France - The economy

E.A. 28-a RESTRICTED This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE ECONOMY OF FRANCE May 24, 1954 Department of Operations Europe, Africa and Australasia CURRENCY EQUIVALENTS PAR VALUES TT e -- A u .0. $1 r r. 3 5.0 Frs. 1 = .2857 U.S. cents Frs. 1 million a U.S. $2,857 Frs. 1 billion = U.S. $2.857 million CONTENTS ae Charts Basic Data Material Resources ..................................... 1 The Growth of the National Output .............................. 2 The Claims on Resources ............................. ... & The Use Made of Resources ...................................... . The 1):oblem of Stability ............................. 6 The Public Finances ............................................ 7 Credit and the Finance of Investment .......................... 10 The Political Obstacles to Financial Stability .................1 The Balance of Fyments ........................ ..... 11 External Debt and Future Prospects ............................. 15 Statistical Appendic F R Ai __C_E BALANCE OF PAYMENTS OF THE FRANC AREA ON CURRENT ACCOUNT : BILLS Fn . c. nL l ARI) ALL GURRENCIES 0 XPRTS ALL R CEIPT i ý4NETT INVISIBLES PAYMENTS I A TMPORTS ENNET DEFICIT OF REST OF 950 REGEIPTS FRANC AREA 190 PAYMENTS -.5 RECEIPTS PAYMENTS U.S. DOLLAR ACCOUNT nAan RECEIPTS PAYMENTS RECEIPTS 1950 PAYMENTS RECEIPTS PAYMENTS 192 RECEIPTS PAYMENTS STE.R¶LINGj' ACCOUNTd 1949 PAYMENTS RECEIPTS 50 PAYMENTS .NET SURPLUS OF REST OF FRANC AREA RECEIPTS PAYMENTS 1952 RGI 5VVýx PAYMENTS ORIGIN AND USE OF RESOURCES (BILLIUONS Ut IDI FRANCS) 15,000 15,000 EXPORTS ImpnIRTq nn 0 SERVICES GROSS INVESTMENTI DEFENSEý 5,000 E- PU-L- 5000 iriNQUMPTION PRODUG ION ...TION. 1938 1948 1949 1950 1951 1952 9/3/53 No. 800 IBRD - Economic Staff FRANCE EXTERNAL TRADE OF METROPOLITAN FRANCE WiTH FOREiGN OUNTRIES WITH FRANC AREA TOTAL 1 % i ---- ~LVALUE (BILLIONS OF U. S. DOLLARS EQUIVALENT) Ti i IMPORTSr-.. PAýK EXPRTS å --1 I l l -JO 200 -200 aOor~~~E 1949=1O LJ 1L VOLUME (INDEX 194 100) EXPORTS 150 --- \O 0f-- 1.50 OtY_ / MPORTC_i1-17 __1100 50- - l l .f l f 5 '38 48 '50 '52 38 48 '50 '52 '38 48 '50 52 20011 r 200 UNIT VALUE (INDEX 1949 100) 150 - | 150 100EXPORTS 100 501 4 150 150[rTFRwS OF TRäDE (INnFX i m 1nr 150 100 1"--' 100 5048 r5n 52 '48 50 52 '4R 250 s5 5/17/54 No. 801 IBRD- Economic Stff FRANCE EXTERNAL DEBT SERVICE REQUIREMENTS (M iLiONS OF U. S. DOLL ARS) 2001 200________ 200 TnTAJ ALL CURRENCIES 0 0 --- 150 DOLLARS 0 1951 1955 1960 1965 1970 1975 1977 BUDGET EXPENDITURE (BILLIONS OF FRANCS) O ORDINARY ,00RECONSTRUCTION2000 3000 4,000 m~V-L U AND EQUIPMENT' ' ~iNVESTMENT !N OTS 1949 ::: SPECIAL ACCOUNTS MILIANY IUDGET 'CIVIL INVESTMENT (MET.) 1951 ×7×- -::7 19 5 2I 1953 ×××× ××>×>¢|[/ FINANCING THE BUDGET DEFICIT (BILLIONS OF FRANCS) 0 200 OTER 400 600 800 1,000 U ..AID SHORT-TERM 1949 öðSSÄMö: //:| NET BANK CREDIT MEDIUM AND LONG-TERM 1951 195 2×////////////| 192BANK OF FRANC . . ____________1____ 1953 ×××: / / WHOLSALEPR10S, 0STnr LIVING AND MWNEY SUlYlT (INDEX, 1949 100) QUARTERLY 1501 1SOLNG WHOLESALE PRIGES 150 I 50 ~~COST OF LIVING .•••I5 (PARIS) MONEY SUPPLY 501 0 1948 1949 1950 1951 1952 195:3 5/17/54 No. 802 lIBRD -E conomic Stoff FRANCE PRODUCTION INDEXES (1938 = 100) 200 200 CAPITAL GOODS i1XLLIL- FUEL AND POWER li; r IND NG i r 100 100 Acr GENERAL. INDEX GONSUMERS (EXCL.BLDG.) GOODS 501 1L1l11r1111 1LAL L 50 1929 1948 1949 1950 1951 1952 1953 SELECTED INDUSTRIAL PRODUCTS (MII 1 ONS OF MFTRIC TONS) 80 150 1 8COL [TOTAL5 0ALUMINUM (PRIMARY) CRUDE STEEL 60U-L J -0 00 -- - 7 1 0 - - -1 -ý 40» -- - .050 - -r 0 0 0 *inliudes ingpes cond casti-js. .6 00 n,50 , TjEXT1LES TnTAl ELECr.TRICITY CEMENT 40.(M!LLIONS OF KWH -- . 1 . RAYON TOTAL , .200 -- -0 .200fr1 ..... I-nl11 29 '38 47 49 '51 '53 '29 '38 47 49 '51 '53 '29 '38 47 '49 9S5 53 SELECTED FOOD PRODUCTS 20 3 200 CEREALS MEAT MILK AND WINE (MIL iO O AMETRIO TONS) ITHOUåANDlS F:UETRl TONS) MIL .inNS OF HErTni ITRS) 15-TOTAL 150o-r- y'9 T O T ATLT AOT A MI LK OTHER /PRODUCION 5I-H- 50 ___n _WmNW v .INE '34-38 '48 '50 '52 '34-38 '48 '50 '52 34-38 '48 '50 '52 AV. (Prelim.) (Prelim.) av (Prelim.) 5/17/54 No. 803 i1RD - Economi.c e-aff etropolitan France - Basic Data Pännlation (end of ypar): Totale [3 million Area 219,000 -. mile Grn. nationanl Prdut at 'qrkme. Prices - 1 3,500 billion f-rnc (I3R3 1-41l .eiv. ) a) B-,y sector f origi (19.L* &9), LJ) 1Dtribution,.S ofJ nationjLal expeyndit.ure(1952) Industry and manufacturing 33% Public civil expenditure 7% Building, public work 7% Deense 10% Power 5% Gross domestic capital formation 18% TrAnSport e5i NTk 4-fo-rei gn investruent -1ý1 Commerce and services 26% 100% 100% External Trade - 1953 $ million equivalent Total Rest of Franc Area EPU Area Dollar Area All other Exports 4,020 1,488 1,706 278 548 Imports 4.166 1.038 85o 63 Balance -1h6 ÅL50 -379 -202 C'nmnoition of Exnrts () Oompnitior of Tmnor-tz () A erea All Areas 0 Area Food, drink and tobacco 12 8 25 11 Raw materials 8 11 28 21 Fuel 9 21 22 Chemicals 7 16 3 7 Ttil clothing 13 17 2 Other non-durables 26 29 8 13 Equipment 20 11 11 2 All other 5 8 2 1 100 100 100 100 Balance of Payments with Foreign Countries, 1952 Total U. S. $ Visible balance -619 -223 Receipts from foreign governments $257 A98 Current balance -591 - 89 External debt (end 1953): Total postwar $2, 773 million equiv. U. S. and Canadian $2,46ö million. Total,prewar debt about $60 million equiv. THE ECONOMY OF FRANCE Introduction 1. France, together with the rest of the French Union, has a rare combination of material resources. Until the economy lost momentum in the course of 1952, the use that had been made of them since the war had not only made aood the lack of progress in many of the inter-war years but carried industrial, and to a lesser extent, agricultural output to new peaks. Indeed, the real innrAaq in Frtnh outnut comnared very favorably with that of other European countries. Yet rapid gains have gone with inflation and when prices have bAn RtAhlp or fal1-nc_ mntnut han hAn stable or fallin- too. The aeeral problem is therefore how to reconcile progress and stability. Political iasta- b41it. has made i+.iffil+. t.o comnres the lare nuimber of claims on the economy that pass through the Budget. The public finances have lost their flexi- hili+.r andl theni Treany is 1 le +.i hI wnIh%nIeanhd even when the eonomy as a whole is not. The-balance of payments difficulties that went with inflation havekmwnA nd ol h= f infn+Ar-n harniiQa nf +.ho nrin dinaritiRs that inflation left behind. The inflow of U. S. aid in support of the war in T7A^Ih4-a is homer alvrn"M +hi aJMnin hoy+- h riv the hiiAt. and on the foreign exchange reserves. It gives France a breathing space in which to regain har c-- 4--4-; pos-4-4- A,. +4-4-, _-+- n t ~ ,Ai1a j ,rv4 capital to the rest of the franc area and reduce the level of her own foreign .&&A%AIZ Ue%"L1~ ce trance us perhaps a Duoul comunaosn J. u44 1J.Ueso.urces tbnn any other country in Western Europe. Chief among them are a fertile soil and a 1sp0PL'au.Le clmaue. A large part". U1 L±n. u Lb d aLIU.L= xflau Canu%L UALvus" at present France imports more agricultural products than she exports, the Monnet Man CommIssion has estImated that iS fuy develped Frenh agriculure could feed a population nearly twice the 43 million.now in France. The.French Overseas Territories produce a wide variety of tropical products, notWay vegetable oilss coffee, cocoa, bananas and hardwoods, On the other hand, the French Union must import the bulk of its cotton, wool and softwoOdUs 3. Except for petroleum, France is well supplied with domestic Sources of energy. Large and well-developed hydroelectric resources in the Alps, the Massif Central, and the Pyrenees are complemented by modern thermal installations in the industrial areas of Parisf the North and the East. A comprehensive grid system insures ample supplies of power to all regions throughout the year. Sub-, stantial coal deposits in the North, Lorraine and elsewhere fill the greater part of French needs. - 2 - Recent research with low-grade Lorraine coal makes it probable that in the future ance will be able to se more of her own aAl for cnkingt hit.hPt+. thp. dnmetic supply of coking grades has been insufficient to supply the French steel industry. Despife 1nargn eime annn Y-en-m"e4-.ne cine tihe wAY nqa4-rnlZAm anrnAr+jnin irn the French Union is still negligible; so far only about 2% of French requirements e.a e n ,w Wm nn,h walle a n n n ,'sen1 ~ ~ 1n in 4 an invo+mn v+ 4,i ,rfinavian n the 1930's and since the war, France has become a substantial net exporter of rf --A --nA4n . Tn,-e+4.vs- 4- T-.n 41 P4mean4 .1 ,amw am,m+ 4 r4+h TT C a4 1 AL% jJ~~ J @.LW"U V V V.. 1 81L00 11S 4L.L 011 '. .3 .11MAICIC _ 1-I Alry-X,4W. 