RESTRICTE D
N o. EA-106a FIL LJyX-- - - uzY
Public Disclosure Authorized This report was preparedfor use within th Ba availableto others,the Bankassumes no res nibility to themfor the accuracyor completenessof the informationcontained herein.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized
THE ECONOMIC POSITION AND PROSPECTS
OF BELGIUM Public Disclosure Authorized
February 29, 1960 Public Disclosure Authorized FILECOPY Department of Operations Europe, Africa and Australasia CURRENCY EQUIVALENTS
U.S. $1 - 50 Belgian francs 1 Belgian franc - 2 U.S. cents 1,000,000 Belgian francs - U.S. $20,000 CONTENTS
Page
Charts
Basic Data Sumnary and Concllrsion
GenerpI- .a eat .*...... a a ,.@a &a vvo 1
T',e rec sa iion of 1958.>*0***seV&.c ^*�o 2
Evrope?ar .coCn?.Cmon iy 6 RelatiorishiD iwdththe BelgianCongo..v.,. 7
Economic G9owth...... 0 . . 9
Con;?.clusiono a.* Statistical alypendix BELGIUM MONEY SUPPLY AND INDUSTRIAL PRODUCTION (INDEX,1953-100) 140 I INDUSTRIALI 140 YEARLY ~~~~~PRODIJCTION(AVERAGE) 120 120 100 ~~~~~~~~~~~~~~~~~~100 00_MONEYSUPPLY(END OF PERIOD) 80 */' / 80 60 60 40 40 20 I I I I 1201 WHOLESALE PRICES AND RETAIL PRICES (INDEX, 1953=100) 140 I I I 140 YEARLY 120 WHOLESALEPRICES RETAIL PRICES 120 100-100 80 80 6 0 6 0 40 40 20 '36/38 '51 '52 '53 '54 '55 '56 '57 '58 '59 '60 AV. UNEMPLOYMENT (THOUSANDS REGISTERED) 400 ii i lj ,l Illl'l lll'I ''' , , , I ,,, I , ]II , Z '' Il' 400 DAILY AVERAGES 300 t TOTAL, j ~~~~PARTIALLY AND 30 rr t ORA R I L Y~~~~~~~RAILUN EMMPDLOYED...... 200 200 100 100 0 0 D M J S D M J S D M J S D M J S D M J S D M J S D 1954 1955 1956 1957 1958 1959 9/15/59 1543(R) IBRD -Economic Staff BELGIUM BUDGET REVENUE AND EXPENDITURE (BILLIONS OF FRANCS) 0 20 40 60 80 100 120 140 EXP. ORDINARYBUGTETARIRYUDT 1954 REV. ORDINARYBUDGET 1955 REVEXP. 1957 REVPEXP. 1958 REV 1959 EXP. (Prelim.) REV. BALANCE OF PAYMENTSON CURRENT ACCOUNT(Goods gross,servicesnet) (BILLIONS OF U.S. DOLLARS) 4 4 YEARLY PAYMENTS RECEIPTS, 3 3 2 2 RESTOF WORLD RS F.OL BELGIAN CONGOBEGACOO AND RUANDA-URUNDIDRADAUUD 1955 1956 1957 1958 1959 (Est.) GOLD AND FOREIGN EXCHANGE HOLDINGS OF THE NATIONAL BANK (BILLIONS OF U. S. DOLLARS) 1.5 *1-~~~1 ,<: ::::-: .: :.:::SGGLD AN CONVERTIBLECURRENCIES; .5 ._5 0 0 1950 1951 1952 1953 1954 1955 1[56 1957 1958 1959 1960 9/15/59 1544(R) IBRD-Economic Staff BASTC DATA Area - 11,778 square miles Population (1958) - 95079,000 - (30,507 square kilometers) Gross National Product (1958) - frs. 559.9 billion ($11.2 billion) Budget operations (1958) Destination of exports (1958) frs. billion frs. billion Government revenue 94.7 European Economic Community 68.7 ordinary expenditure 101.4 Sterling area 18.3 Extra-ordinary experndi- U.S. & Canada 15.8 ture 1840 Belgian Congo & Ruanda-Urundi 5.9 Net borrowing 21,4 Other 43 6 152 .3' National Bank reserves Origi ol imports (1958) (DJe2ember 31, 1m $ million frs. billion Cold 1,134 European Economin Community 72.9 Convertible currencies 88 Sterling area 23.2 Other 93 U.S, & Canada 17.7 Belgian Congo & Ruanda-Urundi 8.3 External debt (June 30, 1959) Other 34.3 $ million Long-tern 549.7 Short-term 276,,o B.alance of payments (1958) Receipts Pay;ments Balance Tmillion Goods 2,916 2,704 +212 Services 964 802 +162 Private capital - - -100 Public capital 194 3146 + 48 +322 SUNJARYAND CONCLUSION The main developmentssince the last economic report (no. EA- 73-a) was presentedto the ExecutiveDirectors in June 1957 halvebeen the recession of 1958 which has brought out certain structuralweaknesses of the Belgian economy.,the coming into existence of the European Economic Community which has triggered some decisionsnecessary to prepare for competition in the common market, and the political changes in the Belgian Congo which wrAll affect the Congot s economic relations with Belgium. The most importantpolicy measures have been the reform of the money market in November 1957 and the current reorganization of the coal mining industry. The need for both had been clear for several years. The first should make tUhe monetary system more flexible and responsive to the wishes of the authorities waile the second should enable the Belgian coal mines to operate on a so-und basis and to turn out a competi- tive product. The BelgIan economy will probably be confronted in the tsixties with the need for fundamental adjustments* To earn her way in the common market and to make good any loss of incomre from the Congo, Belgium will have not only to hold her share of the export market but also to find new outlets. This will require enterprise, higher productivity and fiexibility of labor, more domestic investment, concentration of industry and diversi- fication of production. To meet the challenge, the Government has already announced fiscal and credit incentives to encourage the shift of capital from stagnant to growing industries and the establishment br foreign compa- niea of subsidiaries in Belgiumo Belgium has an excellent debt record. Her external debt pay- ments are small compared with the size of external transactions, Her monetary reserves and other external assets are large and have grown substantially in the past few years, With her business acumen and skilled labor force she should be well able to accommrodate herself to the large, prosperous and growing market of the European Economic Community.D6velop- nents in the Congo should not materially affect her creditworthiness, G23INERAL 1. Belgium is v.small, densely populated country lying astri de the shortest rcute between the sea and the largest industrial complex of Western Europe. H-ighlyindustrialized herself, she earns her way in the world by exportinggoods made of imported materials and by selling transport and other services0 Her nine million people, linked to France and the Netherlands by ties of language and character, form a skilled, well-to-do, stable population. 