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CONFIDENTIAL INTERNATIONAL PAYIEN TS RESULT IN G FROM TIE 11AR . TRANS F-742 COi LiI TTEE ECONOMIC SERVICE CONFIDR,,TTIAL. PRIVATE E No >1 For Lembers of sfer Committee only 41 TRANSFER COMMITTEE ECONOMIC SERVICE, Berlin, December 10, 1926: INTERNATIONAL PAYMENTS RESULTING FROLZaWAR, In the following tables we have endeavoured to present a statement of those payments from one State to another on account of war debts or reparations, which have been or are to be effected during the period of twelve years from 1924 to 1936, under the various agreements already in force or awaiting ratification. The first series of tables refers to the payments to be made by Germany, under the Experts° Plan The second series shows the payments to be made on account of interallied debts, chiefly effected by the various Powers, to the United States of America and Great Britain. The third series shows the net situation of the different Powers, assuming the year period., sethement of debts and reparations during this twelve LIST OF TABLES. Page 1. Distribution of the German Annuity for 1924/25 3 11 n n 11 n 1925/26 4 3. II II II II n 1926/27 5 4. If /I II II II 1927/28 6 5. n 11 " " H 1928/29 7 6. " " f1 " 1929/30 8 7. n n 1930/31 9 8. 11 II II 1931/32 10 9. H n " 10. n 2. nr " II H II n II 11 " " 1932/33 and 1933/34 11 " 1934/35 and 1935/36 12 11. Summary of the German Payments from 1924 to 1936 (in gold marks) 13 12. Summary of the German Payments from 1924 to 1936 (in dollars) 14 13. Statement showing Payments from Great Britain to the United States (1924 - 1936) 16 14. Statement showing Payments from France to the United States (1924 - 1936) 17 15. Statement showing Payments from Italy to the United States (1924 - 1936) 18 16. Statement showing Payments from Belgium to the United States (1924 - 1936) 19 17. Statement showing Payments from Poland to the United States ( 1924 - 1936) 20 18. Statement showing Payments from Ozecho-S). vakia to the United States (1924 - 1936) 21 19. Statement showing Payments from Jugo-Slavia to the United States (1924 - 1936) 22 20. Statement showing Payments from Rumania to the United States (1924 - 1936) 23 Statement showing Payments from Eethonia to the United States (1924 - 1936) 24 21. 2 22. Statement showing Payments from Latvia to the United States (1924 - 1936) 23. Statement showing Payments from Lithuania to the United States (1924 - 1936) 25 26 24, Statement showing Payments from Finland to the United States (1924 - 1936) 27 25. Statement showing Payments from Hungary to the United States (1924 - 1936) 28 26. Summary of Payments to the United States (1924 - 1936) 29 27. Statement of Amounts owing to Great Britain as at March 31, 1926 30 28. Statement showing Payments from Italy to Great Britain (1924 - 1936) 32 29. Statement showing Payments from France to Great Britain (1924 - 1936) 33 30, Summary of Payments from France to Great Britain (1924 - 1936) 39 31. Summary of Receipts and Payments of Great Britain (1924 - 1936) 42 32. Summary of Receipts and Payments of France (1924 - 1936) 45 33. Summary of Receipts and Payments of Italy (1924 - 1936) 49 34. Statement showing Net Balances of Receipts and Payments by the Respective Powers 51 I. a PAYMENTS TO BE MADE BY GERMANY. In determining the sums to be paid by Germany, full payments and transfers under the Experts' Plan are assumed for purposes of analysis, except for the fact that possible payments under the Index of Prosperity have not been taken into account. The tables also show the distribution of the payments amongst the various Powers. The figures for 1924-25 and 1925-26 give the distribu- tion actually applied to the first and second Annuities, while those for 1926-27 show the distribution actually in course of application during the third Annuity year. For the succeeding years, the tables of distri- bution have been drawn up on the following assumptions: (1) That the costs of the Armies of occupation will be maintained dur- ing the whole period of occupation contemplated by the Treaty of Versailles (that is to say, until the end of 1934), at the present figure of 160 million gold marks. (2) This is probably an over-estimate. For the service of the German External Loan, a round sum of 90 million gold marks per year has been taken for the whole of this period. Throughout the tables, the sums payable for the service of the German External Loan are excluded from the figures showing the German payments, for the reason that the payments for the service of the Loan take the form of payments to the bondholders and do not, in fact, represent payments from Germany to the creditor Powers. On the other hand, it must be remembered that the sums required for the service of the Loan are included in the annuities payable by Germany under the Experts' Plan, and are transferred through the medium of the Transfer Committee. 2 The general tables show the total amounts of the payments to the various Powers, without distinguishing between the different categories under which the payments are received by the Powers: e.g. Armies of Occupation, Restitution, Belgian Debt, Reparation, etc. Moreover, the payments are shown in gold marks, or their equivalent, without regard to whether they are received in cash or in the form of deliveries in kind. The following series of tables shows the payments required of Germany under the Experts' Plan during the period from September 1, 1924, to August 31, 1936, with their estimated distribution among the respective creditor Powers: gob FINAL DISTRIBUTION OF THE FIRST ANNUITY UNDER THE EXPERTS' PLAN (1924-1925) (In thousands of Gold Marks) P OWERS 1. United States 2. British Empire 3. France Arrears due Current exon account of penses of Army Costs Armies of Occupation 86.06 25,000,00 5,338.34 Japan Serbia Portugal Rumania Greece Poland Restitutions (2 1/4 re of 682,633.88 W.. available for Reparations) 4,837.50 14,308.80 100,43 25,000.00 6,412.50 4,454.04 16,663.17 110,000.00 4. Italy 5. Belgium 6. 7. 8, 9. 10. 11. Belgian Debt 2,227.06 Reparations TOTAL SHARES 15,359.26 146,800.42 346,982.80 ( (Dr. 30,000.00 66,727.46 53,381.97 ( (Cr. 30,000.00 5,004.56 71.68 454,512.51 66,813.52 115,947.37 5,004.56 33,435.41 5,004.56 7,533.70 2,669.10 35,36-3.73 193,68 15,359,26 191,047.15 5,004.56 7,540.02 2,669.10 129.12 129.12 667,274.62 11,250.00 160,000.00 36,310.31 7,262.07 682,633.88 897,456.26 Interest received and rrain in exchanF,e (less discount paid) included 254,77 897,201.49 25,819.62 76,978.89 Costs of Inter-Allied Commissions Service of German External Loan ....... TOTAL ...... 1,000,000.00 The French claim for Reparations has been reduced by 30 million gold marks which amount has been attributed to Belgium in accordance with the provisions of Annex 2301-A approved by Reparation Commission Decision No.3111. REVISED DISTRIBUTION OF THE SECOND ANNUITY UNDER THE EXYERTS'PLAN (:925-1946) (In thousands of Gold Marks) F 0 V E R S Arrears on account of Army. Costs (See Note) 7. United States 2. British Empire 3. France 4. Italy Belgium Japan 7. Serbia 8. Portugal 9. Rumania 10. Greece 11. Poland 5. 6. Current expenses of Armies of Occupation Belgian Debt Restitutions 2 1/4 % of 870,038.66 G.M. available for Reparations) 25,000. -8,017.85 18,237.03 128.01 110,000. 21;437.73 5,676.84 109.68 25,000.-2,836.45 6,603.69 111r. 91.35 .246.85 Reparations 19575.87 187,101.81 436,240.65 85,046.26 74,037.03 6,376.47 42.523.14 6;376.47 9,355.09 3,401.85 164.57 TOTAL SHARES 19,575,87 238,484.70 583,78.1.61 85,155.96 108,679.37 6,378.47 42,614.49 6,378.43 9,60194 3,401.8F 164.57 850,462.79 18 ; 646 76 360 000.-- 46 276.65 9,255.73 870 038.66 j Interest eaned and gain in exchange included in the above distribution Costs of Inter-Allied Commissions Service of German External Loan Discount on Railway Interest 1. 3,157.40 1,101,061.80 19,293.69 92,234.10 7,410.41 x : TOTAL NOTE: The allowances in respect of arrears on account of Army Costs have been reduced by G.M. 582.15 for the British Empire and G.114. 771.69 for France, these amounts hav- ing been paid by the Reparation Commission to the respective Governments out of receipts arising outside of the Annuity,. 1,104,219.20 : I 1,220,000,- ESTIMATED DISTRIBUTION OF THE THIRD ANNUITY UNDER THE EXPERTS_MAL11926-1,427' (In thousands of Gold Marks) POWERS 1. United States( 2, 3. 4. 5. 6. 7. 8. 9. 10. 11. Cash payment Arrears on account of on acccunt of the U.S.Army Army Costs Belgian Debt Restitutions 55,000,00 VIt % of 1,075,050.74 available for Reparations) 10/750.00 /M50.00 25,000.00 110,000.00 22,534.32 26,242.10 25,000.00 British Empire France Italy Belgium Japan Serbia Portugal Rumania Greece Poland Current expenses of Armies of Occupation 8,407.13 tions 24,186.54 158.17 014.48 135.52 3,507.30 112.88 MEN Repara- aim 305.02 245,271.79 583,913.62 94,564.04 47,288.79 8,039.34 47,277.51 7,991.98 11,606.55 4,70E1.18 203.34 050 862,10 55,000.00 25.000,00 160,000.00 57,183.55 11,436.71 1,075,050.74 TOTAL shAnss 79,18:1).54 304,414.2d 741,,420.20 94.699.56 84,203.22 8,03).34 47,39C.Z9 7.991.46 11,911.87 ESTIMATED DISTRIBUTION OF THE FOURTH ANNUITY THE (In thousands of Gold Marks) ,asLi i)ayment on Powers 1. United States account of the cost^ of the U.S. Army of Occupation Current exArrears on penses of account of Armies of Army Occupation Costs 2. British Empire 312,851,000, 12,900.-- G.M. available for Reparations) Italy Belgium Japan Serbia Portugal Rumania Greece Poland 25000.-- 27,518.90 193.16 110,000.-- 32,046.83 3. France Restitutions Reparations TOTAL SHARES x5,000. -(2 1- 5) of 4. 5. 6. 7. 8. 9. 10. 11. Belgian Debt 8,566.07 25,000.-- 0,266.77 165.50 4,283.11 137,85 372.49 29.539.15 2874027.14) 13,353.38) 681,512.25) 31,562.54) 115,481.52 57,749.03 9,817.64 57,735.25 9,759.80 14,174.27 5,139.03 248.32 84,539.15 365,992.58 880,787.69 115,647,02 97,298.91 9,817.64 57,873.10 9,759,80 14,546.76 5,139.03 248.32 1,283,311.85 55,000.-- 30,000. -- 160,000.-- 9,832.50 13,966.50 1,312,851.-- ,641,650.-- Costs of Inter-Allied Commissions 18,350.-- Service of German External Loan 90,000.-TOTAL 1,750,000.-- ESTIMATED DISTRIBUTION OF THE FIFTH ANNUITY UNDER THE EXPERTS' PLAN (1928-1010 (In thousands of Gold Marks) Poore2 1. United States Cash payment on account of the costs of the U,S.ArrAY of ati no Arrears on account of Army Coate, Current expenses of Armies of Occupation Belgian Debt Restitutions 55,000,-- (2 * % Reparations' Share) 42,296,52 504,33 EMpre 110,000,-- 3. France 49,255,96 22,Z66.-- 432,13 4. Italy 5 25,000,- Belgium Japan Serbia 8. Portugal 9, Rumania 10. Greece 15,780,02 11,18318 6 359093 972.56 434,303.58 20 372.23 30,000.-- 160,000.-- 107,332,50 535,7516 ) 1,028,883.50 ) 48,152 55 ) 190,935,10 88,103.30 14,830.63 88,067.30 14,786,61 21,580.39 7,835.81 648.37 11. Poland 55,000.-- 100,000 4 A222_=-L 25,000 2. Brician TOTAL SHARES Reparations 36,466.50 1,275758,01 191,36?,2, 1400066,6 14,830(6 88,427,20, 14,786.6 22,552,9 7,835.8 648.3 2,391,650, Costs of Inter-Allied Commissions..... Service of German External Loan....... 18,350. 000.- TOTALOOOOOOOOOOOOOOOO 0000P 2,500,000,- ESTIMATED DISTRI?.UTION OF THE SIXTH ANNUITY UNDER TH7, EXPERTS' PIAN (1229-1930) (In thousands of Gold Marks) Cash Payment n account of he costs of the U.S. Army f Occupation Powers 1. United States 2. British Empir 55,000.