and the capacity to meet the crisis will also depend on the extent and the duration of the decline in external receipts, on the availability of

1/ David Finch, Investment Service of Underdeveloped Countries, IMF Staff Papers, Vol. VII, No. 13 Septenber 1951, p. 71. - 78 - monetary reserves and of compensatory borrowing abroad, and on the flexibility of the import structure. I/ The size of the fixed debt service ratio, supplemented by information on these other variables, may help to determine the actual burden of external indebtedness and thus inversely the supportability of additional external debt.

The use of the ratio for estimating long-run creditworthiness position seems to be subject to serious limitations. The ratio of service payments to external receipts may be rising; and yet, if foreign capital is productively employed (i.e. if it makes a net addition to the country's income, including here an addition to its capacity to transfer a part of income abroad), the long-run benefits which it confers will not be impaired by the fact that the proportion of export receipts absorbed by service payments increases. More important from the long-run point of view is whether the amount of external receipts which remain after debt service has been paid, are sufficient to assure the debtor country's income growth at a satisfactory rate. In countries in which there is a long-run tendency for exports to stagnate or decline and in which the rise in the debt service ratio primarily reflects such development in the export field, a high ratio (or its increase) may properly be taken to suggest a weakening in the debt servicing capacity, since debt service here directly impinges on the growth process. But in countries in which both over-all export earnings and earnings left over after service payments, are rapidly increasing, a high and increasing ratio may not have any unfavorable long-run implications. In such cases it primarily indicates - although in a very crude manner - that the role of foreign capital in fostering economic growth has been considerable. / And conversely, a low ratio of service payments to external earnings is not by itself a justification for further borrowing: the countryts import requirements may be rising in the face of stagnating exports, so that even with a very small proportional absorption of exports for purposes of debt service its balance of payments position may be increasingly strained, ultimately threatening the fulfilment of the country's financial obligations.

In view of these limitations, it is necessary to examine directly the problem of export growth and particularly growth in external receipts remaining after service payments. This analysis is contained in the next section of this paper.

/ These elements Mfleramongst countries. Table VIII shows that in the years of the World Depression in the 1930's, the general level of the ratios rose substantially: for all eight countries, the aggregate ratio increased from 10% in 1928-1929 to 35% in 1932-1933. But the incidence of the depression varied greatly from country to country. In some countries, the ratios rose less than three times, in others five times, while in Chile the increase was ten-fold. For inter-country differences in the availabilit- of monetary reserves and in the flexibility of the import structure, see Section V. / This was obviously the case with two of the most successful borrowers in the past, Canada and Australia, As indicated in Table VII, their ratios until the Second IJorld War averaged about 20%. Both have been export- oriented economies, with fast growth in exports and with vast foreign investment on both public and private account. In general, it seems that there was some correlation in the past between a high ratio of export to GNP and a high ratio of debt service to exports. - 79 -

IV. Growth and Structural Changes in Exports

1. Importance of Growth of Exports

From the long-run point of view, there is little doubt that a rise in exports is a pre-requisite of sustained growth in income and by the same token, of successful servicing of foreign indebtedness. The historical evidence has shown that any country that has achieved a continuous growth in income over the long term has also experienced a steady rise in its imports, inhich has required growth in its exports. 1/ The rates of growth in income and in imports have not always been the same - the latter usually being lower than the former - while the composition of imports has been subject to radical changes over time. But while imports have frequently risen somewhat slower than income and a considerable gross substitution of domestically produced goods for those formerly imported has been realized, no case of successful net substitution of imports is known to have taken place in the very long-run in countries where income has increased.

The existence of this long-run relationship does not mean that over shorter periods income cannot grow without a rise in exports. There have been instances of successful temporary net import substitution, which has enabled both income to grow and also debt service to be paid. One decade must in this sense be considered a short period; and the failure of a particular country to expand its external receipts within a decade does not necessarily imply either a stagnation in its income or difficulties in servicing external indebtedness. This, however, while possible within a decade, is unlikely to be a lasting sustainable position, particularly in countries with relatively high income growth targets or in countries which do not have a widely diversified natural resource base. And looking at debtor countries as a whole, the assumption can safely be made that a successful performance in their export growth is one of the basic conditions both for their prospective growth in income and for the maintenance of continuous debt service.

Growth in external receipts has to provide resources for two competing claims: service payments and import requirements. If external earnings grow at a rate which is sufficient to meet service payments but which does not leave any additional resources to satisfy the increase in import requirements, the country is likely to experience difficulties in assuring a sustained long-run growth in income and savings, which provide the internal base for continuing debt service. Except in those cases in which net

I League of Nations, Industrialization and Foreign Trade, 1945 import substitution can be achieved, external earnings have to increase sufficiently fast to provide resources for income growth after service payments have been met.l] If these conditions are fulfilled and if proper financial policies are pursued, the competing claims on external earnings are likely to be easily reconciled and as a result service payments are likely to be easily maintained.

2. Growth in the "Real" Value of External Earnings in the Postwar Period

The statistical evidence indicates that despite a substantial growth in service payments, the external receipts remaining after service payments have shown in the majority of debtor countries a powerful upward trend during the postwar decade, thus enabling, together with capital inflow, high rates of increase in real income. This statistical evidence is reproduced in the following Table IX. Current account receipts remaining after service payments have been computed both for the early postwar period and for the mid-1950's. The latter value has then been adjusted for movements in import prices in order to measure the "real" increase in the purchasing power of remaining external earnings. Countries are classified in six group according to the level of the annual growth rate in the "real" value of these earnings.

/ The countryts own external earnings may, of course, be supplemented by foreign capital inflow, which provides the additional margin of resources required for income growth, but such foreign capital inflow is in turn in the long run predicated on future growth in servicing capacity. - 81 -

Table IX

Postwar Increase in the "Real" Value of Current Account Receipts Remaining After Service PaymentsA (Group "A" and "B", 48 Countries)

I. Annual Growth Rate Above 10%

W. Germany (1950-55) Nicaragua (1947/48-54/55) Japan (1950-55) Netherlands (1948-55) Venezuela (1947-54) Iraq (1947-54) France (1948-55) El Salvador (1947/48-54/55) Ethiopia (1947/48-54/55) Austria (1950-55) Ecuador (1947/48-54/55) Federation of Italy (1948-55) Costa Rica (1947-54) Rhodesia (1950-55) Greece (1951-54) Colombia (1947/48-54/55) Denmark (1948-55)

II. Annual Growth Rate Between 5% and 10%

Turkey (1948-54)]/ Dominican Belgian Congo (1948-55) Belgium-Luxemburg (1948-55) Republic (1948-55) Union of South Finland (1947/48-55) Mexico (1947/48-54/55) Africa (1947/48-55)22 Norway (1948-55) Peru (1947/48-54/55) , Thailand (1948-55) b Sweden (1947/48-54/55) Honduras (1947/48-54/55) Ceylon (1947/48-1954/55)w United Kingdom (1947-55) Panama (1948-55)

III. Annual Growth Rate Between 3% and 5%

Iceland (1947-54) Paraguay (1947/48-54/55) Chile (1947-54) Guatemala (1947-54)

IV. Annual Growth Rate Between 2% and 3%

Yugoslavia (1949-54) Philippines (1950-55) Australia (1947v54) India (1948-55)-'

V. Annual Growth Rate Between 0% and 2%

Brazil (1947/48-54/55) / Indonesia (1950-55) i Uruguay (1948-55) - 82 -

VI Decline

Cuba (1946-54) Egypt (1948-55) Haiti (1950/51-54/55) Bolivia (1947/48-54/55) Argentina (1947/48-54/55)

a Current account receipts reduced by investment income payments on public and private account and by principal repayments of public debt. S/ See Appendix III. c/ Commodity exports only.

Note: The period selected excludes the immediate postwar year, 1946, when current account receipts were still at an abnormally low level. Wherever necessary two year averages were used to eliminate the effect of temporary fluctuations. Current account receipts were expressed in U.S. dollars. For Europe and some non-European countries it was possible to use national indices of import prices expressed in dollar terms to adjust the mid-1950 value of receipts. In the rest of the countries the change in import prices was measured by a weighted average of the change in dollar export prices of suppliers - mainly U.S, U.K. and continental Earopean countries. Since this indirect approach can only yiald approximate results and since national import price indices are frequently unreliable, only a broad and tentative classification of countries is possible. However, the overall picture is clearly reflected in the table. For the underlying data, sources and methods see Appendix III. Out of 48 countries for which the postwar rate of change in the "real1" value of remaining external earnings has been computed, there were five countries in which a decline occurred. These countries were responsible for an insignificant fraction of the total world debt service payments made in 1955. In the remaining 43 countries the "real" value of remaining earnings showed a rising tendency. In a group of three countries, the rise was very slow and in another four relatively moderate. In the vast majority of countries, however, the growth in remaining external earnings was on the whole remarkable. In 32 countries, or two-thirds of the whole sample, external earnings left over after service payments rose at rates above 5% per year, and Ini n6ther four countries the annual growth rate varied between 3 and 5%. This substantial increase in the "real" value of external receipts in the majority of debtor countries was a combined result of volume increases and of improvements in the terms of trade. By and large, the volume component of the increase was primarily responsible for growth in the value of the European exports. In Latin-America, on the other hand, the effects of price increases overshadowed in inany countries the effects of growth in volume. In other areas, the rise in external receipts was due, in varying proportions, both to increases in volume and to relative movements in export and import prices.

3. Growth in Volume of Exports

Other things being equal, prospects for economic growth are likely to be brighter in a country which has experienced a growth in export value on account of a volume increase, than in a country where export value has increased primarily under the impact of a price rise. A country cannot expect a continuous improvement in its terms of trade to provide additions to its export receipts. Over the long run export volume must rise in order to provide a stable base for a sustained growth in income. In the following Table X postwar annual growth rates in export volume have been computed for a sample of 50 countries. With some exceptions, the period covered starts with the year in which the prewar export volume was reached or surpassed. - 84 - Table X

Rates of Growth in EXport Volume Group "A" and "1", 50 Countries

Annual Average Country Period Rate of Growth

I Growth Rate Above 10%

Iraq 1948-1955 36.5 Western Germany 1950-1955 21.1 Nicaragua i 194647-1954/55 18.5 Japan i 1950-1955 17.0 Israel 1950-1955 16.5 Austria . 950-1955 14.6 Netherlands 1950-1955 12.5 Ecuador a/ 1948-1954 1107 Greece j 1952-1956 10.3

II Growth Rate Between 5% and 10%

Ethiopia / 1947-1955 9.0 Belgium-Luwcemburg 195o-1955 9,0 Italy 19h8/h9-195 /55 8.8 Federation of Rhodesia c/ 1946-1953 8.4 France 1949/50-1954/55 8 3 Denmark 1950-1955 7.3 Philippines 1950-1955 7.3 Mexico 1950-1955 7.2 Finland d/ 1950-1955 7.0 Venezuela i 1948-1955 6.7 Sweden 1949-1955 6.5 Peru g 1950-1955 6.5 Unidte, ingdom 1947/48-1954/55 6.1 Dominican Republic 1948-1955 5.5 Thailand 1948/49-1955/56 5.2 Union of South Africa v/ 1948-1953 5.0 Turkey 1948/49-1954/55 5.0

III Growth Rate Between 2% and 5%

Belgian Congo 1949-1955 4.9 Iceland 1945/46-1954/55 4.4 Norway 1950-1955 4.0 El Salvador 1948-1955 3.8 Ceylon 1946-1955 3.8 Burma §/ 1948-1955 3.3 Indonesia 1950-1955 3.2 _ 85 - Annual Average Country Period Rate of Growth

Australia 1947/48-1954/55 2.4 i/ Costa Rica 1948-1955 2.0 Colombia 1948-1955 1.2-3.3 2/

IV Growth Rate Below 2%

Uruguay 1948-1955 1.75 Panama 1948-1955 1.75 Cuba 1945/47-1953/55 0.9 India a/ 1948-1955 o.8 Yugoslavia b/ 1948/49-1953/54 0.4 Haiti 1946-1952 0.0 Pakistan 1948-1954 0.0

V Decline

Guatemala 1950-1955 -0.25 Bolivia 1948-1955 -1.9 Egypt 1948-1955 -2.0 Brazil J 1946-1955 -2.4 Argentina bJ 1946-1954 -2.8 Chile bJ 1947/48-1954/55 -4.5 Honduras 1948-1954 -5.1 a/ Prewar volume not known. i/ The 1955 volume still below the prewar. c/ Southern Rhodesia only. 3/ Prewar volume reached in 1954. e/ Petroleum exports only. ?/ Prewar volume surpassed in 1953. g/ Merchandise exports other than gold. Gold production increased at a rate of 3.5% between 1948 and 1955. Prewar volume surpassed in 1950. j Based on the index with current weights calculated by the U.N. Statistical Office. The I.l.F. index with 1953 weights shows no increase. j/ Growth rate of 1.2% according to the I.ii.F, index with 1953 weights; growth rate of 3.3% according to the Colombian index with 1952 weights beginning 1953 and 1937 wseights prior to 1953.

Sources: United Nations, Yearbook of International Trade Statistics and I.M.F. International Financial Statistics, various issues, except for Argentina and Yugoslavia. For Argentina, ECLA, Economic Bulletin for Latin-America, Vtol. I, No. 1, 1956. For Yugoslavia, Federal Statistical Office, Izidels No. U1, 1956. - 86 -

As may be expected, inter-country differences are substantial, but some general conclusions may still be drawn. Out of fifteen European countries twelve attained very fast rates of growth, above 5% per year, while in two countries growth rates, although lower, were still impressive, above 4%. With one exception, the African and Middle-eastern countries also achieved very fast rates of expansion of export volume, above 5% annually. In the Asian area, the record was somewhat mixed. Out of eight countries listed in the table, three had growth rates above 5% and three between 3 and 4%, but in the remaining two countries export volume did not rise. Finally, out of nineteen Latin-American countries, six enjoyed very fast growth rates, above 5%, while in three countries growth rates varied between 2% and 4,. Against these two groups comprising altogether nine ccuntries, however, there were seven countries in which export volume stagnated or declined. In the remaining group of three countries, the volume of exports increased at a fairly low rate, below 2% per year.

The failure to increase the volume of exports in a number of countries may be explained by a variety of specific causes. But all these causes can probably be reduced to four basic factors, although in any particular country not only one but several factors were simultaneously at work. First, in a group of countries the sluggishness of the export sector primarily reflected the slow growth in the overall economy (Argentina, Haiti, Bolivia, Panama and to a smaller extent Uruguay, Pakistan, Egypt). Secondly, in some of these cases, both the stagnation in exports and the overanl slow economic growth may have been partly due to a low level of international demand for a country's chief export commodity (like jute in Pakistan, tin in Bolivia, cotton in Egypt, wool in Uruguay). J Thirdly, export stagnation also resulted from a deliverate channelling of the factors of production into import substituting industries rather than into the export sector (for instance, India, Yugoslavia, Brazil, Argentina and several other Latin-American countries). 2/ In the fourth place, the stagnation in exports was frecuently a ccnsequence of the excessive pull of the domestic market, associated with inflationar'y pressures. In a number of countries, considerable increase of income and output occurred, but export volumes were prevented from rising since the impact of domestic financial expansion, added to rising incomes, wras too great, thus absorbing factors of production which may have been suitable for export-type output.

1/ This factor was also important in India (jute) and Cuba (sugar). 7/ In Latin America, import substitution primarily covered consumer manufactures; in Yugoslavia it covered both consumer and capital goods, which soon became export products; in India, it took the form of large scale agricultural development substituting for food imports. - 87 -

It should be noted that in some cases, particularly of the last type discussed above, one special factor may have tended to reduce the incentive to raise the volume of exports. As mentioned already, the fact that terms of trade of a number of countries, particularly in Latin-America, improved substantially both compared to the prewar period and between 1948 and 1954, I/ provided a windfall gain in "real" export receipts, which sub- stituted for growth in export volume. As a result, the pressure to devote the necessary attention to the export sector may have been eased as long as price rises provided enough external earnings to support income growth. Terms of trade of Latin-Ameriea ceased to improve, however, towards

j/ In 1954, terms of trade of Latin-hmerica as a whole were 33% better than in 1948 (t41% better thah in 1937). The following ta'ble shows the movement of terms of trade in individual countries.

Index of Terms of Trade in Latin-America

1937 1948 1954 1955

Bolivia 87 100 110 108 Brazil n.a. 100 211 157 Colombia 73 100 215 173 Costa Rica 100 100 177 163 Dominican Republic 47 100 117 98 Ecuador n.a. 100 166 130 El Salvador 71 100 244 185 Guatemala n.a. 100 190 176 Honduras 130 100 133 133 Mexico 96 100 95 95 Nicaragua n.a. 100 200 169 Panama 87 100 137 131 Uruguay 92 100 117 104 Venezuela 100 100 138 138

Source: I.M.F, International Financial Statistics, various issues and Appendix III - 88 - the end of 1954 (with the temporary exception of Chile), and then deteriorated. If - as is likely - this latest price development is not reversed, the past relationship between a fast expansion in the domestic sector and sluggish growth in the export sector is not tenable in the future: since income growth cannot be expected to be supported by rising export prices, growth in export volume must obtain a high priority in the allocation of resources if growth in income is to continue at a satisfactory rate.l/

The absence of growth in export volume in a group of countries, all of them relatively less developed, gives cause for concern. It should be noted, however, that the number of debtor countries which achieved considerable rates of growth was substantially larger than the number of countries where export volume stagnated or declined; and the share of the former group of countries both in the aggregate public debt outstanding and in the aggregate public debt service was much greater than the share of the latter group. The principal indebtedness of countries whose export volumes rose at a rate higher than 2% per year amounted to 89% of the aggregate indebtedness of the whole sample of 50 countries at the end of 1955; while their combined debt service represented 78% of the aggregate public debt service paid during 1955.

a/ It is interesting to note that the volume of exports of Latin-America as a whole, which had virtually stagnated between 1947 and 1954, increased substantially during 1955 (more than 8%) and probably again in 1956 (the average export volume in the first three-quarters of 1956 was almost 11% above the corresponding average in 1955). - 88 - the end of 1954 (with the temporary exception of Chile), and then deteriorated. If - as is likely - this latest price development is not reversed, the past relationship between a fast expansion in the domestic sector and sluggish growth in the export sector is not tenable in the future: since income growth cannot be expected to be supported by rising export prices, growth in export volume must obtain a high priority in the allocation of resources if growth in income is to continue at a satisfactory rate.l/ The absence of growth in export volume in a group of countries, all of them relatively less developed, gives cause for concern. It should be noted, however, that the number of debtor countries which achieved considerable rates of growth was substantially larger than the number of countries where export volume stagnated or declined; and the share of the former group of countries both in the aggregate public debt outstanding and in the aggregate public debt service was much greater than the share of the latter group. The principal indebtedness of countries whose export volumes rose at a rate higher than 2% per year amounted to 89% of the aggregate indebtedness of the whole sample of 50 countries at the end of 1955; while their combined debt service represented 78% of the aggregate public debt service paid during 1955.

