SUPPIE1211TAL STATEIENT ON THE DANISH WAN

The Pre-War Economy of help of imported By the intensive utilization of her land and with the

Public Disclosure Authorized raw materials and animal feed-stuffs, Denmark developed a highly efficient livestock agricultural economy, concentrating chiefly on livestock and items of products. Danish butter, eggs, cheese and bacon became standard

British and western European diets. cent of all Danish exports. In 1938, food nroducts comprised 72 per

Danish industry, which except for shipbuilding, is characterized by the

smallness of its individual units and its great diversification, ac'counted

Public Disclosure Authorized for 15 per cent of 1938 exports, and ships built in Danish yards and sold

outside the country produced additional revenue. The balance was made up

of miscellaneous exports, including fish.

The principal pre-war Danish custoners were the which, took in 1938, absorbed over 56 per cent of Danish exports and which

19.8 per cent. The United Kingdom supplied 34.6 per cent of all imports in

1938 and Germany 24.1 per cent. Public Disclosure Authorized While Denmark normally had a substantial favorable balance in her

trade with the United Kingdom in pre-war years and, hence, was able to obtain

most of her requirements of other needed through converting excess

sterling, foreign trade, as a whole, normally resulted in a modest excess of revenue imports over exports. This import excess was more than offset by

from the Danish Merchant Marine which brought in additional foreign exchange the resources sufficient to cover also interest and amortization payments on

Public Disclosure Authorized external debt.

Revenue from ocean shipping under the Danish flag amounted to $69.1

millions in 1939 of which over two-thirds came from foreign traffic. The

latest in steamships and equipment plus efficient management and operation

placed the in a strong competitive position in obtaining a full share -2 of available world cargoes.

Thus, the national economy was a comparatively simple one, highly sensitive to world agricultural livestock and food prices, and because of the importance of shipping to Denmark, to world trade conditions.

The Effect of the War

Denmark did not suffer war damage to her industrial or agricultural areas comparable to that of her less fortunate neighbors. On the other hand, the Danish economy depends upon highly efficient operation and the mainten- ance of a strong competitive position. The depreciation of farm and industrial machinery plus heavy German looting and charr,s made fo- Gqrman occupation forces left the Danes with greatly decreased productive capacity at the war ts end. Furthermore, Denmark lost 40 per cent of her pre-.ar merchant fleet, so essential to the soundness of her nat"Lonal econom.,

From the standpoint of trade, the loss of Germany as the second most important customer and supplier forced the Danes to look for new markets, the successful development of which led, incidentally, to a reduction of exports to Great

Britain. In addition, Danish export prices, reflecting high world prices for animal feed-stuffs, place Denmark in a less favorable competitive positon than before the war.

Danish Recovery

t the war's end the Danes lost no time in taking measures to restore economic activity. The measures taken have been largely successful. The country has returned to abbalanced budget and has maintained controls over purchasing power which have prevented . The people have shown a willingness to limit imports strictly and to accept a program of national self-denial in order to put as much of their srings as possible back into -3-

restoration of national earning power. The Government is maintaining prices, and import controls essential to the over-allprogram. Severe

reductions have recently been made in the rations of food and clothing but

these measures are recognized by the people as essential for a healthy

economic future. Given a reasonable - even if slow - recovery in the volume

of world trade the Danish position should record a steady improvement. The present situation can best be shown by taking up the three major

factors in the economy, individually.

(a) Shipbuilding and Shippig

The Danes are anxious to restore shipbuilding r.nd norchart

marine activities as rapidly as pos,ible, and have given them first

priority. Denmark's ten major shipyards with a capacity of 150,000

gross registered tons today are working at 90 per cent of capacity. Of approximately 135,000 tons now under construction 100,000 tons are

for Danish account. As a result of compensation due Denmark for

shipping lasses plus the return of Danish vessels used by the and other nations during the war, it is anticipated that by

the end of 1948, ship tonnage will be restored to pre-war levels.

A portion of the proceeds of the present loan will be devoted to the

purchase of some of the materials required in connection with the

shipbuilding program.

