Lot 60–D 137: Box 8
Memorandum by the Staff Committee to the National Advisory Council
Document No. 269
Subject: Proposed Reconstruction Loan to Italy
1. The Loan Request
On February 14, 1946 the Italian Government requested a loan of $940 million from the Export-Import Bank to purchase essential reconstruction materials. On April 19, the NAC deferred consideration of a loan to Italy of $100 million. In the NAC Meeting on June 4, the State Department suggested postponement of any further consideration [Page 943] of the Italian loan request,93 In view of the progress made in resolving the Italian reparations problem,94 the State Department has now requested that the NAC again consider the Italian request.
2. Need for Credits
External financial assistance to Italy is necessary in order to revive internal production and to increase exports. The relatively slow rate of Italian economic recovery has been due principally to lack of foreign exchange and inability to secure vitally needed raw materials and industrial fuels. As an indication of the possibilities of Italian recovery, it is now evident that Italian exports during 1946 will substantially exceed the amounts estimated by the Staff Committee earlier this year.
3. Balance of Payments
It is estimated, on the basis of a study of essential import requirements, that the current account deficit in the 1947 balance of payments will total $443 million. This figure is derived from calculated current payments of $1,158 million of which $1,135 million are for merchandise imports and $23 million for invisible items, and estimated current receipts of $715 million of which $575 million will come from merchandise exports and $140 million from invisibles. The export figures are based on the expectation that Italy will reach 80 to 85 percent of prewar production if the estimated imports of raw materials and fuel are realized.
The deficit in the estimated 1946 balance of payments is being covered primarily by the UNRRA contribution. Although no additional UNRRA funds are authorized for 1947, presumably transfers of materials in pipelines will continue beyond the first of the year until the UNRRA program tapers off.
4. Foreign Exchange
Available official and private gold and dollar balances of Italy amounted to about $140 million on June 30, 1946 including an unknown quantity owned by the Vatican and not available to the Italian Government. No deduction has been made from this figure for any monetary reserves against the Italian note issue. Of the total assets, pre-liberation blocked dollar assets are estimated at $104.9 million of which short-term assets comprised $24.9 million. No estimate is available of the blocked and vested assets in other United Nations. The President has already authorized the transfer to Italy of the United [Page 944] States dollar equivalent of the lire expenditures of United States military forces in Italy for procurement of goods, services and facilities. Upon the receipt of direct instructions from the President (which are understood to have been issued), the War Department has indicated that it will make the necessary certifications to the Treasury, which in turn can transfer the amounts so certified to the Government of Italy. It is indicated that the first certification will amount to approximately $50 million and that additional certifications should amount to at least an additional $50 million.
5. Other Sources of Credits
It is considered unlikely that either the International Bank for Reconstruction and Development or the International Monetary Fund will be in a position to extend any substantial assistance to the Italian Government at least during the next few months, when the need for funds is most urgent. Considerable delay in obtaining assistance from these sources can be expected since it will be some time before Italy attains formal membership status in either institution. Italy-will also have to submit a formal application for a loan from the International Bank. Prior applications of other countries will already have been considered by that time. In any event, it is probable that Italy will not obtain large enough credits from this source in time to meet her needs for assistance in the present and immediate future. Borrowing from private sources is not now feasible.
Surplus property valued at $160 million is being transferred by the U.S. on 30-year credit terms95 and some surplus is being received from the British military. Practically none of the surplus goods duplicate the required imports.
6. Ability to Repay
The existing external debt of the Italian Government totals $240 million; of this $115 million is bonded debt, now in default; $38 million of arrears on this debt; and $90 million of debt on clearings to Switzerland and Sweden. An Italian representative initiated discussions in the spring of 1945 in New York looking towards a settlement of the funded debt in default. It is understood that further discussions are awaiting the peace settlement.
The Italian Government received $640 million of civilian supplies from the Allies of which at least $400 million came from the United States. The U.S. Government has presented notes to the other supplying governments, the United Kingdom and Canada, suggesting combined cancellation of any claim for repayment.
[Page 945]According to present indications, the Italian Government will have a reparations bill of $325 million to pay. The reparations which Italy will be expected to pay out of current production will principally be in the form of contributions of Italian labor, since the recipient countries will provide the raw materials for processing by Italian industry. In addition, any loss in interest payments and dividends from Italian investments abroad which may be claimed by United Nations nationals in compensation for war damage will not be serious since Italy’s important invisible earnings before the war were derived from emigrant remittances, tourist receipts, and freight and shipping services.
The proposed peace treaty will probably not have major harmful effects upon the Italian economy. The loss of Italy’s colonies will remove a burdensome drain on Italy’s export capacity and her potential foreign exchange earnings. Italian exports to the colonies, largely in the nature of capital investment, during the years 1936 through 1938 amounted to about 27 percent of total Italian exports. In addition the reduction in the expenditures for the upkeep of the military establishment which in 1936–37 accounted directly for about 40 percent of total budgetary outlays will free industrial capacity and manpower for export industries.*
On the other hand, owing to the changed conditions resulting from the war, Italy will have the problem of either re-establishing her former export markets or finding new ones, and of rebuilding her merchant marine.
A loan of $100 million to finance industrial raw materials and fuel will permit a reactivation of Italian industry which should be reflected in a substantial increase in Italian exports.
Assuming an adjustment of the Allied claims and Italian counterclaims; adjustment of the prewar external debt, now in default, and its clearing obligations and the removal of foreign troops, Italy should be in a satisfactory position to service a long-term loan of, at least, $100 million for reconstruction purposes. Before the war the Italian Government maintained payments on its external dollar obligations.
7. Italy’s Further Needs
The amount of the loan recommended by the Staff Committee will provide for Italy’s urgent import needs during the next few months. While this amount will reduce the need for further credits the question of filling the residual balance of Italy’s minimum dollar requirements will necessitate further consideration of financial aid to Italy during the early part of 1947.
[Page 946]The State Department is at present considering requesting Congress for an appropriation for relief aid to Italy and other countries after the termination of UNRRA. It is discussing with other governments the possibility of their participation in such relief aid or other financial assistance.
It is visualized that Italy’s minimum needs for financial assistance can be met by a combination of aid in the form of a reconstruction loan from the Export-Import Bank followed by a relief grant from the U.S. and, ultimately, further reconstruction credits from the International Bank.
8. Recommendation
The following action is submitted for consideration by the Council:
The NAC approves the consideration by the Export-Import Bank of credits to Italy not exceeding in the aggregate $100 million.96
- Minutes of the National Advisory Council meeting on June 4 (Meeting No. 31) not printed.↩
- For documentation on the reparations problem in the negotiation of the Italian peace treaty, see volumes iii and iv.↩
- See bracketed note, p. 932.↩
- Total budgetary expenditures in 1936–37 were 40.9 billion lire. The military budget in this period was 16.6 billion lire of which 9.5 billion went to the Army, 3.4 billion to the Navy and 3.7 billion to the Air Force. [Footnote in the original.]↩
- The recommendation was approved on January 13, 1947 (N.A.C. Meeting No. 50).↩