/ It is interesting to note that the volume of exports of Latin-America as a whole, which had virtually stagnated between 1947 and 1954, increased substantially during 1955 (more than 8%) and probably again in 1956 (the average export volume in the first three-quarters of 1956 was almost 11% above the corresponding average in 1955). the end of 1954 (with the temporary exception of Chile), and then deteriorated. If - as is likely - this latest price development is not reversed, the past relationship between a fast expansion in the domestic sector and sluggish growth in the export sector is not tenable in the future: since income growth cannot be expected to be supported by rising export prices, growth in export volume must obtain a high priority in the allocation of resources if growth in income is to continue at a satisfactory rate.lJ The absence of growth in export volume in a group of countries, all of them relatively less developed, gives cause for concern. It should be noted, however, that the number of debtor countries which achieved considerable rates of growth was substantially larger than the number of countries where export volume stagnated or declined; and the share of the former group of countries both in the aggregate public debt outstanding and in the aggregate public debt service was much greater than the share of the latter group. The principal indebtedness of countries whose export volumes rose at a rate higher than 2% per year amounted to 89% of the aggregate indebtedness of the whole sample of 50 countries at the end of 1955; while their combined debt service represented 78% of the aggregate public debt service paid during 1955.

4. Changes in the Structure of Exports

Both the past rate of growth in external receipts and their future short and long-term prospects depend to a certain extent on the structure of exports. In Table XI which follows, an attempt is made to show the salient features of the present export composition of debtor countries / and of the changes which have occurred since the prewar period and the early postwar years. Three structural characteristics are analysed. First, the share of manufactured products in total exports is shown as one indication of the degree of export diversification. / Secondly, the commodity concentration of exports is given as a measure of vulnerability to short-term fluctuations in external receipts. Thirdly, the export structure is analysed according to its responsiveness to the demand pattern of international trade. Internationally traded goods are classified in two groups, "growth" commodities and other commodities, and the share of the former in a country's total exports is shown. On the assumption that the world will continue to experience high levels of economic activity, "growth" commodities are taken to be those for which international demand may be expected to be fairly strong in the long run. / They consist mainly of raw materials required for investment goods and durable consumer goods industries, capital goods, fast growing energy sources, chemicals and several food products, including coffee and cocoa. With a few exceptions, the export value of "growth" commodities expanded faster than the total value of world trade between 1938 and 1954.

It should be noted that the findings presented in the table are admittedly tentative: the accuracy of statistical data varies amongst particular countries and particular years, while frequent changes in commodity classification over time introduce an additional element of uncertainty. Nevertheless, it is unlikely that the general picture is overly distorted.

/ The analysis covers thirty-eight debtor countries, Highly industrialised Western European economies are excluded. Some non-European countries are also excluded due to lack of data. Of course, a rise in manufacturing exports cannot be universally expected; there may be cases in which, due to natural endowment, the optimum use of resources does not require a development of manufacturing exports. / The strength of international demand is the result of the inter-action of several factors. It may be due to high income elasticity of demand for a particular commodity. It may also be due to the fact that a particular commodity is a technically superior substitute which displaces an old cocmodity. To the extent that such technological innovations are not predictable, the classification suffers from an element of uncertainty. Further, "growwh" commodities may be those which do not lend themselves easily to policies of national self-sufficiency. This policy aspect introduces another unpredictable factor regarding the prospects of particular commodities. In view of these reasons and in view of the fact that borderline commodities had to be arbitrarily classified into one of the two categories, the percentages in the last two columns of Table XI must not be interpreted rigidly. - 90 -

Table XI

Changus in the Export Structure of Selected Debtor Countries (Group "A" and "B", 38 Countries)

Share of Two Pr'9ci- Share of "Growth. Share of Manufacturesi/ nal Commoditiesb- in Commoditiesl"c/ in Country in Total Exports (%) Total Exports (%) Total Exports (%)

About Mid About Mid M'iid Prewar 1950 1950's Prewar 1950 1950's Prewar 1950's

Europe

Austria 70 69 67 21 21 34 69 84 Denmark 12 12 24 52 38 43 64 73 Finland 16 22 46 81 93 76 94 97 Iceland n.a. 1.8 0 n.a. 80 88 62 79 Italy 30 4o 58 23 22 a 53 66 Norway 30 33 49 37 51 39 88 81 Turkey 0.3 0.5 3.1 53 47 46 36 26 Yugoslavia(A) n.a. 3.3 23.4 n.a. 38 26 55 75 (B) n.a. /T7.27 /34.447

Latin America

Colombia n.a. 0.9 1.0 n.a. 94 96 n.a. 98 El Salvador 0 0 2.9 n.a. 85 94 98 90 Guatemala 0 0 0 83 82 90 93 99 Haiti n.a. 3.8 0.3 65 61 87 60 85 Ecuador 0 0 /7.77 41 59 63 86 95 Panama 0 1.2 1.7 79 69 74 99 92 Brazil 0.1 o.6 o.8 63 60 73 63 77 Uruguay 0 o.4 0.1 66 59 68 29 36 Nicaragua 0 0 0 66 52 67 89 61 Chile(A) 0.2 0.3 0.2 70 76 72 90 97 (B) /IT9.o7 /0. o7 /o. o7 Honduras(A) 0 0 0.3 94 55 81 91 91 (B) /18.47 /16.27 /.h47 Peru(A) 0 0 0 36 48 39 57 49 (B) /.27 /0.47 /i7.27 Mexico(A) T0.. 7.9 7. 35 30 4o 70 53 (B) /n.2a. Z7 /32.327 65.17 Paraguay n.a.-52- 7 7-79 56 42 54 32 48 - 91 -

Share of Two Pr ci- Share of "Growth Share of Manufactures a/ pal Commodities' in Commodities1'/in Country in Total Exports (%5) Total Exports (%) Total Exports (%) About Mid About Mid Mid Prewar 1950 1950ts Prewar 2]95 1950's Prewar 1950's

Asia

Ceylon 0 0 0 82 78 81 20 22 Pakistan n.a. 0 0 n.a. 70 84 n.a. 0 Burma (B) 0 0 Zl.A 71 88 84 47 14 Philippines 4.5 3.1 2.5 66 81 67 9 19 Japan 40 58 86 32 50 27 30 49 India 21 46 40 n.a. 46 45 8 11 Indonesia 0 0 0 43 49 52 56 67 Thailand 0 0 1.5 64 72 66 20 26 Iraq n.a. n.a. n.a. 72 n.a. 94 91 95

Africa U. of South 1.7 7.1 8.3 82 68 50 n.a. 63 Africa i Egypt 1.1 0.5 6.7 80 92 89 7 7 Ethiopia 0 0 0 61 31 75 41 71 S. Rhodesia 0.8 2.3 7.0 67 63 48 81 41 N. Rhodesia (A) _0 _ _0 - _0 - 93 90 94 99 98 (B) /99. 2 Z97.5,/ Z98-1/ Belgin Cago (A) Q - _ _ 0 _ 48 38 43 64 72 (B) Z8.WJ L.4/ Z9.Q/

Australia (A) 1.2 2.1 4.3 52 51 55 22 28 (B) /1.2/ /i2.1/ Z8..2/

a/ For purposes of this table, petroleum products and processed food are excluded from manufactures. Exports of non-monetary gold in the form of bars are also excluded. Gold manufactures like jewellery and fancy goods are included. The exception is the Union of South Africa in 1950 (with these items the share of manufactures in 1950 would be 19.4%, while the shares in 1938 and 1954 would not be appreciably affected). For several countries in which refined non-ferrous metals represent a major share of total exports, two estimates are given. The estimate "A" excludes, and the estimate "B" includes refined metals. b/ For several countries, a narrowly defined commodity group is treated as a commodity. See ADpendix IV. j "Growth" commoc'ities are defined in the text. The list of "growth" commodities is given in Appendix IV. S/ The prewar figures relate to undivided India. Note: The years to which particular figures relate, are given in Appendix IV. Figures in brackets, except in "B" estirates, are of doubtful reliability. They probably include commodities which are nct generally regarded as 'manufactures. Sources and M;ethods: Appendix IV - 92 -

Manufacturing exports increased very rapidly in the group of Euro- pean countries shown in the table, as well as in Japan: the share of manufactures in their total exports rose substantially compared both to the prewar and to the early postwar period. The expansion occurred not only in countries at high income revels, but also in countries where income is medium or relatively low. In other areas, significant increases in manufacturing exports appear to have been made in the Union of South Africa, Mexico, India, Australia, Egypt and El Salvador, although their export structure is still dominated by primary products. Several other countries also succeeded in raising exports of particular manufacturing products. However, their progress in this field was sporadic; and in the vast majority of less developed countries manufacturing exports - excluding refined mining products, petroleum products and processed food - still represent a very small fraction of their total export trade. Growth in industrial output which has been remarkable in many less developed countries during the last decade, has influenced the composition of their imports, but has only begun to change the structure and sensitivity of their exports.

The vulnerability of non-European countries to short-term fluctuations and technological changes remains heavy: the bulk of their export earnings continues to be derived from a small number of key commodities. This is brought out by the share of two principal export products in total exports. In more than one-third of non-European countries listed in the table, two commodities accounted in the mid-1950's for more than 80% of total export receipts, while in another two-fifths the share of two leading commodities varied between 50%« and 80%. The statistical evidence does not suggest that concentration tended to decline over the last 15 years; the percentage share of either two or three principal exoort products 2/ actually rose in the majority of non-European countries.

)j Appendix IV contains a list of major export products and of their shares in total exports. - 93 -

Both the slowi development of manufacturing exports and the failure of commodity concentration to decline may be explained by the rigidities in the production and export structure of less developed countries. These rigidities can be overcome only through a long-run process of economic growth, - longer than the period which has elapsed since the Second World War. But this is not the whole explanation. The difficulties in developing manufacturing exports to foreign protected markets may have been compounded by the rapidly rising domestic demand for manufactured products, particularly if accompanied by inflationary pressures and overvalued exchange rates. On the other hand, the maintenance of an export structure dominated by only a few products, may have been prompted by the external market conditions. The fact that these conditions were very good for a number of primary products through most of the postwar decade, may have operated at least in some cases in favor of concentration as the most economic use of resources in the short run. At a minimum, such market conditions were likely to reduce the incentive to embark upon a large scale export diversification. The importance of market forces can best be judged by the fact that in some cases the degree of overall concentration was not changed, but the commodities which had earlier been main export items, were now replaced by other primary products, more in demand on the export market or more suitable to present domestic productive conditions. 1/

The last two columns in Table XII indicate changes in the export structure of debtor countries from the viewpoint of trends in international demand. The evidence shows that in the majority of countries - two thirds of the sample - there was an increase in the percentage share of "growth" commodities in these countriest exports. 2/ This faster expansion in export

1/ See Appendix IV for changes in percentage shares of principal export products in particular countries.

2J The increase occurred both in countries in which the share of "growth" commodities is on the average low, and in those in which it is high. The Asian countries generally show a considerably smaller proportion of "growth" comiodities in their exports than do the countries in other regions. - 94 -

values of products for which international income elasticity of demand may be presumed to be fairly high, occurred on account of relative changes either in volume or in prices or both. In most of the Fbropean and Asian area, the expansion was based primarily on volume increase, while in the Latin-American and African countries it was a result of varying combin- ations of volume and price rises.1/

In ten countries, the share of "growth" commodities declined. In some cases, like Panama, Burma and Fl Salvador, this was dae to a serious fall in the volume of exports of these commodities. However, in a humber of other countries, including Mexico, Nicaragua, Peru and Southern P.hodesia, the decline in the share occurred as a result of a fast expansion in export products which are here excluded from the category of "growth" commodities, - expansion faster than these countries' overall export increase. Mexico end Nicaragua, for instance, succeeded in expanding cotton exports at an extremely high rate, much higher than their overall export growth rate, at a time when aggregate world trade in cotton lagged considerably behind the overall growth in world trade. In cases like these, the countries succeeded in capturing an increasing share of the world market in a commodity which in general did not show any strong upward trend.

The above analysis leads to the conclusion that a number of debtor countries have accomplished a certain measure of adaptation of their export structure to changes in demand and supply conditions. This fact and - more important - the increase in the overall volume of exports that has taken place, have favorable implications for these countriesf long-run growth. Cn the other hand, the commodity concentration of exports is still heavy in the majority of countries and therefore they remain subject to temporary fluctuations in their external earnings. This dependence on a narrow range of export products, as well as the fect that good external conditions - gains from changes in the terms of trade in smae ceses and foreign capital inflow - played a significant role in economic development during the last decade, raise the question of the ability of debtor countries to adjust, if necessary, to less favorable circuastnnces. Some factors which may affect this ability are reviewed in the next section of this paper.

1/ In the extreme cases of Brazil, Uruguay and Chile, the share of "growth commodities showed an increase despite a fall in their volume. - 95 - V. Balance of Payments Flexibility and the Problem of Adjustment

1. Types of Reauired Adjustment

Debtor countries may be faced by a number of unfavorable developments which all require a re-adjustment in their level of consumption end investment as well as in their balance of paynments, if debt service is to be maintained. For purposes of brief analysis, four main types of unfavorable developments may be distinguished.

The first type is a major and widespread international depression, comparable to the crisis of the 19301s, which would cause a deep and prolonged decline in external earnings and impose a severe and protracted strain on the economies of all debtor countries.. This case is not considered in this paper: it is assumed that national and international measures will be taken which will prevent a uorld-wide economic collapse. The Bank itself is prepared to accept the risk of such a depression. i/

The second type is a crisis in the balance of payments of a particular debtor country, caused by en inflationary spurt which leads to excessive imports, drain of foreign exchange, accumulation of short-term debt and, finally, difficulties in maintaining contractual obligations. The postwar period has witnessed several such cases. Fortunately, in none of these cases a default on long-term debt occurred, although there were considerable delays in the repayment of short-term debt. It is, of course, quite con- ceivable and even probable that similar inflation-induced crises will occasionally occur in the future. However, it is obviously impossible either to forecast the gravity of such future eventualities or to discuss the magnitude of the adjustment which may be required in such cases in order to maintain service payments. For these reasons, this type of unfavorable development is also excluded from the scope of this paper.

There remain two other types on which scme observations can be made, although in a higlay tentative manner. The first consists of a slowing down in the rate of growth in external receipts of debtor countries. This deceleration may be the result of a contraction in the inflow of foreign capital and grants or of a somewhat less favorable movement in the terms of trade. Such a situation would require a long-term adjustment in debtor countries' import growtl rate. The second case which is discussed here is that of a sudden reduction in the current account receipts of a debtor country due either to a temporary fall in world demand for connodities it exports or to a transitory decline in its own capacity to export. In this case, a debtor country would have to undertake a short-term adjustment in order to meet the crisis.

1/ The Intemrational Bank for Reconstruction and Development 1946-53, p.42, Baltimore 1954. - 96 -

It must, of course, be recognized that thesa fouir types are differ- entiated only for purposes of analysis. In practice, several of tlhem may occur simultaneously. In particular, it is possible that an inflation- induced crisis be compounded by a deceleration in growth in export receipts or even by an absolute temoorary decline. It is not possible to deal in this paper ir.any systematic way wiith the adjustment problem thus created.

2- The Problerm of Long-run Adjustment

(a) Postwar Gro'-th in Imports As might be expected, the volume of inports of debtor countries rose considerably during the last decade. The scattered statistical evidence indicates that in the majority of cases it increased at a higher rate than either real income or the volume of exports. This evidence is reproduced in Table XII. it should be noted that the sanple is smaller thian in other comparisons presented in this paper: import volume data are available for a more limited nuanber of countries. This factor restricts the validity of quantitative conclusions, but some general remarks may still be made.