-- 3. France 4. Italy 5-. Belgium 6. 7. 8. 9. 10. 11. Japan Serbia Portugal Rumania Greece Poland Reparations 55,000.-- Total Shares P OXERS . 000, 194.72 088.4. 217.23 066.50 78103 c.0 417.21 751.56 538.40 834.35 Digitized 648.38 for FRASER ESTIMATED DISTRIBUTION OF THE NINTH AND TENTH ANNUITIES UNDER THE EXPERTS' PLAN (1932-1933 & 1933-1934) (In thousands of Gold Marks) Powers 1. United States 2. British Empire 3. France ns Share) ,000.- 4. Italy 5. Belgium Belgian Restitutions Debt Japan 6. 7. Serbia 8. Portugal 9. Rumania 10. Greece 11. Poland 508.48 ,000.- 49,944.32 22,550.- ,000. - 16,000.56 435.68 11,275.18 ,000.- Cash Payment on Current account of the expenses costs of the U.S. of Armies of Army of Occupation Occupation Reparations TOTAL SHARES 45 000,439,360.07) 20,665.67) ,040,081.90) 48,846.12) 198,605.10 89,372.29 14,995.05 362.89 89,336... 980.56 14,965.15 21,876.46 7,947.19 653.71 100,000.42,887,62 528,421.84 1,271,422.34 199,040.78 141,648.03 14,995.05 89,698.89 14,965.15 22,857.02 7,947.19 653.71 ,986,051.- 108,832.50 36,766.50 2,031,051.- 2,391,650.- Costs of Inter-allied Commissions http://fraser.stlouisfed.org/ Service Federal Reserve Bank of St. Louis of German External Loan .... . 18,350.90 000 10 its D S'R OF THE AND _TWELFTH ANNUITILLITDER THE EXPERTS' PLAN (1934-19:55 AND 1935-1936i (In thousands of Gold Marks). Power s. Cash payment on account of the cost of the U.S. Army of Occupa- Belgian Debt Restitutions Reparations TOTAL SHARES tjon. 1. United States 2. British Empire 55,000.-(2 * % Reparation Share) 46,040.18 530.61 53,615.60 23, 531,33 3, France 4. 5. 6. 7. 8. 9. 10. 11. Italy Belgium Japan Serbia Portugal Rumania Greece Poland 17,176.72 454.64 11,765.85 378.68 1,023,23 45.000.-472,631 71, 22,230.64, 1,118,844.53: 52,545.15; 213,645.10 96,140.30 16,130.58 96,102 43 16,098.42 23,533 12 8,549.02 682.16 100.000,-541,433.14 1,248,536.61 214,099.74 125,082.87 16,130.58 96,481.11 16,098.42 24,556.35 8,549.02 682.16 ,136,451.-- 55,000.-- 116,832.50 38,366.50 2,181,451,-- 2,391,650.-- Cost of Inter-Allied Commissions 18,350.-- Service of German External Loan 90,000.-TOTAL 2,500,000.-- 17' Statement showing payments from t o the 11\1__LTILD11LaaaQFMR111. (1924-1936) Total debt to be repaid Date . E L G I U M 171 780 000 Dollars pre-Armistice and 246 000 000 Dollars post-Armistice Suns still out- Sinking Fund standing before Payments of maturity of the Debt Sinking Fund Payments PrePoet PrePost Annual Interest Debt Pre- Post total. Interest Total Sinking Fund Armis- Armistics tics 1 2 - - 1924 Dec. 15 1925 June 1.5 1924/25 1925 De0.15 1926 June 15 171 78C 243 00. 1925/26 1926 Dec, 1. 1927 June 1 170 78C 244 90. 1926/27 1927 Deco 1 1928 June 1-' 169 78C 1927/28 1928 Dec. 1929 June 1928/29 1929 Dec, 1930 June 1929/30 1930 Dec. 1931 June 1930/31 1931 Dec. 1932 June 1931/32 1932 Dec, 1933 June 1932/33 1933 Dec. 1934 June 1933/34 1934 Deco 1935 June 1934/35 1935 Dec, 1936 June 1935/36 243 8 1 250 1 200 15 15 168 53* 242 60 1 750 1 200 15 15 166 78. 241 40. 2 250 1 200 , 15 15 164 53 240 200 2 750 1 300 15 15 161 780 238 900 2 900 1 300 15 15 158 880 237 600 2 900 15 15 155 980 236 300 2 900 1 400 15 15 153 080 234 900 2 900 1 400 15 15 150 180 233 500 2 900 1 600 S 0 Statemert t o dhowing paymelatd froT WAJEQ the 1)4LWLWgSLIILLEA (1924-1936) 178 560 000 Dollars Total debt to be repaid Annual Sums still °IASinking Interest matured Pund interest Pay- standing before, Bate of Date --turity of Sinking Pund I M __IMINIIIIINI -- - -4 1924 Dec. 15 1925 June 15 1924/25 178 000 1925 Dec. 15 1926 June 15 1925/26 177 075 1926 Dec. 15 1927 June 15 1926/27 176 125 1927 Dec. 15 1928 June 15 1927/28 175 150 1928 Dec. 15 1929 June 15 1928/29 174 150 1929 Dec. 15 1930 June 15 1929/30 173 125 1930 Dec. 15 1931 June 15 1930/31 172 1931 Dec. lb 1932 June 15 1931/32 171 000 1932 rec. 1.5 1933 June 15 1932/33 169 1933 Dec. 15 1934 June 15 1933/34 1,7S 1934 Dec. 15 1935 June 15 1934/35 167 1935 Dec. lb 1936 June 15 1935/36 166 425 total, nterest Sinking 5 .01 DC 1:-; 3 % 3 Total 3 + 4 925 % 2 670.-- 3 595.00 2 656.12 2 656.12 6 251.12 3 % 3 % 950. 2 656.13 3 606.15 2 641.87 2 641.87 6 248,-- 3 % 3 % 975 2 2 641.88 3 616 88 627.25 2 627.25 6 244.13 3 % 3 % 1 000 2 627.25 3 627 25 2 612.25 2 61225 6 239.50 3 % 3 % 1 025 2 2 612 25 3 637.25 596.88 2 596.88 6 234.23 3 % 1 050 3 % 596.87 3 64688 2 581,13 2 581.13 2 6 228.01 % 3075 3 % 1 075 2 2 581 12 3 656.12 565,-- 2 565.-- 6 221.12 3 % 7 % 1 100 2 2 565,-- 3 66E.-548.5 2 548.5 6 21350 9.-3 775 3 % 51% % 1 125 6 627.06 1 3% 7-i- % 625 2 548.5 3 675.5 2 953 56 2 953.56 150 2 953056,4 103.56 2 933.44 2 933.44 7 037.00 1 200 7.-- % 2 933.44 4 133.44 2 912.44 2 912.44 7 045. lei % 51 % ...- 1 225 2 912.44 4 2 891.-- 2 13744 391.-- 028,44 ESTHONIA Statement showing Payment from to the U N I T E D Total debt to be repaid Date S T A T E S A bi E R I C A (1924-1936) 13 830 000 DoA.ars Sums still outstanding before maturity of Sinking Fund Parn:nts, Rate of Sinking matured Fund Interest interest Payments 4 3 2 1 O F Total 3 + 4 5 Annual total Interest + Sinking Fund 6 in 1 000 Dollars 1924 Dec. 15 1925 June 15 1924/25 1925 Dec> 15 1926 June 15 1925/26 1926 Dec. 15 1927 June 15 1926/27 1927 Dec. 15 1928 June 15 1927/28 1928 Dec. 15 1929 June 15 1928/29 1929 Dec. 15 1930 June 15 1929/30 1930 Dec. 15 1931 June 15 1930/31 1931 Dec. 15 1932 June 15 1931/32 1932 Dec. 15 1933 June 15 1932/33 1933 Dec. 15 1934 June "5 1933/34 1934 Deo. 15 1935 June 15 1934/35 1935 Dec. 15 1936 June 15 1935/36 13 761 % % 3 71 206.42 205.35 277.42 205.35 73 3 205.35 204.25 278.35 204.25 482.77 13 690 482.60 13 617 3 3 % % 75 204.26 203.13 279.26 203.13 13 542 3 % 78 203.13 201.96 281.13 201.96 % % 80 201.96 200.76 281.96 200.76 82 200.76 199.53 282.76 199.53 85 199.63 198.26 284.53 198.26 196.v4 286.93 196.94 90 196.93 228.18 286.93 228.18 92 228.18 226.57 320.18 226.57 95 226.57 224.91 321.57 224.91 98 224.91 223.20 322.91 223.20 482.39 3 483.09 13 464 3 3 13 384 3 482.72 3 482.29 13 302 3 3 13 217 % 3 5 482.79 88 3 483.87 17. 129 3 % 4% 515.11 13 039 % 546.75 12 947 ro 546.48 12 852 546,11 S L A,T V I A_ Statement showing Payments from t o the LELaajzgujajLag_g_gggaLaA (1924-1936) 5 775 000 Dollars Total debt to be repaid Sums still outstanding before Rate of matured maturity of interest Sinking Fund layments Date Annual Sinking Fund Payments Interest in 1 000 3 3 % 3 3 % 3 Dollars 15 15 5 718 29 86.20 85.77 115.20 85.77 30 85.77 85.32 115.77 85.32 % % 31 85.32 84.86 116.32 84.86 3 % 32 3 5 747 Interest + Sinking L...-[..---.§..- 3 15 15 total. il3LKI 1.----.1.---g.---1.--.---4 1924 Dec. 1925 June 1924/25 1925 Dec. 1926 June 1925/26 1926 Dec. 1927 June 1926/27 1927 Dec. 1928 June 1927/28 1928 Dec. 1929 June 1928/29 1929 Dec. 1930 June 1929/30 1930 Dec. 1931 June 1930/31 1931 Dec. 1932 June 1931/32 1932 Dec, 1933 June 1932/33 1933 Dec. 1934 June 1933/34 1934 Dec. 1935 June 1934/35 1935 Dec, 1936 Juno 1935/36 Total 3 + 4 % 84.85 84.38 116,85 84.38 % 200.97 % 201.09 15 15 5 688 15 15 5 657 15 15 5 625 3 3 % % 33 84.37 83.88 117.37 83.88 15 15 5 592 3 % 34 83.88 3 5 83.37 117.88 83.37 15 15 5 558 15 15 5 523 201.18 201.25 201.25 35 3 % % 83.37 82.85 118.37 82.85 3 % 36 3 % 82.84 82.31 118.84 82.31 3 201.22 201.15 15 15 5 487 15 15 6 450 % 37 82.30 95.38 119.30 95.38 % % 38 95.37 94.72 133.37 94.71 % 3 39 94.71 94.03 133.71 94.03 % 40 9403 134.03 93.33 3i % 214.68 15 15 5 412 3 228.08 2% 227.74 15 15 5 373 3% 93,33 227.36 ........ 111 atement ahowtog kaymens from to the UNITED STATL5 OF AMERICA (1924 ..1936) Total debt to be repaid 6 030 000 Sums still outstanding before maturity of Sinking Fund -2=2)140._ Date t Y T'HUANIA Dollars Fate of Sinking Iaterest Fund matured Interest Payments 1 000 n 1924 Deo. 15 1925 June 15 1924/25 1925 Deo. 15 1926 Jutne 15 1925/28 1926 Deo. 1927 June 1926/27 1927 Deo. 1928 June 1927/28 1928 Deo. 1929 June 1928/29 1929 Deo. 1930 June 1929/30 1930 Dec. 1931 June 1930/31 1931 Deo. 1932 June 1931/32 1932 Deo. 1933 June 1932/33 1933 Deo. 1934 June 1933/34 3 % 3 % 8 000 3 % 3 % 30 Dollar 90.45 90.45 90.45 120.45 210.90 90.-120.-- 30 210.-- 15 16 31 5 874 3 % 3 % 32 88.61 88.60 88,61 121.80 88.13 88.21 88.11 122.11 87.5 87.6 87.60 122.50 87.08 5 907 3 % 3 % 89.09 35 5 939 3 % 3 % 89.09 89.08 34 3 % 3 % 89.56 20,55 33 5 970 89.55 89.55 87.08 125,01 210.10 15 15 210.17 15 15 210.21 15 15 15 210.22 3% 15 5 840 3 % 5 805 3 % 3 % 2M2r) 15 15 38 87.0 3'?" 86.54 86.53 39 85.98 85.98 210.15 15 14 3 % 5769 3 % 8e.54 210.07 15 15 5 1934 Deo. 1935 June 15 1934/35 1935 Deo. 15 1936 June 15 1935/55 6.030 e 4 3 1 Tctal 3 + 4 Annual total Interest + SInking Fund 3% 5 732 3 % 224.98 210.98 5 693 % % 40 99.63 99.5. 99.63 139.83 239,28 5 853 3f % 42 98.93 98.95 98.93 140.93 239.88 Statement ?'r showing Payments from FINLAND S 2 HUNGARY Statement showing Payments from to Total he URIIED STI.Tt:S et to be repdi-1 1 Si.nkirg Fund Parients , iiRLIIGA(1924-1936) ezio 00C Dollars Sums still cutstanding before maturity of Date OF Rate of matured interest Sinking interest Fund Fayments Total 3 44 6 1 in 1924 Joe, 15 1 1. 000 Dollar 29.08 28.94 3 % 3 r .e.19.- 115 June lb 1924/25 1925 Dec. 1925 June 1925/26 12F: Dec, 1P27 Jure 38,68 28.94 28.94 28.79 38.74 67.62 15 15 15 15 9.8 1 929.4 1 919.c, 3 % 28.79 67.53 28.79 28.54 28.64 10.2 28.64 28.49 38,84 28.49 10.4 15 28,49 28.34 38.89 28.34 lb 15 3 3 11.- 28.33 28.17 39.33 28.17 3 i 31,6 28.17 as,- 39.67 28.- Li,- 28.27.82 40.27.82 12,- 27.82 27,64 39,82 27.64 12,5 27,64 Z2,03 40.14 32.03 12.6 32,02 31.81 44,52 31.81 31,61 61.58 44.81 31.58 3 10,- j. 3 67.43 1926/27 1927 Deo. lb 3948 June 15 1927/28 Doe. lb 192 Juno 1928/29 192e Deo. 1930 June 1929/30 1930 Deo, 1931 June 1930/31 1951 Dec, 1922 June 1931/32 1932 Dec. 1933 June 1922/33 1933 Deo, 1934 June 1932/34 : 909.c 3 ,r; .3 7. 67.33 6 1 ; 67.23 1 en.- 67.50 15 15 878.- 16 15 1 856.5 15 15 354,5 15 16 1 842.5 194 Dec. lb 1 5.50,- 3 67.67 3 $ 3 % 67.82 A % 67.46 1936 June 15 1934/35 1935 Deo, 15 1936 June 15 1935/25 Annual total. Interest Sinking Fund ,) A 3 ira 72.17 3 1/4 3 1/2 ; 76.33 1 817.5 3 3 1/2 ;- .01.7 ,- 76,39 4 SUMMARY OF PAYMENTS to THE 11 Dates 1924, Dec. 15 1925, June 15 1924/25 91,655 68.310 159.965 1925, Dec. 15 1926, June 15 1925/26 92,310 3,595 2.656 6,251 870 3,606 .7 1,500 I . 92,950 67.57 1926, Dec. 15 1927, June 15 1926/27 ;60,525 Dec. 15 1928, June 15 1927/28 67.200 159.775 1928, Deco 15 1929, June 15 1928/29 1929, Dec. 15 1930, June 15 1929/30 1930, Dec. 15 1931, June 15 1930/31 92,575 94,200 36,795 160.995 93,795 (0.39.9 160,185 94,390 1931, Dec. 15 1932, June 15 1931/32 1932, Dec. 15 1933, June 15 1932/33 3,673 1933, Dec. 15 1934, June 15 1933/34 4,104 1934, Dec. 15 1935, June 15 1934/35 1,500 . 6 6 7 3,000 1,600 1.500 3.000 1935, Deco 15 1936, June 15 1935/36 Payments made tc, the United States before the comAueion of funding S UNITED STATES OF AMERICA (1924-1938) Esth= ebi; i 1 QQQ Lithu- Lat- ', . i: Fin" GRAND Rte= ';...1.. =! 'l 1 179 211 313 6a 90 181 39 29 T til L 39 ..- .:- 7411' . : SO ,-4 ." . ----..1.--11L---0 115 278 20 86 4822_QI 200 200 200 20_ 279 204 483 200 200 300 300 279 203 482 118 85 201 200 200 400 400 281 202 483 117 84 282 117 0 :,; 200 200 :18 In 85 201 21,0 314 3 e 651 120 214 686 _611. 