2* Largely dependent upon exports, consisting mainly of steel, metal products and textiles, and sellingmainly in the other industrial countries, Belgian producers must watch costs closely in the face of keen competition. Belgiumas industry is '.essdiversified than that of her neighbors and since the war she seems to have invested less than her neighbors in the "new" rapid-growthindustries, like che.micalsand syn- thetics. 3o Belgium has traditionallyhad low tariffs and few administra- tive restrictions, Hlereconomic policy relies largely on monetary measures and is based on a stable franc. Changes from Catholic-Socialist to Socialist-Liberaland Catholic-Liberalgovernments have had no significant influence on the conduct of economic affairs, While Belgium has been successful in maintaining external equilibrium, the growth of her economy has been rather modest, in part because of the stability of the population. After rapidly surpassingits pre-war level in the early post-war period, industrialproduction in Belgium has groam less in the past severalyears t'nanin the rest of Western Europe but as much as in the United Kingdom and more than in the United States. 4. Belgium is a staunch supporter of European economic integration. Her partnershipw-th Lrxembo-rg in the Belgo-LtrxembourgEconomic Union, in which she played the dominant role, caused few difficulties. BLEUs sub- sequent association with the Netherlands to forma Benelux, posing the prob- lem of harmonizing two economies with a very dif'ferent cost-price struc- ture, worked out better than the critics feared. The Belgian steel indus- try has adapted itself well in the Coal and Steel Commriaty;the position of the Belgian southern coal fields, on the other hand, still is a major problem, but this it would have been iLnany circumstances. Although Belgiumts future in the European Economic Community cannot be foretold, an Lndustrial nation should have better prospects in a larger market. 5e For those Belgians whose entrepreneurial skills outgrew the size of their country the outlets were the Far East and Latin America until the Belgian Congo provided the opportunity for pioneering and business expansion. Belgian capital has financed most of the private and public irnvestment in the Congo and, since 1950, Belgiln has guaranteed most of the Congo borrowing outside the Belgian monetary area. Currently, Belgium is making substantial grants to the Congo to balance its budget. - 2 - THE RECESSIONOF 1958 6. The recession of 1958 affected the Belgian economy more markedly than those of the neighboring countries. Industrial production fell by about 6%, the largest decline registered by any Western European country, and unemployment rose to reach about 5% of the labor force. The reason for this larger fall in production is that the industrieswhich were most affectedby the recession, namelycoal, steeland textiles,account for nearlyone half of Belgium'sindustrial output. 7. The activityin servicetrades stimulated by the Brussels InternationalFair proveda compensatingfactor. As a result,gross nationalincome in real termsdeclined by less than 1% from its 1957 peak. 8. The recoveryhas paralleledthat in the rest of Western Europe. The declinein industrialproduction came to an end in the secondhalf of 1958, and in the springof 1959 unemploymentbegan to recede and output, foreign trade and fiscalreceipts started climbing again; the pace has since picked up, aided in the fall by the steel strikein the UnitedStates. Coal Ivining 9. The recessionLaid bare the structuralproblem of the Belgian coalmining industry. Working conditions in the poor, narrowseams of the long-exploited southern coal fields are difficult, productivity is low and costs in somemines run 40% above salesprice. Reorganization of the southerncollieries has been envisagedsince the establishment of the Coal and Steel Community but heavy demand for coal during the mid-fifties, enhanced in 1956 by the closing of the Suez Canal, delayed the inevitable decision. With the re-opening of the Canal and the ad- vent of the recession competition from oil grew intense again and Belgian coal,quoted 15-25% above the Germanprice, had to competeat home with importsfrom the United States, Germany and the Netherlands. 