Table XII

Postwar Annual Growth Rates in Imports and Their Relationship to Income and Export Growth

Ratio of I-mport Growth Rate Ratio of Import Growtlh Rate Country to Income Grow¢th Rate Country to Exoort Growta Rate

Import Growth Rate Ratio Imprort Growth Rate Ratio

Europe Ebrope

Denmark 10.6 4.0 Yugoslavia 4.3 10.8 Netherlands 11.9 2.6 Turkey 11.7 2.3 Finland 12.0 2.4 Nlorway 6.7 1.7 Norway 7.7 2.2 'inland 11.2 1.6 Iceland 11.4 2.1 Sweden 9.6 1.5 Turkey 10.3 1.9 Italy 9.9 1.1 Italy 9.2 1.7 Greece 9.4 0.9 West Gernany 15.3 1.7 Wiest Germary 15.3 0.7 United Kingdom 4.5 1.( Austria 10.5 0.7 Belgium 5.2 1.5 France 5.9 0.7 Austria 10.5 1.4 Netherlands 8.9 0.7 Sweden 6.1 1.4 'Jnited Kingdom 4.1 0.7 France 6.5 1.4 3elgluin 5.9 0.7 Yugoslavia 4.o 0.8 Dernark 4.6 0.6 Greece 1.3 0.2 Iceland 2.7 o.6

(continued ...) - 97 -

Ratio of import Growth Rate Ratio of inport Growth Rate Country to Income Growth Rate Country to Export Growth Rate

Import Growth Rate al Ratio Import Growth Rate Ratio

Non-EDarope ,fon-Tirope

Ecuador 21.6 3.3 Chile 2.9 c/ Australia 11.6 2.3 Brazil 6.9 c/ Costa Rica 11.2 2.1 Argentina 1.0 c/ Belgian Congo 14.4 2.1 Costa Rica 10.8 7.4 Colombia 12.1 1.8 Colonbia 9.1 4.0 Ceylon 6.7 1.7 Australia 9.0 3.8 Burma 6.6 1.7 El Salvador 11.7 3.0 Chile 4.7 1.6 Belgian Congo 9.7 2.0 Nicaragua 11.8 1.2 Ethiopia 17.5 1.9 Egypt 2.4 0.8 Ceylon 6.5 1.7 Brazil 4.5 0.7 Burma 4.9 1.5 South Africa 2.L 0.6 Mexico 9.2 1.3 Panama 1.3 0.5 Dominican Republic 7.1 1.3 Argentina 1.0 0.4 Ecuador 14.2 1.2 Philippines 1.6 0.3 Panama 2.0 1.1 India 0.8 0.3 Japan 19.3 1.1 Cuba - o.6 i Nicaragua 15.9 0.9 Cuba o.6 0.7 Philippines 1.6 0.2 Egypt - 3.0 d/ India - 3.3 fl South Africa - 1.7 i

For each country two import g:rowth rates are computed, each corresponding to the period for which incone growth rates and export growth rates are given. This explains the difference between import growth rates shown in the first and the third colwnns of thie table. See Appendix V. iJ Decline in imports; rise in income. c/ Decline in exports; rise in imports. d/ Decline in imports faster than in exports. e/ Decline in imports; rise in exports. f/ According to the IFS index; the Indian _ndex suggests an increase of about 0.4% per year. If this index is accepted, the ratio of import growth rate to export growth rate becomes 0.2

Sources and Methods: Appendix V. _ 98 -

Three major findings emerge from the table. In the first place, growth in imports was both substantial and widespread. Cut of 36 countries included in the table, only in four coumtries did the volume of imports fail to increase in recent years, i.e. only these four countries achieved net import substitution. Conversely, in almost four-fifths of the sample the increase in import volume was higher than 4% per year.

Secondly, in the majority of countries growth rate in import volume tended to be higher than growth rate in real income. The median ratio of import growth rate to income growth rate amounted to 1.7 in the European countries; in countries outside Europe, the average relationship between import growth and income growth was lower, about 1.2, i.e. each percentage increase in real income was associated with 1.2% increase in the volume of imports. The faster rise in imports than in income was in some cases a normal outcome of the fact that the foreign sector played a leading role in economic growth: in these cases both exports and imports tended to rise faster than income. Cn the other hand, the import growth faster than the growth in real income was in some cases the result of an inflationary induced expansion in money incomes which swelled the demand for imports above the rate required by the increase in real income.

Thirdly, import volume was rising faster than the volume of exports in three-fifths of the sample. However, in the majority of European countries this was not so; the median ratio of their import growth rate to export growth rate amounted to 0.7. Consequently, these countries tended to create an export surplus in real terms in the latter half of the decade. In contrast, the majority of non-European countries recorded growth in import volume faster than in the volume of exports. The difference between the two - the import surplus in real terms - was financed by inflow of foreign capital and grants, by gains from changes in the terms of trade and by drawing on foreign exchange reserves.

For purposes of long-run analysis it is not of decisive importance whether within a given period of time import volume has tended to rise faster than the volume of exports. Debtor countries would not have been debtors if this was not so. What is important is the extent to which the process of economic growth will be undermined if capital inflow contracts and if movements in the terms of trade cease to add to domestic resources so that the rate of growth in the flow of foreign exchange is slowed down. lould this imply a decline in their level of per capita income already achieved, or would it only reduce their rates of growth in income?

In order to answer this question it would be necessary to know, in quantitative terms, the likely behaviour of each import component - consumer goods, raw materials, capital goods - at different rates of change in aggregate income. Since these relationships greatly vary amongst particular countries, depending on the natural resource base and the degree of development already achieved, they can be derived only on the basis of a close examination of the situation in each perticular country. Within the context of the present paper only a few observations can be made which may help shed some light on the general problem. - 99 _

(b) Pattern of Import Growth

The postwar expansion in imports was accompanied by substantial changes ia tlhe pattern of imports in almost all co-untries. TW'nile the empirical evidence on the distribution of imports as betweer the main components, is in many cases imperfect because of variations in coverage, a broad picture may still be drawn. In almost all European countries imports of capital goods and of consumer manufactures grew faster than total ixnports. The growth rate in fuels and raw materials was also faster than the growth in total imports, while in the majority of countries imports of foodstuffs lagged behind. In Latin America, a widespread decline occurred in the share of manufactured consumer goods in total imports. Import substitution in this field was accompanied by widespread growth in the imports of capital goods and fuels. The trend is less clear in the Asian and Middle-Eastern countries. Capital goods and fuels appear to have grown faster than total imports, while the rate of growth in consumer manufactures varied considerably amongst countries. In African countries and in Australia, leading groups in irnport growth were fuels, capital goods, and raw materials.

As may.be seen, particular regions differed with respect to relative growJth rates in particular commodity groups. H{owever, the pattern of import growth in almost all countries appears to have exhibited one character- istic: a significant rise in purchases of caDital goods. This is reflected in the following table, which gives the share of capital goods in total imports in 1938, 1948 and 1954.

Table XIII

Share of Capital Goods in Total Imports 48 Countries, Group "A" and "B" (in percentages)

1938 a/ 1948 a/ 1954 a/

Austria 6.3 9.1 20.0 Belgium-Luxembourg 8.4 12.7 17.4 Denmark 10.1 12.2 17.1 Finland 6.o 9.9 15.4 France 5.2 8.5 9.8 T'est Germany 1.3 2.64.2 Italy 2.2 2.2 13.5 Netherlands 5.5 10.8 18.5 Norway 25.0 29.8 37.5 Sweden 16.0 16.1 22.5 United Kingdom o.6 0.3 3.9

(continued ... ) - 100 -

Share of Capital Goods in Total Imports 48 Coumtries, Group "All and "' (in percentages)

1938 a/ 1948 a/ 1954 a/

Greece 18.7 13.0 26.8 Iceland n.a 24.5 30.5 Turkey 33.4 34.1 47.1 Yugoslavia b n.a 23.5 37.0

Argentina 28.5 48.5 42.8 Bolivia n.a 5.6 4.1 Brazil 33.4 39.5 42.6 Chile 33.1 31.7 36.5 Colombia n.a b1.0 48.0 Cuba 13.8 19.6 18.9 Dominican Republic 19.0 24.1 27.3 Ecuador 6.3 18.7 23.2 El Salvador 14.5 19.9 32.0 Haiti b/ 10.3 13.3 16.6 Honduras b/ 9.0 15.2 34.7 Niexico 35.6 49.1 49.7 Nicaragua b/ 2.0 15.8 23.2 Panama n.a 24.0 20.2 Paraguay n.a 27.1 29.8 Peru bJ 24.1 37.2 46.3 Uruguay b/ 10.6 30.8 26.0 Venezuela 25.6 21.2 43.6

Burma b/ 22.8 32.0 20.1 Ceylon 9.1 9.4 10.9 Egypt b/ 19.0 20.8 19.1 India 16.2 19.1 35.0 Indonesia b/ 12.9 14.6 14.0 Iraq 35.0 31.9 37.9 Japan 9.7 n.a 7.6 Lebanon b/ n.a 11.8 13.3 Philippines 22.4 17.4 17.8 Thailand 15.8 b/ 9.5 b/ 30.2

Belgian Congo 23.9 43.6 38.8 Ethiopia n.a 4.8 24.4 b/ Federation of Rhodesia b/ 34.5 28.3 43.8 Union of South Africa 19.8 20.9 20.3

Australia 26.9 21.3 36.8 a/ For some countries the years differ. See Appendix V. b/ Including metal manufactures. - 101 - It should be noted that the data shown in the table are subject to serious statistical limitations. In a large rnumber of cases they underestimate the present proportion of capital goods to total imports and even more the proportion that prevailed in the past years, thus exaggerating the "real" increase that has taken place rithe period under observation. ;/ However, the degree of underestimation is probably not so large as to in- validate the basic finding. Between 1938 and 1954 the share of capital goods in total imports rose in four-fifths to five-sixths of tlhe sample of 40 countries for which a comparison can be made. For eight countries prewar data are not available, but it is likely that in most of them the share of capital goods also rose. Increases in the proportion of capital goods imports occurred both between 1938 and 1948 and between 1948 and 1954. At the end of the postwar decade imports of capital goods were almost invariably the major import component in non-European countries. (c) The Process of Adjustment

The above data may suggest two conclusions. First, since the share of capital goods in total imports increased, the implication is that the volume of capital goods imports rose faster than the volume of total imports. The volume of other import components has, of course, also risen, thus necessi- tating a growing amount of external receipts at each successive level of income; but the rate of growth in total import volume (and the ratio of this rate to the rates of income and export growxth) would have been lower had it not been for the relative expansion in capital goods imports. Secondly, in view of the present high proportion of capital goods imports to total imports, a decline in the rate of growath of imports of capital goods would in the majority of countries considerably help in reducing the overall growth rate in import volume. This wouild release foreign exchange which could now be used to finance the flow of other import components tlhat are required for preserving the 1vel of per capita income already attained.

There is no doubt, however, that a decline in the rate of growth in capital goods imports would reduce the overall rate of growrth in income. Ihe extent of the reduction would be smaller if possibilities were open to undertake newr investment projects with a lower component of imported capital goods tlan it has been the case in the past. 2/ Such possibilities exist in countries in which agricultural development twhich usually requires a lower component of capital goods per unit of output than does the industrial development) has been unduly neglected and where potentialities for

1/ See Appendix V. 2/ In Latin America as a whole, cepital goods imports have been estimated to Tave averaged about 40h of total gross fixed capital formation during 1950-1954. (ECLA, Economic Survey of Latin-America 10954, p. 9) No aggregate estimate has been made for Asia, the proportion for particular countries (excluding Japan) in recent years has varied between 16% and 40°' (TBRD,PostWar Economic Growth in Southeas-t Asia, 1955; IBRD, Current Economic Position and Prospects of India, 1956 - 102 -

such development exist. Another possibility would be a substitution of domestically produced capital goods for those formerly imported. This is feasible if the existing stage of industrial development is such that it is easy to make the transition from producing consumer manufactures to the production of capital goods on a larger scale.

In the last analysis, however, a reduction in the import growth rate depends on the willingness of debtor countries to accept lower income growth targets, In addition to the decline in the import growth rate of capital goods, such an acceptance would also result in a slowing down of growth in other import components, since the rate of increase in total expenditure would be curtailed and the swiftness of change in the pattern of expenditure slowed down; and also, it would probably be accompanied by a reduction in inflationary pressures with a corresponding decline in the demand for imports. The cumulative effect may well be a decline in the import growth rate pro- portionately greater than the decline in the growth rate in income.

As indicated in Part II of this paper, the room for some adjustment appears to exist in the majority of debtor countries. They have achieved during the postw^ar period very high growth rates in income which have made possible a significant rise in per capita income. Consequently, the adjustment would take place from a relatively high level. Mloreover, in terms of capacity for future growth in inccme, a number of countries have attained towfards the end of the decade, fairly high rates of savJngs. Of course, the adjustment would be very difficult in countries wlhich fail to raise their own export earnings. It also remains a matter of conjecture whether, if faced by a necessity to do so, debtor countries would in practice be willing to undertake the required adjustment in time, or would try to maintain goals which could not be achieved i-ithl the available resources, thus endangering the fulfilment of debt service payments.

The above discussion assumes that debtor countries would have to adjust to a lower rate of growth in the flow of foreign exchange than that experienced in the past. Therefore, it does not take into account the possibility of such a permanent or semi-permanent deterioration in the terms of trade, which would result in an absolute decline of foreign exchange receipts, lasting several years. ThEssituation would occur if the world price of a major export commodity falls to a lower ecuilibrium level and if the price elasticity of demand for this commodity is less than unity so that the aggregate amount of foreign exchange earnings is reduced. One instance might be a further decline of the price of coffee, for which some forecasts expect the long term eauilibrium level to be lower than the present one. If these forecasts are fulfilled the readjustments involved in the main supplying countries would be of a greater magnitude than those involved in the milder cases of declines in foreign earnings envisaged above. If however, this decline in price should take place very gradually, the countries most affected by it would have more time to develop new export goods or new import substitutes. 'While this would hardly eliminate the risk of a decline in the rate of growth of income, it certainly would make adjustments much easier. - 103 -

3. The Effect of Short-term Disturbances

(a) The Postwar Experience

While the postwar decade was free of prolonged slumps in international trade, a number of debtor countries suffered temporary declines in their external earnings. The behaviour of these earnings throughout the nostwar period was examined for 51 countries. In 19 countries, or 37% of the whole sample, either no decline occurred or declines were lower than 10%. In 16 countries the declines amounted to 10-20%, while in another 16, or 31% of the sample, the declines were above 20%. The countries belonging to these latter two groups are listed in Table XIV, which also indicates the length of the period during which the decline occurred and the proximate causes of the decline. - 1o4 -

Table XIV

Postwar Short-term Declines in Current Account Receipts a/

Decline in Decline in Decline in Commodity Current Volume Export Concen- Account of Prices tration of Receipts Exports Exports Country Period % % % (1955)

Iran 50-52 88 b/ + 96 Iceland 48-50 56 24 38 d/ 88 Pakistan i/ 51-54 55 23 45 84 Bolivia 51-53 47 + 24 79 Argentina 47-49 42 n.a n.a 29 Yugoslavia 48-50 40 23 13 26 Haiti 54-55 30 n.a n.a 87 Cuba 2/ 51-54 28 11 20 87 Iraq 47-48 27 n.a n.a 94 Indonesia 51-52 27 + 30 52 Australia 50/51-51/52 26 17 e/ + 55 Philippines 48-49 26 + 33 67 Egypt 51-53 26 + 44 89 Honduras 53-55 25 36 f/ + 81 Thailand c/ 51-54 24 22 11 66 India 51-53 23 11 39 45 Paraguay 46-47 20 n.a n.a 54 Uruguay 50-52 20 12 g/ 2 68 Chile 48-49 20 n.a n.a 72 Finland 48-50 20 + 33 76 Brazil 51-52 19 20 hl 3 73 Ceylon 51-52 18 + 22 81 Turkey 53-54 15 5 + 46 Burma 52-53 15 10 / + 84 Ecuador 48-49 12 18 14 63 Dominican Republic 47-49 12 + / 17 j/ 64 Belgium-Luxembourg 51-53 12 + 17 n.a Sweden 51-53 12 3 33 42 Ethiopia .C/ 47-50 11 + 12 75 Colombia 54-55 10 1 18 96 Norway 48-50 10 + 31 39 Nicaragua 48-49 10 9 + 67 a/ Percentage decline from the total receipts in the peak year to thb total receipts in the trough year. / Decline due to the cessation of petroleum exports following the nationalization of the Anglo-Iranian Oil Co. c/ Period of the decline more than two years. / Fish prices declined 33%. There is no comparable decline in the dollar price of other fish exporters. (continued ... ) - 105 - e/ Marked fall in volume of butter and wool exports in Australia. U/ tfMarked fall in volume of banana, coffee and silver exports in Honduras. g/ liarked fall in volume of wool and meat exports in Uruguay. 2,/ Marked fall in volume of cotton and cocoa exports in Brazil. S/ Marked fall in volume of rice and teak exports in Burma. j/ In 1947-48 volume of exports declined by 12% and prices of exports increased by 12%. In the next year, there was an opposite movement; volume increased and prices fell.

Note: The sign "M' indicates an increase in volume or prices.

Source:I.M.F., Balance of Payments Yearbook, various issues; I.M.F., International Financial Statistics various issues.

The reductions that have occurred can be traced to two main causes. The first was a fall in prices of comnodity exports, due either to a decline in external demand or to an increase in over-all supply at the unchanged level of external demand. This seems to have been the dominant cause in at least 12 of the cases shown in Table XIV. It should be noted that in a number of cases these changes in demand-supply position occurred during the abnormal period of the Korean war boom; they were primarily influenced by violent changes in demand for stocks, which caused wide price fluctuations. The second factor causing a decline worked from the supply side in the particular country. In eight countries receipts fell primarily because of a sudden contraction in the volume of agricultural exports. The table also shows that in the majority of countries where large declines occurred as a result of distuibances from either the demand or the supply side, the commodity concentration of exports was at a high level, - a weakness in the present export structure of many debtor countries, already mentioned in a previous section of this paper.

In all these cases the affected countries succeeded, relying partly on their own and partly on external resources, to overcome the declines without defaulting on their long-term debt obligations. It is, of course, quite possible and even probable that external equilibrating capital flows will be also available to meet future short-term disturbances in debtor countries' external accounts. However, since the magnitude of such capital flows cannot be anticipated, they cannot be explicitly taken into account in an analysis of debtor countriest present capacity to meet such disturbances. Instead, it is assumed that debtor countries have to rely on their monetary reserves and, if they are not sufficient, to reduce their imports in order to tide over a crisis, while maintaining their external obligations intact. - 106 - (b) MIethods of Adjustment

(i) Use of Monetary Reserves

If a country had an adequate stock of monetary reserves, it would be able to cushion a short-term decline in external receipts by drawing them down and then replenislhing them after exports had recovered and resumed their growth. Although there are practical difficulties in implementing this policy, its advantages are that a country would be in a position to stabilise the level of imports,consumption and investment despite annual variations in foreign exchange receiDts, while at the same time maintaining its service paymenits. A convenient, although by no means perfect, way of comparing the adeauacy of reserves available to different countries is the ratio of their official reserves of gold and foreign exchange to imports. Such a comparison is made for 50 countries for the year 1955. The ratio is also shown for an early postrar year (1948) and, where available, for one year in the late 1920's (1928).

