Announcement of Loan Granted to France to Assist with Economy on May 9, 1947

@W .. FOR THE PRESS lli!TE.RN.aTI OH.AL :SAUK FOR RECONSTRUCTION AND DEVELOPMENT FOR IMl'IIDDIAr:rE REL::.'ASE May 9., 1947 No, 44 ;he International Bank for Rec~nstruction and Development announced, today! vhe granting of its first loan, totaling $250,000 1 000 to Credit National, a semi-public French corporation created to assist in financing t~e reconstruction and development of the French economy. The loan is guaranteed by the Republic of !ranee! lhe Executive Directors of the International :Bank, at a special meeting today, voted their approval of the loan, which originated in a request f9r a $500,000.000 loan by the French Hinister of Finance in an a:)plication dated Octobe!' 8, 1946r The loan a.grecment was signed for the Bank by John J ! llcOloy, President, ancl on 'behalf of the C:redit National by Wilfrid Baumgartner, President~ The guarantee agreement was signed by Henri :Bonr1et, 4mbassador of France. ihe loan is being made to assist France in the reconstruction of its war~torn economy and to finance the import of specific goods and equipment nee.es sary to its economic reha'bil ita t ion~ A 1?ort ion of the .,'!roceeds :will be devoted to the modernization of the steel industry, including a modern strip mill. The transportation system is to be improved by the purchase of locomotives and freight cars, cargo ships and canal 'barges, and comP1ercial airplanes') Coal and oil,. essential to industry and transport~ figure la.rgely among·the prospective ;purchases, as do industria.l raw materials~ including semi--finished steel products and !lon-ferrous rrietalsr Under the loan agreement~ the :Bank will obtain full information concerning; the goods t·o be purcha~ed with the proceeds of the loan and their util~zat1on~ ?ranee will be free to ~urchase in whatever markets are nest ad~antageous. tr: c '&WM:ttr@lferett nwr· ITtnrr:r rcrrrr 5 ·nnTrrrr:rrnrnr  . II .. ... '~ .. Because of its size and productive capacity, France is pivotal in western Europe. The economic rehabilitation of France will speed the recovery cf surrounding countries and, through an expansion of trade, be beneficial to the rest of the world. The loan is for a period of JO years and will carry interest at the rate of 3-1/4 per cent., In accordance with its .Articles of ,agr.eement, tha Bank will also charge a commission of 1 per cent per annum on the outstanding :portion of the loan to lJuild up a special reserve. The French national recovery program calls for heavy imports during I the·next five years. Therefore. no repayment of principal is scheduled i I ~ for this period. Thoreafter amortization begins at a modest rate and increases gradually so that the loan will be completely amortized by i~s due date., Mr. McCloy s~ates that, al though Bank is not now prepa-:-ed to make I .i.·.~ any Mr.u;1itment s wi ~h rega.rd to a further loan, it will be willing to consider an additional application from france later this year. Any new application will be considered in the light of the funds which the Barut will then have available for lending and of the pr.ogress made in carrying 01.+t the French economic and recovery program. * ~ * * * * * * * * * * * Attaehed ie a summary statement Qf the loan on which this release is  SUMMARY STATEMENT OF THE LOAN GRANTED TO FRANCE The $250 million loan granted to France is the firs·: t,0 be made by the Eank, It initiates its operational phase. The loan is one of a type that the Bank is empowered to grant by ~.ts Articles of Agreement. The Terms and Conditions of the Loan The loan has the full guarantee of the French Governm:mt. The loan is for a period of JO years. It is to carry interest at the rate of 3-1/1.i per cont to be charged from the date of disbursement. In accordancG with tho Articlss of Agror:m1cnt of the B:tnk, a yearly commission of one per cent is to be charged on the outstanding portion of the loan to build up a spacial reserve. ThG national recovery pro 0 ram c.1lls for heavy imports during tho next five years. Therefore no repayment of principal is scheduled for this period. Thereafter, amortization begins at a modost rate and and increases gr-1dually so that the loan is compl(-;tol iT amortized by its due date, Purpos-:; of tho Loan. Tho lorm is being made to assist Franco in the roconstruction of its wartorn economy and to finance tho import of spocific goods and oquipmcnt ncc::::ssnry