103 Despitea 22%oreduction in output,pithead stocks rose from 14 milliontons at the end of 1957 to over 7.5 milliontons at the end of 1959. This reflecteda fall of about 20% in domesticcoal con- sumptionand 48J%in coal exports. Meanwhile,in February1959, the - Government announced a series of measures to rationalize the-industry, includinga decisionto closedown severalpits in the south,merge the operationsof severalcollieries and developthe newer,richer and more efficientnorthern deposits. These measuresmade it possibleto reduce coal pricesby 6% on the average. Last December,Belgium and the Coal and SteelCommunity agreed to reduce the capacity of the Belgian collieriesby the end of 1963 by 9.5 million tons below the level of early1959. This would be done by weeding out the poorest mines and shouldenable the remainingones to offer a competitiveproduct in the markets of the CoPnLunityeven before the end of the reorganization, - 3- Investmentand Consumption .11 The volume of investment declined in 1958 because of a sharp fall in residential, business and public construction, Although certain industries continued to reequip themselves and to reorganize operations, the level of industrial profits offered little inducement to invest. Cuts made in the extraordinary budget late in 1957 aimed at restricting public investment, but as the recession developed the Government decided to step up its capital expenditure, restore incentives to private invest- ment and grant fiscal and credit privileges to new industries in the southern coal regicn and other depressedareas. In the first eight months of 1959 public investmentwas considerablyhigher than in the corresponding period of 1958. 12. Consumption in real terms was only slightly lower in 1958 than ia 1957. This was due to an increase in public consumption, which largely compensated the decline in private consumption, External Payments 13. Belgium's external payments produced in 1958 a current surplus equivalent to $374 million, or nearly twice as much as in 1957. The volume of exports was maintained, the fall in shipments of textiles, coal and metals being offset by gains in shipments of petroleum products, equipment and other manufactures. The value of exports, however, declined by 4%0 At the same time, imports fell sharply and the economy drew on stocks accumulated during the Suez Canal crisis, In addition, the in- visibles showed a large surplus for which lower freight payments and high tourist receipts in connection with the Fair were mainly responsible. i4. The net outflow of private capitalwas reduced in 1958. The reasons for this were several: repatriationof export proceeds from EPU countrieshad been enforced in the fall of 1957; the appeal of American securities was lessened when the New York Stock Exchange boom passed its peak; and higher interest rates in Belgium reversed the movement of short- term funds, There was also a larger inflow of public capital since the Government borrowed abroad for budgetary reasons and to offset the drain caused by the redemption of Belgian Treasury paper held by the Congo Central Bank in evidence of Belgium's war-time debt to the Congo, - Shrinking capital exports, together with the record current surplus, brought about an increase in the gold and foreign exchange reserves from $1,139 million to $1,h82 million equivalent. The resulting liquidity in the money market led the National Bank to reduce the discount rate between March and August from 4 to 3eo. A further reduction to 3.% took place early in 1959. * 15. The Belgian franc having enjoyed de facto convertibility for some time, there was little Belgium had to do to fall into line with other Western European countries which3 at Christmas 1958, introduced convertibility of current earnings into dollars for non-residents. -4- 16. Heavy orderswere placed abroad in 1959 to replenish stocks and supply the rapidly increasingneed for raw materials on the part of industry. As a consequence,imports rose more rapidly than exports and the trade surplus shrank, a normal occurrenceduring the upward phase of the trade cycle. At the same time, receipts from services declined, private capital exports continued and Belgium repaid the rest of its wartime debt to the Congo. As a result, the INational Bank lost $167 million of its monetary reserves, about 3C0 of the loss being due to exceptional operations, like the increase in the Belgian quota in the International Monetary FJund. 17. At the end of the year, the disparity of short-term interest rates in Belgium and several other countries led to an outflow of short- term funds seeking profitable investment. In order to check capital movements and preserve the liquidity of the money market, the National Bank raised its discount rate to 4%Son December 24. Budget Policy 18 TIn 1958, the over-all budget deficit rose sharply from frs. 7.2 billion to frs. 24.7 billion. The rise iwasonly in small part due to deliberateanti-cyclical policy. The main reasons were higher subsidies to coal mines and railroads,military and educationalexpenditures and unemployment relief. The effect of the deficit was mainly to maintain consumption and in this way it checked the economic decline. 