'SUwal V* we 0 1''.. companies and the building up of the French tanker fleet have enabled an increas- 4-g ~ a. prprto of ~ ,4r crude o4 f4-I-A4-- 4-- 1- -ft-A 4-P., 4., A44L jJ L 'Jj . L LJJ AJI &L1- %AV.J L . 6-& ' J.UL LJIJ VO %A.Lk.IUA.LLi, L4..--.L6r,LW/ U%J 600~ kF.lL W ".J . 4 francs, (one-eighth in 1948 and over two-fifths in 1953). 4. France herself is the second largest producer of iron ore and the UILLI-U J(2_r Ok JI-VUUUWI- V.L VC&ULLIC~ A." ,1144 VVI.LLAOe 01% JJ'JUULW CLJVU1 Ck '4U.QI.IJ. O.L the world's potash and important amounts of zinc and lead. The mineral resources of 'Whue Vve4urseas TerriVtries are aso couniuera-bU-p n.LnugU1 lal' 14rVUm ±L"uLy developed or fully known. Significant quantities of iron, zinc and lead are prouuceu ic n MVrun dnu Vwes A.r.LQd anu kUU.LVu.L LirOLI ure uepUu5 1ru tauiI U as yet unexploited. French Guiana and French West Africa both possess large bauxle aeposiTs, most of them still unexploITed. NorTh A1rrcd accounsU fur almost one-third of the world's output of phosphate rock and there are new deposis in West Africa, the exploitation o which has recently begun. New Caledonia produces nickel, chromium and manganese. Further, there are large un- exploited deposits of manganese in V. est anU quaTorl Airlca, wnch also proauce small amounts of industrial diamonds, while Madagascar contributes graphite and mica. France stil has to look to foreign countries for copper and tin thougn there is a substantial unexploited copper deposit in French West Africa, which has also begun to export very small amounts of tin ore. 5. France possesses a highly developed manufacturing inaustry, the firth largest in the world. Her steel industry has been modernized and enlarged since the war. Production of equipment, electrical goods, plastics and synthetic fibres has expanded and has tended to displace those consumer goods industries for which France has traditionally been best known, textiles, leather goods and the like. Nevertheless, France may be expected to continue to need substantial amounts of specialized machinery from abroad. The Growth of the National Output 6. In real terms, the French gross national product rose by nearly one- quarter from 1938 to 1952 and by almost one-third from the lower level of 1947. With all the reservations that must be attached to estimates of real output in times of rapidly changing prices, this still,represents .a real accomplishment. In one sense, part of the gain should be discounted by the fact that 1938 was a year of.depression for the French economy. In another sense, it is the more remarkable precisely because the French.economy before the war seemed to have lost much of its ability to progress. 7. The lack of any natural increase in the French population in the fifty years up to the Second World War must have contributed to this loss of economic vitality. Perhaps even before the First World War new industrial invest- ment was too low to maintain the momentum built up during the 19th centuryo Re- construction after 1918 took five years, and the way in which it was financed -3- seriously underminea tne franc. During tne ouera..uue ex n t 2a D a3wed the return to power of M. Poincare in 1926, industrial production rose in the course of four years to about 407 higher than it had been in 191Y. But the ground gained was almost all lost in the thirties. Financial stability was under- mined by the social unrest that went with unemployment and failing incomes. with- out a building boom, as in the United Kingdom, or a rearmament boom, as in Germany, France never really pulled out of depression: on the eve of the Second World War she was probably producing little more than before the First and build- ing about only half as much. What new investment had taken place was in the newer industries - oil refining and chemicals for example. The basic industries - power, transport and steel - were neither modernized nor expanded. The level of new building was very low. At the beginning of the Second World War, therefore, much of the French industrial plant was over-age and France compared unfavorably with many other industrialized countries, whether in terms of power available to industry, steel consumption per head or the number of tractors on farms. Because of the decline in the rate of investment, the capacity of the construction indus- tries had declined. The capital market had atrophied as a channel for industrial finance. 8. The increase in the national product since the war was due mainly to the expansion of industrial output. Between 1938 and 1952, the index of indus- trial production rose by 44%. The increase from the previous peak, reached in 1929, was 9% or 16% if building and public works are excluded. France has not, however, held an industrial census of any kind since 1931 and the index probably allows too little for the new industries - chemicals, artificial textiles and vhicles. for example n in.which proaress was Darticularly great, as it was also in the basic industries and in engineering. Expansion here was a natural conse- quence of the new demand for caital goods - steel. machinery and building materials. The Monnet Plan directed a large proportion of new investment into transport and the hAnin industrips and so eliminated at an early stage bottle- necks which might have hampered the balanced growth of production. Production of aloetr.in nowar doublAd hAtween 1918 and 1992. and oil refininL more than trebled. Cement production in 1952 was almost 21 times that of 1938. Crude steel pAAo+An ineased br 7K< and +.ha e%homial Anduiistrips inreased their output by almost one-half. Only the traditional industries producing mainly for consmnption made litt.le or no Pnrgess after a brief nostwar boom. In some cases, textiles for example, their output is no higher than in 1938 and that of leather go -ann i actiul11y irma the thirties, France has been maintaining a very high level of employmentT, More- ov ,- ' P^--- p' at -rkl 4; ... 4~e 'Iw", hr%jj-"o_ Tnt 1019_ +ha nirrnaa work-week was 45 hours compared to 391 hours in 1938. The overall productivity greater progress in some industries than in others. Coal miners in 1952 produced It%& ____ ___ :. -4AD -Jpe ___ TOS -m A n aA e 10,0 qh%u n+_n J.V7o MVL.V pe;r- mII- u04 .uLu uOu " .7It y OLuuA ;JOv p IIWLV %#&LbL "vvA &Z Late a J LLAW Railways, with 20% fewer workers on the payroll than in 1938, handled two-thirds more toan-MiLe:s ofil'4 reL.L#.~ UUcrI. & 0. Progres in agUriAulMre has been sloWer than &U- m4o oA _umo- production is now some 5% - 10% higher than before the war. Meat production surpassed prewar leves as early as way und dary proucts in9. That o - production first did so only in 1952 and then only slightly. Average yields are generally not high and have been increasing more slowly than in other Western European countries. Not only comparisons with other countries but also dis- parities between the most and the least efficient farmers within France have drawn attention to what are held to be important possibilities for higher pro- duction at lower cost and hence further opportunities for the agricultural sector to save and earn foreign exchange. The large number of individual farms and low average farm incomes have hampered the introduction and use of machinery but as compared to industry, far less effort has so far gone into modernization and technical training, The Claims on Resources 11. The expansion of output was in response to the high, and at times the excessive, level of claims that government and private individuals have levied on the economy since the war. 19 In T19)A. France faced a second time and on double scale the task of postwar reconstruction, both the repair of physical damage and catching up on arrears of maintAnann_ This time. however. reconstruction alone was not enough. Because of the obsolescence of much of French industrial plant and of the low 1_vel of investmenin new cnaity before the war. "reconstruction" would have left France in no position to match her competitors. She consequently undertook a man%r vehc=ment rvmorm +o mndrnize her industrial eaipment, to expand the capacity of her heavy industry and improve basic facilities in order to make pOILe new peaksofidsraoupt 1. Frnc h hA n l invesA more of her resources than before the war; she has to export considerably more. She lost a substantial part of e nc e--- en"A wnvesments a shipping; oinet_ rece-ints have also Hml, AJIUU A.VUl LAUK_ZJ.6I Auv V OU&vIO -&- -rV-b - -l -- " " paid for a smaller part of French imports