4,66 1O p854. 89 182 121 13!2 210 1 39 28 61 89 182 3'i,' 210 344 67 89 133 1710149 40 ," 121 20 128 233.218 201 -% .. Orman _Au_ 283 2* :y 200 600 :.: 482 201 itp 311 285 118 88 185 225 225 700 483 201 410 800 800 287 197 484 119 82 201 123 184 128 312 281 119 276 275 AM. 228 51* 0 ail_ 1 900 : 1,20. $ 100 reements are not inoludsd. ;:.- 2. k10 : 7 aga--- % ;;:a 1.17 ..y 186 03 99 k9 211 ---1;; 134 26 .524 , 14- 604 1 33Z SS 13Z 4 1.<'00 M. 87 123 21Q 1.2t :,....7 321 21,0 210 320 . 7 3.,,292 IIMMIN 241.496 I_ 250 250 4809 2 ',-.7! 4Z. :09 33-I 9.7 B. baumats12Armita. The following table of the amounts owing to Great Britain as at March 31 1926 (1) , makes it possible to ascertain the relative importance of the agreements already concluded by Great Britain with her debtors: Allied War Debts. a) Funded : Italy ... Rumania 274 750 000 31 250 306 000 000 b) Not funded : France .,. 647 106 000 Russia aa. 794 505 000 Jugo-Slavia 31 400 000 Portugal 23 733 000 Greece ... 21 167 000 1 General total 517 911 000 1 823 911 000 Relief and Reconstruction loans. a) Funded b) Not funded GO02080a0000 20 369 000 14 558 000 34 907 000 Other Debta. a) Funded b) Not funded 044.00404000 000.1y*Q0 3 344 000 1 488 900 4 Grand Total (1) Financial statement 1926 -27, 1 832000 863 650 000 33 British Debt Agreement with France. The agreement concluded with France provides the following payments: Statement showing payments from LILLW awzDgLzAI_A t o Date (1921-1936) Sum to be paid in 4 1 000 1924 Sept. 15 1925 March 15 1924/1925 - _AAA 1 000 * 1 000 n - 1925 Sept. 15 1926 March 15 1925/1926 Annual total =- - - - 1926 Sept. 15 1927 March 15 1928/1927 2 2 1927 Sept. 15 1928 March 15 1927/1928 3 1928 Sept. 15 1929 March 15 1928/1929 4 000 4 000 1929 Sept. 15 1930 March 15 1929/1930 5 1930 Sept, 15 1931 March 15 1930/1931 6 1931 Sept. 15 1932 March 15 1931/1932 8 6 1932 Sept. 15 1933 March 15 1932/1933 6 6 1933 Sept. 16 1934 March 15 1933/1934 3 14 600 14 600 19 468 19 466 38 932 5 000 000 24 333 24 333 48 666 250 6 250 30 416 30 416 60 832 260 250 30 416 30 416 60 832 250 250 30 416 30 416 60 832 6 6 250 250 30 416 30 416 60 832 1935 Sept. 15 1936 March 15 1935/1936 6 000 000 29 200 6 6 $ 4.86656 = £ 1. 9 733 9 r33 19 466 1934 Sept. 15 1935 March 15 1934/1935 * 000 000 250 250 30 416 30 416 60 832 6 250 250 30 416 30 416 60 832 In addition to the payments Which France has to make to Great Britain under the funding Agreement, there are obligations assumed under previous agreements, to make repayment of the advances from the Bank of England and to pay for War stocks ceded by the British to the French Government. These obligations are quite substantial in the course of the next few years. ADVANCES BY THE BANICagNGLAN210 The advances by the Bank of England were made during the War to the Banque de France for account of the French Government, and were secured by the deposit of gold up to one third of the sums advanced: The advances are represented by bonds carrying interest at one per cent more than the Bank of England discount rate, and in ants, n2t less than 6 per cent. The amount of the advances was originally fixed at £ 60 000 000. It was subsequently raised to £ 72 000 000, and later reduced to L 65 000 000 througb drafts on the proceeds of the 4 per cent loan issued in 1918 on the English market. The amount of the gold deposit has varied accordingly. The advances by the Bank of England were originally to have been amortised by a series of payments extending over the period from September 1922 to August 1923. At that date £ 10 000 000 were repaid, and the gold deposit was reduced to & 16 350 615_ 10' the same time, an arrangement was made for the repayment of the balance of the debt, aggregating as followsl. In millions 1924 1925 1926 1927 1928 1929 1930 5 6 7 8 9 15 55 56 000 000 If interest is These figures show only the capital of the debt. included, the payments appear to work out as follows: (1) 9.1 903 10.0 15.5 5,0 1926 1927 1928 1929 1930 We have not been able with the documents available in Berlih, to ascertain exactly the dates on which the payments from the Bank af Prance to the Similarly, we have been unable to find the Bank of England fall due- In order to be able to draw exact amount of the interest paid in 1925- up a general table going back to 1925, we have assumed, on a basis of cht payments for following years, that the interest for 1925 amounted tc £3 000 000. It would appear from the fragmentary- information at OUT disposal that the payments fall due in February and August- If this is so, the payments effected during a Reparation Annuity year would coincide with those eff_;ted daring the calendar year On this basis, the payments falling due within the Reparation years would be as follows:- Annuityyear 1924-1925 1925-1926 1926-1927 1927-1928 In millionsgLAAtgrling 9 9.1 9.6 1928-929 1929-1930 (1) 10 1R-6 5 Table F of the Annex to Chapter 6 of the French Experts' Plan_ ; t, The Agreement made in 1923 between the Bank of England and the Banque de France also included provisions in regard to the return of the It is tc, be returned as follows: gold deposited as security, Ll 000 000 On May 31 1928 From May 31 1928 to November 30 1928 From November 30 1928 to May 31 1929 From May 31 1929 to November 30 1929 From November 30 1929 to May 31 1930 From May 31 1930 to November 30 1930 2 000 000 3 000 000 4 000 000 5 000 000 3 350 615 3......1711=[..--SeNmIallIa £18 350 615 In practice these refunds may be looked upon as amounting to reduot- ioneinthe sums to be paid by the Banque de France Assuming for purposes of comparison, that the period from December 1 to November 30 contemplated by the Agreement roughly corresponds to a Reparation year the refunds of gold to be made during the coming Reparation years work out as follows5£3 000 000 7 000 000 8 350 615 1927-1928 1928-1929 19291930 The net payments from the Banque de Franle to the Bank of England then would work out as followef(In thousands of E sterling) Year 1924-1925 19251926 19261927 1927-1928 1928-1929 1929-1930 Sum to be paid by Banque de Gold to be Net sum to be paid by Banque de Net sum to be paid to Banque de 2raaGaE201=a-aaan refunded 9 000 9 100 9 000 9 100 9 600 10 000 15 500 5 000 9 3 000 7 000 8 350 600 7 000 8 500 3 350 37 Zrgxg)_.2o_t_tgGssat ..;13=g12 on Tsgszt: jiiirStss)sk. A distinction must be made between two kinds of stocks ceded to France by Great Britain after the War:1) On the one hand, deliveries were made to various French Minit....atee by a contract concluded on July 8, 1920, the price of these This debt bore interest at the deliveries was fixed at £2 226 0690 100 1. rate of_Latts,2110_04201122a1Ain19 60 2) Other stocks were ceded by Great Britain to the French Office for Industrial Reconstitution; the absence of any inventory and the fact that no prices had been fixed were obstacles in the way of an agreement in regard By agreement made in March, to the terms for the purchase of the material. 1923, the total price (capital plus interest) was fixed at 6 mi,ion Lunde sterling, which was to be repaid in instalments as follows:1924 1925 1926 192? 1928 1929 £750 750 1 250 1 000 1 250 1 000 000 000 000 000 000 000 On the assumption that calendar years correspond roughly to Reparation years, the total payments by Frnce to Great Britain for the cession of war stocks would appear to be as follows:- Annuity years 1924-1925 1925-1926 1926 -1927 1927-1928 1928-1929 £2 1 1 1 1 976 250 000 250 000 069 000 000 000 000 138 40 a Special attention should be given to the following Article of the Agreements concluded by Great Britain with Italy and France (Art. 5 of the French Agreement and Art. 6 of the Italian Agreement): "If at any time it appears that the aggregate payments effectively received by Great Britain under Allied War Debt Funding Agreements and on account of Reparations or of Liberation Bonds exceed the aggregate payments effectively made by Great Britain to the Government of the United States of America in respect of war debts, an account shall be drawn up by the British Treasury, interest at 5 per cent being allowed on both sides of the account; and if that account shows that the receipts exceed the payments Great Britain will credit France (Italy) against the payments next due by France (Italy) under Article 1 of this Agreement with such proportion of that excess as the payments effectively made by France (Italy) under Article 1 of this Agreement bear to the aggregate sums effectively received by Great Britain under all Allied War Debt Funding Agreements. Thereafter a similar account will be drawn up by the British Treasury each year, and any further excess of the receipts over the payments shall each year give rise to a credit to France (Italy) of a proportion of such excess calculated in the manner indicated On the other hand, any deficit shall be made good by an above. increase in the payments next due by France (Italy) up to a similar proportion of such deficit within the limit of the total amount of the credits already allowed to France (Italy) under this Article. "For the purpose of this Article any capital sums which may hereafter be realised by Great Britain in respect of Reparations or of Liberation Bonds will be taken at their annual value, taking account of amortisation." 41 1Iz 0TALMPO PitUegi.P DEBT6 AND REPABAZ It now remains to indicate the net position of the principal creditor and debtor Powers, during the period under consideration_ Germany is only a debtor country Her payments are those fixed by the Experts' Plan and vary from $ 213 680 000 in 192425 to $ 329 445 000 in 1926-27, and $ 589 440 000 from 1925/29 onwards. katagtats.--2LAMLICA° ° The United States is only a creditor country, The sums receivable during the twelve years under consideration are as follows; 1924/25 1925/26 1926/27 1927/28 1925/29 1929/30 1930/31 1931/32 1932/33 1933/34 1934/35 1935/36 - - - $ 171 214 229 233 238 241 257 267 290 319 324 336 000 000 000 000 000 000 000 000 000 228 000 255 000 949 000 149 685 497 218 964 496 512 524 794 Great Britain Great Britain is b)th a creditor and debt:, 33ialtry. The balance sheet for her receipts and payments for the twelve years under ::onsideration woAld be as follows: (In thousands of dollars) Sums to be received rom -I YEARS France Italy GRAND TOTAL Germany of Receipts Sums to be paid by Great Britain to the United States Surplus avail of payments able for Great Britain - 45 487 103 769 159 965 56 196 9 733 782 116 884 160 260 13 376 71 052 19 466 72 479 162 997 160 525 - 1927/28 69 348 19 466 87 141 175 955 159 775 - 16 180 1928/29 85 165 19 466 127 232 471 102 160 995 - 71 1929/30 32 363 19 466 125 142 176 971 160 - 1930/31 60 832 19 466 124 118 204 416 1931/32 63 832 19 486 125 175 205 473 1932/33 60 832 20 041 125 815 688 171 500 206 35 188 1933/34 60 832 20 041 125 815 688 183 340 206 23 348 193A/35 60 832 20 141 128 912 209 785 182 220 1935/36 60 041 128 912 209 785 le. 1924/25 58 282 - 1925/26 50 769 1926/27 832 20 2 472 107 185 16 786 160 360 44 056 159 - 520 45 953 :,03 27 565 28 685 The following diagram shows more graphically the position of Great itair- 56 GREAT BRITAIN (in millions of dollars) 250 225 - Sums to be received 200 175 - 150 - -' Sums to be paid 125 100 75 I-. 