(b) Agriculture

Restoration of Danish agricultural production depends upbn over-

coming the lack of maintenance and heavy obsolescence that resulted

from the war years. Modern farm machinery, trucks and the replacement

of stocks and replenishment of the soil to which a part of the

proceeds of the loan are to be devoted, are the primary needs. -4-

The agricultural recovery program received a set-back during

1947 when the severe frosts of February and March damaged 75 per

cent of the wheat and 21 per cent of the rye acreage. This will

necessitate the importation of additional cereals estimated to

amount to approximately qlO million. The drought in May and June

reduced current milk production about 15 per cent and correspondingly

diminished production of butter and cheese. As a result of these

unusual weather conditions, 1947 will be a poor year for agriculture,

with fodder grain production 20 per cent below normal and seed crops

less than half of normal. However, with the advantage of modern

agricultural machinery made possible by this loan, there should be

considerable improvement in production over the ne:t two years,

(c) Indstr

Danish industry suffers from ob.-l,scenca and under-maintenance.

New and modern machinery, for which a part of this loan is to be used,

will contribute a solution of this problem. Over the next two years,

industry - primarily small shops by United States standards - is to

be expanded and manufactured products for export increased.

Agricultural products, however, will probably remain the principal

export items.

Post-War Markets

From this review of the pre-war and present national economy, it is apparent that Denmark has a big stake in world trade recovery, particularly in the economic future of the United Kingdom. While current import surpluses are declining ($45.8 million for the first five months of 1947 as against

074.4 million for the corresponding 1946 period) total foreign trade is still very much below pre-war levels. Markets particularly in other European countries which before the war were relatively unimportant, are being '5' actively cultivated with a view to diversification. National recovery, however, demands a continuation of ascrifices on the part of the people and the restoration of efficient production methods pending an increase in over- all foreign trade which before the war accounted for 20 - 24 per cent of the national income.

The Loan - Its Purpose

The 040,000,000 loan now being advanced by the Bank had its inception in an application for %50,0O0,000 filed October 3, 1946. It is designed to hasten Danish economic recovery over the next two years, for without this loan the capital goods needed for Danish recovery, such as agricultural and textile machinery, machine tools, trucks, steel products, textiles and chemicals, could not be financed. With the national budget in balcnce, pro- duction increasing, and the price and wage levels under control, a dogree of economic stability appears to have been reached.

This loan constitutes approximately 8 per cent of the contemplated capital expenditures to be made during 1947-1948, the great bulk of the reconstruction effort depending upon private enterprise and private financing.

Imports under the loan will be sold to the Danish users and the kroner proceeds used to reduce the government's debt to the National Bank. Servicing of the loan should encounter no great obstacles, but it must be emphasized be that the speed of Danish recovery will/dependent upon the degree of world recovery, particularly that of the United Kingdom and Germany.

Under the Loan Agreement, the Bank will be furnished with full informn- tion concerning all goods to be purchased with the proceeds of the loan and their utilization and will sati,-fy itself about the end-use to which all purchases are put. -6 -

Debt Record and Urfunded Indebtedness

Before the war, Denmark had never defaulted on any external debt.

Following the German occupation, most of Denmark's assets held abroad were blocked. However, in the United States, , and , interest payments were made in full without interruption. Owing to the imposition of blocking measures, suspension of payments of interest as well as principal occurred in England and certain other creditor countries but payments of both were resumed in 1945. There are no arrears of interest charges now due any country.

Sinking-fund payments on all dollar bonds were suspended in Jonuary

1942, primarily because the Danes could not meet the maturity of the 6 per cent loan, due in 1942, and did not wish unduly to favor other dollar!:,issues,

The Danish Government has indicated to the Bank that it is well aware of the importance of resuming sinking-fund payments in dollars and plans to do so as soon as the public markets permit the refunding of the matured 6 per cent dollar issue and of the sinking-fund arrears.

Substantial debit balances, aggregating approximately the equivalent of 185,000,000 have accumulated under post-war trade and monetary agreements between Denmark and Great Britain and under accounts between Denmark and

Sweden established during the war period. Although the terms on which these balances will be settled cannot be known until they have been determined by negotiations between the parties, the trade relations between Denmark and

Great Britain and between Denmark and Sweden are such as to render it highly unlikely that the balances will be used in such a way as to cause a dis- ruption of the Danish that would impair Denmark's ability to maintain the service of the Bank's loan. Conclusion

The Danish loan is being made in accordance with the Bank's mandate to foster the economic recovery of member nations in the interests of growing world trade. The issues involved in the loan are not complicated ones, since the Danish problem is primarily one of loss of working-capital and under-maintenance of soil and equipment. Therefore, external financial assistance is necessary to prompt recovery. The record of the Danish people in attaining the present rate of production and exports justifies this assistance.