Speech

(J Speech delivered before Polish Falcons of America William Perm Hotel, Pittsburgh, Pennsylvania, April 11 1QZ.3 T U.S. FINANCIAL ASSISTANCE TO FOREIGN COUNTRIES I wish to speak to you briefly this evening on the subject of the international financial situation, and the financial assistance that the United States has been giving and will be giving to other countries. At the present time, the so-called ERP—European Recovery Program- occupies a central position in this country's foreign financial and econ- omic program. However, the main problem that has to be met in Europe, if that continent is to be self-supporting again, is not financial but is rather the problem of insufficient production. To maintain the economic life of any modern country requires goods and services of many different kinds, some of which can be produced in the country's own farms and mines and factories, and some of which must be imported from outside. No country in Europe, or anywhere else in the world, can be entirely self-sufficient. In order to pay for the kinds of goods that have to be imported, the country must be able to produce other kinds of goods in excess of its own needs, and must be able to export and sell these goods abroad. Some countries have also helped out by selling services, such as shipping services, to other countries - a sort of "in- visible export" - which serves the same purpose as exporting goods. If a country does not have enough exports to pay for the imports "that it needs, its first remedy is to increase its domestic production. This, as I have said, is Europe's present problem. Another alternative is for a country to reduce its domestic consumption. For Europe, how- over, this would be in general a most undesirable solution, since any further reduction from present levels of consumption would reduce both the wilii g e and the ability of their working populations to work, and n n SS thus lead to a vicious circle of increasing inefficiency in production, and ultimately to social unrest or economic breakdown or both. One might say that a main objective of American aid under the European Recovery Program is to relieve European countries from the necessity of making further reductions in their domestic consumption in order to achieve a balanced trade position. Countries can also pay for foreign goods that they need by selling gold or other assets that they have accumulated during past periods of prosperity, but it must be obvious that countries, like individuals, can only do this for limited periods. Many of the European countries have been doing this during the last two years, and their holdings of such re- sources are being rapidly depleted. Finally, countries can obtain im- ported goods that they need by obtaining either loans or gifts from the governments of other countries or from private investors or contributors in other countries. It is the purpose of the ERP to provide such loans gifts during a temporary period while European countries are increas- ing their own production and developing self-supporting economies. The postwar difficulties of European countries have arisen from a Ik combination of different causes. At the end of the var, many countries had widespread physical damage to be repaired. By now a large part of the direct damage to factories, railways, and the like has been repaired, but to some extent the effects of this damage still continue. There was also widespread deterioration of equipment due to wartime wear and in- ability to make replacements. This will take years to raaKe up in full, and meanwhile, it is an important factor in preventing maximum efficiency in production. Another quite different factor in the present difficulties of some European countries is the fact that they have lost or have had to liqui- date large amounts of foreign investments, or they have lost large parts of their merchant shipping fleets, which before the war had provided in- come that these countries needed to help pay for imports of foreign goods. In addition most of the countries have faced the necessity of re-orient- ing their foreign trade because of changes in sources of supply and in markets for their products. Finally almost all European countries have been faced with monetary 7 and fiscal problems which have caused serious dislocations throughout their economic and social structures. It has been clear that European countries would not be able to get their production going again at maxi- mum levels until they could restore adequate incentives to working men to give their best efforts, incentives to business men to produce efficiently* and a regular flow of supplies for industry and agriculture. This has in- volved political and social as well as economic problems. Where adequate currency reforms and other anti-inflationary measures have been taken, they have been very helpful, but in some cases, the underlying political and social difficulties have proved to be more deep-seated than was at first apparent, and the full solution of these problems is taking longer than might have been hoped. In addition to the dislocations within individual countries, all of Europe has suffered from insufficient coordination between countries. is clear that greater efficiency can be obtained if each country arranges its production programs and the development of its resources in coopera- tion with neighboring countries. However, international cooperation of this kind is more difficult to achieve than appears on the surface, cially when the countries concerned are only in the first precarious sta<? of recovery and are anxious to avoid disturbing their reviving domestic i dustries. When production of any sort is urgently needed, it may be too early to start scrapping inefficient plant in some countries in the hope that efficient plant can bo developed elsewhere. Furthermore such schern may require a degree of government planning and intervention which we would be reluctant to see. The production problem in Europe affects not only the European coun- tries themselves but also the countries of Latin America and other parts of the world. For example, the economic development programs of Latin American countries were interrupted during the war because both the Uni States and the principal