than before the war. 1. Large claims on the national resources for reconstruction, new investment and exporVs do not of course make France uniNu. Nor do-es the desire to attain higher standards of living. Germany had to face much greater damage to b. -nd to her tn---s stem (thnu ha sunnly of rolli-no stock was higher at the end of the war than at the beginning and her machine tool capcit fa eceeed h-Ot-olf~ 10.11 rn A^,o heywoxm" - +.nrl emit in Conti- nental Europe in two ways. First, in addition to investment at home, she has undertaken a development program in the French Union tha has been both a on her resources and a drain on her foreign exchange reserves. North Africa alone has been able to finance subSnMial uveutmenI frou iswo resourAA - even there about half the cost of the public development program has to be met by Metropo4itan France; In the other territories, her shae a*is c e 0,50- rest of the franc area not only runs a heavy-deficit with France but also a deficiT with foreign countres that has uo ue covered from France 0 own f*re** exchange receipts. Second, and very important, as a consequence of fighting a war in Indo-China and building up her defenses in ve nust rance &MA Dea- carrying military expenditure on a larger scale than other Western European country, the United Kingdom alone excluded. Indeed, up to 10/51p, miulitay expenditure in relation to gross national product was higher in France than in the United States. When general hostilities came to an end in -945, raUce was -P'ceA 4 ,A,~- .. 4-. T-- 4 .--4J .. 4- -3.L. .~ 4-~ .LUL L.L wQ. ALLL WIJ.A1&V1 LJa ICL &L~ ~ W 44&L A4U1.LI ULU L4A MU.11U- wide significance ever since.. Up to the end of 1952, the cost of this war had Ueen of tUh oruer Of Vu. u)7 U.L.L.un "equILV.Lr1kO u "u .L7.7rj lpnU paUxM jyVa Ul IrenUn expenditures on the war, well over $1 billion. The cost of the war up to that .".&u un=u UwvmiL, UU JlLuru 1U11a [."WU-nr1XrU5 0 uie aimuunu spent reconstruct- ing war damage in France herself., In the last two years, the United States has been taing over an increasing slare oi the cost of the war; on the present basis of assistance, it is estimated that during 1954 the United States will bear somehat more uan three-quarters of Tone direct financial cost. The Use Made of nesources 1.. To carry through the tasks that France set herself required that increases in output be devoted primarily to investment and defense. The extent to which this has been done is shown in the following table: Use of Available Resources Percentages 1938 1949 1952 Private consumption 75 67 66 Government consumption 12 12 16 of which, civil (n.a.) ( 7) (6) military (n.a.) (5) (10) Gross capital formation 13 22 18 100 100 100 Whereas before the war only about one-eighth of available resources had been invested, the proportion in recent years has been about one-fifth, probably some- what higher than the average for Western Europe as a whole.. The distribution of investment among various economic sectors in the four years 1947-50 followed roughly the pattern laid down in the Monnet Plan, which initially gave tov priority to coal, electricity, transport, steel, cement and agricultural nacinery In 1948, agriculture was added to these priority sectors. Over the period as a whole, fuel and power received.about a fifth of the total., About the same pro- portion went to transport and communications, .though this sector was much larger in 1947 than later, when the most urgent reconstruction work an the railways had been completed. Manufacturing and commerce accounted for about one-fifth of new investment, public services and agriculture (including the food processing indus- tries) each about one-tenth., As.had been intended.,industry and buildine gradually became more prominent in later years.. By 1952,.transport took up only one-tenth, power one-sixth, and the public services barely one-twentieth of total investment, whereas industry.and commerce on-the one hand, and building on the other, each accounted for around.one-third.. 16. The imoortance of defense extenditure is reflAnted in the growth in the share of "Government consumption" .pwhich had accounted for 12% of resources available in both 1938 and 19h8 and thereafter, as FrannA was ohlod to nii up her defenses in Europe while continuing active warfare in Indo-China, rose to 169 in 1949. Not lA than 10M of total Availalh resourcate wae y then being devoted to defense, a proportion surpassed in Western Europe only by the -6- V.L. VJU fLJ"Ir±5UA%JJA Vk- VJUU LA~~.L 1J.6L.. Y.JL .jJ ''hA. O J.1 0 r-C;.LU.Q.L-.V .LLL 4LL= earl.y postUar~G. yers VLe &ee oJ.L ives-IJI1104 in France was supported by assistance from abroad. U. S. economic aid was of dollar commodities - particularly oil, coal, cotton and machinery - on whi.ch ner inuutridL recovery UepenUed. ViewU 1 a proporIoUn of Uoal Frenh ut- put, howevers foreign assistance to France does not seem large: in 1947 and 19WO it contributed about 3% of the resources available. Inereafter the gross contribution of foreign resources was considerably smaller and in 1950 France actually had a smal surplus with the rest of the wor-L. In 1Y7 and LY5, the deficit rose again to the equivalent of about 1', and 1% respectively of total resources available. 18. The net contribution from external aid has been consistently smaller than the gross amount of aid received because of French military expenditure in Indo-China and the substantial investment effort in the Overseas Territoriesp reflected in a large current account surplus with them. By 1951, for examples when investment in the Overseas Territories was approaching its peak, this sur- plus was equal to about half the French deficit with non-French countries., 19. With an increased share of the resources available being devoted to investment and defense, private consumrption had to wait. The proportion of available resources consumed has fallen from about three-quarters of the total before the war to two-thirds in recent years. This meant that, in real terms, whereas the gross national product had regained the 1938 level in 1949, total private consumption did not do so for another two years.. Consumption has been held down despite the pressure for increased wages and other incomes and despite the expansion of the social services. From time to time, demands for higher wages and other money incomes have been found irresistible. But whenever the increases in money incomes have in the aggregate been larger than the resources left over for higher consumption, they have to that extent been absorbed in rising prices. 20. In 1946, wholesale and retail prices stood about six times higher than in 1938. By 1949, they had increased another three times. During the post- Korean inflation, they advanced by about a further 50%. Early in 1952, the price trend was reversed, as the earlier reversal of world commodity prices began to make itself felt in France. By the end of the* year, wholesale prices had fallen back on the average by about 8% and the cost of living-bv 2%. By March 1954, some two years after the peak of the price rise, wholesale prices had receded by 11% and the cost of living by a little over 3%. The Problem of Stability 21. The attemnt to secure simultaneously a hiLh level of investment and consumption while devoting an increasing share of total resources to military exnenditure would have made financial stability difficult to maintain in any economy. The problem was the more acute in Fraice because for several years aftAr the war the inflation inh_TitPd frnm the war was not hrmnyht under nontrol Political and administrative obstacles had stood in the way of an effective currency reform and only towa-rdR thp end of 19A8 did the combination of a larop import surpLus, the recovery of mousiria. prouuc.Lu anu, pdrna-- mu m u of all, a good harvest provide conditions under which a real degree of stabili- zation became possible. But since hen, the Frenc econom na tended to aler- nate between periods of stable or falling prices with a decline in activity, as in 19y9/0.and 9>J3, and periods of severe inflation with a renewed upourge in industrial production, as in 1951. 