19. Belgiumts great dependence on foreign trade limits the scope of internal measures to combat a recession. But fiscal policy in 1958 provoked criticism on two counts. Firstly, the budget presented in the autunn of 1957 was deflationary, because of the borrowing difficultuies which faced the Treasury at that time, even though it was clear that the boom was nearing its end. This budget was revised in 1958 in order to raise public investment but nevertheless there was a drop in construction by the Government. Secondly, the budget deficit was financed largely by short-term borrowing. In the view of the National BarLk this created a risk of inflation, should a strong economic recovery develop. 20. In 1959, government spending rose further to reach about frs. 132 billion, or frs. 12 billion more than in 1958. The increase in ordinary expenditure amounted to frs. 7 billion but was covered by increasedtax receipts, partly due to higher taxes and partly to the im- proved economic situation. Consequently,the higher capitalexpenditure was alone responsiblefor the rise in the over-allbudget deficitto about frs. 29 billion. 21. The liquidity of the money market, arising largely from the balance of payments surplus, has since early 1958 facilitated the large scale borrowing necessary to finance government investment and the ordi- nary budget deficit, Long- and medium-term government borrowing in 19f58 was not much higher than in 1957 - about frs* 7 billion - but shorti-term borrowing rose from frs. 0.3 billion to frs. 15.3 billion. In 1959, " 5 - however, the Government was able to raise long-term money; three large bond issues brought in a total of frs. 2065 billion in the course of the year. 22. The Government has taken certain steps to institute a counter- cyclicalbudget policyd Last June, it established a Budget Equalization Fund to be built up from budget receipts of boom years in order to help finance the deficits of other years. Further, a long range public invest- ment program is being drawn up which would be executed so as to maintain a steady rate of overall investment. Monetary Policy 23. At the outset of the recession, the Belgian authoritiestook some measures which may render monetary policy more flexible. Until November 1957commercial banks had to hold 50% - 65% of their deposits in government securities. This system was introduced shortly after the war in an attempt to prevent the monetisationof governmentdebt. Its effect was that any increase in bank deposits automatically led to an extension of credit to the Treasury. Moreover, since the Treasury bills which formed the bulk of the commercial banks' holdings of government securities bore very low interest, the interest rate which the banks themselves could pay on deposits was held down. 24. The operation of this system had in the past created difficul- ties for the Treasury. In the autumn of 1957, withdrawals from bank deposits caused the banks to present Treasury bills for payment. At the same time the Congo Central Bank claimedrepayment of Belgian Treasury paper evidencing Belgium's wartime debt to the Congo. The result was that the Treasury was faced with a demand for cash, which forced it to pierce the frs. 10 billion ceiling of its credit at the National Bank. 25. To remedy this situation, two important steps were taken in November 1957 First, new functionswere conferredon the Fonds des Rentes, in addition to the original one of regulatingthe market for government bonds. The Fonds, which is administered jointly by the Treasury and the National Bank, was given the right to issue short-term certificatesin which the banks were authorizedto invest funds which they would have previously invested in additionalTreasury bills. At the same time, the Treasurybills held by the banks were consolidated into a special loan, the amount of which was henceforth to remain fixed, The significance of the new systema is that a rise in bank deposits now causes a flow of funds to the Fonds des Rentes and not automaticallyto the Treasury, Conversely,should deposits fall, the Fonds would redeem its certificates,or subscribeto the Treasury bills representingthe special loan which the banks may be compelledto present for payment. For this purpose, the Fonds may obtain accommodationfrom the National Bank. -6 - 26. Secondly, the interestrate on Treasury bills and Fonds des Rentes certificateswas raised and linked to the discount rate, thus enabling the banks to pay on their depositsrates which are higher than before and to follow the actual conditions of supply and demand for money. 27. The activity of the Fonds des Rentes was extended in June 1959 to encompass open-market operations in short-term government paper in addition to operations in long-term government securities- Accordingly, additional funds were made available to the Fonds des Rentes. 28. In view of the financial liquidity prevailing in Belgium since early 1958 there has been little opportunity to date to test the signifi- cance of the measures taken in November 1957 and June 1959, but they should make the monetary system more flexible and responsive to the wishes of the authorities, EUROPEANECONOMIC COMIUNITY 29. It is still too early to come to any firm views about the future effect of the European Economic Community on Belgium. The Benelux countries are far more dependent on foreign trade than the other Community members. In Belgium, imports and exports each are equivalent to about 35, of the gross national product, whereas in France, Germany and Italy they approximate 15%. The Community supplies about 4c1 of BLEU's imports and buys 40-45% of its exports. These percentages are nearly twice as high as in the case of France or Italy. On the other hand., the fact that the Belgian coal and steel industries had already been integrated in the European coal and steel pool in 1952, lessens the impact of the Community on the Belgian economy. 