FINANCE OF THE MARSHALL PLAN

Press, Volume LXXXIII, Issue 25245, 25 July 1947, Page 6

FINANCE OF THE MARSHALL PLAN

EUROPEAN RECONSTRUCTION

(By th* Financial Editor ot the "Manchester Guardian?’]

Mr John Snyder’s blunt reminder that there are no dollars in the Marshall plan was awkward but timely. The Secretary of the Treasury merely underlined that Mr Marshall had promised support of a European recovery programme “so far as may be practicable.” One must look at the American background as a whole to judge what may be practicable. The Administration hasf known for many months that the existing funds and lending powers for external finance were running out. The latest report of the National Advisory Council on Foreign Loans states that since the end of the war £3,700,000,000 had been committed in foreign aid, including UNRRA grants, sales of surplus ships and war stores, and the loan to Britain; and that £1,350,000,000 of the total remains unspent. Only part of this is available to Europe. Apart from the remaining £425,000.000 or so of the British loan and the £100,000,000 voted for Greece and Turkey, the only substantial fund on which the Government could draw is the £125,000,000 left in the‘Export-Import Bank which has been earmarked for China and has just been released. There is a relief vote of about £90,000,000 and the services are presumed to control funds which can be used to finance relief, but these sums do not count heavily in relation to European needs. The Attitude of Congress For any large new loans the Administration must go to Congress. The present Congress has been trying hard to cut down Government expenditure, and though the earlier ideas of retrenchment have proved too ambitious, money supplies to the Government have been tightened up wherever possible. In the last few weeks several Government departments have not had enough money to pay salaries, and a fair number of State employees have had to be discharged. The desire to cut expenditure is not entirely political. Inflationary pressure on prices is still strong. The American economy is running closer to its physical limits than most people realise. There is little or no reserve of wheat and cotton, many industries are painfully short of steel, rail cars, chemicals, or engineering capacity. At such a time it is wise to have a budget surplus and to pay off debt, so that one can expand again when trade falls off. Not only Republicans are anxious to bring down Government expenditure and to cut taxes without risk of a new deficit. Congressmen have not kept these arguments to themselves. The Republicans are pledged to retrenchment and they must gain some success before next year’s elections, whatever happens after that. It will not be easy to ask this Congress to vote a very large new fund to finance help to Europe. Preparations are, however, being made to meet genuine anxieties. The bi-parti-san committee set up under the chairmanship of Mr Harriman to see how much America can afford to contribute without serious damage to its own resources or stability should be very helpful. .Little attention has been paid in all these discussions to the two “Bretton Woods” institutions, which were originally set up to finance world recovery. The practical scope of the Bank and Fund has been steadily narrowed. It H now optimistic to estimate that the World Bank may be able to lend about £750.000,000 over the next four years. The first loan to France at 47 per cent, interest with strict spending control indicated that the Bank’s help will not be suitable for all purposes. The Monetary Fund may, according to recent Washington estimates, lend on fairly short-term up to £250,000.000 in the next three years. Direct floating of foreign loans on the New York capital market has begun but has not been successful so far. The market will not easily expand except perhaps

in the wake ot the Government. In. dustrial investment, which may well provide large amounts of dollars in time, is growing slowly. Adding together the unspent portions ot various loans or loan funds, the estimated loans of the Bank and Fund, and private sources of finance one cannot expect more than £2.500,000.000 of dollars to be available to the outside world in the next three or four years. In addition, gold and currency reserves plus newly mined gold will be used to pay for purchases, but reserves are now running down fast. A useful guide to the amounts that might be needed is the present gap in the American balance of payments. In 1946 exports of goods and service* were valued at £3,750,000,000 and imports at £1.750,000,000, leaving a gap l of £2,000,000,000. Of this about £500,000,000 was financed by drafts on national currency reserves, etc., anr* £1,500,000,000 by American loans arid 1 grants in about equal proportions. In the current i*ear the gap between receipts and outgoings of dollars has, been even larger, but for the who]*, year it is expected to be about the same as for last year. In order to maintain the American export surplue at roughly the present rate something like £6,000,000.000 will be needed in loans or grants over the next three or four years. Assuming loans of £2,500,000,000 from the sources listed above, new United States Government finance would have to provide £3,500,000,000 over the period. Lend or Bust? The idea current in Europe that the United States must lend or bust should be taken with reserve. At present American exports are swollen by shipments of coal, wheat, and other foodstuffs which are not normally exported. The heavy and engineering industries, whose supplies are most widely coveted in Europe, are still doling out small portions of their output to any foreign buyer who pesters them sufficiently. Apart from motion pictures, few industries, such as woollen, brass, and certain cotton textile manufactures, have yet begun to need exports to maintain employment. A change is coming in many other industries because depleted stocks and pipelines are now beginning to fill up; the question is whether the change will come in time. Many American businessmen are reconciled to a drop in exports. Such journals as "Business Week” have been predicting it for some weeks. The general trade recession that has been expected for 12 months now is still approaching Very slowly. If it should coincide with a serious fall in exports as a result of the dollar shortage abroad the setback might go deep. That would bring American prices down and increase American selfinterest in making loans or grant* l abroad, but it would reduce still further the willingness of Congress to vote the money. Meanwhile the American public is being subjected to a powerful campaign of enlightenment on these subjects. A steady stream of statements and speeches is pouring out of Washington and the press is full of discussion on the need for a new effort to set the world on -its feet. Large numbers of Americans of all classes have some idea that something big will have to be done. The call of the “Fortune” magazine that the United States should invest 50 billion dollars in peace reflects a growing feeling. But there is also a widespread idea that it is no use doling out charitv Americans suspect that their dollars have accomplished little so far. They must be reassured that further help will offer a chance of real world recovery. Their minds must be fired by a concrete objective. Without enthusiasm the finance for the Marshall plan Will not be forthcoming. With inspiration there is a fighting chance that it will.