22. The central economic problem that faces the French Government is indeed how to reconcile progress with stability. The econony has adapted itself to living with inflation and tends to relapse when the stimulus of inflation is removed. Stability has been difficult to maintain because private expectations, conditioned by a long experience of instability going back to before the war, are highly volatile. Private decisions to consume or to invest, to hold cash or to increase stocks are liable to rapid and unexpected change. The ability of the Government to react to changes in private expectations or indeed to influence them positively is, on the other hand, very limited. In an inflationary atmos- phere, readiness to use a severe credit policy is- restricted by the fact that both Government and private enterprise have come to rely extensively on short- term credit to finance essentially long-term operations. Conversely, in times of mild recession, credit expansion is felt to be dangerous because of the difficulty of controlling its extent. Any action that might start prices rising again has to be eschewed because of the already poor competitive position of many French producers in foreign markets. The high level of public expenditure and its rigidity do not allow the budget to be used to reinforce credit controls. If the private sector steps up its rate of spending, it is not possible to cub Government expenditure or to increase effectively the already heavy tax burden. Conversely, when private spending declines, it is out of the question to Increase Dublic expenditure and hardly feasible. in view of the size of the budget deficit, to make any substantial cuts in tax collections. In short, without a major re- form of the fiscal system. on the one hand. and a substantial reduction in total public expenditure on the other, the influence that can be exerted on the economy through the budLet is vpry limited. The Publin Finane.q 23. The budget has in fact become a focal point for many of the strains in the economy. Nearly one-third of the gross national product passes through it. The main categories of budget expenditure in recent years are set out in the following table: 1951 1952 1953 JhillinnR nf franns7 Civil ordinary 3132 1244 1315 Darans 701 1335 1233 Investment 849 882 982 nf whith: Investment by public services (100) (105) (137) Reconsructinandl roeannipyant in1 semi-public and private sectors!T (628) (651) (700) Special Treasury accounts 112 83 95 a/ot including guarantee for loans raised by nationalized enterprises. - 8 - The size of French ordinary public expenditure is in part explained by the fact that in addition to basic administrative expenditure, the budget also carries the operating deficit of the railroads, the deficit of the social security system for agriculture, subsidies to industry and agriculture, and subsidies to e.portEs in the form of tax rebates. But the dominating item of current expenditure is defense. As recently as 19L9. military expenditure was only about half the size of current civil expenditure. By 1952 civil expenditure had increased in current francs by half while because of new commitments in Europe and the faster tempo of the war in Indo-China, military expenditure more than trebled. In 1952, it was somewhat more. and in 1953 only a little less than ordinary civil expenditure. 24. Large scale military expenditure has weighed on the French budget particularly heavily because ever since the war the budget has also been carry- ing two major capital items. First, the war damage legislation passed at the end of the war gave everyone whose property suffered war damage the right to complete restoration at the expense of the State. The total cost has been evaluated, at mid-1951 prices, at 5,000 billion francs. Eight years after the end of the war, about half of this charge had been paid off. Secondly in the absence of a healthily functioning capital market, much of the burden of financ- ine the investment Drogram. both in Metropolitan France and the rest of the French Union, was thrown on the budget. From 1947 to 1950, between half and two- thirds of new investment was financed by public funds. After 1950. the proporton of new investment financed by the Treasury dropped to about 40%. Public invest- ment. especially in the railroads and coal mines. dEclined in real terms. if not in terms of current francs. The Government deliberately encouraged the national- ized enternrises to seek financre throuah the ranital market in France and abroad and a larger share of investment in the private sector was financed out of proffta. The absolute amount devoted to canital exnnditurp in the budget did not. liowever. decline and continued to represent a heavy burden on the public finances. 25. The 1954 budget estimates shows for the first time in many years, A _adnetion in total rn=Anditurn This is +.n e the nrult of reductions in the capital and defense budgets somewhat larger than the continued increase in aordiv%=mr ndn es W h -nmi h nin no h hn 4 h result rather of changes in presentation and accounting than of reductions in +.ha volume of nlannad invektment or in that nart for whinh the Trpasury haR to find finance. The nationalized industries are being further encouraged to vly on +h le an+it markfe. and the Trasqy1 is no lmazr umi ha whn1 of their capital requirements. But far more important is the reduction in defense exeni4" -~ a reuJ ofl theP a1, qq,irn +A4 Wtr +'Inp TTii+pelA Q+q+,n e oft-^ more in three-quarters of the estimated cost of the war in Indo-China in 1954 (and so 61ONA"D on-4 ". rd -f 4.-4-1 cu, Ae 0--s lptv; AnV r - __ M"~!~+ +Inn+ 4" WJ'J.U %AU A OL J WrY' -U LA. %L& A LU11.V +L4 W%L -IQ. 44- A 1 _44 V A.&4 spite of the mounting cost of the war itself, the burden on the French budget LAO eent rpUu W.V u U we uvvJ.vvu.LA VxA vu.vu u than covered ordinary civil and military expenditure, Tax receipts in 1952 amoiubeu tou ao utne-qua"Uv'Ver LU u,1YO ni1CL.LUI11.L pr-gUkLL, oV <vuuU v1-1.L1U if social security contributions are taken into account. The tax burden La t.rance is tuerefore in tuta1 at "LledtS a neavy as n usuer JuuuLnrltM countries. Its adverse effect on prices and incentives is aggravated by its very uneven incidence. Nearly two-uhru of tota Vax receipts come frUm iUirecV taxation, levied at various stages from producer to the market and directly affecting tne price level. . urher, the tax structure au a whole bedrs relaulve- heavily on industry, on salary earners and on consumers generally, and rests relatively lightly on agriculture and the numerous small commercial estab.isa- ments. 27. Current revenues, have, however, consistently fallen short of total expenditure. In a sense, the Treasury position might nevertheless be considered better than before the war: in 1938s ordinary receipts covered only about two- thirds of ordinary expenditure. Actually, however, the position is far worse, for whereas in the depressed years of the thirties the Government covered its current deficit by borrowing from the capital markets, in the boom.years since the war it has had to finance its large capital deficits largely by borrowing from the banks. What has proved so dangerous in an atmosphere of inflation has been the fact that the way in which the Treasury deficit has been financed has swollen the money supply and undermined confidence in the currency. How the deficit has been financed in recent years is shown in the following table:: Financing the Treasury Cash Deficit (billions of francs) 1949 1950 1551 1952 1953 Deficit -611 -570 -504 -872 -817 Finnced by: Counterpart of U.S. aid 300 181 153 186 365 Long and medium term borrowing(net) 156 66 45 267 96 Other non-bank borrowing (net) 96 265 219 270 270 Banking system (net) 59 58 87 149 486 of which: Bank of France special advances (7) (-12) (-2) (15) (228) 98. From 1949 through 1952.the Treasury was able to avoid recourse to the Bank of France, a method of financing frequently resorted to in the war and early postwar years. Occasional long-term issues were supplemented with funds derived from the growth of deposits by its correspondents, by the postal check- ing system and by the savines banks. Between a half and a quarter of the deficit was met by releases from-the franc counterpart of U. S. aid. Nevertheless, in hoth 1902 and 190? thA Treanry had to borrow extensivelv from the banking system to cover part of its deficit. In the first half of 1953, the current inflow of fwaon mai AvaiihIp hU. I . id dnlinp. and qalpm of Trpasuvry bills to the banks and funds accruing through.the postal savings system no longer nmriAnl hMInn^e%- Kn hfNAc h= -raniwir aniid T+.wq +.hPrPfnrP nbliap.d to obtain substantial advances from the Bank of France. 