30. The Benelux customs tariff is the lowest among the tariffs of the Community members, reflecting the dependence of the Benelux countries on exports largely based on imported raw materials. The external tariff of the Community, which is scheduled to come into full effect at the end of 1969, will be on the whole higher than that of Benelux. Most of the raw materials are and will remain free, but semi-finished products will bear a heavier duty. As a rule, finished goods will also be subject to a higher tariff, except for some products which now enjoy comparatively heavy Benelux protection. 31. The relatively high ratio of semi-finished productsin Belgium's industrial ouitput was to some extent due to the greater ease in exporting them, since customs duties on semi-finished products are comparatively low in the countries where she sells her exports. Once trade barriers disappear in Western Europe, this reason will lose some of its validity and Belgium may find it advisable to shift from semi-finished to finished goods. - 7T- 32. France, Germany and Italy have the benefit of laxge internal markets. In Germany and Italy in particular,production generallyis on a larger scale than in Belgium. About 30% of gainfully employed Germans and Italians work in establishments of more than 1,000 wage earners, against about 20% in Belgium In order to eithstand competition within the Community, Belgian enterprises may have to grow larger; the mergers which have taken place in the Belgian steel industry since1952 point in this direction. The commonmarket thus may be either an opportunity or a danger for many Belgian firms. 33. Belgiumshould be well able to derive benefits from her geographic situation and her excellent transport connections. *The investment in the port of Antwerp and in inland waterways, to which the Bank has made a contribution, should attract firms from outside the Community to Belgium. To date, however, the Netherlands has been a strong competitorin this respect. The locational advantageof the Netherlandsis apparentlyenhanced by low,.ercosts, social peace and, perhaps,a greater governmental effort to attract new industry. Recently, the Belgian Governmenthas announcednew incentivesfor foreign investors. 34. Investmentin industry and the development of scientificre- search and technical skills will probably be the best means of adapting the Belgian economy to the free competitionof the common market. New oroductsembodying much scientificresearch and technicalskill are likely to be most competitive and this will compel Belgium to push the diversificationof her industry. Modernizationand expansionof existing enterprisesalong traditionallines, financed with retained earnings,which has been the main form of industr al investment,may have to give way to the establishment of new industrial enterprises, or new lines of production. 35. The Government is encouragingthe shift of capital from stag- nant industriesinto new ones by exemptingfrom taxation profits from the sale of assets that are reinvested. It has also, in association with private enterprise,embarked on a program of scientificresearch to serve the needs of industry. 36. If costs are held in line through an increase in productivity, if industrialinvestment expands and if fuel becomes cheaper,Belgium shoild be well able to accoTmaodate herself to the common market and reap considerable benefits from membership in it. Freer access to a large, prosperous and growing market presents a great opportunityto a small nation and there are good reasons to expect that Belgium will be able to take advantage of it. RELATIJONSHIPWITH THE BELGIANCONGO 37. The suddenly-found political consciousness in the Belgian Congo has directed attention to the economic and financial inter- dependence of Belgium and her African territories. Although the area of Belgium is only 1/80 and her populationi 2/3 of that of the - 8 - Congo, the size of the Belgian econoW looms large compared with that of the Congo. In 1958, the national income of Belgium was about eight timesthat of the Colony, total foreign trade was seventimes as large and current government expenditure eight times as large. 38. It is estimated that there is more than $3 billion invested in the Congo. Most of it is of Belgian origin but large parts are the property of the Belgian Congo (whose assets and liabilities are sepa- rate from those of Belgium) and of immigrant settlers. About $1.25 billion might now be owned in Belgium: some $900 million in corporate shares and the rest in Belgian Congo bonds. Thus Belgian assets in the Congo are equivalent to about two-thirds of the annual gross savings in Belgium. 