Table XV

Ratio of Official Gold and Foreign Exchange Reserves a/ to Total Imports (c.i.f.)

Country 1928 1948 1955 I. Present Reserve Ratio above 80%

India 53 172 b/ 132 Pakistan n.a 80 c/ 109 d/ Egypt n.a 212 122 Iraq n.a 76 108 Uruguay 86 121 96 Cuba n.a 56 92 Ethiopia n,a 44 g/ 90 Thailand 54 151 89 Iran n.a 163 81 d/

II. Present Reserve Ratio between 40% anal 80%

Ceylon n.a 84 66 Japan 6o 58 b/ 54 Germany 23 l0o / 53 Guatemala 16 68 52 Indonesia n.a 145 51 Burma n.a 65 51 Belgian Congo n.a n.a 51 Venezuela 26 46 48

(continued ... ) - 107 - Country 1928 1948 1955

Mexico 5 14 47 Greece 34 6l 46 Italy 50 35 46 France 121 44 W 45 Argentina n.a n.a 43 El Salvador 28 73 42 Turkey n.a 55 42 Belgium_Luxeinbourg 23 46 40 Netherlands 24 19 40 Austria 28 13 40 Federation of Rhodesia n.a n.a 40

III. Present Reserve Ratio between 20%.and LO%

Australia 30 90 39 / Lebanon n.a 35 39 Brazil 40 67 37 / Dominican Republic n.a 20 32 Ecuador 50 47 31 Honduras n.a 5 31 Finland 13 15 28 Union of South Africa 20 42 25 Philippines n.a 61 25 Haiti n.a n.a 25 Sweden 26 17 24 Chile 74 22 22 Colombia 39 25 21 United Kingdom 13 24 20 Costa Rica n.a 12 20o/ IV. Present Reserve Ratio below 20%

Nicaragua n.a 11 19 Iceland n.a 18 18 Peru 67 26 17 Norway 19 19 15 Israel n.a n.a 15 Denmark 17 12 11 Bolivia 39 37 6

a/ Gross reserves W 1950 £/ 1953 S 1956 e/ 50% in 1956 f/ 1954 vg/ 1949 Sources: see page 55. - 108 -

Sources: I.M.F., Inte-AmtionnI 4nciSal tatistic,(various issues) for the years 1948 and 1955, except for the following countries: Ethiopia, IBRD, Current Economiic Position and Prosnects f Ethiopia, 1957; Argentina, Federal Reserve Board, Federal Reserve Bulletin; Belgian Congo, IBRD, The Economy of Ruanda Urundi, 1957; Federation of Rhodesia, IERD, Thb Ehonomy of the Federation of Rhodesia and NTyasaland, 1956; Haiti, IERD, Recent Economic Developments in Haiti, 1956; For 1928, IMF, The Adeguacy of Monetary Reserves, 1953.

The table suggests that the 1955 reserve situation was somewhat better than in the late 1920's. In 16 out of 28 cases for which data are available, the 1955 ratio of monetary reserves to imports was above the level recorded for 1928. The increase is shown in the majority of both European and non- European countries. And whereas in 1928 only 10 out of 28 countries had ratios above 40%, in 1955 the monetary reserves of more than one-half of the sample amounted to 40% or more of annual imports. This rise in the ratio may reflect either an improvement in the aggregate stock of reserve-type assets, both public and private, or their greater concentration in official hands.

Between 1948 and 1955, the absolute level of reserves increased in the majority of countries. Import payments expanded even faster, however, and &bout half of the sample experienced a decline in the ratio. Also, in a number of countries the decline was the result of the process of using up excessive reserves built up during the Second World War. To some extent, it may be argued that the reserve situation as a whole did not actually deteriorate. The number of countries with reserves amounting to more than 40% of annual imports remained unchanged; and while in 1948 there were 13 countries in which the ratio of reserves to annual imports amounted to less than 20%, in 1955 there were seven such cases. Cn the other hand, it should be noted that a number of important debtor countries continued to maintain a very low level of reserves (Chile, Peru, Colombia, Denmark, Norway, Iceland).

At the end of the postwar decade, there were considerable inter-regional differences in the level of reserves. The ratios of reserves to imports were much higher in the Asian and Middle-Eastern countries than in any other area; their median ratio was close to 70%. In the African and European countries, the median ratio amounted to somewhat above 40%. The level of reserves in Latin America was lowest: the median ratio in 1955 was slightly above 30%. - 109 -

(ii) Selective Curtailment of Imports

The policy of drawing on monetary reserves to meet a short-term crisis can be combined with a policy of reducing import payments. It should, of course, be realised, that a certain reduction in imports will occur automatically under the impact of a decline in inccme. Moreover, if it could be assumed that a country does not have any other objective than to restore external equilibrium as quickly as possible, the i-hole burden of the decline in external receipts could be absorbed by a decline in imports brought about through a deflation in income and prices to whatever extent reouired. A crude assumption such as this is probably unrealistic today, however, in view of other objectives of economic and social policy. It may instead be assumed that, in addition to a certain decline in imports caused by a decline in income, debtor countries -will attempt to make selective cuts in imports rather than permit the deflationary mechanism to operate fully. The priorities in the selection are lilcely to depend on the policy objectives of a country. However, two general assumptions can be made with regard to these objectives. The first is that a country will attempt to maintain the minimum living standard; this implies that food imports will not be curtailed. The second assumption is that a country will try to avoid severe unemployrent. This implies that imports of fuels and raw materials will also enjoy a priority. 1/ Consequently there remain two import components which are relatively flexible and in which selective cuts may be made more readily than in other fields; capital goods and consumer manufactures.

1/ The above disregards the possible effects of changes in stocks of food, fuels and raw materials on the flow of imports. At least in some countries stocks are quite large in relation to national product, and consequently a higher proportion of total imports, if the latter represent marginal supplies. Further, th-ere is evidence to suggest that annual changes in stocks are considerable. To the extent that stocks can be squeezed wqithout affecting the current level of output and consumption, a country may be able to save foreign exchange in the immediate short-run. However, inventory data are not available for most countries and it is not possible to determine the role of inventory fluctuations in the event of a temporary crisis. - 110 -

The feasibility of reducing the rate of grow^th of capital goods imports was discussed in the context of the long-term adjustment in income and import growth. This adjustment is likely to work itself out in short-run curtail- mentsof imports of machinery and equipment wnen the country finds that its external receipts are lagging behind expectations and when a decrease in the nationts income reduces the incentive to invest. While the curtailment of capital gocds imports is likely to be accompanied by some unemployment, the extent of such unemployment would probably be smaller than if raw materials and fuels imports were curtailed. 1/

The curtailment of imports of manufactured consumer goods wzill affect the standard of living. However, in view of discrimination which is usually made between essentials and non-essentials and in viewT of the greater responsiveness of the latter to income changes, the greatest reduction is likely to occur in luxury imtorts, thus resulting in the postponement of consumption of luxury goods rather than in the reduction of the minimum consumption level. An additional factor inducing governments to reduce manufactured goods imports in times of crisis is the "incentive" effect which this reduction has on the domestic production of the same goods or their substitutes, thus tending to reduce the level of unemployment. 2/

The scattered statistical evidence that is available indicates that the share of manufactured consumer goods in total imports tended to decline in the majority of non-European countries during the postwiar decade. At the same time, the share of capital goods generally increased, as shown in Table XIII. The net effect of these movements is known for a sample of 21 countries. In fifteen cases the corlIbined share of capital goods and consumer manufactures declined. However, except in three cases, 3/ the decline was

1/ It should be recognized that the curtailment of imports of capital goods may not be accomplished immediately in view of deliveries resulting from previously placed orders. This implies that remaining payments for these orders will have to be continued. However, saving of foreign exchange will result from postponing new orders. 2/ There is some evidence to support the above assumptions regarding import flexibility during a period of temporary decline in current account receipts. Four cases were studied: Argentina in 1951-1953, Australia in 1952-1953, Brazil in 1952-1953 and Indonesia in 1952-1954. Food imports did not decline at all except in Indonesia, wihere this was due to a substantial increase in dcmestic output of rice. Imports of fuels declined very little, - much less than the percentage decline in overall imports. Imports of machinery and motor vehicles substantially declined, more than total imports. Textile imports were reduced at the same rate as total imports, except in Indonesia, where the decline wsas smaller. Imports of raw materials were also cut, in Australia less thmn the averaoe and in Brazil and Argentina above the average. Since in Brazil industrial output continued to increase, the reduction in imports of raw materials was probably made at the expense of inventory liquidation. 3/ Argentina, Egypt and Uruguay. - ill - of a marginal character. Towards the end of the decade, the combined share of these import components was still quite considerable. The median value for a group of 48 countries, both Dhropean and non-Earopean, amounted to 45%; and if European countries were excludled, the median value for the remain ng 33 countries was 51%. 1/

1/ The shares of capital goods and consumer mamnfactures in total imports are shown by countries in Appendix VI. -112 - U13 - 114 -

CONCLUSION

The present paper has reviewied certain historical data and analyzed the past and present behaviour of some important economic factors bearing upon the capacity to service foreign indebtedness. The main findings are presented in a condensed fashion in the introductory chapter called "Summary and Conclusions".

It would not be appropriate at this stage to carry this investigation any further, since it would hardly be practical to do so without investi- gating hliat is likely to be the future behaviour of individual economies in periods of stress, whether short or long term, whether severe or light. Such an investigation would inevitably duplicate the attempts made by the Bank's staff on the occasion of each individual lending operation to appraise the future capacity of the Bank's borrowers to service their external obligations. Mor important, this is not a field wlhich is susceptible to relatively simple statistical treatment or comparisons. Too many factors have to be taken into account, some of whlich can be expressed in figures, some of which cannot. In addition, the relative weight which has to be attributed to these different factors varies from country to country and also for each country from time to time. Any attempt to summarize future expectations in the same manner as was found appropriate for the description of past performance would be dangerously misleadir g.

Only a thorough examination of each individual country in all its relevant aspects may give an answer to the ever present problem of creditworthiness. Only such an investigation can bring to light the important considerations bearing upon it. They cover a wide area. Besides the historical or descriptive data presented above, they should include similar data on subjects such as, for instance, monetary mechanisms, taxes or public finances which for practical reasons could not be analyzed here. The-y also should lead to suggestions as to the course which these elements may Lollow in the future and they therefore may have to include or imply qualitative judgments on such matters as the social structure of the nation, the adaptability of the economy to changes in exchange rates, future capital movements, the more or less enduring character of the economic and financial policies followed or endorsed by the government, etc.

For all these reasons the present paper must avoid entering a field where world wide comparisons are hardly in order and where treatment country by country is the only rblevant one. - 115 - Appendix I to Part I Comments on TabJe I

1. Conclusions which may be drawn from Table I are subject to two qualifications. First, the Table includes both the coumtries for wdhich data are fairly complete (group "AA") and the countries where the lack of information may cause considerable gaps (group "B"). In the regions of Ehrope, Africa and Australia, which comprise 20 countries, only three belong to the doubtful "B" group. Conversely, in the areas of Asia and Middle East and Western Hemisphere, 13 Countries are "doubtful" out of 32.

Secondly, even when the quality of the statistical material is considered equal ("A" group of countries or "B" group of countries), the European, African and Australian debt information, in general is likely to be somewhat more accurate and ccmplete than the Asian or Latin-American debt data.

2. Both these factors imply that actual total debt may be greater than recorded in Table I and the non-recorded portion is likely to be higher in Asia and the Middle East and in the Western Hemisphere than in other regions.

For particular countries, the extent of underestimate may be quite significant if the non-recorded portion is related to their presently known indebtedness. It is unlikely, however, that the overall regional distribution shown in Table I would be substantially changed. Even if it is assumed that the underestimate in the case of Asia and Middle East and Western Hemisphere is as large as 10% and that there is no underestimate in airope, Africa and Australia, the share of the latter areas in the total indebtedness would be reduced by less than 2 percentage points.

3. The definition of external public debt employed in the Table is that used by the Bank's Statistics Division. Prewar debt is included unless it is subject to settlement with the creditors, (as is the case for example with Greece, whose prewar debt has not been included). Omnission of debts or claims in default or in dispute does not indicate an expression of opinion regarding the merits of those cases. Debt arising from reparations and other war claims is included if thle obligation has been fixed and payments schedules established.

4. For Austria and Australia, debt outstanding is shown as of June 30, 1955 and for Belgian Congo as of June 30, 1956. Appendix II to Part I Public Debt 0utstanding of 36 Countries (Group "All) 1945-196o December 31 of each year (in thousands of US $ equivalent)T Total nLon- Year Total Europe Africa Australia Asia Western European 36 countries _ Hemisphere Countries 1945 7,732,240 3,594,809 296,052 1,760,514 495,763 1,585,102 4,137,431 1946 14,204,899 9,990,885 300,953 1,839,036 508,539 1,565,486 4,214,014 1947 16,102,500 11,709,678 379,236 1,821,542 514,364 1,677,680 4,392,822 1948 16,463,979 12,128,036 423,759 1,830,885 501,707 1,579,592 4,335,943 1949 15,370,204 11,810,582 336,838 1,230,812 411,693 1,580,279 3,559,622 1950 16,122,635 12,225,248 438,548 1,288,118 429,461 1,741,260 3,897,387 1951 16,413,309 12,004,786 602,720 1,275,419 674,184 1,856,200 4,408,523 1952 i6,830,585 12,009,921 707,746 1,354,721 808,630 1,949,567 4,820,664

1953 17,022,035 11,584,240 813,225 1,350,012 .845,737 2,428,821 5,437,795 H 1954 18,057,237 11,881,712 912,580 1,383,805 1,052,625 2,826,515 6,175,525 ON 1955 18,329,325 11,726,205 1,093,903 1,400,084 1,426,125 2,683,008 6,603,120 Projected 1956 17,888,208 11,527,120 1,065,501 1,360,674 1,512,306 2j422j607 6,361,o88 1957 16,849,377 10,973,576 1,024,587 1,317,889 1,391,921 2,141,304 5,875,701 1958 15,846,385 10,450,781 960,793 1,242j081 1,310,036 1,882,694 5,395,604 1959 14,823,920 9,955j695 910,213 1,165,783 1,223,850 1,568,379 4j868j225 1960 13,809,717 9,475,970 846,288 1,106,043 1,152,332 1,229,084 4,333,747 Europe: Austria, Belgium, Denmark, Finland, France, Iceland, Italy, Luxembourg, Netherlands, Norway, United Kingdom, Yugoslavia. Africa: Belgian Congo, Ethiopia, Fed. of Rhodesia, U. of S. Africa. Asia : Ceylon, India, Japan, Pakistan, Thailand. Western Hemisphere: Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay. Source: I.B.R.D. Economic Staff, Statistics Division. - 117 -

Appendi# II; to Pa't I

Public Debt Cutstqndine 36 Countries (Grou-n "A"l). 1945. 1950 Rnd 1955 De.cer.her 31 of each Year (in thouspldls of US $ eguivalent)

Dercentape increase 1945 L 1950 1955 1945-1955 1950-1955 Grand Totatl 7.732.241 16.226' 18.3292.32 7.1

Europe 3.594.809 12.225.248 11.726.205 226.2 -L.1 Austria 60,562 72,635 259,146/ 327.9 256.8 Belgium 181,047 375,370 446,376 146.6 18.9 Denmark 272,135 389,493 251,984 -7.4 -35.3 Finland 147,998 326,742 292,177 97.4 -10.6 France 1,267,182 2,906,297 2,631,671 107.7 -9.4 Iceland 1,216 8,633 16,965 1,295.1 96.5 Italy 126,116 550,268 681,450 440.3 23.8 Luxemburg 5,310 19,502 17,342 226.6 -11.1 Netherlands 194,612 939,625 531,607 173.2 -43.4 Norway 222,456 286,523 347,476 56.2 21.3 United Kingdom 1,116,175 6,061,234, 5,920,196 430.4 -2.3 Yugoslavia n.a. 288,924/ 329,815 n.a. 14.2 Africa 296.05 438.548 1.093.903 269.5 149.L Belgian Congo 79,206 107,719 316,564/ 299.7 193.9 Ethiopia 2,786 12,000 32,583 1,069.5 171.5 Federation of Rhodesia 69,157 169,806 368,410 432.7 117.0 Union of South Africa 144,903 149,023 376,346 459.7 152.5 Australia 1,760,514 1,288,118 1,400,0842/ -20.5 8.7 Asia 495.764 429.461 1.426.125 187.7 232.1 Ceylon 37,918 26,345 59,470 56.8 125.7 India 47,467 58,998 486,378 924.7 724.4 Japan 402,945 309,121 627,855 55.8 103.1

Pakistan -- -- 181,785 -- -- Thailand 7,434 34,997 70,637 850.2 101.8 Western Hemisphere 1.585.102 1.741.260 2.683.008 69.3 54.1 Brazil 432,699 409,389 1,046,414 141.8 155.6 Chile 425,892 355,346 313,543 -26.4 -11.8 Colombia 171,447 157,545 281,079 63.9 78.4 Ecuador 24,222 31,944 59,254 144.6 85.5 El Salvador 13,383 22,367 28,263 111.2 26.4 Guatemala 878 378 21,172 2,311.4 5,501.1 Haiti 15,155 8,296 42,225 178.6 409.0 Honduras 5,430 1,260 4,200 -22.7 233.3 Mexico 200,577 509,099 478,944 138.8 -5.9 Nicaragua 5,776 4,640 22,730 293.5 389.9 Panama 15,641 13,000 20,463 30.8 57.4 Paraguay 15,781 15,287 17,974 13.9 17.6 Peru 104,842 107,176 215,366 105.4 100.9 Uruguay 153,379 105,533 131,381 -14.3 24.5

I/ June 30, 1951 2/ June 30, 1955 2/ June 30, 1956 Source: IBRD, Economic Staff,,Statistics Division Appen ixIV.toPat I Debt Cervice PRyments in 1955. Fifty Countries (in thousands of US $ equivalent)