29. The fact that the inflationary effect of financing the budget defici where in the economy has meant that it was nots in a narrow sense, dangerous. pressures elsewhere in the economy, the Government might still be unable to avoid -10- Credit and the Finance of Investment 30. The inability even of the Government to finance the bulk of its capital exnnditnee thrnugh th1 apital markf. indP1inP onn of thA hasRin weaknesses of the economy: the loss of confidence in money assets on the part Of +I,^-- who -nw, mrm4n w+In +hlid hxraikArwm of +.hi traditiAnA1TnomP.hanisms for channeling savings into productive investment. There is no reason to think tha te FrenhbnIs tradtoa es ftrf a oe(lhuhFecm as a whole have often not been saving enough). Unfortunately, the habit of the First World War, French investors were showing a preference for placing their fuus in loreign UVus and the U1suUragUg lsOO of many of these a. Russia and Eastern Europe tended to turn investors away from the capital market altogether. Only in the boom years, 7f-.L7., U.U LIUVV pr.v1 LOJu: q.U their 1913 level. 31. With capital scarce and expensive since the war, private enterprise has had to rely very largely on the reinvestment of profits, On relatively chea loans from the Government - if in a priority sector - and to an increasing extent on bank credit. Apart from the fear of embarrassing itself by enforcing a credit policy that would be eftectively tight in times of rapidly rising prices, the Government has not only felt it necessary to exempt bank credits for equipment from its credit restrictions but actually to take steps to augment the capacity of the banking system to grant them. From the end of 1949 to the end of 195, the increase in bank credit to the private sector has accounted for 70% of the total increase in the money supply. 32. Credit control has been exercised primarily through quantitative restrictions. The rate of interest has been used sparingly. In the face of a slight recession, Bank rate was lowered in June 1950 from 3% to Z17. Tne waves of inflation that followed the outbreak of war in Korea were nearing their peak before credit restrictions were tightened and Bank rate raised to 4% in Ncvember 1951. The downward trend.in prices during 195? began to make Bank rate increas- ingly effective. In September 1953, again in response to some degree of recessis the Bank rate was lowered to 3j% and to 3,% in February 1954 as part of a deliberate attempt to stimulate new investment and exports. 33. The competing claims of Treasury and private enterprise pose some. thing of a dilemma: in the absence of a healthy capital market, the Treasury has to rely on forced savings, through the surplus of ordinary revenues over ordinary expenditures, and on channeling institutional savings as far as possible to itself. But so long as it does so, the capital market is starved of funds (and much of the .investmpnt being carried out does not have to face the test of the market). At some stage the dilemma has to be resolved. A belief in the long- run stability of the franc is of. course.essential. With the experience of more than two years of stable or falling prices behind them, investors are indeed beginning to show greater interest in the.capital market. But the number of recent bond issues with terms that are designed to insure in some form against a further depreciation of the franc suggests that the basis of confidence is still fragile. Reduction of the size of the budget would go far to restore flexibility to the public finances, while to eliminate that part of the deficit that can be financed only at short-term would go far to reinforce confidence in the franc. - 11 - The Political Obstacles to Financial Stability 34. Reforms designed to cut budget expenditure and to reorganize the tax structure encounter formidable political obstacles. Those who framed the Constitution of the IVth Republic sought to make dictatorship by the Executive or by either of the extremist Parties impossible. But in so doing, they weakened the independence of the Executive, emphasized the relative importance of small party groups and left Cabinets at the mercy of deputies whose own political fate was not involved. It has so far proved impossible to form a stable majority that is coherent and strong enough to sustain a government, first, in formulat- ing and then in putting through a thorough-going economic and financial policy. Majorities can, it is true, often be found on particular issues but they are majorities which do not fully coincide. As has been seen freqpently in the past, a Cabinet set up with the specific object of redressing some immediate financial crisis has foundered because the majority from which it was drawn has split apart on foreign or colonial policy or the issue of religion in public education. 35. The Constitution of the IVth Republic is not, of course, itself wholly to blame, for it only reflects - yet perhaps at the same time magnifies - the social and political fragmentation of France that occupation and inflation have accentuated. For many years, France has been able to afford weak govern- ments because continuity of administration has been assured by a corps of competent senior civil servants and the country has had extensive reserves of strength to draw unon. Since the war France has been throurh a number of serious crises. Each has ended suddenly and unpredictably and stopped some way short of Hisantpr One man rpinablv rplv on step be ig take n nrevent any szrimus trouble that may arise from getting out of hand, even though one cannot reason- nblyvnect at thiq tageP that a French Government will hp nhln +.n l-.nt denisve action over a wide field. If this is so, one.can reasonably expect that the aanrnl .v-rpnH nf +.Vio R"pzntl;, Pr-nnrvrm urill1 rnni-.i= iinw.m"ric ,iroy%i + +11 -"+- 11r possibility of periodical crises or relapses. U. S. aid for Indo-China has now tae oe lrepart of th iaca udno ar A,~ .4 l a cut in budgetary expenditure. 'France has in a sense so far been paying the ., ~~ .-* . wf th . revards L..L% _L% rZL LIJUcl.U, for much basic investment has already been carried out and the emphasis both in France ~a the lr~~ Terriore isno-h4tigmoe1iecl tomauatr ing and production for export. Gains in output as a whole are unlikely to be in productivity. A sustained investment effort thus remains basic and it is rVJW11 n & 14a LCoLm ±UCUo 11elucl,lm au 1 Dossible increase the rate of investment command wide political support. The Balance of Payments 36. The prospect of.a continued upward .trend in production is one of the man reasons for believing that the balance of payments-position of the franc area will tend to improve, again in spite of the probability of temporary set- backs. French exports.and imports each account for about 85$ of the total exports from and imports into the franc area. Since France also accounts for the bulk of the expenitures and receipts on invisible and capital account, her influence on the position of the franc area is decisive. French 6xports and imports are only about one-sixth of the gross national product, a much smaller proportion than is usual in 'estern Europe. By applying to exports a relatively small increase in - 12- prouuction or snif tl ite use of resources, 5UUbUuvIU.L4± LUverge Lcan exerteu on the balance of trade. 37. Since the war, inflationary excesses of public and private claims, aggravated by the price disparities that have resulted from inflation, nave periodically led to serious balance of payments difficulties. At the end of the war, with domestic stocks exhausted and industrial and farm producilon at a low ebb, France had to import far more, yet could export far less, than in normal timese Even before the First World War, France had run a deficit on trade account, but it was comfortably covered by tourist receipts and by.income from French investments abroad. Even in the interwar years, despite the loss of part of her investment income, recurrent financial instability and consequent currency depreciation, France was able to accumulate substantial gold reserves. By the end of the Second World War, however, she had suffered a further loss in invest- ment income, her merchant.marine was decimated, and for a time there was almost no tourist traffic. France was faced for the first time with deficits on both visible and invisible accounts. 38. Between 1945 and 19148, the current account deficit of the franc area was between $1.5 billion and $2 billion equivalent annually. To cover this huge deficit, France was obliged, despite substantial loans and grants from abroad, to liquidate foreign investments and use up a large part of her gold reserves. With the restoration of stability towards the end of 1948 and a fall- ing trend in production, the deficit fell to half a billion dollars in the course of a single year. Continued stability and a more competitive export position after the devaluation of September 1949 brought the French deficit in 195C down to little over $115 million equivalent (or only about 4% of total payments) and the deficit of the franc area as a whole to $238 million. 