39. Investment income actually remitted from the Congo to Belgium runs around $60 million equivalent a year. Private and government trans- fers to Belgium for salaries, pensions, donations, etc. are about twice this amount. Income from shipping, insurance, etc. amounts to $100 mil- lion per annum. So the invisible earnings from the Congo are roughly 30% of Belgium's total receipts from invisibles of about $900 million. 4o. Partly because of the open door provisions of the Congo Basin Treaties,Belgian trade with the Congo is not disproportionatelylarge and should be fairly competitiveunder any circumstances. The Congo absorbs less than 5% of Belgiumts exports and no Belgian industry is mainly dependent on the Congo market. In 1957, when Congo imports were at their peak, only the metal-working industries shipped over 10% of their exports to the Congo. Imports from the Congo are not more im- portant and all of them could be bought elsewhere. 41. The Belgian Governmenthas demonstrated that it is prepared to help the Congo financially during the transition to independence. Whether Belgium's financial effort on behalf of the Congo will continue in the future and what will become of the Belgian assets in the Congo after it attains independence, is hard to judge. The effect on Belgiumts net income from the Congo will depend on many factors, including Belgian Government policies and the willingness of African leaders to cooperate with Belgian investors and businessmen. However, this income is not large enough to have a significant bearing on Belgiumts financial strength. According to latest estimates, transactions with the Congo contribute about 6% to the gross domestic product of Belgium and about 7% to her current external earnings. -. 9- ECONOMICGROWTH 42. Since World War II the structure of Belgiumts economy and the principles of her economic policy have remained basically the same. Despite a relativelymodest rate of investment,Belgium has fairly consistentlyincreased her gross national product at around 3% per year in real terms, shown an external payments surplus, accumulatedsub- stantial foreign assets and maintained a sound currency. 43. The rate of investmentin Belgium during the post-war period has been low by comparisonwith that of many other Western European countriese Investmentin industrywas also relativelylow. Although it is true that public investmentusually absorbs around two-thirds of the availablefunds in the capitalmarket, it may be that the low in- vestment in industry was due less to limitationson the supply of capital than to the absence of sufficientlyattractive investment opportunities at home comparedwith opportunitiesabroad. Her liberal exchange policy has meant that Belgium was among the first of the European countriesto resume exports of capital after the war. The outflow of private capital over the last five years has averaged over $120 million equivalentper annum and, in particular,Belgian investmentin North America has increased substantially. 44. It has been alleged that the low investment in Belgium has been the price paid for the stabilitybought by the cautiousmonetary policy. It is true that the monetary policy was not expansionary but, on the other hand, the level of interest rates in Belgium has been relatively moderate and there has been no restriction on capital issues by indus- trial enterprises. The steady strength of the Belgian franc seems to indicate that there was no general tendency for investment to push against the limits set by available savings. The persistentslack in the labor market, wffhile partly structurals points in the same direction. 45e There are a number of factors which may be partly responsible for the comparativeweakness of investment stimuli in Belgium. The mone- tary stabilizationafter the war was achieved at a relativelyhigh level of incomes and costs. In 19h9, the limited extent of the devaluationof the Belgian franc affected the competitiveposition of Belgian industry vis-a-vis the rest of industrialized Western Europe. In the early 'fiftiesthis was not important since Belgian exports were in high demand. But with the progress of reconstructionand modernizationelse- where in Europe, Belgian exports were subjected to increasing competition. The high level of costs must then have discouraged investment in indus- tries which were becoming less competitive, This is particularly true of the relatively important coal and textile industries, in which the opportunities for expansion were generally limited. 46. Belgium's stable population has certainly been a depressing factor, although it has enabled income per head to increase pari passu with national income. The future expansion in the male labor force is also expected to be very modest, unless fDreign workers immnigratein - 10 - numbers. This in itself is not likely to be a savere limitaticn on economic growth since there is sti1l considerable scope for draw.ing additional women into the labor force. 