equipment-producing countries of Europe had coi verted their industries to the production of war materials. For the so- reason, Latin American countries fell behind in the maintenance of their existing industrial plants, railways, etc. The equipment needs of theS countries cannot be fully met except as production becomes available ir European as well as U. S. sources. At the same time, the countries of Europe constitute very important markets for Latin American agricultural and mineral products. For all these reasons, it is impossible to achieve any real basic stability in other parts of the world as long as Europe is in its present state of uncertainty. Because of these considerations, the United States Government laid plans even before the end of the war, for the giving of necessary assist- ance to countries in Europe and other parts of the world. One step in these plans included cooperation in organizing the United Nations Relief and Rehabilitation Administration - UNRRA - for taking care of the most urgent needs of the populations in war-devastated countries. Congress also increased the lending power of the Export-Import Bank by almost 3 billion dollars, and the Bank has now used most of this increase to ex- tend rehabilitation loans to European countries. In addition, large amounts of credit were extended to European and other countries in con- nection with our disposal of United States war surplus materials that could be of use in their civilian economies. Finally, to meet the spe- cial problems of the United Kingdom in the period of transition after the war, Congress approved a special loan of C3,750,000,000 to ohat country. As a result of these contributions by the U. S. Government, combinec vith very real efforts brought to bear by the European countries them- selves, almost every country in Europe has made substantial economic proj reso since the end of the war. The United Kingdom has succeeded in bring ing its industrial output to levels above those of the prewar period, anc has achieved considerable progress in readjusting its industrial structur to meet longer-range postwar conditions. In France, industrial produc- tion has reached the 1938 level, and a bold policy of supplementing for- °ign assistance by large-scale liquidation of gold and foreign exchange foldings made it possible to give a start to the i4onnet Plan of Recon- struction end Modernization. Italy has achieved considerable progress in rebuilding its war-torn transportation system, in reviving industrial out Put, and in reestablishing its position in export markets. The Nether- lands has rebuilt its heavily damaged transportation system and drained and put back into production practically all of the lands flooded during "the war, while Belgium has been able not only to place her economy on a self-supporting basis, but also to extend assistance to neighbor countrie: Norway has succeeded in replenishing its merchant fleet to about 85 per cent of the prewar tonnage. Only Germany has shown very little evidence of recovery, largely as the result of the shattering effects of the war uPon its physical plant and the morale of its people. At the same time, eastern European countries, notably Poland and Czechoslovakia, have made great progress in restoring the productivity o.t their industries. In particular, the large increases in coal production in Poland put that country in a position where it could make important contributions to industrial recovery in other countries. On the other hand, because of political developments which interfered with coordina- tion between eastern and western Europe, both groups of countries have failed to achieve the full degree of progress that might have been ex- pected. It became apparent, however, during 1947, that further economic as- sistance on a large scale by the United States to European countries J would be necessary. Notwithstanding the substantial strides that had been made, with American help, toward general- economic recovery, it became clear that the disruptions of the European economy were so widespread that substantial further strengthening would be needed. It was necessary to provide further financial aid if these countries were to continue to ob- tain needed goods from the U. S. and other foreign sources. At the same time, if dollar aid were given to European countries for this purpose, it would help Latin American and other countries which try to earn dollars through sales to Europe in order to meet their own dollar needs. In June, therefore, the Secretary of State announced publicly the concern of the United States regarding the European economic problom. He explained also that he had in mind the entire continent, including the Soviet Union. The British and French foreign ministers then proposed a general European conference to take up the subject, and proposed that the Soviet Government join in this project. When it appeared that agreement could not be reached, the British and French foreign ministers neverthe- less issued invitations to.all other European countries (except Spain) to send representatives to a meeting in Paris. In thfj end, however, not only Russia but also the other countries which have fallen under its domination refrained from sending representatives. The Committee of European Economic Cooperation was then formed by the 16 remaining European nations, consist- ing mainly of the countries of western Europe. This Committee drew up and presented in September, a four-year pro- gram designed to restore Western Europe to a self-supporting basis. The Committee's report called for closer cooperation among European countries and it also gave estimates of the external assistance that would be re- quired in order to carry out such a program. The proposals made by this Committee were given the most thorough study in the United States Government. After critical review, they were accepted as a reasonable starting point in formulating proposals for United States aid. However, the Co.nmitstee's estimates were scaled down- ward where they appeared to be higher than necessary. They were also scaled downward where it appeared that the amounts of goods that were called for would not actually be available in the world markets, or where it appeared that the provision