0 /V r- 0 N 1-, 0 N 0 "".. M "N. 'N. CA a), -.2 re:. N eV M 1-, I-, tV M to --.1 -N IV a) to CO "N. N to 1--, 1-, '\ 01 to N to 01 0 to 0 'N. 04 1- p-, 0 01 I-Z 01 iv I-, to 04 N N.,,... 04 04 -, I-. 01 04 01 14 to N...,.. 01 141. to -4 to N., M N., 0i al 01 01 M During the first two years the payments made by Great Britain were greater than her receipts. It is only in the year 1926/27 that her receipts exceed her payments and thereafter there will be a substantial annual surplus if the Experts' Plan is carried out in full. There seems to be no great liklihood however, that her debtors will very soon benefit by any reduction in their payments in accordance with the terms of the Agreements concluded, since the surplus sums received must first go to cover the deficits of the years which have elapsed since the conclusion of the British Agreement with the United States. It should here be noted that any reduction in Reparation payments would affect twice over the Powers which are debtors of Great Britain and at the same time creditors of Germany. It would affect them directly by the reduction in their own receipts from reparations, and or restricting indirectly by removing/the possibility of reductions in their own payments to Great Britain, which they might hope to realise in a few years' time if the Experts' Plan is carried out in full. France. The balance sheet for France would be as follows: (In thousands of dollars) Sums to Years be _acei.jvt4_.iimstolotsaicl_ United Great AgEAmIL--_,.liULUNL-__ Britain Total Available balance 58 282 58 282 49 935 30 000 50 369 80 369 58 627 176 529 30 000 71 052 101 052 75 477 1927/28 209 711 32 500 69 348 101 848 107 863 1928/29 303 500 32752 85 165 117 665 186 087 1929/30 304 950 35 000 32 363 67 363 1930/31 305 974 40 000 60 832 100 832 205 142 1931/32 303 945 000 60 832 110 832 193 113 1932/33 302 719 60 000 60 832 120 832 181 887 1933/34 302 75 719 000 60 832 135 1934/35 297 271 80 000 60 832 832 156 439 1935/36 297 271 90 000 60 832 150 832 146 439 1924/25 108 217 1925/26 138 996 1926/27 - 237 832 166 887 140 On the assumption that the Experts* Plan is carried out in full, France would thus receive during the coming years large surpluses which would reach their maximum amount in 1929/3O the position graphically: The following diagram, shows 410 0 0 te) -____I 0 LC lr I I 0 CV L 0 O cv I6 I LCD c--I $ 0 0 e-4 ge V I 0 V) 0 1935/36 1934/35 1933/34 1932/33 1931/32 1930/31 1929/30 1928/29 1927/28 1926/27 1925/26 1924/25 0 France also has franc claims against her former Allies and certain European countries, resulting from cash advances, advances in the form of delivery of securities or opening of book credits, and the cession of material. These claims stood as follows on June 30 1924: (In French francs) Russia (old regime) 6 023 300 000 490 000 000 Russia (various Governments) Belgium (1) (1) 3 067 295 000 Including bonds for 1 474 000 000 francs discounted at the Banque de France, 48 Jugo-Slavia 1 738 566 000 (1) Rumania 1 132 000 000 Greece 537 514 000 Poland 895 400 000 Czecho-Slovakia 542 Italy (2) 350 273 000 000 Portugal 9 000 000 Esthonia 3 500 000 Latvia 9 000 000 Lithuania 2 200 300 000 Hungary 800 Austria 331 926 000 000 15 133 074 000 (3) If we deduct from this total the claim against Belgium, which was taken over by Germany under the conditions laid down at the Conference of Finance Ministers, and the claims against Russia, Which may be considered to be specially doubtful, the total of these capital claims is reduced to 5 552 479 000 francs, or (at 25.5 francs to the dollar) about 21$ mill on dollars. (1) Including: 1, 2. book credits for an advance of Montenegro, 399 380 000 francs 13 300 000 francs to (2) Including book credits for 330 000 000 francs, (3) Of this total 1 518 000 000 francs are covered by budgetary credits. The claims in foreign currency have been converted into francs at the rate of June 30, 1924. 49 Itakx. for Italy would be as follows:- The balance (In thousands of dollars) Sums to Years bqDISZLEVI Germany Available balance Sums to be paid U.S.A. Great Britain - Total - 15 908 1924/25 15 908 - 1925/26 20 275 5 000 9 733 14 733 5 542 1925/27 22 548 5 000 19 466 24 466 Dr. 1 918 1927/28 27 535 5 000 19 466 24 466 3 1928/29 45 563 5 000 19 466 24 466 21 097 1929/30 46 718 5 000 19 466 24 466 22 252 1930/31 46 718 14 621 19 466 34 087 12 631 1931/32 47 138 14 706 19 466 34 172 12 966 1932/33 47 391 14 791 20 041 34 832 12 559 1933/34 47 391 15 076 20 041 35 117 12 274 1934/35 50 976 15 460 20 041 35 501 15 475 1935/36 50 976 15 944 20 041 35 985 14 991 069 By comparison with the others, the figures for Italy are relatively small. The following diagram, shows the position graphically: 50 ITALY (in millions of dollars) 55 50 - Sums to be received,/// 45 - 40 35 Sums to be paid ,' 30 . 25 __ __--/ 4. 20 15 . ti 10 c to C- CV CV CV grr Cu CV ri CO CV 0% $14 'is 0 CV 10 CO tO CV cr) 1... N CV cre r-1 r-I r.4 e-1 r-4 f-I tO 1., o to Os 9.4 CV PO tO to r-I 01 ri 44 M CV Os I-1 ce, (47 t, tr) 01 6-4 tr) 01 r-4 to Oa BECAPITUIATIVE TABUS. In conclusion, it may be well to summarise the foregoing data in the following tables and charts, which show for each year the net balance of receipts or payments for each of the principal Arvers. - 51 41 SOOTEMENT SHOWING NET BALANCES OF RECEIPTS AND PAYMENTS FOR THE RESPECTIVE; P07.1 A. United YEARS States POWERS WHOSE RECEIPTS ARE GREATER THAN THEIR PAYMENTS. France Great Britain ( Italy I Belgium JugoSlavia Other Powers In thou .ands of dollars) 15,908 27,606 7,961 5,542 22,036 9,946 - 15,948 11,083 - 3,069 18,466 13,579 71,107 21,097 27,899 20,854 3,433 257,587 16,786 22,252 27,149 20,854 3,315 257,512 205,142 44,056 12,631 26,049 20,829 3,221 1931/32 267,524 193,113 45,953 12,966 25,634 20,993 3,257 1932/33 290,794 181,887 35,188 12,559 25,276 21,082 2,654 195V34 319,228 166,887 23,348 12,274 24,576 21,057 1,970 1934/35 324,255 156,439 27,565 15,475 20,232 22,647 2,827 1935/36 336,949 146,439 28,685 14,991 17,110 22,622 2,644 1924/25 49,935 1925/26 214,685 58,627 - 1926/27 229,497 75,477 2,472 1927/28 233,218 307,863 16,180 1928/29 238,964 186,087 192G/30 241,496 1930/31 e 171,149 B, YEARS POWERS THOSE PAYMENTS ARE GREATER THAN THEIR RECEIPTS. Germany Great Britain Italy Other Powers 1924/25 213,680 56,196 2,633 1025/26 269 909 -, 43,376 4,551. , 1926/27 329,445 - 1927/28 390,869 = - 1928/29 569,440 - - 1929/30 569,440 - - 1930/31 569,440 - 1931/32 569,440 - - - 19a/33 569,440 - - - 1933/34 569,440 - 1934/35 569,440 - 1935/36 569,440 - 1,918 3,134 1,506 - - - - - - - _ ITALY 411. lArrA IN ITALY 600 OTHER 1.0,f1 BR. BRITAIN 500 GERMANY T 400 UNITED STATES 10C) 19 I-4ks- 19334 1916127 191V2s 191119 19"/9.30 193131 20 193132. 193.433 *14 1 ips 1931/46 19205- V2 6 192(7(21 mks 1228b9 1929.h0 1913;19132 1932/33 vsy.4-1130- 193%36 aAAAL.1 0-4U_ AAAtAlk, I r"."" I.I.9.444 a - DOC. 231 TRANSFER COMMITTEE ECONOMIC SERVICE BERLIN, January 30, 1927 ! JURISDICTION AND ACTIVITIES OF THE ADVISORY OFFICE FOR FOREIGN LOANS. (This document is a translation of a Memorandum published by the Finance Minister of the Reich on "the jurisdiction and activities of the Advisory Office for Foreign Loans" from January 1 1925 to September 30 1926). I. Reason for the action taken by the Government of the Reich 11 INSTITUTION AND WORK OF THE ADVISORY OFFICE. 1. During the war and post-war periods most of the German communes and associations of communes were not in a position to carry out work for the extension or technical improvement of the industrial undertakings run by them, more particularly gas, water and electricity works and tramways. During the war the necessary labour was not available. After the war the spread of inflation and the consequent disappearance of reserves and renewal funds meant a shortage of capital; only relatively few communes learnt to profit by the depreciation of the mark and, like some private indus- trialists, extended and improved their apparatus of production and procured new purchases. After the war new tasks fell to the communes and continued to do so until quite recently, the result being a a - DOC. 231 240 40 further heavy strain on the communal finances. In view of the considerable demand for capital which thus arose, it was to be feared that the communes would make the fullest use of the first opportunity for long term foreign borrowing which was afforded by the opening of the foreign capital market, and would fail to observe that restraint which consideration for the German balance of payments and ultimately for the currency rendered necessary. Apart from the great danger thus inherent in communal borrowing, a further disadvantage might have been that the not un- limited funds of the foreign capital market were withheld from industry and agriculture and granted for the most part to communes and associations of communes, since these, backed by their power of taxation, could offer the foreign lender better security than private undertakings, and consequently a greater inducement to the investment of capital. Similar considerations naturally applied to the Federal States. These also, after the long period of shortage, required capital and endeavoured to satisfy their requirements on the foreign market. In the case of some States an additional incentive was supplied by the fact that they were urged by concerns of medium and small size to borrow abroad in order to pass on the funds obtained in the form of loans to industrial undertakings. a - DOC. 231 3 The Government of the Reich, which is jointly It responsible with the Reichsbank for the maintenance of the currency, found itself compelled, in view of the wild rush on the foreign capital market which was to be expected, to lay stress upon general economic and currency requirements and to take steps to ensure the regulation of the loan policy of the Federal States and the communes on uniform lines. As the negotiations for agreement among the Governments of the Federal States in regard to the procedure to be observed required ample time, owing to the novelty and difficulty of the matter under consideration, and as the circumstances called for a speedy settlement, the contracting of foreign loans by the States, communes and associations of communes was in the first place made dependent on the consent of the Finance Minister of the Reich, by a decree of November 1 1924 The enactments in force, Law of March 21, 1925 and the Regulations. on the contracting of foreign loans by the States, communes and associations of communes issued by the President of the Reich (Annex I). The decree of the President of the Reich was not to remain in force after January 31 1925; in the meantime the Federal States, which in principle had recognised the justification for the attitude adopted by the Government of the Reich, were to agree on a uniform procedure for the contracting of foreign loans. In addition the Governments of the States, where they had not already a right under their respective legislations to influence the a - DOC. 231 - 4 - loan policy of the public associations and credit institutions, were to ensure the extension of their right of control. Agreement on the procedure to be observed was obtained at the beginning of January 