47, Whatever may be thought to be the most important explanation cf Belgiumts modest rate of growth, the Belgian Government are taking steps to encourage investment. A Programming Bureau is being set up to formulate and submit to the Government proposals on economic policy and on the coordination of activities of economic agencies, particular- ly in matters of public investment. New legislation has been enacted to renew certain investmentincentives which were abolishedin 1957 when there was some fear of inflation. In addition,to stimulate industrialdevelopmnent in industriallydepressed areas, new measures have been introduced in the form of subsidizedinterest rates and governmentguarantees on loans for industrialdevelopment, and of tax concessionsfor new investment. CONCLUSION 48. Belgium has an excellent debt record. In February 1960, Beagism bonds in NTewYork were selling to yield 4.87%. Hor tot&i long-term public external debt outstanding as of June 30 1959, was $550 million equivaler±'. This included $66 million of Bank loans, of which the Bank held 454 million. In addition, Belgium has now guaranteed $175 million of the outstanding dollar and Swiss franc debt of the Belgian Congo and Ruanda-Urundi, in- cluding 380million of Bank loans, The service payments on her external debt are running at around 1% - 2% of her annual current foreign exchange earnings. Even if she were called upon to service the guaranteed debt of the Congo, the percentage would not be much higher than 2%. 49. Belgium has important economic problems confronting her in the years ahead. 'T4hileher economic progress since the war has not been spectacular,she has, on the whole, managed her affairs successfully and there is no reason to believe that she will not do so in the future, Her external debt, both direct and contingent,is small and she is, in fact, an important capital exporter to the rest of the world. She should be wiell able to carry the burden of a considerably higher debt than she has contracted and guaranteed, and now proposes to guarantee. TABLE1 Belgium National Income (in billion francs) 1955 1956 1957 1958 Wages, salaries and employerst social security contributions 194.6 209.0 227.3 235.2 Tncome from: agriculture 21.6 20.8 24.4 23.3 liberalprofessions 9.8 10.2 10.4 1,0.3 commerce and handicrafts 71.9 74.5 73.6 65.4 Income of non-incorporatedenterprises (aftertaxes) 6.1 6.5 6.2 5.0 Interestpaid to individualsand charities 11.9 12.8 13.6 14.6 Rent paid to individualsand charities 28.0 30,0 31.0 33.4 Dividends paid to individuals and charities 10.3 11.9 13.0 11.9 Corporate gratuities 0.5 0.5 0.5 o. Retainedcorporate earnings (aftertaxes) 11.4 12.5 9.5 h.8 Directtaxes on corporationsand non- incorporated enterprises 6.7 8.3 8.6 7.8 Governmentincome from propertyand enterprise 1.5 1.5 1.4 -0.2 Retainedearnings of govermnentcorpora- tions 1.0 0.8 0.8 0.9 Less: intereston publicdebt -10.1 -10.6 -11.0 -12.0 Net national incolrzeat factorcost 365.2 388.7 409.3 4oo.8 Source: National Statistical Institute, Brussels., TABLE 2 Belgium- Na;tional Fxpenditre (in billion francs) 1955 1956 1957 l958 382.8 Private Consumption 346.b 363.3 389.4 61.9 Public Consumption 53.0 55.6 58.0 96.7 91.0 Gross fixed investment 74.0 87.1 business (65.7) (77.4) (86.7) (82.1) Government ( 8.3) ( 9.7) (10.0) ( 8.9) + Li.4 Change in stocks + 3.8 540.1 Domestic expenditire 473.0 509.8 550.8 +10.0 +19.8 Ebsports (net) +10.9 +12.8 559.9 Gross National Product 1483.9 522.6 56o.8 Source: Brussels University. TABLE3 Belgiun l/ Savings - (in billion francs) 1954 1955 1956 1957 Saving deposits 8.8 7.1 5.9 6.2 Reserves of Pension funds, social security inst'utions and insurancecompanies 7.9 9.1 8e9 io.7 Mortgage loans by individuals 2.9 2.7 2.1 1.5 Repayment of mortgage loans by individuals 5.2 6.2 6.5 6.9 Housing construction by individuals 7.3 7.9 7.4 8.9 Public capital issues 13.1 10.5 7.9 13.6 Total (adjusted) 45.3 43.6 37.9 48.2 Savings of corporationsand non-incorporated enterprise gross 31.6 35.o 38.5 4o.7 net 7.8 9,6 10.0 965 Overall total gross 76.9 78.6 76.4 88.9 net 53.1 53.2 47o9 57.7 1/ This table is not complete; for instance, savingsplaced abroad are not included. 2/ Increase during the year. Source: Savings and Retirement Bank. TABLIZ4 Belgi= Industrial Production, Wages, Prices and Money SUPPlY (1953 100) Industrial Hourly Wholesale Retail Money Eoduction wa-costs .ri.ncse prices sunply a v e r a g e f o r p e r i o d end of period 1936/36 70,6 21 24.0 24.0 25e,9 1947 77.7 72 85.5 82.6 79.0 1951 102.1 96 113.5 99.4 93.5 1952 94.6 100 107.0 100.3 96.8 1953 100,0 100 lCo0 100.0 100.0 1954 104.7 103 98.8 101.3 101.8 1955 l1o05 lcO6 101.0 100.8 106.8 1956 118.8 114 103.5 103.7 110*0 1957 121.6 125 106.1 106.9 109.8 1958 121.0 131 101.7 108.3 116,2 1959 118.5 133 101.2 1O9r6 117.5 1/ In manufacturing, building and transport. 2/ Sept,e-.a'bre 3/ Novemiber. * Source: Agence Economique et Financiere; Institute for Economaic and Social Re.sea^rch, Lotvain University; fiDni.stry of Thncirrt Affairs; NatTin;O, Baniz of Belgimum TABLE 5 Belgium GovernmentBudget 7billion francs) 1955w-' 19562/ 2-9571 )..9i/ 1959?] 1960y Ordinary Expenditure 81.0 86.)1 94.1 103.2 112.8 110. 6 J/ of whiich: debt service (13.7) (lh.8) (15.9) (17.0) (17.9) (19.4) Revenue 82.1 90,3 10000 95eO 101. 9 11006 Surplus or deficit + 1.1 + 4.2 + 509 - 8.2 -0o98/ - Extraordinary Expenditure -/ 14.3 10.5 17.7 15.3 24.7 25.0 Revenue 0.4 0.5 0.8 o*6 0.7 0.9 Deficit -13.9 -10.0 -16.9 -i4.7 -24 0 0 -24..1 Changes in the Public Debt Long-term + 8.1 +10.7 + 5.1 + 6.5 +18.0 Medium-term + 0.1 - 2.2 + 1.0 +.0.2 - 2,5 Short-term + 5,2 - 2.3 - 0o3 +35.3 +12.5 Total +13.4 + 6.2 + 5.8 +22,0 +28.O 1/ Results. 