39. To some extent the improvement during 1950 was attributable to temporary factors. The.buying rush that followed the outbreak of war in Korea did not reach France until early 1951. There was consequently a heightened demand for French exports before the boom began to swell imports. Moreover, industrial production in France did not respond immediately to the rise in exports and for a.number of months the high rate of exports, which in the last quarter of 1950 were double the 1949.. rate by volume, was made possible only by exports from stocks. 40. The inflation of 1951 was accompanied by, and in great part responsi- ble for. the deterioration in the Frennh balance of navmants in that vear. With domestic demand inflated and French export prices rising, exports dropped stadilv At about the same time that aynorts bArran to fall. Francn was cauht in.the post-Korean buying rush. Further stimulated by the domestic inflation, imnorts.-coarpd. The definit- on invisible account also increaqPd aq freight raten rose and official-foreign exchange.receipts from.tourism.declinod, The overall halancn of navannts dpfinit in 1951 was over A1 hillion. due in nart to the eagerness of importers to acquire foreign currencies and the reluctance of PArnmTtirn +.h& PrAntn. +qhzm France wn g fn +.n +.4ph+a- wvhzam anel +. rq ad controls drastically. :The deterioration was particularly acute in trade with ater serig ea no othear Wdefei European Frie sok th en Feabury 12 after a series of very heavy deficits in EPUs France revoked the measures of J ~ ~ ~ ~ ~ ~ i44 1 a),-~ InA +!nA n+5 MVP 4W I S.,M*t~*-U~l M +j_n .I.tJ ..13 - 4l. Although French prices have been falling since early 1952, the balance of payments of the franc area has improved only slowly. The reduction of the current deficit to $650 million in 1952 was due only to the fact that payments for imports declined by more than exports and to receipts of $260 million representing foreign government expenditure in France. During 19r3P exports to foreign countries as a whole rose by about 8200 million. Dollar exports, particularly to Central America rose by nearly $60 million. But the main cause of improvement in the trade situation during the var-hoth averall and vith the dollar areas was again a fall in importsp about twice as great as the increase in the value of exports. 42. The postwar imnrovement in the frane aras e dolla accounts bAc been more sustained than that in the overall balance of payments. From almost $1.h billion annually in 196 and 1907 the dollar Afi.i+ hAd fallen to only $172 million in 1952, half of which was incurred by the Overseas Territories. Without expenditurps by the United StA.Atet I riakfsahment i Fran iA French Morocco, however, the 1952 deficit would have amounted to $15 million. The reduction in tho aafInt. waq +.ha v w,i14+1ka V%e a 'nu- 4' -m"1 o imports (payments for which were in 1952 only 4o% of those in 1967) and, hJginnin r%95, f n epnsonqm 4, French doll-' -- for shipping services have also been reduced substantially, but the recovery In nffie-AI -P"- 4'~ i~~A~ 1 I ijjJJ3MLV The balalw of-CAL paLments of4 then frnJre.a"'-'llf"Luerice unfavorably not only by inflation in France, but also by economic expansion, accorpanied by inflation, - n the Overseas Territ-A oe This h s been patly reflected in the deficit of the rest of the franc area with foreign countriess wc 4a to be cpereud by tropotuuan foreign exchange resources3 a derIcit that declined progressively from the equivalent of over $200 million in 1948 to less uan W7 AuLn in 127, after taking into account Uo b. mlitary expenL- ture of more than $0 million in French Morocco. But this improvement was counterbajau . u A 1 1creasing trade defici, of the Overseas TerrItories with Metropolitan France. The freedom from trade restrictions vtdthin the frana area, lupled with cotros on imports Irom outside the area, permittea a large expansion of French exports to Overseas Territories. In 1952, the volume of Vte4 exportV was tom nud One-quarter tames as large as in lyo whereas the volume of exports to foreign countries had increased by less than half. To a large eent ths rie was amu.aLea by the Large investment and military expenditures made by France in her Overseas Territories since the war, reinforced at UAme by more severe iuflation in some territories than in Metropolitan France. The existence of this large market, where it has usually been possible to sell at higher prices or with less troule than in foreign countries, may have led some French producers to relax their efforts to export their products elsewhere. Moreover products exported to Overseas Territories inevitably contain a component of imports from foreign countries. 44. 1953 saw some measure of industrial recession in France. Investment expenditures in the Overseas Territories had already.reached their peak. There was a decline in their boom export earnings. These factors might have been expected to bring a decisive improvement in the balance of payments situation by reducing the demand for imports into France and increasing pressure on. French - 14 - + ^. l ftvv.e m Tn Ah3lne+.6 - Vgb. +,hsi.v- o i -raczA . wA- a"rnnI r 1Ar.+P anA France continued to operate exchange retention quotas and tax rebates to sti_ulat e-ots~A 4. -4evere -1rnr%e%-^+2 'P~h =Tq e 4i q (53%) "liberalization" of imports from OEC countries, announced in April 1954, products liberalized. 45. The unfortunate fact is that French balance of payments difficulties persist because French prices were left stranded whn prices elsewhere recuded France had one round of inflation too many. After four devaluations in eig;ht years, French Governments have understandaly set tUembeiveb t1gacilib a fift, at least before it has been found impossible to reduce the French price level by direct action. There are in any case many strong arguments against devalucLion. The fragility of confidence in the franc and the threat of further rounds of wage claims, indeed their inevitability should a moderate increase in the cost of living take place, mean that devaluation by itself could easily set off a further bout of inflation that would nullify its effects. Whether it will prove pcssibie to push and pull French prices into line at present parities remains an open question. 46. Though there is little evidence readily available, the problem of price disparities almost certainly arises in other franc area countries. Because of the closeness of commercial relations with France, price increases originating in France are readily transmitted to other franc countries while protective tariffs and exchange restrictions largely insulate them from the downward pressure on prices that would result from cheaper imports from foreign countries. More- over, the greater imperfection of markets in the Overseas Territories tends to amplify increases in prices originating from abroad. It is thus probable that price levels elsewhere in the franc area are not merely out of line vth prices ruling in countries outside the area but also in France. If a devaluation of the Metropolitan franc should prove unavoidable, some realignment of the parities of local francs, and hence their differential devaluation vis-a-vis the dollar, might also be required. 47. It has been possible to postpone the issue of devaluation because U.S. aid and defense expenditure in the franc area have for some time been on a scale sufficient to cover not merely the franc area's deficit with countries in the dollar area but also its deficit with EPU, payable in gold since France exceeded her quota early in 1952. French exchange reserves have had moments of acute difficulty but have not had to face continuous critibal pressure. 