1925 and was drafted in the form of "Regulations for the contracting of foreign loans by the Federal States, communes and associations of communes". The extension of the right of control of the communes on the other hand was not enforced by the due date in all the States. As the result of the Regulations the consent of the Finance Minister of the Reich provided in the decree of November 1 1924 immediately became unnecessary for loans of the States and for those of the communes and associations of communes which already required the consent of control authorities for the contracting of foreign loans. Conse- quently the decree of November 1 1924 had only to be retained for communes and associations of communes whose foreign borrowing was not subject to control by a Federal State. The new arrangement was brought into force by the decree on the contracting of foreign loans by the communes and associations of communes issued by the President of the Reich on January 29 1925 (Annex II). The underlying idea of this decree, the application of which was limited to February, was finally embodied, since the right to control the communes was still not extended in various States, in the Law of a - DOC. 231 5 March 21 1925 on the contracting of foreign loans by the communes and associations of communes, which came into force as from February 1 1925 (Annex III). The Law brings the decree of January 29 1925 into line with the Regulations, in the first place by making not only the contracting of foreign loans and the issue of loans abroad, but also the assumption of guarantees and the granting of security for foreign credits and loans by communes and associations of communes (in so far as these are not already subject to control) dependent on the consent of the Finance Minister of the Reich. Further, the Law places communal Giro associations including their banking institutions on the same footing as associations of communes, in so far as they contract foreign credits or issue loans abroad the proceeds of which are destined for the States, communes or associations of communes. Both the Law of March 21 1925 and the agreement in regard to the Regulations are still in force today. The agreement applied in the first place until June 30 1925; after that date it is prolonged for periods of three months unless denounced four weeks in advance by any State. 2 of the Law of March 21 1925 gives the Finance Minister of the Reich the right to transfer the right of authorisation to the supreme authority in the Federal State. a - DOC. 231 6 Immediately after the promulgation of the Law the Finance Minister made use of this right. In practice therefore the Governments of the States have in all cases to-day to give their consent to the contracting of foreign credits and loans, the assumption of guarantees and the granting of security in the cases prescribed above, even where under the legislation of the State in question the communes and associations of communes are not subject to control. Con- sequently the Government of the Reich has no legal right today to control the foreign borrowing of public institutions. By mutual arrangement however the Governments of the Federal States are bound not to approve the foreign loans of communes, associations of communes, communal Giro associations etc. unless they conform to certain conditions, and to obtain the opinion of the Advisory Office for foreign loans where these conditions are not fulfilled on every point. Exeoutory provisions, which the Finance Minister of the Reich is authorised to issue with the consent of the Reichsrat under § 3 of the Law of March 21 1925, have not been promulgated, since in the first place the Regulations proved adequate, and the Governments of the States were prepared to amend them when alterations became necessary. Amendment of the Regula- At the beginning of 1926, when giving its opinion on several joint communal loans for large amounts, the tions. a - DOC. 231 7 Advisory Office was faced with the difficulty that in many individual cases local requirements were put forward which appeared to be without value for the nation as a whole. In order to remove any ambiguity to which the text of the Regulations might give rise and also to ensure the greatest possible restriction of such loans in the event of their accumulation, the Advisory Office in February 1926 proposed the amendment of the Regulations. At a meeting held on February 10 1926 the amendment proposals, which also referred to the Appeal procedure, were for the most part approved by the Governments of the Federal States and have since come into force with the consent of all the States in a form which takes into account certain wishes subsequently put forward by the Prussian Ministry of the Interior. The essential change in the Regulations lies in the clearer interpretation given to the term productivity. The investments made with the proceeds from foreign loans, either by increasing exports or by restricting imports or in some other way, should directly or indirectly serve to promote the economic interests of the Reich as a whole; local interests in themselves are not sufficient justification. Loans which do not need to be submitted for the opinion of the Advisory Office (see page 18) are absolutely conditional upon the observance of this principle, which must also receive proper attention when loan schemes are under consideration a - DOC. 231 8 by the Advisory Office. Ilk Under the amended form of the Regulations, the Advisory Office has further to consider whether the total amount of foreign loans approved or the number of applications submitted has reached a figure which, in the interests of the currency or of the loan terms which it is desirable to obtain, should not in the meantime be exceeded. These amendments to the Regulations have considerably restricted the sphere of judgment of the Advisory Office, to which in the first place great freedom was left. 2. Private loans. The heavy demands made on the foreign capital market by private enterprise in 1925 brought forward the question of the necessity for controlling this class of foreign borrowing also. In addition to the danger to which the currency may be exposed as a result of the foreign borrowing of trade and commerce, in cases where the loan capital coming into the country is put to a use which is unsuitable on general grounds, there is the prospect of an effect on the loan terms to be obtained, especially as with few exceptions the terms obtained by trade and commerce are un more/favourable than those granted to the Federal States and communes. By a decree dated December 10 1925 Italy has subjected private borrowing also to control, in so far as a - DOC. 231 the loans run for more than one year. 11" In Germany direct intervention in the conclusion of private loans has been avoided, since the return to State control, which is to a certain extent inherent in the supervision of foreign loans contracted by private individuals, seemed in principle undesirable. Indirectly a certain influence could be brought to bear by the arrangement whereby the Finance Minister of the Reich could refuse exemption from the restricted liability to taxation under § 115 of the Income Tax Law of August 10 1925 and the reduction of the Securities Tax under § 29 paragraph 5 of the Law for a Tax on the Movement of Capital as amended by the Law of August 10 1925, for which application is probably made in every case. Where tax privileges of the kind were under con- sideration, the Advisory Office took part (see below) whenever there was a question of the mortgage bonds of Landschaften, Stadtschaften, mortgage banks etc.; where loans of other undertakings were under consideration, a certain connection with the Advisory Office was maintained in that various members and reporters of the Advisory Office took part in the discussion in virtue of their chief office. As the loans were almost without exception concluded before the submission of the applications for tax privileges, the rejection of the applications was bound to lead to difficulties. In order to overcome these (and not least in the interest of a - DOC. 231 10the borrowers) the Finance Minister of the Reich has urged ilk the Reichsverband der deutschen Industrie and the Deutscher Industrie and Handelstag to take steps to ensure that industrial undertakings etc. submit the proposed loan terms for consideration by the Finance Ministry before the final conclusion of the loan agreement, in order to ascertain * whether tax privileges are likely to be granted. 3. A further question arose as to whether the Regulations should not be extended to cover at least the foreign loans of concerns in which the Federal States, communes or associations of communes are interested to the extent of more than 50 per cent, to the foreign loans of private mortgage banks, Landschaften and landowners' credit institutions, the foreign loans of Stadtschaften and the Ecclesiastical loans to be issued abroad. * In the meantime, in view of the improvement on the home capital market and of the fact that as early as its meeting of May 19, 1926 the Sixth Committee of the Reichstag decided in future to show greater reserve in the granting of tax privileges for foreign loans, the Finance Minister of the Reich declared on December 4 1926 that for the present he would not be in a position to advocate tax privileges for foreign loans to the Reichsrat or At the meetings held on December 8/9 and 14 Reichstag. 1926 the Reiohsrat and the Sixth Committee of the Reichstag approved this declaration by the Finance Minister. Further, the Sixth Committee of the Reichstag passed a resolution expressing the hope that in future no tax reductions would be granted for foreign loans. a - DOC. 231 The inclusion of the loans of undertakings whose Loans of undo takii which are partly publicly and partly privately owned. capital is entirely or for the most part held by public institutions was thought to be impracticable for the present, as it was held that they should not be treated otherwise than as private undertakings. There are however reasons for con- sidering the question as not yet finally settled. The question as to whether the conversion of a communal concern into a joint stock or limited liability company at the time when a foreign loan is contracted is to be looked upon as an evasion must be considered according to the circumstances of each individual case. Loans of institutions under public Law such as In regard to the loans of institutions under public law, such as Landschaften and Stadtschaften, and the loans of private mortgage banks, an arrangement has been made with the (Land schaf ten, Reichsrat, which together with the Committee of the Reichstag Stadtschaften) Mortgage banks etc. is consulted by the Finance Minister in regard to applications for exemption from taxation, whereby the opinion of the Advisory Office on the proposed sale abroad of mortgage bonds is submitted to the Reichsrat together with the application from the credit institution. Ecclesiastical loans It is only possible for the opinion of the Advisory Office to be obtained in regard to ecclesiastical loans to be issued abroad in cases where the Government of a Federal State has the right to approve the contracting of ecclesiastical loans. In Prussia this is the case. The Prussian Minister a - DOC. 231 12 for Science, Art and Education has in principle declared his 140 readiness to hear the opinion of the Advisory Office before giving his consent to ecclesiastical loans. The Governments of the other Federal States do not all follow the same course. For the most part however they have promised to use their influence with the ecclesiastical departments concerned in order to induce these voluntarily to obtain the opinion of the Advisory Office before issuing a loan. Up to the present the Advisory Office had been consulted only once in regard to an ecclesiastical loan. It then became clear that it is impossible to apply the Regulations to ecclesiastical loans, so that special Regulations would be required if the Advisory Office had to express its opinion on such loans. It would however be difficult to draft such regulations. II. MEASURES TAKEN TO RESTRICT THE FOREIGN LOANS OF PUBLIC INSTITUTIONS. 