2/ Preliminary results for the ordinary budget and revised estimates for the extraordinary budget. 3/ Estimates. i The figures do not correspondto cash movenents during the year but show governmentexpenditure and revenue during the period of budget execution. 5/ Interest and amortization. T/ Since 1956 excludes expenditureby the Fonds des Routes on road construction. 7/ Revised estimate. 7/ The ordinary deficit irillprobably be reduced to about frs. 8.5 billion by the end of the period of budget execution. Source: Ddinistryof Finance; National Bank of Belgium. TABIE 6 Belgium Balance of Payments on Current Account of the Belgo-Lzembourg Economic Union (in million dollars) Total 1955 1956 1957 1958 1959i/ Exports (f.o.b.) 2-666 3,038 3,112 2,916 l-460 Imports (f.o.b.) 2,504 2,856 32,018 2,704 1,417 Trade balance + 162 + 182 + 94 + 212 + 43 Receipts from services 704 874 930 964 454 Expenditure on services 648 790 824 802 456 Invisible balance + 56 + 84 + 1C6 + 162 - 2 Current balance + 218 + 266 + 200 + 374 + 41 Belgian Congo Exports (f.o.b.) 139 144 154 130 54 Imports (f,,.b.) 122 131 112 96 47 Trade balance + 17 + 13 + 42 + 34 + 7 Receipts from services 2h3 306 306 285 169 Ecpenditure on services 55 62 55 58 25 Invisible balance + 188 + 244 + 251 + 227 + 144 Current balance + 205 + 257 + 293 + 261 + 151 First six months. Source: National Bank of Belgium. TABLE7 Belgi-um * Balance of Payments on Capital Account of the Belgo-Luxembourg Economic Union (in million dollars) 1955 1956 1957 1958 199/ Private capital Inflow noa. n.a. n.a. n.a. n.a. Outflow n.a. na. n.a. noa. n.a. Balance -150 -l6o -15O -100 - 66 Public capital Long-term Inflow + 82 + 16 + 44 + 28 + 39 Outflow -46 - 56 -ho - 42 22 Balance + 36 - 4+ 4 -1k + 17 Short-term Inflow + 14 + 6 +118 +166 + 35 Outflow - 4 - 38 -94 -104 - 9 Balance + 10 - 32 + 24 + 62 - 14 Overall balance -104 -232 -122 - 52 - 63 1/ First six months. Source: National Bank of Belgium. TABLE 8 Belgim. Gold and Foreign Exchange Holdings of the National Bank of Belgiim (in million dollars) Credit balances Gold and (net) under agree- convertibl 1 ments with 0 WE.E.C. December 31 currencies-/ countries Other (net) Total 1950 652 78 -25 705 1951 632 385 -13 1,oo00 1952 732 302 -14 1,020 1953 794. 280 -26 l,o4.8 1954 845 184 -18 1,o0n 1955 933 191 - 2 1,122 1956 945 188 5 1,138 1957 953 166 20 1,139 1958 1,299 175 8 1,l482 1959 1,222 lo0 -11 1,315 1/ Until 1953,gold, U.1S. and Canadian dollars, and Swiss francs; since 1959, also currenoies of the signatories of the European Monetary Agreement. Source: National Bank of Belgium. T-ABE 9 Belgian Long-term Public External Debt Outstanding (in million dollars) Year U. S. Canadian Swiss Guilders Pounds Swedish German Total dollars dollars francs sterling kronor marks 1950 206.5 56.6 89.9 _ 20.4 2.0 - 375.4 1951 235.3 56.7 66&7 - 18.9 1.7 - 379.3 1952 267.5 57.0 66.4 - 17.2 i,5 - 409.6 1953 243.8 54.5 66.2 - 16.1 1.3 _ 381.9 i954 243.2 52.5 96.3 34.9 14.5 1.1 - 442.5 1955 252.3 48.5 81.0 61.2 12.3 0.9 - 456.2 1956 246.6 48.1 65.8 61.2 10.8 0.7 - 433.2 1957 274.4 44.5 65.7 61.2 9.0 0.5 - 455.3 1958 279.0 43.1 65.2 61.2 7.6 0.2 59.82/ 516.1 1959 June 30 296.2 4102 6h.8 61.2 7.3 0.2 78.8 549.7 1/ EPU debt to be repaid by the end of 1962. Note: On June 30, 1959 Belgium had a short-term public external debt equivalent to J)'276 million. Source: Ministry of Finance. TABLE 10 Belgium Long-Term Public External Debt of Belgium Outstanding on June 30, 1959 (in million dollars) U. S. dollar debt Publicly-issuedbonds 5O.0 Privately-placed debt 60.9 IBRD loans 65.7 l/ U.S. Government loans 119. 6 296.2 Canadian dollar debt Canadian Government loan 41.0 Swiss franc debt Publicly-issued bonds 65.o Guilder debt Publicly-issuedbonds 43.8 Privately-placeddebt 17.4 61.2 Pound sterling debt Publicly-issuedbonds 7.3 Swedish Kronor debt Publicly-issued bonds 0.2 Genman mark debt Privately-placed debt 19.0 European Payments Union settleiitent 59.8 78.8 Total 549.7 4/ Ircludes twaToMSA loans totaling $14.6 million servicedby the Belgian Congo. The Grand Duchy of Luxembourg obtains from the National Bank of Belgium the foreign exchange necessaryfor the service of her external debt amounting to 'il3. 6 million. / Belgium has guaranteed$135.5 million of the dollar and Swiss franc debt of the Belgian Congo and of Ruanda-Urundi. J Source: Ministry of Finance. Belgiumi Estimated Service Payments on the tong-Term Public 1/ External Debt of Belgimn outstanding on June 30,1959 n million dollars) Interest and Year Amorti2ation amortization 1959 38.1 55.8 1960 54.1 81.5 1961 62.3 79.8 1962 50.4 64.7 1963 28.3 42.5 1964 34.9 48.1 1965 26.2 38.0 1966 24.7 35.5 1967 24.5 34 2 1968 24.5 33.2 1969 2h.0 31.6 1970 19.5 26.2 1971 31.2 37.1 1972 19.6 24.2 1973 25.7 29.1 1974 15.7 18.3 1975 12.4 14.4 1976 11.0 12.6 1977 5.2 6.6 1978 5.3 6.4 1979 5.3 6.3 j Does not include service on the external debt of Luxembourg nor on the Belgian-g.uaranteed dollar and STiss franc debt of the Belgian Congo and Ruanda-Urundi. Source: IBRD Statistics Division. r