Countrywise percen- Total Debt tage distribution Amortization Interest Service of total debt service Grand Total 14291.442 226 8.648 100.0 I Europe 814.777 330.003 1.14.780 55.9 (1) High and mid- 744,548 317,219 1,061,767 51.8 income countries Austria 22,406 1,777 24,183 1.2 Belgium 28,054 14,579 42,633 2.1 Denmark 38,118 8,029 46,147 2.3 Finland 14,730 9,850 24,580 1.2 France 244,480 66,680 311,160 15.2 Germany (Western) 117,338 61,703 179,041 8.7 Iceland 684 563 1,247 0.1 Italy 38,515 14,128 52,643 2.6 Luxemburg 531 672 1,203 0.1 Netherlands 69,480 13,080 82,560 4.0 Norway 19,472 10,020 29,492 1.4 Sweden -- 1,473 1,473 0.1 United Kingdom 150,740 114,665 265,405 13.0 (2) Low-income countries 70.229 12.784 83.013 4L1 Greece 7,413 2,133 9,546 0.5 Turkey1/ 19,671 6,390a/ 26,061 1.3 Yugoslavia 43,U45 4,261 47,406 2.3 II Africa 25.136 34,528 59.66 2.9 Belgian Congo 4L7 9,007 9,454 0.5 Ethiopia 63 277 340 0.02 Federation of Rhodesia 4,030 12,336 16,366 0.8 Union of SouthAfrica 20,596 12,908 33,504 1.6 III Australia 5l.715 51.135 102.850 5 0 IV Asia and Middle East 160,737 57,006 217,743 10.6 (1) Mid-income countries 88.148 26,983 115.131 5.6 Japan 88,148 26,983 115,131 5.6 Lebanon -- -- (2) Low-income counties 72,589 30,023 102,612 5.0 Burma 866 67 933 0.05 Ceylon 739 ).1515 2,254 0.1 India 4,358 7,399 11,757 0.6 Indonesia 22,373 11,612 33,985 1.7 Iraq 8,3942/ 63 8,4572/ 0.4 Israel 2,554 4,329 6,883 0.3 Pakistan 20,252 1,583 21,835 1.1 Philippines 10,307 2,228 12,535 0.6 Thailand 2,746 1,227 3,973 0.2 - 119 -

Appendix IV to -art I (continued)

V Western Hemisphere 439$057 84,554 523,611 25.6 (i) Mia-income 10.479 4 967 ]5,446 0.8 eountri es Argentina 1,764 373 2,137 0.1 Uruguay 7,305 4,458 11,763 o.6 Venezuela 1,410 136 1,546 0.1

(2) Low-income 428,578 79,587 508,165 24.8 countries Bolivia-7/ 2,757 1,253 4,010 0.2 Brazil 259,408 36,023 295,431 14.4 Chile 29,844 11,165 41,009 2.0 Colombia 34,782 8,710 43,494 2.1 Costa Rical/ 1,000 500 1,500 0.1 Ecuador 3,803 1,138 4,941 0.2 El Salvador 380 790 1,170 0.1 Guatemala 514 117 631 0.03 Haiti 3,680 626 4,306 0.2 Honduras - -- Mexico 72,890 14,202 87,092 4.3 Nicaragua 3,822 483 4,305 0.2 Panama 521 479 1,000 0.05 Paraguay 1,597 414 2,011 0.1 Peru 13,580 3,685 17,265 0.8

2/ 1954 d May include some payments on private account. 2/ Including cancellation of unused portion of IBRD loan.

_/ Service on US Government loans.

Source: IBRD, Economic Staff, Statistics Division. Appendix V to Part I Debt Service Payments of 36 Countries (Grou "AItll) (in thousands of U.S. $ equivalent)

Eurooe Africa Australia Amortization Interest Total Amortization Interest Total Amortizati3n Interest Total 1946 276,744 52,282 329,026 1,359 10,597 11,956 108,515 72,220 180,735

1947 251,180 94,928 346,108 1,404 10,835 12,239 156,375 71,183 227,558

1948 214,765 148,582 363,347 2,833 12,469 15,302 143,397 67,294 210,691

1949 339,682 157,489 497,171 8,697 15,056 23,753 267,o63 65,091 332,154

1950 263,740 166,250 429,990 3,540 11,707 15,247 47,711 44,092 91,803

1951 44o,681 263,770 704,451 6,196 16,352 22,548 14,729 43,030 57,759

1952 475,348 271,469 746,817 8,955 19,282 28,237 37,435 44,297 81,732 1953 516,917 275,188 792,105 10,468 23,362 33,830 30,109 49,008 79,117

1954 744,607 266,901 1,011,508 7,191 29,008 36,199 70,445 50,544 120,989

1955 670,355 258,304 928,659 25,136 34,528 59,664 51,715 51,135 102,850

Projected

1956 570,457 269,371 839,828 29,353 40,248 69,601 50,265 50,276 100,541 1957 552,244 266,447 818,691 41,368 42,040 83,408 42,793 47,924 90,717

1958 521,089 258,943 780,032 64,448 40,243 104,691 75,808 45,765 121,573

1959 493,304 251,163 744,467 51,134 37,999 89,133 76,298 43,126 119,424

1960 477,857 240,616 718,473 64,479 35,994 100,473 59,740 41,320 101,060 appeidix V to Part I (continued) Total Asia Western Hemisphere non-European Countries Total. 36 Countries Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total zation zation zation zation 1946 1,760 3,772 5,532 52,364 28,004 80,368 163,998 114,593 278,591 440,742 166,875 607,617

1947 4,903 4,147 9,050 50,517 29,618 80,135 213,199 115,783 328,982 464,379 210,711 675,090

1948 13,716 4,053 17,769 73,156 33,213 106,369 233, 102 117,029 350,131 447,867 265,611 713,478

1.949 16,800 3,628 20,428 101,500 36,123 137,623 394,060 119,898 513,958 733,742 277,387 1,011,129

1L950 7,204 3,166 10,370 126,611 40,318 166,929 185,066 99,283 284,349 448,806 265,533 714,339

1951 3,982 3,940 7,922 105,616 44,119 149,735 130,523 107,441 237,964 571,204 371,211 942,415

1952 9.081 6,703 15,784 112,026 45,532 157,558 167,497 115,814 283,311 642,845 387,283 1,030,128

1953 52,700 67,166 119,866 151,680 52,701 204,381 244,957 192,237 437,194 761,874 467,425 1,229,299 1

1954 59,208 47,764 103,972 221,215 69,947 291,162 358,059 194,263 552,322 1,102,666 461,164 1,563,830 3

1955 115,991 38,706 154,697 432,126 82,292 514,418 624,928 206,661 831,629 1,295,323 464,965 1,760,288

Projected

1956 106,354 31,603 137,957 288,986 88,619 377,605 474,958 210,746 685,704 1,045,415 480,117 1,525,532

1957 121,114 35,414 156,528 271,230 83,828 355,058 476,505 209,206 685,711 1,028,749 475,653 1,504,402

1958 82,614 40,895 123,509 240,399 75,302 324,701 472,269 202,205 674,474 993,358 461,148 1,454,506

1959 81,866 45,775 127,641 292,908 66,505 359,413 502,206 193,405 695,611 995,510 444,568 1,440,078

1.960 72,126 47,149 119,275 340,070 54,546 394,616 536,415 179,009 715,424 1,014,272 419,625 1,433,897 Note: For a list of countries included in each region, see Appendix II.

Source: I.B.R.D. Economic Staff, Statistics Division. Appendix VI to Part I A. Debt Service Payments. Group I"All Countries (in thousands of US $ equivalent) Projected Annual Average 1946 1950 1955 1956-1960 1/ Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Eurove zation zation zation zation Austria - - - 2,277 389 2,666 22,406 1,777 24,183 32,432 3,113 35,546

Belgium 5,142 7,723 12,865 19,845 9,747 29,592 28,054 14,579 42,633 25,136 13,591 38,726

'Denmark 5,963 10,908 16,871 6,592 11,637 18,229 38,118 8,029 46,147 20,386 6,193 26,579

Finland 1,626 10,190 11,816 12,455 9,809 22,264 14,370 9,850 24,580 14,790 9,307 24,097

-France 227,015 6,654 233,669 61,520 69,447 130,967 244,480 66,680 311,160 145,173 59,725 204,898

Iceland 87 60 147 89 192 281 684 563 1,247 1,060 599 1,659 2/

Italy 966 3 969 36,569 13,464 50,023 38,515 14,128 52,643 43,191 18,498 61,689

Luxembourg 55 266 321 160 678 838 531 672 1,203 627 607 1,234

'Netherlands 1,400 2,116 3,516 69,161 21,638 90,799 69,480 13,080 82,560 22,277 12,635 34,912

Norway 11,281 7,181 18,462 14,039 7,943 21,982 19,472 10,020 29,492 28,962 10,914 39,877

U.Kingdom 23,209 7,181 30,390 41,043 21,306 62,349 150,740 114,665 265,405 145,671 110,650 256,321

Yugoslavia - - - n.a. n.a. n.a. 43,145 4,261 47,406 (43,284) (11,474) (54,758)

Africa Belgian Congo 441 3,069 3,510 778 1,893 2,670 447 9,007 9,454 12,450 12,097 24,547

Zthiopia 100 8 108 267 102 369 63 277 340 1,082 1,327 2,409

F. of Rhodesia 818 2,487 3,305 1,668 4,813 6,481 4,030 12,336 16,366 7,725 13,035 20,760

U. of S. Africa - 5,033 5,033 827 4,900 5,727 20,596 12,908 33,504 28,899 12,845 41,744 A dpe_tx.VI to Part 1 (Continued) Projected Annual Average

__94__ 1950 1925 1956-1960 Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total zation zation zation zation Australia 108,515 72,220 180,735 47,711 44,092 91,803 51,715 51,135 102,850 60,981 45,682 106,663

Aaia Ceylon 754 1,374 2,128 523 955 1,478 739 1,515 2,254 938 2,373 3,311

India 737 2,101 2,838 6,124 1,899 8,023 4,358 7,399 11,757 15,592 14,964 30,556

Japan - - - - - 88,148 26,983 115,131 53,109 17,419 70,528

Pakistan - _ 20,252 1,583 21,835 16,513 3,888 20,402

Thailand 269 297 566 557 312 869 2,495 1,226 3,721 6,662 1,521 8,183

Western Remisphere Brazil 15,063 11,628 26,691 38,224 12,395 50,619 259,408 36,023 295,431 148,120 26,660 174,781 Chile 22,682 5,754 28,436 14,602 8,402 23,004 29,844 11,165 41,009 19,149 8,918 28,068 Colombia 2,219 2,001 4,220 7,542 3,340 10,882 34,782 8,712 43,494 30,121 8,463 38,584 H Ecuador 184 228 412 617 461 1,078 3,803 1,138 4,941 5,382 1,963 7,345 El Salvador 119 56 175 641 330 971 380 790 1,170 1,606 1,071 2,678 Guatemala 100 31 131 100 17 117 514 117 631 477 828 1,305 Haiti 1,390 717 2,107 793 188 981 3,680 626 4,306 3,568 1,139 4,707 Honduras 280 29 309 435 4 439 - - - 357 146 504 Mexico 7,061 1,391 8,452 36,947 8,766 45,713 72,890 14,202 :87,092 46,252 13,131 59,383 Nicaragua 519 195 714 1,712 188 1,900 3,822 483 4,305 2,687 674 3,362 Panama 243 506 749 15,218 541 15,759 521 479 1,000 1,330 636 1,966 Paraguay 661 395 1,056 2,719 475 3,194 1,597 414 2,011 2,028 652 2,680 Peru 418 181 599 4,842 1,182 6,024 13,580 -3,685 17,265 20,018 4,998 25,016 Uruguay 1,425 4,892 6,317 2,219 4,029 6,248 7,305 4,458 11,763 7,419 4,477 11,896 j According to information available in October 1956. 2/ $3.5 million in 1957-1961, according to subseauently Source: I.B.R.D. Economic Staff, Statistics Division. received information. Note: Fi.ures in brackets are unreliable estimates. "ppendiz VI to Part I (cQntinued)

B. Debt Service Payments. Group "B" Countries (in thousands of US $ equivalent) Projected Annual Average 1946 1950 1955 19S6_1960 1/ Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Amorti- Interest Total Burope zation zation zation zation Germany n,a, n,a, n.a. 24,000 500 24,500 117,338 61,703 179,041 128,253 60,216 188,469

Sweden n,a, n.a. n.a. n.a. n.a. n.a. - 1,473 1,473 730 1-432 2,162

Turkey 29,771 - 29,771 16,458 13,388 29,846 n.a, n.a. n.a. n.a. n.a, n.a.

Greece - 1,000 1,000 1,800 4,100 5,900 7,413 2,133 9,546 7,413 1,732 9,145

Asia & Middle East Burma n.a, n.a. n.a. - n.a. n.a. 866 67 933 5,815 1,631 7,446

Indonesia 24,060 22,055 46,115 9,731 24,459 34,190 22,373 11,612 33,985 31,478 5,890 37,368

Iran 2,666 155 2,821 - n.a. n.a. n.a. n.a, n.a. 15,325 1,941 17,266 H

Iraq 540 28 568 56 140 196 8,394 63 8,457 - - -

Israel n,a, n.a, n.a. - 1,000 1,000 2,554 4,329 6,883 12,759 8,154 20,913

Lebanon n.a, n.a. n.a. n,a. n.a. n.a, - - - - 1,047 1,047

Philippines 5,500 3,500 9,000 - 3,500 3,500 10,307 2,228 12,535 11,148 1,667 12,815

Weste?n Hemisphere Arge*itina 131,618 22,929 154,547 - n,a. n.a. 1,764 373 2,137 (1,099) (232) Q,331) Bol4via n.a. n.a. n.a. 1,900 1,333 3,233 2,757 1,253 4,010 3,194 1,114 4,308

Cuhba 6,300 3,670 9,970 13,500 5,500 19,000 n.a. n.a. n.a. 2,575 2,253 4,828

Costa Rica 220 232 452 100 300 400 n.a. n.a. n.a. 1,417 1,045 2,462

Yenezuela 900 - 900 300 100 400 1,410 136 1,546 3, 2 2 3/ 2 03z1 3 , 42 8 &/ I/ According to information available in October 1956. f 1956 and 1957 only. Source- I.B.R.D. Economic Staff, Statistics Division. Note: Figures in brackets are unreliable estimates. - 125 -

Appendix VII to Part I

Effective Rates of Interest (1946-59), Average Effective Periods of Repayment (1946-55) and Proportion of Present Debt Scheduled to be Repa-d in 1955-60 (Group "A" and "B" Countries)

Cumulative Prin- cipal Repayments 1956-1960 as Pro- l/ Average-EffwefiW portion of Debt Effective Rate of Interest_ a_ ent3/ Outstanding at 146 1950 1955 15i / ij.9L 195057 19516/ the end of 1955 (percentages) (number of years) (percentages) Europe Austria - o.5 1.0 2.2 - 32.6 7.8 63 Belgium 3.5 2.7 3.3 3.5 42.7 18.1 15.8 28 Denmark 3.7 3.3 3.0 3.4 49.2 over5O 7.0 40 Finland 5.7 2.9 3.4 3.5 over5O 26.7 19.7 25 France 0.4 2.4 2.4 2.7 7.4 47.5 11.3 27 Germany n,a. n.a. 2.0 2.2 n.a. n.a. 27.0 21 Greece n.a. n.a. 2.4 2.6 n.a. n.a. 12.2 43 Iceland 4.9 2.5 3.4 3.9 114.o over5o 24.2 31 Italy - 2.4 2.3 3.4 n.a. 15.5 16.1 32 Luxembourg 5.0 3.5 3.8 3.9 over5O over5O 33.2 18 Netherlands 0.7 2.3 2.3 2.6 21.7 13.4 8.2 21 Norway 3.0 3.0 3.0 3.6 21.2 18.8 17.0 41 Sweden n.a. n.a. 2.8 3.2 n.a. n.a. n.a. 8 United Kingdom 0.1 0.4 1.9 2.0 over5O over5o 39.8 12 Yugoslavia - - 1.3 2.6 - 27.1 7.5 n.a.