48. In 1952, the franc area's "normal" dollar earnings were about $500 million; in 1953 perhaps $575 million. In each year, France gained about $700 million from U. S. grant -aid, military expenditure in the franc area and payments for offshore orders (including discounting future deliveries).' By the end of 1952. France had added moderately to her hard currency reserves and the increase in the course of-1953-was appreciable. For 1954, U. S. grant aid to France in respect of the Indo-China war on the oresent basis amounts to $850 - $900 million. U. S. military expenditures in the franc area will probably continue at about A179 - t20O million a year. Finally. at the beeinning of 195h. offshore orders outstanding approached $1 billion; French receipts will depend on the rat.P nf AP.livery and whether or not future navments are a-ain discounted. T -isc evident that withu excepti4onal A1 -~ ' --asae French exchange reserves are likely to increase substantially even if the external balance of the franc area Should no1t IMpFrove.p if FdDUe td.KeS aUdntEage of the breathing space to improve her overall balance of payments, she would b to over gold fram EU, to which ue had paid p>o4 milILon in gold by the end of April 1954, $356 million in settlement of deficits beyond her quota. France should, howevers be able to reduce further ner reliance on external aid, as she has done already quite considerably. French receipts from dollar exports roe frzum wll6 milllon In 1947 to nearly $290 millon in 19!2, in which year exports from the rest of the franc area produced another $57 million. Payments for vollar imports ito rrance lell from *115 milion over the same period to about $500 million in 1952, with the rest of the franc area taking another $175 4 . e frxic areas visible deficit consequently fell to #320 million. To judge from the trade data, it declined further in 1953 with a continued drop n41 imports and a more moderate rise in exports. * Te possibility for further expansion of French exports to North America remains limited. They would undoubtedly be helped by a relaxation of V c. impurt barriers out it has to be recognized that sales of many traditional export items are not easily stimulated, nor for that matter hindered, by price consideratons. (ua the other hand, they appear closely related to the level of disposable incomes). The dollar earning and dollar saving capacity of the Overseas Territories will also expand only slowly since it is very largely tied up with prospects for mineral development. The hard core of dollar imports into France is perhaps around $300 million. (Cotton, petroleum, non-ferrous metals, sulphur and other chemicals amount to about $225 million). Much of the balance, as with imports into the Overseas Territories, consists of machinery and equipment, To the extent that production of capital goods in France and elsewhere increases, this item can be expected to decline and could in emergency be cut hard. External Debt and Future Prospects 51. France has had a long history as a creditor nation and her iresent public external debt is almost entirely postwar in origin. At the end of 1953, the equivalent of $2.7 billion was outstanding. The details are shown in Tables 1 and 2 of the Appendix. Four-fifths of the debt is repayable in U. S. dollars and nearly 90% of that is owed to the U. S. Government and its agencies. principally the Eximbank. Total payments on the U. S. dollar debt in 1954 are estimated at about $57 million for'interest and S79 million for repayment of principal. Total service payments do not decline appreciably until after 1971. Total payments on the Bank's 1947-77 $250 million loan to the Credit National will rise from W13 million in 1954 to a peak of almost $20 million in 1962 and thereafter fall towards $18 million a year. 52. Interest and amortization took about 20 of the franc Arpan jnt dollar earnings or 16% if receipts from offshore orders and U. S, military expenditure (but not graht aid) are included. But the hnmr1nn nf h+. n0MPon is relatively light in terms of national income (less than one-half of one per cent) or total foreign exchange receints (ahout 9%)- There is no quest7n of France having over-borrowed as a whole. Moreover, the French attitude towards foreim oblieations is exemplary and thpro is no dnnt thm evryV" ossble st would be taken to maintain their uninterrupted service. The problem of debt service in nosed only be the crrenqr of nowmn -16 - ror le next lew years, provided tnere 1s no major 5nuit In U,. 0* foreign policy, so that France can count on additions to her direct dollar earnings from continued offshore orders and U. S. military expenditure in the franc area, France should be able to meet her due-payments without having to make really damaging cuts in other dolar expenditure. This is on the assumption that although U. S. direct aid would probably decline sharply, France will narrow her overall deficit and in particular will stanch, and at some stage reverse, the flow of dollars to EPU. 54. It is beyond the short term that the crystal ball clouds over with increasing rapidity. Even if-France achieves overall equilibrium within the next few years, it is difficult to visualize her balancing her dollar accounts at a tolerable level of trade and production without the opportunity to earn dollars outside the present dollar area. In this respect, her position is akin to that of Western Europe as a whole: the nature of the long-run solution is determined not only by European efforts but also by the way in which the U.S. finances its surplus with the rest of the world. 55. If that be so, the prime object for France is not only the maximum effort to improve her bilateral dollar position but to attain overall equilibrium as soon as possible. Provided that prices can be made and then kept competitive, there is no inherent economic reason why the franc area should not do so. France has the productive margin required and the investment program carried out since the war both in France and elsewhere in the franc area has added to her potential. In the past, much of that investment was not directly productive itself but; it forms the basis for the emphasis now being placed increasingly on transformation and production for export. 56. Whether France will in fact achieve what is in her power is primarily a political and social question. It is unfortunate that the restraint on con- sumption since the war that made it possible to devote a large share of resources to investment and defense had to be imnosed largelv through the effect of inflation on the distribution and total of real incomes. Otherwise present nolitical differnne might have been easier to nomnone and governments V11d have greater freedom of action in determining future economic policies. In. the lone run. it is widely recognized that continued progress depends very much on how far it proves possible to uproot the protective, security-seeking outlook of both management and labor. in industry. commerce and agriculture that has been fostered by years of economic and financial uncertainty. The even balance of ronflinting intermin that inhihits dni.iveantion n the .nlitAna1 frnnt makes one hesitate to look for progress in long strides. On the other hand, the nintqsVe resc rbl wy shu notnair ho cure f h fundamenal ringt a as in some unpredictable way, should not obscure the fundamental strength that has 0-nAhlori hav .e eao.r% +=&n A ,rnm.allmr-le Statistical Appendix Ta-ble- 1 -1 Natu-ion aIi andGoenetuaaedFxerl et T able 2 - External Debt - Interest and Amortization Fayments Tale 3 - ,ation Acco n~.4T, Lst--iates aL 495 r-ce L able4 - Sected duuctLUio Stais.ct - InGustry, rövrer anc Agriculture Table 5 - roduction Indices T able 6 - vnolesale and tetail- Price Indices T able ' - Money Supply Table 8 - Externa! Trade of Metropolitan France T able 9 - Volume and Average Value of Imports and Exports Tabie 10 - Balance of Payments of Franc Area - all Currencies T able 11 - Balance of Paynents of Franc Area - U. 3. Dollars Table 1 National and Government Guaranteed Postwar External Debt as of December 31, 1953 (Provisional) Millions In currency of U.S.$ payment equivalent 1. U. S. Dollar Debt - total 2261.8 Private 2/ 3.5 3.5 I.B.R.D."' 243.4 23-4 Exinbank 1117.7 11L7, 7 Other U. S, Government & agencies 897 2 697.2 2. Canadian Dollar Debt Canadian Government 2C2.8 206,8 3. Sterling Debt 72.8 203,8 U. K. Government 67.8 189,8 LI New Zealand Government 5,0 14.0 4. Swiss Franc Debt Private banks 432,3 100.8 Total postwar debt - all currencies 2773.2 - French francs, Swiss francs, guilders, sterling and pesetas. The value of UUM'.,lo. WL.LU0UW1%A±.LL1r, CUA 11Q~.hL" J 'WJ. A L. '60 ~4 $60 million. 1J ORC.LUce9 0eysfUouv UUV VCreu.L o neLvu ovuu-ouu wvv u jon g wVuaxLC1Uranunc !/ Includes $4,966,000 of Credit National bonds sold with IBRD guarantee. 4/ uption of repayment in z or T IMP Includes borrowing by nationalized industries (314.8 million Swiss francs). Table 2 Public External Debt Estimated Interest and Amortization Payments 19%L-1977 $ million equivalent Total all currencies 195, 1961 1971 1972 1977 Interest 67-5 49.1 19.1 16*1 5*3 Amortization 1,'.j 120.4 116.8 78.6 56.5 Total & 169.5 9 91i7 31. Total U.S. and Cdn. dollar Interest 6.6 47.9 18.9 15.9 5.3 Amortization 7. 