1. loans to which the restrictions apply. Under the Law of March 21 1925 and the Regulations (Annex IV) the following are subject to special restriction: a) the foreign credits and loans of the Federal States, communes and associations of communes, whether these are procured directly or indirectly through currency institutions under public law or a ® DOC. 231 -13 through private currency institutions or in some other way; b) foreign credits and loans of the communal Giro associations, including their banking institutions, which are destined for the Federal States, communes or associations of communes and similar loans of other credit institutions whose special function is to satisfy communal credit requirements or to administer mortgage credit; o) the guarantees and securities assigned by the Federal States, communes or associations of communes for foreign loans in favour of third parties. Foreign loans and credits in German currency Foreign credits and loans in the sense of the above list also include loans, the interest payments and redemption of which are to be effected in German currency, since the Advisory Office holds the view that so far as the effect on the currency is concerned it is immaterial whether foreign media of payment have to be obtained in Germany or whether Reichsmarks have to be sold abroad. The issue abroad of part of a home issue also comes under this category. In so far as separate blocks of the loan are issued abroad the Advisory Office is undoubtedly competent. which issues of the kind have become known to it it has emphasised its competency and protested against evasions on a - DOC. 231 14 the part of the Governments of the Federal States. The Advisory Office has always taken the term ,Guarantees ',based on laws, statutes or agreements with the borrower security in the sense of the Regulations-to include every general guarantee based on laws, statutes or any agreement Consequently communal Giro associations, with the bo State banks, Stadtschaften etc. have to submit their foreign loan proposals to the Advisory Office in so far as the loans are backed, even in the last resort, by the liability of a commune, circle (Kreis) province etc. The Governments of some Federal States take a different view based on the wording of letter A of the Regulations which speaks of guarantees and security assigned for the benefit of third parties by the State, commune or association of communes. They hold that no guarantee has been assumed and no security assigned where, either through a separate legal transaction not connected with the foreign loan, or in virtue of the structure of the institution contracting the loan, a purely internal liability of a commune or association of communes exists as against the debtor. It is in their opinion essential that direct legal relations exist between the com- munes or associations of communes as guarantors on the one hand and the foreign lenders on the other hand. This inter- pretation is not in keeping with the lines on which the Regulations and the Law of March 21 1925 were built up. In a - DOC. 231 -15 the sense of the negotiations which led to the drafting of the Regulations it is immaterial whether the security is directly expressed to the lender or only to the borrower or whether the guarantee is merely a general one previously assumed. The action taken by public associations on behalf of third parties was, as already stated, one of the primary causes for the creation of the Advisory Office and the importance attributed to action by the taxation authorities on behalf of third parties is most clearly shown by the provisions of letter C, which denies that any cases in which guarantees are granted or security assigned can be looked upon as unobjectionable. In its widest sense the expression "security" should include all cases in which foreign credits and loans for third parties receive the support of a public association. The fact that the restriction of guarantees and security to third parties directly concerned was not contemplated is immediately clear from the Law of March 21 1925, the object of which is to fill in any gaps in the system of communal supervision and which speaks only of guarantees and security and not of guarantees and security assigned in favour of third parties. Foreign loans of the State There may be some doubt as to whether and how far the foreign loans of State banks are subject to the control banks. of the Advisory Office. The final protocol concluded in connection with the agreement on the Regulations (Annex V), a - DOC. 231 - 16 point 2 of which deals with the application of the Regulations to the foreign loans of State banks, is not free from Whereas some of the Governments are of opinion ambiguity. that the Regulations were not intended to apply to State banks, the Finance Ministry of the Reich holds the view that only short term foreign loans are excluded, but not long term loans. For the conclusion of long term loans is not an essential function of the State Banks and it was intended to grant independence in foreign borrowing only within the limits of regular business. Up to the present the dispute has been purely academic. The Regulations likewise express no view on the contracting of loans by the Reich. Nevertheless, in the above mentioned final protocol, the Reich gave an assurance that in the event of recourse to foreign borrowing the Govern- ment would proceed in accordance with the principles laid down in the Regulations. 2. Unobjectionable foreign loans and Right of the Governments of the Federal States to give their consent without consulting the Advisory Office. The conditions on which the Federal States may settle questions connected with the contracting of foreign credits. loans without application to the Advisory Office are explained in letter B of the Regulations. a - DOC. 231 -17 According to the Regulations the material points 'At to be considered are the form, the maximum charge, the utilisation and the guaranteeing of the loan. Short term loans of the States. a) Short term foreign loans contracted by 111 Federal States for not more than one year are to be looked upon as unobjectionable, in so far as they are intended for the provisional swelling of working funds and repayment is guaranteed on maturity, so that no provision is made for conversion into a long term loan. Long term foreign loans The long term foreign loans must be contracted for at least ten years but may be called in by the debtor after not more than five years. This provision is not restricted to the Federal States alone but covers equally the foreign loans of communes, associations of communes, communal Giro associations etc. The loans are required to run for long periods (although with a restriction as to the length of time allowed - see page 25) since in principle foreign money should only be used for productive purposes and in general the degree of productivity to be attained is likely to allow of only moderate sinking fund payments in addition to the service of interest. Gradual amortisation spread over a long period reduces the demand per annum and so makes it easier for the individual debtor and the national economy to repay the a - DOC. 231 18 - borrowed capital to a foreign creditor. In view however of the high interest rates which still have to be paid on foreign loans, the borrower must be free to profit by the anticipated fall in the interest rate, that is, he must be able to offer to repay the capital or to reduce the rate of interest (conversion). It is for this reason that the debtor should be granted the right to repay the loan after not more than five years. Maximum charge b) The maximum rate of the charge involved by loans, which is fixed by the permanent members of the Advisory Office and communicated to the Governments of the Federal States according to the general position, more particularly on the foreign and home capital markets, may not be exceeded without consultation with the Advisory Office. When the Advisory Office began to function, it fixed the maximum rate at 8 per cent. circumstances have altered. In the meantime The abolition of the prohibi- tion on foreign loans in England at the end of the past year put an end to the monopolistic position of America on the capital market, while in the Netherlands and Switzerland interest in German loans gradually grew with the increasing economic consolidation of Germany. In addition, the German capital market grew stronger. developments the Advisory Office on January 22 1926 reduced In a - DOC. 231 19 416 the maximum charge from 8 to 7 per cent for loan schemes not necessarily submitted to the Advisory Office. Utilisation of the foreign c) One of the most important conditions on which consultation with the Advisory Office is not required for a loans. loan scheme is the fulfilment of the terms laid down in regard to the utilisation of the loan. Any foreign loans con- tracted by the States, communes or associations of communes must be used for the contracting party's own purposes or for purposes of one or other of the public bodies indicated under A of the Regulations. In particular they shall not be passed on to physical persons or bodies corporate under private law. ductive ends. Further they must be used for directly proThe term productivity is defined as meaning that foreign loans must be employed for such profit-earning investments as by the direct production of the values guarantee out of their own income the interest and sinking fund payments on the capital invested, without having recourse to the general income of a public body. Under the amended Regulations (as already explained under I 1 above) it is said to be important that the investments, either by Increasing exports, or by restricting imports, or in some other way, should directly or indirectly serve to promote the economic interests of the Reich as a whole, local interests in themselves not being considered sufficient a - DOC. 231 20 - 446 justification. Further, the investments must be necessary in the sense that the projected expenditure cannot be postponed until such time as German capital is available for the purpose. Pledges d) The last condition required if a loan is to be