Africa Belgian Congo 3.8 2.4 3.8 4.2 over5o over5o over5o 20 Ethiopia 0.2 1.1 1.3 4.8 49.0 34.2 20.3 17 F. of Rhodesia 3.6 3.0 3.4 3.7 over5o over5O over5O 10 U.of S. Africa 3.5 3.5 3.6 4.3 - over5o 17.2 38

Australia 4.0 3.5 3.7 3.6 16.6 26.4 26.9

Asia & Middle East Burma n.a. n.a. n.a. 2.4 n.a. n.a. 47.6 46 Ceylon 3.6 3.6 2.5 4.2 over5o over5o over5O 8 India 4.5 3.3 1.9 3.2 over50 9.4 over5O 16 Indonesia n.a. n.a. 2.9 2.9 n.a. n.a. 17.8 52 Iran n.a. n.a. n.a. 2.0 n.a. n.a. 37.0 44 Iraq n.a. n.a. n.a. n.a. n.a. n.a. n.a. _ Israel n.a. n.a. 1.2 2.3 n.a. n.a. over5O 18 Japan - - 4.9 4.3 _ _ 6.3 42 Lebanon n.a. n.a. n.a. 4.8 n.a. n.a. n.a. - Pakistan - - 1.0 3.9 - - 8.2 45 Philippines n.a. 4.6 2.7 2.7 n.a. n.a. 8.o 72 Thailand 2.1 1.4 2.0 2.6 over5O 40.5 22.8 47 -126 - Appendix VII to .art I (continued) Cumulative Prin- cipal Repayments Effective Rate Average E1fective 1956-196 as Pro- of Interest 1/ ?eriod of Repafment portion of Debt of_Interest____Period_of_Repayment Outstanding at 1946 1950 1955 1 9 5 9 qt 19h64/ 1950>! 1 9 5 5 b/ the end of 1955 (percentages) (number of years) (percentages) Westem Eemisphere Argentina n.a n.a. 3.6 4.2 n.a. n.a. 5.8 n.a. Bolivia n.a n.a. 3.5 3.9 n.a. n.a. 13.0 43 Brazil 2.7 3.0 3.1 3.8 28.4 10.7 4.5 71 Chile 1.4 2.3 3.5 3.5 18.2 24.7 10.8 31 Colombia 1.1 2.1 3.2 4.3 37.6 20.7 7.8 53 Costa Rica n.a. n.a. n.a. 3.6 n.a. n.a. 31.2 21 Cuba n.a. n.a. n.a. 4.6 n.a. n.a. 21.8 23 Ecuador 0.9 1.5 2.o 4.3 over 50 48.3 15.1 45 El Salvador-0.4 2.0 3.4 4.5 16.4 25.8 over 50 28 Guatemala 3.7 4.0 0.9 4.6 8.3 4.3 24.o 11 Haiti 5.0 2.2 1.8 3.7 lo.4 11.0 9.4 42 Honduras o.6 0.2 - 4.7 18.2 3.8 - b2 IIexico 0.7 2.1 2.8 3.9 27.9 11.4 7.0 48 Nicaragua 3.5 3.4 2.4 4.3 1o.6 3.2 5.2 59 Panama 3.2 3.6 2.7 3.6 over 5o over 50 34.1 33 Paraguay 2.3 2.7 2.2 5.6 26.o 6.4 12.0 56 Peru o.2 1.1 2.2 3.3 over 50 22.8 12.4 46 Uruguay 3.4 3.8 3.4 4.1 over 5o 47.6 18.8 28 Venezuela n.a. n.a. 2.7 n.a. n.a. n.a. 3.6 100

1/ Effective Rate of Interest is calculated by expressing the amount of interest payments made during the year as a percentage of the average of debt outstanding at the beginning and at the end of that year. 2/ Projected. y/ Average Effective Period of Repayment is calculated by dividing the average of debt outstanding at the beginning and at the end of the year, by the amount repaid during that year. The ratio indicates the number of years in which the entire debt would be repaid if amortization was continued at the same level and if no new debt was incurred. 4/ 1947 in Netherlands, United Kingdom, Colombia, Ecuador, El Salvador, Peru Uruguay. 5/ 1951 in United Kingdom, Yigoslavia, Panama; 1949 in the Union of South Africa. §/ 1954 in Ethiopia; projected for 1956 in Burmaa, Iran, Coast Rica and Cuba.

Source: Appendix III and VI. - 127 -

Appendix I to Part II

Sources and Methods for Table I. "Distribution of Group 'A" Countries According to Rates Ev Growth in Real Debt Service and Real Income in the Postwar Period"

1. The rates of growth in real income are shown in Table III. The sources of country data are shown in Appendix II.

2. The period for which it was possible to calculate the rate of growth in real income was in a large number of cases shorter than the period for wihich rate of growth in real debt service was calculated.

3. The average of debt service expressed in current dollar prices for 1946-47 and 1954-55 was calculated. The latter was deflated by the index number of U.S. import prices in 1954-55 with its base shifted to 19h6-47. In the case of Australia, Federation of Rhodesia, South Africa, India, Palistan and Ceylon, who paid a sizeable share of tlleir total service paymnents in pounds sterling, a corresponding index number of U.K. import prices (expressed in U.S. dollars) was used. For the Belgian Congo who paid most of its debt service to metropolitan Belgium, the latter's import price index (expressed in U.S. dollars) was used.

4. If the 1954-55 debt service was deflated by the index number of wholesale prices in creditor countries, the results shoem in Table I would not be changed.

5. In Table I, France was included in the group of countries whose rate of growth in debt service was approximately equal to the rate of growth in real income. If the French debt service in 1954-55 wras deflated by the index number of U.S. import prices, the resulting growth rate in debt service would be lower than the French growth rate in real income. But there is some direct evidence to show that French export prices did not increase during the decade.

6. No income data was available for Ethiopia. However, the rate of growth in debt service was so high that a higher rate of growth in income was inconceivable. Consequently, Ethiopia was included in the group of countries whose rate of growth in debt service was above the rate of growfth in income.

7. The source of debt service data is I.B.R.D., Economic Staff, Statistics Division. The index numbers of wnholesale and import prices were derived from International Financial Statistics, I.M.F., various issues. - 128 - Appendix II to Part II

Sources and Methods for Tables II, III, IV, V, and VI

1. Table II: Ratio of Debt Service to Gross Income. 2. Table III: Post-war Growth in Real Income. 3. Table IV: Growth in Income and Output. 4. Table V: Proportion of Gross Savings Absorbed by Debt Service 5. Table VI: Post-war Remaining Gross Savings Rates.

I. General

1. The following text contains the information on sources for tables shown above. Sources, sometimes accompanied by brief comments, are given country by country for all the tables simultaneously.

2. Data on public debt service payments are taken from the records of the Bankts Statistics Division. Data on investment income payments are taken from IMF, Balance of Payments Yearbook, (various issues).

3. In the vast majority of countries (40) growth rates of income were computed from gross or net national income data. This income data excludes factor income payments abroad, both on public and private account. Therefore the only discrepancy between growth rates in income shown in Table III and in growth rates of income remaining after debt service payments was on account of amortization on public debt. Table II shows that the average ratio of public debt service to income at the end of the decade was substantially below 1% and by definition, the ratio of amortization to income could only have been more insignificant. Consequently, the discrepancy between the growth rates of income and of remaining income was negligible.

4. For the 8 countries for which gross or net domestic product data was used, the rate of growth in remaining income was directly calculated. The results were not basically different from those shown in Table III.

5. Savings rates are computed on the basis of investment and balance of payments data (savings = domestic investment + current account balance exclusive of donations). There are considerable differences in the definition of investment and data vary greatly with respect to accuracy and completeness. In a number of countries, data on inventory changes were not available. In several cases, specified in the country notes below, adjustments for comparability were made in the investment figures. - 129 - Appendix II to Part II (continued) II. Country Notes

Argentina: GNP and savings derived from Secretaria de Asuntos Economicos: Producto e Ingreso de la Republica Argentina en el periodo 1935-1954. Capital formation data include some repairs. Conseqaently, the savings rate is overestimated. Growth in income (Gross National Income) derived from ECLA, Economic Survey of Latin America in 1955. Australia: GNP and savings derived from Commonwealth of Australia, National Income and Expenditure, (various issues) except savings in 1947/48, which were partly derived from investment figure given in IBRD, The Australian Economy, June 1952. All investment figures were adjusted downwards by one-third of the value of purchased motor- vehicles, on the assumption that this represented consumption expenditure. Growth rate in income as computed in IBRD, The Economy of Australia, November 2, 1956. Austria: GNP and savings derived from General Statistics, OEEC Statistical Bulletins, (various issues). Growth in income (Gross National Product) derived from 0EEC, Seventh Annual Report.

Belgian Congo: GNP and savings derived from UN, Statistics of National Income and Expenditure, (various issues). Growth rate in income (Gross Domestic Product) computed from UN, Statistics of National Income and Expenditure, 1957 and verified by independent calculation. Belgium : GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growth rate in income (GNP) derived from OEEC, Seventh Annual Report.

Bolivia : GNP computed on the basis of the national income estimate in U.S.$ given in IBRID, Comparative Data on Latin American Countries, July 1956, by assuming that national income is 95' of GNP. Growth rate in income estimated according to information in IBRD.

Brazil: GNP and savings in 1954 computed from UN, Statistics of National Income and Expenditure, 1957 and DIF, Balance of Payments Yearbook; savings in 1948-1949 computed from IBRD, Current Economic Position and Prospects of Brazil, July 8, 1954. Growth rate in income (GIv) and output derived from ECLA, Economic Survey of Latin America in 1955. - 130 - Appendix II to Pert II (Continued)

Burma : GNP and savings derived from Central Statistics and Economics Department, The National Income of Burma, (various issues) and ThF, Balance of Payments Yearbook. Fixed investment was reduced by 20% in order to exclude repair and maintenance expenditure. The amount thus obtained was also deducted from the reported GNP. Growth rate in income (GDI) and output taken from IBRD, Postwar Economic Growth in Southeast Asia, October 10, 1955.

Ceylon : GNP and savings derived from UN, Statistics of National Incacme and Expenditure and DIF, Balance of Payments Yearbook. Growth in income (GDI) taken from IBRD, Postwar Economic Growth in Southeast Asia, October 10, 1955,

Chile : GNP and savings computed from UN, Statistics of National Income and Expenditure and DIF, Balance of Payments Yearbook. Growth in income (GNP) taken from IBRD, Current Economic Position and Prospects of Chile, March 21, 1957 and from information in IBRD.

Colombia : GNP and savings in 1954 computed from UN, Statistics of National Income and Expenditure: IBRD, Comparative Data on Latin American Countries and INF, Balance of Payments Yearbook. Savings in 1946-1947 computed from IBRD, The Basis of a Development Program for Colombia, 1948. Growth in income (GUI) and output derived from ECLA, Economic Survey of Latin America in 1955.

Costa Rica : GNP computed on the basis of national income estimate in U.S.$ given in IBRD, Comparative Data on Latin American Countries, by assuming that national income is 95% of GNP. Savings derived from UN, Statistics of National Income and Expenditure. Data incomplete; capital formation data include only private investment. Growth in inccme (NP) as estimated in IBRD, Current Economic Position and Prospects of Costa,Rica, February 11, 1957.

Cuba : GNP and growth in income (GNP) derived from Banco Nacional. de Cuba, N4emoria 1954-1955.

Denmark : GNP and savings rate derived from General Statistics, OEBC Statistical Bulletins. Growth in income (GNP) derived from OEEXC, Seventh Annual Report.

Dominican GNP taken from UN, Statistics of National Income and Republic : Expenditure. - 131 -

Appendix II to Part II (Continued)

Ecuador: GNP and savings derived from IBED, Current Economic Position and Prospects of Ecuador, February 13, 1956. Growth in income (GNI) and output taken from the same source.

GNP computed on the basis of national income estimate given in UN, Statistics of National Income and Expendi- ture, by assuming that national income is 95% of GNP. Growth in income (NI) computed from UN, Economic Development in the Mliddle East 1945-1954; similar estimate given by IBRD, The Economic Development of Egypt, August 10, 1955.

E. Salvador : GNP and savings derived from IBRD, Current Economic Position and Prospects of El Salvador, and IMF, Balance of Payments Yearbook. Growth rate in income (GNI) and output taken from IBRD, Current Economic Position and Prospects of El Salvador, September 16, 1954.

Federation of GNP and savings derived from UN, Statistics of National RTodesia Income and Expenditure. Growth in income (GNI) and output taken from IBRD, The Economy of tlhe Federation of Rhodesia and Nyasaland, June 13, 1956.

Finland : GNP and savi;lgs derived from UN, Statistics of National Income and Expenditure. Fixed investment was reduced by 20% in order to exclude repair and maintenance expenditure. The amount thus obtained was also deducted from the reported GNP. Growth in income (:DP) derived from UN, Statistics of National Income and Expenditure.

France: GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growth in income (GNP) derived from OEEC, Seventh Annual Report.

Western GMP and savings derived from General Statistics, OEEC Germany : Statistical Bulletins. Growth in income (GNP) derived from OEEC, Seventh Annual Report.

Greece - GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growth in income (GNTP) derived from OEEC, Seventh Aunual Report.

Guatemala : GNP and savings in 1954 and savings in 1948 and 1949 derived from UN, Statistics of National Income and Expenditure and IMF, Balance of Payments Yearbook. Savings in 1955 derived from IBRD, Current Economic Position and Prospects of Guatemala, February 5, 1957. - 132 - Appendix II to Part II (Continued)

Haiti: GNP computed on the basis of the national income estimate in U.S.$ given in 2BRD, Comparative Data on Latin American Countries, by assuming that national income is 95% of GNP. Gro;rth in output and income taken from IBRD, Recent Economic Development in Haiti, April 19, 1956.

Honduras: GNP and savings computed from IBRD, The Economy of Honduras, September 29, 1955 and IM4F, Balance of Pay- ments Yearbook. Growth in income (GMI) and output taken from TBRD, The Economy of Honduras, September 29, 1955.

Iceland : GNP and savings in 1953 and 1948-1949 derived from General Statistics, OEEC Statistical Bulletins. Growth in income estimated according to information in IBRD.

India: GiP and savings derived from IBRD, Current Economic Position and Prospects of India, September 1956. Growth in income (NNP) derived from the same source.

Indonesia: GNP and savings derived from Daniel Neumark, The National Income of Indonesia, 1954. Growth in income taken from IBRD, The Economy of Indonesia, January 26, 1956.

Israel: GNP taken from UN Statistics of National Income and Expenditure. Growth in income (NI) derived from The Central Bureau of Statistics, Statistical Abstract of Israel 1955-1956. Italy GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growrth in income (GHP) derived from OEEC, Seventh Annual Report. Japan: GNP and savings derived from UN, Statistics of National Income and Expenditure and ECAFE, Economic Survey of Asia and the Far East for 1955. Growth in income (NI) derived from UN, Statistics of lqational Income and Expenditure.

Lebanon GNP computed on the basis of the national income estimate given in IBRD, The Current Economic Position and Prospects of Lebanon, August 3, 1955. NIet savings derived from the same source and increased by estimated depreciation (5% of Gil?) to obtain gross saavings. Growth in income (UdNP) computed from the same source.

Luxembourg: GNP and savings derived from GeraStati3tieS,JiE Statistical Bulletins. - 133 - Appendix II to Part II (Continued) Mexico GNP and savings in 1955 derived from IBRD, Current Economic Position and Prospects of Yiexico, November 1, 1956, and IMF, Balance of Payments Yearbook. Savings in 1946-1948 taken from IB2fl, The Economic Development of MYexico, 1953. Growth in income (GNI) computed from ECLA, Economic Survey of Latin America, 1955. Netherlands: GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growth in income (GNP) derived from OEEC, Seventh Annual Report.

Nicaragua: GNP computed on the basis of the national income estimate in U.S.$ given in IBRD, Comparative Data on Latin American Countries, by assuming that national income is 95% of GNP. Savings in 1953 derived from the same source and IMNF, Balance of Payments Yearbook. Savings in 1948 taken from IBRD, Current Economic Position and Prospects of Nicaragua, January 14, 1955. Growth in income and output derived from the same source.

Norway: GNP and savings derived from General Statistics, OEEC Statistical Bulletins. Growth in income (GNP) derived from OEEC, Seventh Annual Report. Pakistan GNP computed on the basis of the national income estimate given in UN, Statistics of National Income and Expendi- ture, by assuming that national income is 95% of GNTP. Savings taken as 5% of GNP according to Government of Pakistan. The First Five-Year Plan, 1956, and IBRD, Current Economic Position and Prospects of Pakistan, November 16, 1956. It is probable that only monetized savings are included. Growth in income (NI) derived from UN, Statistics of National Income and Expenditure and IBRD, the same source. Panama GNP derived from UN, Statistics of National Income and Expenditure. Growth in inccme (GlJP) according to information in IBRD (Panama Mission).

Paraguay: GNP taken from UN, Statistics of National Income and Expenditure. Growth in income (GNP) derived from the same source.

Peru: GNP and savings derived from IBRD, Current Economic Position and Prospects of Peru, February 25, 1957. Capital formation data include motor vehicles for personal use and savings rate is tlherefore somewhat overestimated. Growth in inccme (GNIP) taken from the same source. Probably overestimated; agricultural and industrial production indices suggest a growith rate below 4%. - 134 -

Appendix II to Part II (Continued)

Philippines : GNP and savings derived from UN, Statistics of National Income and Expenditure and ECAFE, Economic Survey for Asia and the Far East, 1957. Growth in income (GDP) derived from ECAFE, Economic Survey for Asia and the Far East, 1955.

Sweden GNP and savings derived from General Statistics, OEBC Statistical Bulletins. Growth in income (GNP) derived from OEEC, Seventh Annual Report.

Thailand GNP for 1953 from UN, Statistics of National Income and Expenditure and IMF, Balance of Payments Yearbook. Savings for 1955 derived from the investment estimate given in IBRD, Current Economic Position and Prospects of Thailand, April 17, 1957 and ILIF, Balance of Payments Yearbook. Growth in income (GDP) taken from IBRD, Current Economic Position and Prospects of Thailand, April 17, 1957.

Turkey : Savings rate (before principal repayments) derived from UN, Statistics of Naticnal Income and Expenditure and ECE, Economic Survey of Europe in 1955. Growth in income (GNP) derived from General Statistics, CEEC Statistical Bulletins.

Union of GNP and savings from IBRD, Current Economic Position and South Africa : Prospects of the Union of South Africa, November 14, 1955. Growth in income (GNP) taken from the same source.

United GNP and savings derived from General Statistics, OEEC Kingdom : Statistical Bulletins. According to U.K. and IMF data, gross savings rate in 1954-1955 amounted to 17-18% of GNP, somewhat higher than shown in the table. Growth in income (GNP) derived from OEEC, Seventh Annual Report.

Uruguay : GNP computed on the basis of the national income estimate in U.S. $ given in IBRD, Comparative Data on Latin American Countries, by assuming that national income is 95,' of GNP. Savings derived from the estimate given in IBRD, Current Economic Position and Prospects of Uruguay, Nlay 3, 1955. Growth in income (NI) derived from the latter source.