of these amounts would involve undue de- mands upon goods that are in short supply in the United States. The estimates finally reached in the United States Government involve U. 3. assistance to Europe in the amount of $5.3 billion during the first year of the program. There have been tentative estimates that the total amount of aid needed to restore the European economy might be $17 billion over a period of U-1/4 years. It is clear, however, that estimates of European requirements more than a year or so in advance must be of a ra- ther uncertain nature. This financial assistance from the United States is directed toward genuine economic recovery in the participating countries of Europe (includ" ing western Germany). It is not in any sense intended to be merely relief* The program provides for food requirements and for supplies of fuel and raV/ materials. But also, and more importantly, it provides for capital equip' ment to assist Europe in the task of building up its own productive capa- city. The program contemplates that the European countries will take M II vigorous steps to assure that all the assistance they receive from the U. S. will be used efficiently to further the objective of full recovery. This includes the taking of financial and other measures to stabli2e their currencies and generally bo restore confidence in their monetary systems, to stabilize their price systems, and to cooperate with each other in increasing the exchange of goods and services among European countries, all with the objective of achieving the greatest possible ef- ficiency in the use of their own resources to increase their production. To the extent that European countries appear able to repay this country for the assistance that they receive, it is contemplated that the assistance will be extended in the form of a loan celling for repay- ment. Where it does not appear that repayment will be possible without jeopardising the long-run objectives of the program, assistance will be given on a grant basis instead. "While attention has been concentrated on Europe in recent months, the needs of other areas of the world have not been ignored. Part of th dollars supplied to European countries under the ERP will be spent by them in Canada or Latin America. Iri this way, our aid to Europe will also serve to provide Canada and Latin America with large amounts of dol- lars that they in turn can use to pay for the goods that they need from the United vStates. In addition the Export-Import Bank and the Interna- tional Bank for Reconstruction and Development, in "Washington, are pre- pared to make loans to finance sound development projects in Latin America as well as in other parts of the world. As for China, while present political conditions make it impossible to plan any real economi recovery in that country, it is contemplated that China will receive re- lief assistance that should enable it to hold its own in an economic sense until its political difficulties are settled. In Japan the relief, assistance v/hich has been supplied since the end of the war may soon be supplemented by more far-reaching aid designed to put that countiy back its feet within a measurable period of time. Thus, the European Re- covery Program is only one element, even though the largest, in this country's plans for foreign economic cooperation. It must be recognized that all of these programs impose a very real burden upon the United States—a financial burden upon our Federal bud- get and an economic burden upon our people who are called upon to export to foreign countries far more goods and services than are received in ey. change. These programs have been decided upon, however, in the light of very careful studies of our capacity to bear this burden. The conclusin to be drawn from these studies are that the foreign aid programs contem- plated for the coming year will not impose any greater drain upon Unitec States resources than has occurred during the past year; that this drain will not significantly affect the standard of living of the American People; and that its initial inflationary impact can be held in check bj- appropriate domestic measures. The most important of these domestic measures is fiscal policy; it is supremely important that Government ex- penditures on foreign aid be covered to the maximum extent possible wit* a balanced budget. If this practice is followed, the purchasing power created by foreign expenditures in this market will be withdrawn from ti market through taxation. At the same time, in view of the inflationary Pressures arising from domestic as well as foreign sources, it is impori ant to carry out a monetary policy designed to restrain undue expansion 78 of bank credit. If we pursue vigorous anti-inflationary policies in the fiscal and monetary fields, we may be able to avoid reimposing direct con- trols upon the allocation and movement of goods in the domestic economy. There can not be any assurance in advance that the European Recovery Program will be a success. The European countries will have real prob- lems to surmount in order to be fully self-supporting at the end of the four-year period. The increasing political tension between eastern and western Europe tends to worsen the economic prospects of both groups of countries. Nevertheless, I feel most strongly that the EltP represents a wise policy on the pert of the United States. The cost in money is large, but is well within the capacity of this country. And by such a bold and ambitious program, directed toward the economic health of key countries of Europe, we'can exert a powerful influence toward the maintenance of peaceful conditions in the world. When and as the countries of western Europe achieve the economic health that this program envisages, we can confidently expect one result to be improvement in the economic condition of other countries and progress toward the ultimate goal of a peaceful and prosperous world.

M.S. Szymczak (1948, April 10). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19480411_szymczak

@misc{wtfs_speech_19480411_szymczak,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1948},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19480411_szymczak},
  note = {Retrieved via When the Fed Speaks corpus}
}