considered unobjectionable is that no provision shall be made for specific pledges of any kind and that no other businesses shall be involved such as for example the sale of products of Government 3. enterprises. The procedure for the consideration of foreign loans. Where the conditions explained under 2 above are not in every way fulfilled, and where the Governments of the States nevertheless desire to issue or approve a loan, they are under the Regulations obliged first to hear the opinion of the Advisory Office for foreign loans. The Advisory Office must always be consulted where there is any question of assuming guarantees or assigning security. Composi® tion of the Advisory Office The Advisory Office is a confidential committee of the Federal States and consists of five experts and a reprosentative of the Federal State asking for advice. Of the experts, one is appointed by the Finance Minister of the Reich, one by the Minister for Economic Affairs of the Reioh, one a - DOC. 231 21 by the Direktorium of the Reichsbank and two by the Federal States. In the Regulations the Federal States appointed the President of the Preussische Staatsbank and the President of the Bayerische Staatsbank as their experts. The expert appointed by the Finance Minister of the Reich takes the Chair at meetings. The members of the Advisory Office are at present as follows: Regular members : Geheimer Regierungsrat Norden, Ministerialdirigent in the Finance Ministry of the Reich, Chairman, Dr. Heintze Ministerialrat in the Ministry of the Reich for Economic Affairs, Reiohsbankdirektor Dr. Greve, reporter to the Direktorium of the Reidhsbank, Secretary of State Dr. Schroeder, President of the Preussisohe Staatsbank (Seehandlung), Arnold, President of the Bayerisohe Staatsbank; Deputy members : Dr. von Brandt, Ministerialdirektor in the Finance Ministry of the Reich, Geheimer Regierungsrat Karlowa, Ministerialdirigent in the Finance Ministry of the Reich, Geheimer Regierungsrat Dr. Reichardt, Ministerialdirigent in the Ministry of the Reich for Economic Affairs, a - DOC. 231 -22Dr. Brae, Regierungsrat in the Ministry of the Reich for Economic Affairs, Reichsbankdirektor Ehrhardt, reporter to the Direktorium of the Reichebank, Staatsfinanzrat Breokenfeld, member of the General Administration of the Preussische Staatsbank, Staatsfinanzrat KObner, member of the General Administration of the Preussisohe Staatsbank, Staatsrat Dr. von Wolf, Bavarian deputy representative on the Reichsrat, Oberfinanzdirektor Moroff of the Bayerische Staatsbank, Oberfinanzdirektor Flamme of the Bayerisdhe Staatsbank. The management of the Advisory Office is in the hands of the Finance Ministry of the Reich. Appeal to the Committee of the Federal States The views of the Advisory Office are not absolutely binding on the Federal States. If however a State does not wish to comply with the opinion expressed by the Office, an effort has first to be made to come to an agreement with the Office, which has to reconsider the loan scheme at another meeting to be attended if possible by special experts (without the right to vote). If no agreement can be reached in this way, the applicant State, before coming to a final decision regarding the contracting of the loan, must consult the Committee on which all the States are represented by the number of votes corresponding to their representation in the Reichsrat (letter C, paragraph 2, of the Regulations). The w a - DOC. 231 - 23 - States have undertaken to comply with the decision of this Committee of the Federal States except in cases of absolute It is doubtful whether in practice it would be urgency. possible to reject the views of the Committee, since it would be difficult successfully to contract a loan against the finding of the Advisory Office and the opinion of the Committee. It has not yet been possible in practice to refrain from consulting the Advisory Office in the matter of long term loans; on the other hand in two cases where short term foreign loans were contracted by a State temporarily to swell the working funds in the hands of its Treasury recourse to the Advisory Office was not considered necessary. Up to the present no appeal has been made to the Committee of the Federal States, which is proof enough of the harmonious collaboration between the Advisory Office and the Government of the States. In a few cases the Advisory Office has been requested to reconsider loan schemes forming part of joint loans. In these cases the Governments of the States were in a position to bring forward new points of view which were not fully appreciated when the first decision was taken. a - DOC. 231 24 - a - DOC. 231 -25The loan applications of the communes, which were largest fif in amount, were reduced by about 48 per cent. details see Annex VI). (For further Of the communal loans 277 627 200 RM fall to 1925 and 183 738 000 to 1926, while of the loans of the Federal States 138 600 000 RM fall to 1925 and 270 600 000 RM to 1926. For this division the date of re- commendation has been taken, since it was not in every case possible exactly to ascertain the date of issue of the various loans. On a basis of the dates of issue the figures for 1926 would probably be larger. 1. Form of the foreign loans. The form of the loans submitted to the Advisory Office was as a general rule not open to objection. Length of time for which loans have been issued The loans ran for periods of ten, fifteen, twenty, twenty-one, twenty-five and twenty-six years; the loan ran for thirty years. is twenty or twenty-five years. in one case The average length of time Since, where loans are issued at par, the length of time influences the general charge involved, by the distribution of the discount over a corresponding period, but since there is no guarantee (especially as importance is attached to the possibility of earlier repayment) that in reality the loan will not be fully amortised before the expiration of the period for which it was issued, the Advisory Office thought it desirable in no a - DOC. 231 -26case to base its calculation of the total charge on a period 41, Dates for repayment of loans of more than twenty-five years. No loans have been submitted which could be called in a shorter period than five years; the Advisory Office has however considered loans with a longer time limit for recall which it was impossible to reduce. Examples are the loans of the Deutsche Rentenbank-Kreditanstalt and the Stichsische Landespfandbriefanstalt, which are not repayable under ten years. Investigation of the agreements has frequently Special charges brought to light special charges on the borrower which for various reasons could not be looked upon as tolerable. In such cases the Advisory Office has endeavoured to obtain alterations in the agreement. In one case the Advisory Office had occasion to deal with a delivery clause inserted in a subsidiary contract. The production of the money was made conditional on the placing of orders with the industry of the lending countries. Although the orders required were relatively small and the condition might have been compensated in part by a reciprocal obligation, the Advisory Office refused to recommend the loan on account of the importance of the principle involved. a - DOC. 231 -27® 4 In many cases the lenders have secured options on loans issued later by the same debtor. In so far as there was a danger that the freedom of action of the borrower might thus be restricted for relatively too long a period, the Advisory Office recommended that alterations should be made in the draft agreement. It was not in all oases possible to avoid assigning Real security pledges; as far as possible however the Advisory Office has acted on the lines of letter B IV of the Regulations. It has approved of mortgage security only for loans which are agricultural or industrial in character and are guaranteed by States or communes; in the case of purely communal loans on the other hand it has refused its approval, since the pledging of public property appeared undesirable, the tax capacity of the communes should afford the lender sufficient security, and in particular the accumulation of security for public loans implies the danger that the terms for the loans of private concerns will suffer. All agreements contain the stipulation that where real security is in future assigned for other loans the loan under consideration will be similarly secured. The justifi- cation for this demand by lenders must be admitted. a - DOC. 231 -282. 401 Maximum charge for foreign loans which have to be submitted for approval. Consideration of the financial consequences of Maximum charge the loan forms a very important part of the work of the The Advisory Office calculates the maximum Advisory Office. charge on a basis of the formulae for compound interest and annuity calculations with the assistance of the Spitzer tables. The calculation is most carefully effected with the result that the total charge calculated by the Advisory Office is almost always higher than that computed by the banks and borrowers - in particular if the much used American tables are employed. The Advisory Office considers inter anti the additional charge resulting from semi-annual interest and amortisation as opposed to annual payments, as well as the increased cost of a loan, the interest on which begins to run from an earlier date than that on which the proceeds are paid over, with no provision for its reimbursement. Until the end of 1925 the total interest charge which the Advisory Office thought tolerable on foreign loans varied between 9 and 8i per cent. improved conditions on the capital market in the first quarter of 1926, the Advisory Office has since the end of March 1926 only recommended loans, the total charge on which amounted to about 8 per cent. In the last few months a further improve- ment in loan terms has been noticeable. This is clear both a DOC. 231 29 ott from the nominal rate of interest and also from the net interest paid on the loans. Where previously the 7 per cent loan was the general rule, the gross rate of interest has fallen in some cases to or even 6 per cent. The net charge on the loan of the Free State of Prussia, which the Advisory Office considered on September 24 1926, amounted approximately to only 72 per cent. The charge represented by the loan terms of the Free and Hanseatic City of Hamburg, on which the Advisory Office expressed an opinion on September 21 1926, works out at 7.24 per cent. 3. Utilisation of the foreign loans. The main function of the Advisory Office is consideration of the use to which the loans are to be put. The general conditions which must be fulfilled by loans which are looked upon as unobjectionable and so are not subject to approval have already been mentioned. As stated in the amended Regulations the same conditions are to apply when loans which have to be submitted for approval are under consideration. The prohibition on loans for third parties is meant oans of public asso:iations in 'avour of primarily to cover loans in favour of industrial groups in mdustrial difficulties. 