to its economic rohabili tn,tion. Tho Bank will obt3in full inform~tion about tho goods to bo purchased with tho proceeds cf the lo.:m c.nd o.bout their dostino.tion and uti1iz:::..tion~ Fr:mco ~vj_ll bo froo to purch,:,.so in vrho..tovcr markets :ire most adv:::.nt.J.g\)ous <J A portion of the procco-ls will bo devoted to tLo  • modernization of the steel.industry. For example, the French arc purchasing cquipmcmt for a modern continuous strip mill. The tr~nsport~tion system is to be improved by the purchase of locomotives and freight cars, cargo ships and canal barges~ and commercial airplanes. Coal and oil, essential to industry and transport, figure ~argcly among tho prospective purchases, as do industrial raw materials, including semi-finished stool products and non-ferrous mGtals • Under the loan agreement, the Bank vJill obtnin full information concerning the goods to be purchased with the procoods of the loan and about their destination and utilization, r. ; Ci: , • .. •;II The Request. Tho loan is the result of an Qpplic:1tion by the French Hinistor of Finance 1 dated October 8 J. 1946, for a loan of ~~500 million., to be gr::mtcd to tho Credit National pour facilitor la Reparation des Dommagcs causes par la Guerro, and to bo guarantoGd by the Republic of Franco. Tho Borrower. Tho Credit National is a semi-public corporation created in 1919, mainly to assist in financing the reconstruction and development of the Fronch economy. Its original capital was subscribed by banks and industrial corporations~ The stockholders elect its Boa.rd of Directors (subject to veto by tho Minister of Finance)~ Tho Board ,  • - 3 - includes lending industrialists and bankers-. Tho General Manager (who is also the Che.irman of the Boa.rd), as well as two cxecutivc managers, arc appointed by decree of tho President of France. The Grodi t National will draw on thG lo:m to -pay for the import of sp0cific materinls and equipment, in accordance with tho specific authorization delivered by tho French Exch-::mge Control Office. It will receive tho countcrvaluo in francs of such payments and uso it to finance tho reconstruction of tho French economy•. Tho Justificntion for tho Lonn. The Bank I s scrutiny of the applic,:1tion for this loan was guided by its policies to ?ivo first considor.:;..tion to tho most urgent require- ments, whether for reconstruction or dovolopmont; to supply funds for tho so purposes th:1.t private co.pi t,::Q is not nor.r willing or nblo to furnish; to insure tho.t Hs funds :1r~ used productively and to satisfy itself on tho prospects of repayment. In this approach, tho Bank has boen faced vrl th two basic issues: n) Tho need for tho loan. b) Tho recovery prospects of France. The Need for tho Loan. The first consideration was tho need for the loan.. This was Gxatninod in the light of: a) Tho need of Fr2ncc for finnncinl assistance. b) The importnnco to tho rest of Europe of economic recovery in Fr~ncc. , I Frnncots Need of Foreign Exchange. France's ncod for the lo~n o.risos directly from tho still inndequnte . • ~ 4- recovery of its ox.ports nnd from tho insufficiency of other monns at its disposal for the purchase nnd import of mntorio.ls .2nd equipL.ent essential to economic rohabilit~tion. Tho FrGnch economy wns seriously weakened by tho cumulativa o ffect of tho wars of 1914-18 ~nd of 1939-45; by heavy expenditure for defense between tho two wars and by the low rate of cxpondituro on the roplaccmont 2nd modornizntion of industrial equipment in the 1930 1s. At the time of the country's liberation, its productive cap3.city w::i.s, on an nvcrage, about 20 percent smaller than before tho v:.2r, o.nd much of its rcmnining equipment wr..s in ncod of replacement. Further, under the occupation, tho country h:1.d boon denuded of its stocks of raw m~terials--its working c2pit.::i,lt Industrial production wo.s bo.roly one-third of tho pre-war r'l to .::md cxports--tho mo.in source of foreign oxch~ngo for tho purchase of imports--werc virtually suspended. Tho country rro.s thus faced vtith the task of restoring prod~1ction from its existing equipment and; ~n order to ro-crcato prosperity, v.rith the modernization of its equipment and methods, This i~volvcd hoo.vy imports of materials o.nd equipment ,. and, ponding the rostorQtion of food production, of cereals Qnd other foods. By the end of 1946, the volume of production hnd been restored to about 90 por cont of the lovol of 1938 nnd