Venezuela : GNP taken from UN, Statistics of National Income and Expenditure. Growth in inccme (GNI) derived from ECLA, Economic Survey of Latin America in 1955. - 135 - Appendix II to Part II (Continued)

Yugoslavia Estimated GITP in U.S.I equivalent taken from IBRD, Selected Economic Data for Countries in Europe, Africa and Australasia in 1954. Savings computed from ECE, Economic Survey of iarope in 1955. Fixed investment was reduced by 20% in order to exclude repair and maintenance expenditure. The amount thus obtained was also deducted from GIiP as estimated by MCE. Growth in income (GNP) derived from ECE, Economic Survey of Europe in 1955. - 136-_

Appendix III to Part II Postwar Growth in APricultural and Industrial Production

Country Agricu.lture industry Annual Annual Period Index Groijth Rate Period Index GrowthRate Austria 1950/52-1953/55 112.6 4.0 1948-55 246 13.7 Belgium-Luxemburg 1949/51-1953/55 114.1 3.5 1948-55 131.8 4.0 Denmark 1948/50-1953/55 124.2 4.5 1947-55 143.4 4.6 Finland 1947/49-1953/55 136.1 5.2 1946-55 195 7.7 France 1949/51-1953/55 117.1 4.0 1948-55 153.1 6.3 W. Germany 1949/51-1953/55 121.9 5.0 1950-55 179.1 12.4 Greece 1949/51-1953/55 120.4 4.7 1949-55 210 13.2 Italy 1948/50-1953/55 126.7 4.8 1948-55 190 9.7 Netherlands 1948/50-1953/55 117.8 3.2 1948-55 166.2 7.5 Norway 1948/50-1953/55 116.6 3.1 1947-55 179 7.6 Sweden 1947/49-1953/55 109.1 1.5 1945-55 163.2 5.1 United Kingdom 1947/49-1953/55 117.8 2.7 1947-55 148.7 5.1 Yugoslavia 1953/55 output equal to prewar 1947-55 200 9.0 Turkey 1947/49-1953/55 154.6 7.5 1947-53 154 7.5 Cuba 1947/49..1953/55 92.8 decline 1945-49 106 1.5 Mexico 1947/49-1953/55 135.9 5.2 1947-55 157 5.8 Argentina 1947/49-1953/55 100.9 0 1943-55 164 4.2 Brazil 1947/49-1953/55 123.5 3.6 1947-55 175 7.3 Chile 1947/49-1953/55 120.7 3.4 1947-55 150 5.3 Colombia 1947/49-1953/55 117.2 2.6 1949-55 154 7.5 Peru 1947/49-1953/55 119.6 3.0 1948-55 136 4.5 Uruguay 1947/49-1953/55 138.6 5.6 n.a. Australia 1947/49-1953/55 111.6 1.8 n.a. Burma 1947/49-1953/55 112.2 2.0 n.a. Ceylon 1947/49-1953/55 128.4 4.2 n.a India 1949/51-1953/55 117.5 4.1 1950-55 147 8.0 Indonesia 1950/52-1953/55 121.5 6.7 n.a. Japan 1950/52-1953/55 104.4 1.5 1952-55 143 12.7 Pakistan 1947/49-1953/55 106.4 1.0 1950-55 284 23.2 Philippines 1949/51-1953/55 133.1 7.4 1951/2-55 134 7.6 Thailand 1947/49-1953/55 134.0 5.0 n.a. Egypt 1947/49-1953/55 116.8 2.6 n.a. U. of S. Africa 1947/49-1953/55 118.4 2.8 1944-50 174 9.5 Belgian Congo 1947-54 336 18.9 S. Rhodesia 1945-53 179 7.5 1 Current output below prewar. Note: The definition of industrial production varies as between countries. Sources: 1. For agricultural production: F.A.0. Yearbook of Food and Agricultural Statistics, 1951 and 1955. 2. For industrial production: U.N, Statistical Yearbook. 1955, Monthly Bulletin of Statistics. Sentember 1956, E.C.A.F.E, Economic Survey of Asia and Far East (various issues) and E.C.L.A, Economic Survey of Latin America (various issues). - 137 -

Appendix I to Part III

Sources and Methods for Talles III and IV

Table III : "Investment Income Receipts of Main Creditor Countries as Proportion of their Aggregate External Payments, 1946-1955" Table IV : "Investment Income Receipts of Main Creditor Countries as Proportion of their External Payments, 1920's, 1930's and 1950's."

United'States: U.S. Department of Commerce, Survey of Current Business, various issues; International Monetary Fund, International Financial Statistics, various issues.

United Kingdom: U.K. Balance of Payments, various issues; I.M.F. Balance of Payments Yearbook, various issues; League of Nations, Balance of Payments, various issues; A.E. Kahn, Great Britain in the World Economy, New York 1946.

Net long-term capital outflow for the years 1946-1952 includes net errors and omissions. The ratios for 1929, 1936 and 1937, shown in Table IV, B. relate to commodity imports only; no figures are available for imports of services. It may be assumed that the ratios would be 2-3 percentage points lower if imports of services were also included.

France: Ministere des Finances, Balance de payments de l'annee 1955 entre le zone franc et les pays entrangers; I.M.F. Balance of Pay- ments Yearbook, various issues; League of Nations, Balance of Payments, various issues.

Figures for the years 1937-1938 given in Table IV, are estimates. They are based on private statistics of the French balance of payments for those years and contain some service items on a net; rather than a gross, basis. In addition, they relate to M4etropolitan France, while postwar data relate to the French Franc Zone. For all these reasons, the comparability of the prewar and postwar data is limited.

Canada Dominion Bureau of Statistics, The Canadian Balance of International Payments, various issues and I.M.F. Balance of Payments Yearbook, various issues.

Belgium Luxemburg : Banque Nationale de Belgique, Bulletin d'Inform- ation et de Documentation, various issues.

Western Germany : lvlonthly Report of the Bank Deutscher Zander, June 1956

Netherlands : De Nederlandsche Bank N.V., annual reports; I.M.F. Balance of Payments Yearbook, various issues. For the years 1926-1927 and 1935-1937, figures on capital outflow, used for computing the ratios in Table IV, A. include "known capital movements" only. - 138 -

Appendix II to Part III

The Calculation of the Public Debt Service Ratio

1. In Table V and Table VI, the ratio of public debt service to "gross" current account receipts (i.e. value of exports of goods and services and private remittances) is calculated.

2. In the calculation of this ratio, several other concepts of external receipts are frequently used. These alternative concepts can be distinguished as follows: (a) commodity exports only (b) "normal" commodity exports or "normal" current account receipts. Here an adjustment is made for cyclical or other short-run fluctuations. (c) "net" current account receipts. In this concept, private investment income payments are deducted from "gross" current account receipts. The assumption underlying this concept is that the part of external receipts which are absorbed by private investment income payments are not really at the disposal of the debtor country, particularly if foreign investment is in an export industry and profits are retained abroad. 3. The ratio of public debt service to "net" current account receipts has been calculated for the following fourteen countries. The difference between these ratios and the ratios presented in Tables V and VI is of minor quantitative significance, as shown below:

Ratio of public debt Ratio of public debt service to "gross" service to "lnet" Country Year current account receipts current account receipts (percentage) (percentage)

Belgian Congo 1955 1.6 1.8 Costa Rica 1954 1.5 1.7 U. of S. Africa 1955 2.0 2.2 Philippines 1955 2.2 2.5 Panama 1954 2.5 2.9 Fed. of Rhodesia 1955 2.8 3.4 Ecuador 1955 3.6 4.3 Nicaragua 1955 4.9 5.4 Peru 1955 5.4 5.8 Lebanon 1953 6.7 8.0 Chile 1954 7.0 7.7 Venezuela 1954 0.08 0.12 Honduras 1953 0.13 0.16 Iraq 1954 0.13 0.20 - 139 -

Appendix III to Part III

Sources and Methods for Table IX: "Postwar Increase in the "Real Value" of Current Account Receipts Rer-ainina After Service Payments"

1. The percentage increase in the dollar value of remaining receipts for the postwar period was calculated. This percentage increase in terms of current prices was adjusted for changes in import prices by either or both of two methods. Method A consisted of using national indices of import prices expressed in dollar terms. Method B consisted of using a weighted average of the change in the dollar export prices of suppliers. This weighted average was calculated on the basis of the country's import distribution as between the main suppliers in 1955.

2. The following index numbers of the dollar export prices of suppliers were used in constructing the weighted average used in Method B.

Year U.S. U.K. E.P.U. Far East Latin Japan Independent America Countries _

1946 77 89 n.a. n.a. n.a. n.a. 1947 91 103 111 101 83 n.a. 1948 98 112 111 127 87 n.a. 1950 88 84 88 106 91 90 1951 101 99 109 142 107 129 1952 100 104 110 117 103 106 1953 100 100 100 100 100 100 1954 99 99 98 102 107 96 1955 100 101 98 99 100 97

Source: I.M.F: International Financial Statistics (various issues) U.N: Monthly Bulletin of Statistics (various issues) - 140 -

Appendix III to Part III (continued)

3. The following table indicates the countries for which the weighted average of the change in the dollar export prices of suppliers was con- structed. Further, it shows the relevant suppliers for each country and the percentage of total imports covered by them.

Percentage of Country Main Suppliers total imports covered by suppliers

Argentina E.P.U, Latin-America, U.S. & U.K. 71 Belgian Congo U.S. and E.P.U. 76 Bolivia U.S, E.P.U, Latin-America and U.K. 99 Brazil E.P. U, U.S. and Latin-America 77 Ceylon Far East Sterling, U.K. and E.P.U. 63 Chile U.S, Latin-America and E.P.U. 89 Egypt .P.LU, U.K. and U.S. 70 Ethiopia E.P.U, U.S. and U.K. 64 Federation of Rhodesia U.K. 43 Iceland E.P.U, U.S. and U.K. 66 India U.K, E.P.U. and U.S. 61 Paraguay L.A, E.P.U. and U.S. 80 Thailand E.P.U, Japan, U.S. and U.K. 72 Turkey E.P.U, U.S. and U.K. 64 Union of South Africa U.K, U.S. and E.P.U. 76 Uruguay E.P.U, Latin-America, U.S. and U.K. 78 Yugoslavia E.P.U, U.S. and U.K. 79

4. The I.M.F. import price index for Latin-America was used in some cases. The values of this index are as follows:

Yer TIndex Number Year Index Number

1946 80 1951 103 1947 95 1952 102 1948 102 1953 100 1950 88 1954 99 1955 100

This is a weighted average of the export indices of the U.S. (73%), Continental E.P.U. countries (18%) and the U.K. (9%). This index was used for countries whose import distribution roughly coincided with these weights. These countries were: Colombia, Ecuador, E1 Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Peru, Dominican Republic and Venezuela.

Source: I.M.F: International Financial Statistics. I.M.F: Staff Paners February 1955: Brovedani Bruno, "Latin-American Medium Term Import Stabilization Policies and the Adequacy of Reserves". -. 1b4 -

Appendix III to Part III (continued)

5. In the case of Austria, the E.P.U. import price index was used as a deflator.

Source: I.M.F: International Financial Statistics.

6. The following table shows the percentage increase in both real value and current value of remaining receipts. In 21 countries out of 48, import prices declined over the period under consideration and consequently, the real increase in the purchasing power of remaining receipts was greater than the increase in terms of current values. Half of these countries are European. In their case, the decline in import prices was accompanied by a somewhat greater fall in export prices. Consequently, they experienced a deterioration in their terms of trade and the increase in the real value of their remaining receipts was due to a rise in volume of exports which more than offset this deterioration in terms of trade. In other countries like India, Philippines and Egypt, the effect of a decline in import prices was also more than offset by a greater decline in export prices.

7. In the Union of South Africa, Turkey, Honduras, India, Brazil and Ceylon, the table shows a considerable discrepancy in the results obtained by deflating according to alternative methods. However, in the cases of the first four countries the discrepancies are not so serious as to make the level of the annual growth rate in the real value of remaining receipts wholly indeterminate. The discrepancy is serious in Brazil, but there is reason to suspect the result obtained by using their national index of import prices, since it covers only 50% of imports and has improper weights. (See I.M.F: International Financial Statistics May 1957, pp 235) The discrepancy in Ceylon is inexplicable.

8. An alternative computation of growth in the "real" value of remaining receipts was also made, using the index of U.S. wholesale prices as a uniform deflator, on the assumption that this is a rough measure of the overall depreciation of money that has taken place during the postwar period. Rates of growth which were obtained, were generally lower than those shown in Table IX. The difference was not too large, however, and the broad picture, indicating a signifizant increase in the "real" value of remaining receipts, was broadly confirmed. - 142 -

Appendix III to Part III (continued) Underlying Data for Table IX: Postwar Increase in the Real Value of Current Account Receints Remaining After Service Payments

Country Period Percentage Change in Percentage Change Real Value in Current Value

Method A Method B

W. Germany 1950-55 225 _ 241 Netherlands 1948-55 189 - 131 France 1948-55 154 - 205 Austria 1950-55 n.a. 104 126 Italy 1948-55 103 - 92

Greece 1951-54 133 - 108 Denmark 1948-55 128 - 85 Nicaragua 1947/48-54/55 n.a. 164 168 Venezuela 1947-54 n.a. 159 171 El Salvador 1947/48-54/55 n.a. 145 148 Ecuador 1947/48-54/55 n.a. 123 125 Costa Rica 1947-54 111 - 123 Colombia 1947/48-54/55 113 113 115 Japan 1950-55 141 - 139 Iraq 1947-54 n.a. 164 159 Ethiopia 1947/48-54/55 n.a. 131 111 Federation of Rhodesia 1950-55 n.a. 75 110

Turkey 1948-54 103 92 77 Belgium-Luxemburg 1948-55 74 - 74 Finland 1947/48-55 72 - 66 Norway 1948-55 66 - 44 Sweden 1947/48-54/55 60 - 57 U.K. 1947-55. 49 - 66 Dominican Republic 1948-55 n.a. 70 67 Mexico 1947/48-54/55 60 64 66 Peru 1947/48-54/55 n.a. 61 63 Honduras 1947/48-54/55 52 64 67 Panama 1948-55 43 - 45 Belgian Congo 1948-55 n.a. 87 73 Union of South Africal947/48-54/55 44 71 66 Thailand 1948-55 n.a. 58 54 Ceylon 1947/48-54/55 101 58 41 - 143 - Appendix III to Part III (continued)

Country Period Percentage Change in Percentage Change Real Value in Current Value

Method A Method B

Iceland 1947-54 n.a. 40 36 Paraguay 1947/48-54/55 n.a. 40 5? Chile 1947-54 n.a. 38 47 Guatemala 1947-54 34 37 44 Yugoslavia 1949- 54 12 - 9 Philippines 1950-55 15 12 Australia 1947-54 14 - 51 India 1948-55 24 14 4

Brazil 1947/48-54/55 32 9 13 Uruguay 1948-55 n.a. 6 12 Indonesia 1/ 1950-55 0 - 10

Cuba 1946- 54 -1 _ 11 Haiti 1950/51-54/55 n.a. -2 2 Bolivia 1947/48-54/55 n.a. -10 -7 Argentina 1947/48-54/55 n.a. -28 -27 Egypt 1948-55 n.a. -10 -18

1/ Commodity exports only -l-4 Apnendix IV Appendix IV to Part III Sources and Methods for Table XI "Changes in The Export structure of Selected Debtor Countries" (Group "A" and "B", 38 Countries).

I. Share of Manufactures in Total Exports

1. The definition of manufactures lends itself to various intrepretations. In the definition adopted in Table XI, refined petroleum products and processed foodstuffs are excluded. However, these items form a significant share of the exports of some countries and affect the share of manufactures in total exports, if the latter is defined to include these items. The following alternative estimates are available.

Country Percentage Share of Manufactures in Total Fxmorts

22 1950 1954 Austria 70 n.a. 72 Denmark 13 n.a. 34 Italy 38 51 74 Norway 37 42 59 Turkey 0.7 0.8 4.6 Yugoslavia n.a. n.a. 41 Australia 5.4 n.a. 9.2

2. Theestimates of the share of manufactures in total exports presented in Table XI are derived from data in terms of national currencies in the Yearbook of International Trade Statistics (various issues), U.N. The estimates are subject to two sources of ambiguities. First, the coverage of export data is almost always incomplete and particularly for the prewar and early postwar years. Secondly, whereas the data for the early years is only available according to the classification, "Trade by Principal Com- modities", the data for the later years is sometimes available according to the "Standard International Trade Classification". Since the latter is a much more detailed and comprehensive classification, it is likely that the estimates for the early years are much more inaccurate.

3. Estimates for the prewar period relate to the year 1938, except in Austria (1937) and in Honduras, Mexico I/ and Yugoslavia 2/ (1939). The second estimate relates to the year 1950 except in Colombia (1951) and in Ecuador, Fl Salvador, Ethiopia, Guatemala, Haiti, Nicaragua, Belgian Congo, Northern and Southern Rhodesias, Egypt, Indonesia, Philippines, Burma and Turkey (1948). The third estimate for the mid 1950's relates to the year

2/ Source: IBRD, "The Economic Development of Mexico" / Source: Statistical Yearbook of the Federal People's Republic of Yugoslavia. 195L - 145 -

Appendix IV to Part III (continued)

1954, except in Paraguay (1952) and in Chile, Colombia, Honduras, Nicaragua, Pakistan, Northern and Southern Rhodesias, Philippines and Burma (1953).

II. Share of Two Principal Commodities in Total Ex=orts

1. The percentage share of two or three principal commodities in total exports are also derived from U.N; Yearbook of International Trade Statistics (various issues). For some countries the data is taken from I.M.F: International Financial Statistics.