90.6 .1.7 7h -6.1 Total 1u 1365 1u 93.83 LL T.B-R.Tj. Credit National Interest TO l 9.3 .2 3.6 0.2 Amortization 2,9 4.7 14.6 15.1 8.8 Evimbank Interest 27 6 18.6 3.3 1.9 Final pay- A4-140 r t ZiO O ,A 1 TA La 0+ 10 7A Total 71.6 .7 61.1 20.2 Other U.S. Government 1HOr_ S &6 I)* 7*) UU "1 ou7 Amortization 21.7r 27.6 32.0 35.6 38.9 Total 4U 4. 4-L 2 44 4. Canadian Government Interest 6.o 4.3 1.8 1.5 0.2 Amortization C.14 8.4 8.4 8.4 8.4 Total !T-.4 12.7 10.2 9.9 T.7 Sterling (inl NZZ) interest 1.2 0.1 Final payment-1961 Amortization 26.1 24.1 . Total 27.3 24.2 Debt outstanding end of year All currencies (2p534)(1,710) (639) (558) (181) U.S. and Cdn. dollar (2,283)(l,691) (632) (554) (181) Table 3 National Accounts Estimates at Constant Prices 1938 - 1952 (billions of 1951 francs) Gross national product at market pricrp 9,978 Q,A 10,528 17,058 11,77L 11.973 P1s imniports of goods & Serrlces 1,221 1,59 1667 1,9Q1 9117 2,0)tl T^ exp ts of g o & serrces 2.1 9 ) 1 -29>Q. i, R 6 1,9 2 1 89 Total available resources 9,890 10,213 10,901 11,183 11,929 12,119 Utilization:- Consumption Private 7,32 7,106 7,151 7,251 7,766 7,999 Civil public) 772 764 856 890 793 Defense )359 521 691 701 1,186 Total consumption 8,589 8,237 8,436 8,798 9,357 9,978 Gross capital formation 1j301 *1976 2,465 2338> 2572 2PU4,1 Total national expenditure 9,890 10,213 10,901 41,8-3 1Y,929 12,1.19 a/ Provisional Source: OEEC Table 4 Selected ProJuction Statistics 1929 1938 1947 1952 1953 Industry and Power -"" Electricity (billion kwh) 14.3 18.6 25.2 38.5 38.9 Coal (million metric tons) 55.0 47.6 47.3 57.4 54.5 Crude steel (million metric tons) 9.7 6.2 5.7 10.9 10.0 Cement (million metric tons) 6.2 3.6 3.8 8.6 9.0 Aluminum (thousand metric tons) n.a. 51 75 127 136 Niti-ogenous fertilizer(thousand metric ton) 73 178 151 285 275 Aitomobiles (thousands) 211 182 66 370 368 AV.- 1934/38 Agriculture Wheat (million metric tons) 8.1 3.23 8. 8.8 Beef and veal (million metric tons) 0.9 0.8 1.0 1.0 Milk (million U. S. gallons) 3,850 2,425 3,960 -t).4;n Table 5 Production Indices 1938 100 1929 1998 1907 194 1949 ITrq 1OC, T otal (incl. building) 133 100 99 138 1h, 1hA Total (excl. building) 125 100 95 139 Thq Il Consumer goods 105 100 89 191 109 11, Caital roods (excl. building) 1L7 100 97 151 172 158 Building and Public WVorks 190 100 122 132 117 12< / Index covers about 60% of physical volume of production in manufacturingq fuel andnowers mining and oAnqtruntion rnan+,'an xlues, foA o n clothingsfurniture, as well as most handicraft and non-factory production. Building index ha.l on labor inniT Sourn,-! TNS1;7, Mzlk Mjv--som to.r% nc T)+ QV...tUPW Table 6 Price Indices (1949 o 100) Cost lholesale xV-ng Annual Industrial GoodA (pari Average General Food Fuel General Raw Ma- Imported and teri PL q aby Ma. Power terials 1938 5.41 5.75 5.75 5.05 5.05 4.08 6.13 19063.4 .2. 29.8 ), -;> " p 28.9 0901 1947 55.4 79.1 43.1 38.6 ho.1 n.a. ua,a. 198 90.6 1 1^100.0 81.1 80.6 n.a. 906 1949 100.0 100.0 100.0 100.0 100.0 100.0 100,0 190108. -103.l -1^e.6 113.1 7 «l2e.2 -1 K5.7 11n, 3 lmujV jojJ. -1 )4 .L' 7wu 1.18* LL42 f j.L-c.j 1951 138.3 119.7 126.7 158.7 188.h 212.o 130.1 19 16.9 3-.0 v 42. -1 .2r A7.4 L' '.4 145. 1953 138.3 125.3 138.5 149.8 166.0 15.2 143.7 Konth,y average 1952 January 152,5 1,35.5 ; 7 17. - -Feb.) mar c L .:50 01. D:L>. Lo. .Lo (, 100. .10, 1 June 142.6 128.2 143.2 155.3 171.0 158.3 143.1 September 142.6 132.6 14o.2 152.2 167.3 148.6 -145.7 December 140.5 130.3 139.4 150.0 165.4 146.9 145.4 1953 January 140,8 131,6 139.4 149.4 163.8 i.8 145.6 March 139.7 128.1 139.6 150.1 167.7 1 .9 145.2 June 137.3 125.9 136.6 150.6 166.1 145.4 145.4 September 136.9 121.4 139.2 150.2 166.4 145.0 141.0 December 138.0 124.8 138.8 149.5 166.2 144.9 142.1 1954 T=iuary 137.9 127.2 138.6 147.2 164.4 145.0 143.2 February 137.8 127.7 138.6 146.4 162.6 142.1 144.1 IfMrch 136.3 124.5 138.6 15.9 161.5 1140.5 143.6 1/ Peak was April 1951: 206 Peak was April 1951: 258 Source: INSEE, Bulletin Mensuel de Statistique. FOA, Mission to France Data Rook 1953 nAriAR Table 7 Money Supply bDiiLion francs 1101.,7 TOL n0e.l TIM nOT Tae! *'w" 6W. S J VJN d.V I &..L;J) G 1 W4 .L.U (.f V LP4JQ7 40~f Sources Central Bk.reserves 65 65 14 667 279 236 225 Bk.credit to Govt. 1113 1277 1397 1373 1550 1763 2016 I n1 to business 490 863 1199 1409 1905 2271 2513 Adjustments -8 -40 -46 -129 -56 -111 -127 1676 2165 2704 3120 3678 L159 4627 Source: Conseil National de Credit Table 8 External Trade of Metropolitan France (million dollars equivalent) Exports f.o.b. Franc EPU Dollar All Total Area Area Area Other 1938 878 23å LL8 145 1948 2004 907 å60 62 195 1949 2718 1139 1090 89 h00 1950 3079 1n08 1403 167 401 1951 1225 1558 1783 31.2 572 1952 408 1709 1588 221 530 1953 L02g 1LAR 1706 278 548 1953 ist qr. 995 383 ~434 67 ,11 1954 ist qr. 1065 396 472 62 135 Imports c.i.f. 1938 1318 352 588 151 227 1948 39 006 12,9 5o 61 1949 3294 846 1301 700 447 9 3n66 707 13 -63.6 Df -~ ,~ ~f,i U.4, 1951 4592 949 2272 690 681 1952 "58 m~g 2i9 6167M 1953 4166 1038 2085 480 563 1953 r 11. 116 ~p J> Lb u r, J.LIJp C-v .7Lc JM~4 L 1954 ist qr. ,118 285 582 114 137 B al ane l938 - 3 -O -ULo -LU - U2 1948 -1445 - 89 -,09 -530 -417 .197947 -2Lj1 -61L - 47 1950 1/3 /58 -296 -60 195- '"7 10 ~-09 -78 -1 .LYP. JUI rvV7 -IV7 ~J v -jv7 1952 - 500 /688 -608 -395 -185 1953 -1>46 f'uo -379 ^ -202 - 15 1953 lat qr.- no A20 -158 -67 - 5 19>4!.5 , gtqr.-- 53 OL. -110 -52 - 2 U. S. on]y Source: JNSEE, OEEC and FOA ission to France Data Book, 1953 series. Table 9 Foreign Trade - Volume and Average Value Indices (1949 = 100) Exports Volume Average Value Foreign Overseas Foreign Overseas Total Countries Territories Countries Territories 1918 85 99 62 5 5 1948 68 64 74 83 80 19q0 136 150 116 100 102 1951 161 178 139 116 121 1952 112 142 141 125 130 1933 150 162 133 120 120 1991 1st ouarter 16 lth 136 1996 1st quarter 165 181 142 Imports 1938 99 91 132 5 4 19 o? oA 01 72 87 1950 105 103 111 113 105 191 13 -1A 109 ).A 197 1952 125 128 117 142 126 Ine3 126 127 11231 120 1953 1st quarter 132 134 124 Source: INSEE and FOA mission to France, Data Book, 1953 series Balance of Payments of Franc Area (all riirrPnnin.q) 1IL 19LQ 19 19X1 190 1 QKI Ja une (milline nf tinln-mm niao+ CURRENT Metropolitan France - receipts Exports 1082 1567 1880 2496 2024 1050 Tourists 97 1144 185 190 134 51 e. r r-.. a 44& ~ .#4,+vJ. 10 1 .7 ;717 14V. Foreign govt. payments in France 39 - - 77 263 179 r*~ ~~ - -- -4 - - __4-4 3f 113 nZ1 ' Total receipts 1699 2200 2500 3183 2902 1490 Metropolitan France - payments Imports 2510 2035 1958 3267 2643 1289 Tourists 27 23 44 113 110 54 Auberees on puuL c U eoD 77 79 7o (0 01 37 Other invisible payments 297 356 338 372 366 201 Total payments 3229 2740 2615 4153 3493 1690 Metropolitan France - current balance -1530 .3y -115 -Y7 -591 -ZUU Overseas Territories - balance with foreign countries - 208 -167 -123 - 88 - 68 76 Franc area - current balance -1738 -706 -238 -1058 -659 -276 CAPITAL Foreign public loans 424 41 55 23 220 10 U. 5. aid 754 855 509 481 353 221 Net drawing rights, EPU credits 64 214 -125 257 199 - Amortization of public dbt -37 -129 -165 -115 -289 -ac Gold, exchange reservesW b197 -138 -167 225 - 50 o10? Other .capital transactions (net) 336 -137 121 188 126 23 Total 1738 706 238 1058 659 276 a/1952 and 1953 first half data are not exactly comparable with previous years. F/Plus indicates decline in French holdings; minus indicates rise. Source: Ministry of Finance. Table 11 Balance of Payments of Franc Area (U.S. dollars) aa/ 1948 1949 1950 1951 19527 1953 Jan,.-June (millions of dollars) GUJ7LLENT Metropolitan France - receipts Exports 131 116 191 374 275 169 Shipping 15 12 18 16 19 5 Tourists 28 45 79 61 51 20 Income from foreign investments 22 16 9 8 11 9 Foreign govt.payments in France 39 - - 33 198 144 Other invisible receipts 97 87 54 45 59 25 Total receipts 332 276 351 537 613 372 Metropolitan France - Dayments Imports 1018 713 461 688 L98 239 Shipping 193 11 76 91 55 9 Tourists 7 5 3 7 8 h Interest on public debt 56 60 63 62 65 30 Other invisible payments 55 71 60 96 76 h2 Total payments 1329 990 66A 9hh 702 32h Metronolitan France - current balance -998 -715 -311 -407 - 89 88 Overseas Territories - current b b/ balanc- . 1-A108 -17 - 83 -h6- Franc area - ciirrv-nt, 'halqnce -11 qj, ACR 858 I41 C 34 -179 , 2 CAPITAL Dollar loans 1f2l9 KC: AI U. S. aid 754 855 509 481 3:3 221 Tnollar nnavmn+.n frAm or in to .P - - L 4o -ct.: - Amortization of dollar deb -23 -77 -1 P -69 - 7 Other capital (net) 89 57 77 -17 61 10 Total -113 858 L19 534 172 2 a/ 1952 and 1953 first half data are not exactly comparable with previous years. - 1953 first half. 7 Includes repayment of noffshore" discount credits. So 4us Miisuar[es dec..uV Xu cVno1 u g m u .UdcUQe rofFnen Source: Ministry of Finance