tho volume of exports to 75 por cont. This cxpQnsion in production ~nd exports was nchlovcd, I,  • - 5- apart from internal efforts, only by heavy imports of essential materials and equipment. Exports, though increasing, have fallen far short of providing the foreign exchange for the purchase of nccess3.ry imports. Hence, the country was compelled to draw heavily on tho gold and foreign as sots at its disposal and to rais,J lonns abroad. Tlw official gold and "hard" currency holdings were reduced from tho oquiv.:-llont of ~2.,~14 million at tho liberation to about ~pl,000 million at tho end of 1946. In 1946, a beginning vms mndo uith tho roquisitioning nnd liquidation of Fronch~ovmcd foreign balances and investments. In addition, since its liberation, Fr~nco h.~s borrovrod abroad the oqui valcnt of ~2, 600 million, mainly in the United States. According to officirtl French ostim3.t,.:;s, the .income of foreign oxch.'.:!.ngo from experts; from the liquid.:i.tion of private bal.1.nccs and investments abroad; from the proc€eds of existing loans and from other ~ sources, is expected to fall below the cxpendi turcs on imports of essenti.:J.l goods and sorvicos by $.5hO millio:1 in 1947, ~~428 million in 191.i8 and $198 million in 1949. .:ven these figur·es nssumo the liquid2tion of tho greater pc.rt of declnr0d priv~toly held foreign bQlnnccs nnd investments. By 1950, Franco expects to rostoro equilibrium in the trci.nsnct:i.ons of tho franc ~ro.:i.. vri th tho rest of the world. I'hc ostimo.tos of tho gC?.p between tho incor.io and expenditure of foreign exchange during 1947-h9 :::i.ro, of course, b':lscd on .:i. scrios of , o.ssumptions th:i. t m,:i..y bo modified by o.ctu,:.l oxporicnco. But, tho gt:.p Gxists and it is Q serious one.  • - 6 - In other words, France needs the proposed loan of )250 million if the country is to have the opportunity this year to finance imports essential to the expansion of domestic production and the modernization of its industry and agriculture. The Importance of Economic Recove~y in France. Because of its size and productive capacity, France is pivotal in western Europe. The economic rehabilitation of France will speed the recovery of surrounding countries and, through an expansion in t~~de, be beneficial to the rest of the world. First, by reason of an expansion in production, France will be able to supply part of the needs of surrounding countries and to provide a market for part of their exports. France could do r.mch to carry forr:0.rd the process of industrial integration in Europe that is t- -.. --ential if maximum production and rising living standards are to be achieved on that Continent. Secondly, in contributing to the rehabilitation of surrounding countries, economic recovery in France will indirectly benefit the rest of the world~ Before the war, in 193 8, Continental Europe import·ed approximately 32 per cent of the exports of the rest of the world, and supplied 26 per cent of the imports. At the same time, French imports were equivalent to 17 per cent of Continental European imports from all sources, while its exports totaled 15 per cent of Continental European exports to all other countries. At present France and other countries in Europe depend on American and other foreign loans and credits to finance a substantial proportion of their imports. Equilibrium can only be restored by an expansion in European ex.1orts and this is conditional on an increase in production. I:  - 7 - The Rocovcr:r Prospects of France The HGcd to Expand Production rJ1ile th3 need for the loan arises from the fact that exports and other moans at the disposal of France are still inadequate to pay for necessary imports, its ultimate punoso will be served only if France succeeds in carrrin, out the present Govr1rrunont I s policy o.f economic rohabilit:J.tion. The pre-r2quisite oC recovery is expansion of production. Tho ::tapport General sur le Premier Plan do Ifodernisa tio1l et Equipment adopted by the French Government in Janu:1.ry 1947 is dGsignod to rally all cl c1.sses of the Fr,:mch tnoplo in a common of fort to rcho.bilitato the Fr,:mch economy. Its ultim.'