2. The following table lists the individual percentage sharesof two or three principal commodities in the prewar period, in the early postwar period and in the mid 1950ts. It will be noticed that in some cases a narrowly defined commodity group is listed as a principal commodity, for example pulp and paper for Finland and Norway and cotton (yarn and fabrics) for Italy, Japan and India. It is believed that frcm the viewpoint of commodity concentratioP. of the export structure this is a proper procedure, even though the groups contain several.commodities- defined in a strictly technical sense. Appendix IV to Part III (continued)

The percenteae share of princiDal commodities in the total eXoOrts of selected debtor countries

A. Europe

Iceland 1938 1950 1954 Fish - 60 79 Fodder n.a. 9 9 Oils & fats _ 20 9

Finland 1938 1950 1954 Wood 40 42 37 Pulp & paper 41 51 39 Buster 4 - 0

Turkey 1938 1 1954 Tobacco 27 31 26 Fruits & nuts 26 16 14 Wheat 12 9 23

Denmark 128 1950 1954 M'eat 27 12 28 Butter 25 26 15

Italgy I38 1950 1954 Fruit 14 12 10 Cotton (yarn & fabric) 9 10 18 Petroleum - - 11

Norway 1938 1950 1954 Fish 15 22 16 Pulp & Paper 22 29 23

Austria 1937 1950 1954 Wood 11 11 20 Iron & steel 10 20 14

Yugoslavia 1938 1950 1954 Wood n.a. 29 20 Lead n.a. n.a. 6 i:aize n.a. 9 4 - 147 -

Appendix J1V to Part III (continued) B. Latin-America

Colombia 1938 1951 1953 Coffee n.a. 78 83 Petroleum n.a. 16 13 Bananas n.a. 2 2

El Sa]vador 1938 1914.8 1954 Coffee n.a. 81 88 Cotton n.a. 4 6 Sugar n.a. 4 -

Guatemala 1938 1948 1954 Cof^ee 56 61 78 Bananas 27 21 12 Chicle 3 5 Oils - - 1

Haiti 1938 1948 1954 Coffee 50 35 78 Cotton 15 6 1 Sugar 11 7 2 Sisal 9 26 9 Cocoa 2 4 4 Bananas - 9 - Ecuador 1938 1948 1954 Cocoa 29 29 35 Coffee 12 6 27 Bananas 6 5 28 Rice 8 30 2

Honduras 1937 1950 1954 Bananas 85 39 57 Coffee 1 6 24 Silver 9 16 5 Wood 0 14 -

Panama 1938 1950 1954 Bananas 77 49 57 Cocoa 1 20 17 Coconuts 2 2 Fish - - 12 Abaca fibre - 14 - - If8 -

Apper.dix IV to Part III (continued)

Brazil i2q 1950 1954 Coffee 45 42 58 Cotton 18 18 15 Cocoa 4 5 10

Uruguay 1938 1950 1954 Wool 46 38 50 Meat 20 21 18 Hides 14 12 7 1heat - 5 8

Nicaragua 1938 1948 1953 Coffee 47 45 47 Baa±anas 19 4 1 Wood 9 7 9 Cotton 7 - 20

Chile 1938 1950 1953 Copper 49 60 59 Salt petre 21 16 13 Cereals 7 6 2 Iron ore 2 2 3

Paraguay 1937 1950 1952 Quebracho 19 22 21 Cotton 37 15 33 Hides 9 16 9 Wood 3 20 17

Mexico 1939 1948 1954 Silver 22 6 7 Lead 13 17 10 Cotton 1 13 27 Coffee 4 4 13 Petroleum - 10 - Fish - 9

Peru 1938 1950 Copper 18 6 8 Cotton 18 26 26 Petroleum 8 18 5 Sugar 7 22 13 - l -

Appendix IV to Part III (continued) C. Asia

Thailand 1938 1948 1954 Rice 49 57 49 Tin 16 7 7 Rubber 13 15 16 VWood 3 2 4

Ceylon I=3 1950 1954 Tea 65 63 64 Rubber 17 15 17 Vegetable oils 9 13 8

Pakistan 1938 1948 1953 Cotton n.a. 36 40 Jute n.a. 34 44 Tea n.a. 4 3

Burma LU8 1948 1292 Rice 46 79 80 Petroleum 25 - - Wjood 7 9 2 Cotton 2 3 4

PhiliDpines 1938 1948 1252 Sugar 40 7 27 Coconut products 26 69 40 Abaca and products 10 12 7 Wood 2 1 9

Japan 1938 1950 195L Cotton (yam and fabrics) 17 27 17 Silk 15 23 3 Iron & Steel 2 9 10

India 1938 1950 1954 Jute goods (raw & processed) n.a. 20 22 Cotton goods (raw & processed) n.a. 26 14 Tea n.a. 16 23 - 1 -0 -

Appendix IV to Part III (Continued)

Indonesia 1938 1948 1954 Rubber 21 25 31 Petroleum 22 24 21 Tea 9 2 5 Copra 6 15 6 Tin 5 14 7

D. Africa & Middle East

N. Rhodesia 1938 1953 Copper 88 85 92 Cobalt 5 1 1 Zinc 1 5 2 Lead - 4 2 Tobacco 1 2 2

Iraa 1937 1950 1934 Petroleum 65 n.a. 89 Barley 7 n.a. 5 Dates 6 n.a. 2

E__t_ 1938 1948 1954 Cotton 78 81 87 Rice 2 11 2 Vegetables 3 1 2

Ethionia 1937 1948 1954 Coffee 47 20 65 Hides & skins 14 11 10 Oilseeds 13 7 9

S. Rhodesia 1938 1948 19SE Tobacco 13 45 35 Asbestos 12 11 13 Gold 54 18 12

Union of S. Africa 1228 1950 125- Gold 73 57 36 Wool 9 11 14 Fruit 3 2 4 - 151 -

Appendix JV to Part III (continued)

Belgian Coneo 12238 19L8 14 Copper 26 27 33 Cotton 11 11 8 Coffee 6 4 10 Cobalt - 3 10 Gold 22 4 3

E. Australasia

Australia 198 1950 1954 Wool 33 37 48 Wheat 19 14 7 Meat 9 6 8

III. Share of "Growth Commodities" in Total Exports

1. In calculating the share of "growth commodities", internationally traded goods are classified in two categories, as follows:

"Growth Commodities" Other Commodities

(i) Food (i) Food Dairy products and Margarine, Butter, Cereals, Sugar, Fish and Neat, Tinned and Fresh Coconut Products, Edible Oils, fruits and vegetables, Coffee, Tea, Tobacco and h;ines. Cocoa and Spices.

(ii) Raw Materials (ii) Raw Materials. Metals, Rubber, Paper, Wood, Silver and Tin, Textile Petroleum, Electricity and fibres, Hard fibres, Coal, Crude Miner.als. Oils and Fats, Hides and Skins

(iii) Manufactures (iii) Manufactures Refined metals and metal manu- Refined Tin and Silver and factures, Machinery and trans- manufactures thereof, Textiles, port equipment. Rubber, Paper Leather goods, Glassware and and Wood manufactures, Chemicals, Household pottery Lime and Cement, Mineral manufactures and Glass - 152 -

Appendix IV to Part III (continued) 2. Estimates of the share of "growth commodities" are shown for the prewar period and the mid-1950's. The date relates to the same years as the estimates for the share of manufactures in total exports. The source of the data is also the same.

3. Since the coverage of export data is considerably different as between countries and as between years for the same country, the following adjustment has been made to make the estimates of the share of growth commodities comparable over time and space.

Adjusted Growth commodities as a % of total exnorts X 100

Estimate - Coverage of Export data as a % of total exports

The assumption underlying this adjustment is that the uncovered export items fall into the categories of "growth commodities" and "other commodities", in the same proportion as the covered export items.

4. The coverage of export data is much greater in the mid 1950's than in the prewar period. Consequently the unadjusted estimates show a greater increase over time in the share of growth commodities, than the adjusted estimates presented in Table XI. In the following eight cases however, the two estimates indicate opposite directions of change.

Share of Growth Commodities in Total Exports

Country Adjusted Estimates (%) Unadiusted Estimates (%)

Prewar Mid 1950ts Prewar Mid 1950's

Union of S. Africa 30 36 29 28 N. Rhodesia 99 98 94 97 Egypt 7 7 6 7 Guatemala 93 99 93 89 Panama 99 92 91.4 91.7 Peru 58 55 40 48 Uruguay 29 36 23 18 Norway 88 81 78 81 - 153 --

Appendix V to Part III

Sources and Methods for Tables XII and XIII

Table XII: "Postwar Annual Growth Rates in Imports and Their Relationship to Income and Export Growth" Table XIII: "Share of Capital Goods in Total Imports"

Table XII. Import growth rates are computed on the basis of import volume indices in U.N., Yearbook of International Trade Statistics, various issues, and I.M.F, International Financial Statistics, various issues. Income growth rates are taken from Table III, Part I of this paper and export growth rates from Table X, Part III. The periods vary amongst countries. For the ratios of import growth to income growth, the periods are those shown in Table III. Part I; for the ratios of import growth to export growth, those shown in Table X, Part III.1/ Since these two periods very frequently differ, two import growth rates are computed and shown in the table: one to match the period of income growth and the other to match the period of export growth. This explains the difference between import growth rates shown in the first and the third column of the table. In several cases, differences are very large, due to great fluctuations in the volume of imports in either of the four terminal years used for computing import growth rates.

It should be emphasised that import growth rates shown in the table cannot be regarded as "typical" for particular countries. In order to match the periods, no allowance was made, in taking the terminal years, for abnormal fluctuations in import volume (the exception is Philippines where 1949/50-1954/55 period was used). The purpose of the table is to show orders of magnitude for all countries as a group, and not for particular countries.

Table XIII. Percentage shares are computed on the basis of data, expressed in national currencies, given in U.N., Yearbook of International Trade Statistics, various issues.

For all countrias except the first eleven European countries shown in the table, capital goods have been defined to include machinery and transport equipment,2/ iron and steel, non-ferrous metals, cement, bricks, building fixtures and fittings, pre-fabricated buildings, glass, mineral

/ Exceptions had to be made in a few cases - Nicaragua for import/export ratio, Iceland for import/income ratio, Union of South Africa for import/ income ratio, Dominican Republic for import/export ratio and Argentina for import/income ratio - wrhere due to lack of data for exactly comparable periods, slightly different periods for import growth were used, usually with a difference of only one year. The exception was also made in the case of Philippines, where extremely wide fluctuations in import volume prevented the use of periods exactly comparable with income and export growth. 2/Including all motor vehicles. It was impossible to exclude passenger cars from the total since in the majority of cases, particularly for the earlier years, they are shown together with other motor vehicles. - 154 -

Appendix V to Part III (Continued) manufactures and live animals not for food. In the case of the first eleven European countries, iron and steel and metals were excluded, since a certain proportion, presumably large, enters, in the manufactured form, export trade or domestic personal consumption.

The percentage shares given in the table must be accepted with great caution; they indicate broad orders of magnitude only. For the majority of non-European countries, the import data are given only by "Principal commodities",' with a classification which varies both as between countries and as between years. "Principal commodities" sometimes include a commodity group for which a fairly arbitrary choice had to be made in determining whether it belongs to consumer manufactures or capital goods. In a number of cases, metals are shown together with metal manufactures, making it impossible to separate goods primarily entering capital formation from goods primarily entering personal consumption. Since imports into less developed countries of metal manufactures for personal consumption are likely to be small, the group was classified as capital goods, but was indicated as such in the table.

An important source of uncertainty is incomplete coverage of import data. The uncertainty is two-fold. First, in one half of the sample shown in the table, the coverage in 1954 is less than 100%; all of these countries, except Finland, are non-European. To the extent that some of the unclassified items are capital goods, the table may understate the present share of capital goods in total imports. Secondly, as a rule, the coverage is smaller in the earlier periods than in the later years. This is likely to lead to an understatement of the share of capital goods for the earlier periods relative to the latest year, i.e. to an overstatement of the actual increase in the share that has taken place in the postwar period. The margin of such possible understatements in both cases cannot be determined. Since the import structure is much more complex than the export structure and since it changes over time much more rapidly than does the export structure, it was thought that an adjustment for incomplete coverage (made according to the formula shown in Appendix IV) might well increase rather than reduce the margin of error. If the formula is nevertheless applied as a very crude check, it produces two results. It raises in a number of cases the present share of capital goods in total imports to a level higher than shown in the table; at the same time, it reduces the degree of the increase that is shown to have taken place over time. The direction of change remains the same, however, except in the following cases: Appendix V to Part III (Continued)

Country Data Shown in the Table Adjusted Data

lo 194 1954 1938 1948 1954

Chile 33.1 31.7 36.5 44.7 35.5 42.4 Venezuela 25.6 21.2 43.6 64.6 54.4 62.0 Egypt 19.0 20.8 19.1 25.2 24.8 23.9 Indonesia 12.9 14.6 14.0 21.3 20.2 20.5 Federation of Rhodesia 34.5 28.3 43.8 57.2 45.8 43.8 Union of South Africa 19.8 20.9 20.3 29.7 30.4 28.9 France 5.2 8.5 9.8 6.4 10.3 9.8 Yugoslavia n.a. 23.5 37.0 n.a. 42.6 37.0

It should also be noted that coverage of data varies amongst countries. This limits the international comparability of data, both regarding the present share of capital goods in total imports and regarding changes in the share over time. In the following countries the 1954 coverage was 80% or less of total imports: Bolivia, Dominican Republic, Ecuador, Nicaragua, Peru, Uruguay, Venezuela, Burma, Finland, Egypt, Indonesia, Lebanon, Belgian Congo and Union of South Africa.

For some countries, the years differ from those indicated in the table. The exceptions are as follows: 1938 Austria and Australia 1937, Germany 1936, Mexico 1939. 1948#4ustralia 1947/48, Austria and Panama 1949, Germany, Iceland, Yugoslavia 1950; Colombia, Lebanon 1951. 1954 Finland, Argentina, Bolivia, Chile, Cuba, Honduras, Nicaragua, Burma, Egypt, Philippines 1953; Paraguay 1952; India and Union of South Africa 1955. Appendix VI to Part III

The Share of Capital Goods and Consumer Manufactures in Total imports

1. The flexibility of the import structure is approximately measured by the share of consumer manufactures and capital goods in total imports. This measure is subject to the following oualifications :

(a) As stated in the Appendix V, the statistical coverage of import data is incomplete. Since non-classified items partly fall into the categories of capital goods and consumer manufactures, i.e. flexible items, the shares of these commodities in total imports, as shown in the table wihich follows, underestimate the actual import flexibility.

(b) For purposes of this table, consumer manufactures have been defined to exclude processed food and chemicals. Each of these categories contain a number of manufactured products, some of which are non-essential and likely to be subiect to import curtailment in a period of crisis, (for instance, confectionery, luxury-type wines and other beverages, cosmetics, etc). However, it was statistically impossible to separate these items from essential food and essential chemicals (raw materials and medicines). The share of these items in total imports is considerable; and this increases import flexibility above the level indicated by the share of manufactures in total imports, given in the table which follows.

(c) On the other hand, consumer manufactures which are shown in the following table, contain items which may be considered essential for the maintenance of the minimum living standards. This means that the actual import flexibility in this group is lower than indicated by the nominal share of consumer manufactures in total imports given in the table.

(d) While it is impossible to estimate in quantitative terms the effect of factors which tend to increase import flexibility /Ta) and (b) aboveX and of those which tend to reduce it,/Tc) tovf7, it is important to note that they operate in opposite directions, thus reducing the margin of error.

2. The following table shows the percentage share of capital goods and consumer manufactures in the total imports of debtor countries. i 157 - Appendix; VI to Part III (contin-iued) Share of Capital Goods and Consumer,i anufactures in Total L-ports. 1954Y (in percentages)

Total Capital Classified Capital Consumer oods & Consumer Imports as ; of Country Goods hanufactures I'anufactures total imports

Burma 20.:Lb/ 37.1 57.2 74.1 Ceylon 10.9 14.4 25.3 85.4 Egypt 19.121 9.2 28.3 80.0 India 35.0 7.4 42.4 80.0 Indonesia 14.0 27.5 41.5 68.4 Iraq 37.9 19.2 57.1 80.8 Japan 7.6 1.5 9.1 100.0 Philippines 17.8 31.1 48.9 81.5 Thailand 30.2 41.0 71.2 100.0

Argentina 42.8 12.3 55 1 100.0 Bolivia 4.12/ 4.Q0./ 8.12/ 54.2 Brazil 43.0 2.0 45.0 100.0 Chile 36.5 8.8 45.3 86.0 Cuba 18.9 18.0 36.9 81.1 Dominican Republic 27.3 18.7 46.0 69.9 Ecuador 23. 21 15.12/ 38.32/ 56.1 El Salvador 32.:Q/ 27.6 59.6 100.0 Haiti 16.6b/ 33.8 50.4 83.6 Honduras 34.7b2/ 30.0 64.7 94.9 iviexico 49 7 13.1 62 8 100.0 Nicaragua 23: ./2/ 17.7.2/ 40:9.a/ 64.8 Panama 20.2 37.0 57.2 100.0 Paraguay 29.8 32.0 61.8 100.0 Peru 46.321 6.2 52.5 79.2 Uruguay 26.0h/ 13.1 39.1 78.9 Venezuela 43.6 9 3 52.9 70.3 Colombia 48.0 22:.i/ 70.0 100.0

Belgian Congo 38.8 17.3 56.1 78.0 Ethiopia 24 4b/ 37.0 61.4 82.1 Fed. of Rhodesia 43:8b/ 30.4 74.2 100.0 Union of South ifrica 20.3 19.0 39.3 70.3

Australia 36.8 31.0 67.8 100.0

Austria 20.0 13.0 33.0 100.0 Belgium-Luxembourg 17.1 16.8 33.9 100.0 Denri,ark 17.1 19.3 36.4 100.0 Finland 15.4 7.5 22 9 79.7 France 9.8 4.92/ 14:721 100.0 vermany 4.2 9.52/ 13.72/ 100.0

(Table continued) - 158 - Appendix VI to Part III (continued)

Total Capital Classified Capital Consumer Goods & Consumer Imports as % of Country Goods Manufactures Manufactures total imports

Greece 26.8 19.2 46.0 99.8 Iceland 30.5 30.8 61.3 100.0 Italy 13.5 8.1 21.6 100.0 Netherlands 18.5 15.9 34.4 100.0 Norway 37.5 17.5 55.0 100.0 Sweden 22.5 19.8 42.3 99.9 United Kingdom 3.9e/ 7.4 11.3 100.0 Yugoslavia 37.ob 6.9 43.9 99.9 Turkey 47.1 22.8 69.9 99.9 Israel 22.7e/ 8.42/ 31.1e/ 91.2

a/ Burma, Egypt, Philippines, Argentina, Bolivia, Chile, Cuba, Honduras, Nicaragua, Finland, 1953; Paraguay, 1952; India, Union of South Africa, 1955. b/ Including metal manufactures. c/ Highly incomplete. d/ Probably overestimated. e/ Probably incomplete.

Source: Yearbook of International Trade Statistics, various issues, except for India (IBRD, Current Economic Position and Prospects of India 1956).