.:lto objective is to achieve an increase in the production of per capita weal th, t:ms improv i.ng the standard of living und, by increasing :..;xportd, restoring equilibrium to tho Fronch balance of pa-ym;mts, Although tho procram fixes definite production turgots for tho ma.jar industries - the lGvol of nt.1.tional production is to bo raised to tho 1938 level this year ,-:i.nd JO per cont above that levGl by 1950 - it maybe ro~arded as a policy rather than as a rigid sGrios of production targets, Tho program envisages the investment of the equivalent of some ::aB,900 million during the four y2ars 1947-50. Of tho total, a bout )800 million is destined for investment in overseas torritorios. As much as 84 n°r cont of this proposed investment expenditure is '11"  - 8 - expected to come from domestic r:::rnources - that is, from th0 savings of tho French people and of corporate enterprises. This is oquivaJ.;) t., according to French calqulations, to about one~fifth of the 0stimatGd net resources available for domestic utilization (total domestic production, plus imports, less export~ and maintenance expenditure). It is clear, therefore, that the successful achievement of this progran vrill depend mainly on the efforts and self-discipline of the French people. Of the remaining 16 per cont of tho proposed invGstmont it is contemplated th3.t neariy three-quarters (11! per cont) vrill be financed from the sulc of foreign assets and loQns alrondy obtained, and one-quarter (4~- por cent) from novr lonns and crodi ts. ~-hils thJ policy of modornizing th:; French economy adoptGd by thG Govcrnmont is an indic::ition of the will of Franco to rocovor, thq goals vtill not be easy to reach and them only by vir;orous cff ort on tho part of tho whole nation. Tho proposal to s;t aside for inve::stmcnt one-fifth of the country's available rosourcos demands a degree of high austerity on tho part of tho French people. Tho program assumes a volume of import of coal and other matoriGls th~t may not bo forthcoming in full. The steel production target for 1947 has already bJen reduced. Tho Naod to Arrest Inflation. The French Gov ornmcnt in its National Rocovory Plan, rccognizos the ncod for tho restoration of confidonc8 i.n the country's finances, It also rocognizos thc~t firmness is nocossetry to face tho problem squarely, and. thett, psychologico.lly, tho m0st important point of att.:tck , is the Il['.tionnl budget. Last- year the cur1":-mt cxp(mditurG of tho r f'tts w ·t· $) • ff'tnt'tf1 me, · · a· Tl : t · "' · 'l 5 I. ·; . · I . 1111' mn f Ti1112T 2 .., 1 • - 9 -·· •• French Government,. estimated at 573,000 million francs GXceeded revenue by 153 ,.ooo million frnncs Dl, 285 million). 04,815 ordi:r.:1.ry budget for 1947 has been under considorn.tion for sovernl months mill.ion),. The n.nd the Government has stated th:-·.t it expects to b.:~lanco it. The Government fully realizes th:: t ,. unless tho budget is b,ilo..nccd, th:) lack of c onfidcmco in the coun\ry' s finances would c ontinuo and tho difficulties in the wQ.y of s~curing an;rthing liko one-fifth of tho nLltionn.l rosourcos for purpose of investment would b8 seriously incro.:1.sGd •. The Dank, r.::forring only to economic matters, is fully awaro of tho uncertainties facing· Fr2nce ,. tho difficulties o.f expanding production,. of improving the country's finc..nces and of br.!.lancing tho accounts with foreign c ountrios in the present circumst-:.,.ncos.. Those difficultues arc tho result of the developments in tho p:ist thirty yo:::.rs :i.nd cannot be ovorcomo in D. few yo."J.rs. Some of the: fo.ctors impeding recovery, such as the low lovcl of co2;.l imports, nrc beyond the control of France. r'hGr.:J Fr:m. CG h::s ho.d tho opportunity to speod rcco-rrcry, in the .rohabi.litntion of transport nftcr liboro.tion, in tho expansion of the production of coetl, oloctricity, toxtil1::s .:::.nd other products, considcr,.,_ble success h:"'.s bc;:m .:i.chiovod., The plan for tho modernization of the country's industries o.nd [.'.griculturo is further evidence of the will ·of the Franch pooplo to rocovcr vr]:,.ich, in tho final ano.lysis .f is tho justific".tion for tho lo.:m. Utt¢' ·?irtr:W'-t'@· J ··n . ) ·) ,-f. 1 I ti ··"tmW  • - 10 - Additional Lo~ns to Fr2ncc. Tho Prosidont of tho B.:1.nk h.'."'..s sto.tod to th.:: French authorities th,"..t, 21 though tho Bnnk is not nmT prcp.::trcd to m.:i.kc any commi tmonts nith r;}gard to a furthcr. lo:ml. it vrill be willing to consider c..n addi tionc.1 applic,:~tion from France b.tor this yonr. Any now npplic, .tion will bo considered in tho light of the funds which tho 1 Bnnk will thon h2vc nvailablo for lending and of the progress made in carrying out tho French economic :md rocovory program •. i_. ,_.-.