1. Nevertheless it has repeatedly happened that indertakings public associations have contracted foreign loans for a - DOC. 231 -30 investment purposes on behalf of undertakings which are entirely or for the most part owned by theme or have guaranteed the loans of such undertakings. Where no special objections existed, the Advisory Office has approved such loans since the undertakings were able to obtain more favourable terms owing to the intervention of the public. associations, or because the production of the money was made conditional on such intervention. In one case however, that of the Sachsische Isndespfandbriefanstalt, a loan was approved In which the State guarantee was given in favour of a purely private industrial concern. The Advisory Office discussed in detail the dangers which this assumption of liability by the State might imply, more particularly because foreign lenders, if the practice were once begun, might make it a matter of principle to demand guarantees of the kind or might endeavour to force unfavourable loan terms upon industries or industrial undertakings not publicly supported in this way by the Reich or the Federal States. The Advisory Office is of opinion that attempts of the kind would fail. It is however also of opinion that liability should not be assumed by the States for the foreign loans of private undertakings. It only withdrew its objections in consideration of the quite special circumstances which induced the State of Saxony to intervene on behalf of its industry and in view of the precautions taken to ensure that the State a - DOC. 231 -31 guarantee should apply only in the last resource. a - DOC. 231 - 32 that only large industrial centres or places with large individual industrial undertakings should contract forei loans. On the contrary small communes which are the centres of important home industries have been given per sion to borrow abroad. It follows that the loan schemes of other and larger towns had to be rejected where the s object in obtaining foreign money was to produce higher revenues by improving the municipal undertakings. It m admitted that it is difficult to distinguish between an improvement in municipal concerns which is of benefit to whole country and an improvement which is of benefit to settle the difficulty fairly by putting detailed questio the municipal representatives, by carefully investigatin the data submitted and by hearing technical experts. Details of utilisation The Advisory Office has had in individual cases deal with loan schemes, the proceeds of which were to se for taking over existing premises, the construction of ca harbours and roads, the construction of bridges, the open up of industrial territory, the laying of narrow gauge railways and tramways, the development of the car parks o transport undertakings, the acquisition of car depots, t extension of hospitals, improvements to treatment applian the installation of central heating plant, the construct or extension of slaughter houses and markets, the acquis a - DOC. 231 - 33 - of cattle markets and fish markets, and the provision of public baths and dwelling-houses. Of these schemes the Advisory Office rejected inter alia plans for dwelling houses as not being productive in the sense of the Regulations. With due recognition for the urgent need for house building, the Office felt unable to recognise that the necessary funds should be procured by foreign borrowing, but thought that recourse should be had to the home market. Exceptions are possible, such as for example where the construction of dwelling-houses for the workmen of an industrial concern is an absolute necessity. The provision of central heating plant and public baths with the help of foreign money could likewise not be approved. With certain exceptions where special importance to the nation as a whole could be proved, schemes were rejected for the opening up of industrial territory. One of the reasons for refusal was that no profits were to be expected, at any rate until later. The Advisory Office has made it a practice to refuse consent to the taking over of existing premises by means of foreign money, on the grounds that from the point of view of the nation as a whole the actual ownership of the premises is immaterial. a - DOC. 231 - 34 - In regard to the transport schemes the Advisory Office was at the outset prepared to admit that these were at least indirectly productive, in view of the fact that with the housing shortage in the big cities good transport facilities might be of use to industry. For this reason it gave its consent, in the case of the first loan schemes submitted to it for approval, to the utilisation of foreign money for the development of tramways. Upon reflection however that in this way the demand on the foreign capital market would be very heavily augmented - owing to the large amount involved as a result of the inadequacy of the communal transport system in many cities altered its practice in the matter. the Office very soon Nevertheless even subsequently it did not reject every transport scheme. Even until quite recently it has admitted exceptions in special cases where the interests at stake were particularly great, and more especially where it could be definitely proved that the means of transport to be instituted were essential for transit between large factories and the homes of the workers. In the case of harbour schemes a distinction was made between those for maritime traffic and those for inland navigation. The Advisory Office was prepared to give full approval to installations intended for maritime traffic (for which in particular Hamburg and Bremen borrowed foreign money) on the assumption that our trade balance and the a - DOC. 231 35 - balance of payments would thus be served. On the other hand reserve was displayed where the harbour schemes were for In almost all cases the schemes were for inland shipping. Rhine harbours; together they would have meant so great an extension in the harbour space on the Rhine that there was bound to be doubt as to their economic necessity. The Advisory Office, while not considering it desirable to reject in principle all schemes for inland harbours, was nevertheless of opinion that the investment of foreign money should be restricted to harbour constructions in towns which in the first place are already ports and in the second place can prove the absolute necessity and urgency of the improvements or extensions proposed. Where the Office has recommended other schemes whose productivity in the sense of the Regulations or whose urgency might seem doubtful, special reasons were present. Among these may be mentioned the various projects designed to avert epidemics - e.g. projects for drainage few of these projects obtained approval - - very schemes for the construction of slaughter houses and cattle markets and schemes for the laying of water pipes. The Advisory Office in one case approved the utilisation of foreign money for the construction of roads, since the fact that the local industry was financially a - DOC. 231 - 36 - interested in the scheme appeared to show that the improvements contemplated would directly serve to promote industrial interests. ecial eatment relief hemes In a limited number of cases which involved relatively unimportant sums allowance was made in dealing with the schemes of the towns of East Prussia, Silesia and the Palatinate for the circumstance that the fixing of the frontier without regard to economic interests, separation from the mother country, or the burden of foreign occupation had inflicted special losses upon the districts concerned. kelihood f profit rom the ATvestlents to )e made In addition to the urgency of investments, the likelihood of profit has always been carefully considered and in principle approval has been refused for schemes in the case of which it seemed likely that instalments for depreciation or amortisation would have to be met from public funds. Rejection of foreign loans where other funds are mailable 3. Even however where the constructions planned could be shown to be productive, profitable and immediately urgent, the need for borrowing on the foreign capital market is not necessarily at once admissible. of course to show It is necessary as a matter - and this is a condition not specially emphasised in the Regulations - that the applicant has no funds which are already available or could be released or procured in some other way in order entirely or temporarily a - DOC. 231 37 - to avoid the necessity for foreign borrowing. The Advisory Office has several times had occasion to enunciate this principle in dealing with the communes and that with regard to past action no less than present action on the part of the latter - since a number of towns have used surplus funds or money borrowed in Germany for less urgent and valuable purposes than those contemplated for the foreign money. On these grounds the Advisory Office has made its approval of foreign borrowing conditional on the circumstance that at the time of application or during the period of execution of the schemes to be financed with foreign money there were no funds at the disposal of the borrowing commune which might be used for less urgent purposes. It has further examined whether in the recent past applicants for loans have carried out schemes which might have been postponed in favour of those which it was proposed to execute with the help of foreign money. It has required a statement to this effect from the Governments of the Federal States and in addition in some cases demanded to see the draft budget and estimates of the communes and associations of communes. Financing of schemes already carried out in whole or in part 4. Further, the Advisory Office has displayed reserve in cases where it has had to consider the financing of the completion of schemes already carried out in whole or in part. This applies more particularly to cases in which communes, a - DOC. 231 - 38 having procured short term money from savings banks or communal banking institutions, wish to repay the loan with foreign money. The following were the reasons for the reserve displayed by the Advisory Office. In the first place the repayment of the short term credit did not seem urgent enough to prevent waiting until it was possible to obtain long term money in Germany. A further point was that, if in consideration of the necessity for covering a short term loan the Advisory Office gave its consent to schemes which it would otherwise not approve, the Bank might lend to another commune the money thus repaid; in which case the Advisory Office might within a short interval be again forced to a decision against its better judgment. In the case of schemes which were already carried out in whole or in part the Advisory Office was inclined as a general rule to approve no foreign loans. In practice however it was unable always to apply this strict rule especially in the case of schemes which were financed with the help of bill credits or with assistance from regular budget funds absolutely required at a later date for other purposes. In particular the Office was bound to admit that it was in keeping with a sound financial policy for the States to advance available funds of the ordinary budget for undertakings under the extraordinary budget until the most a - DOC. 231 - 39 - a ® DOC. 231 40 It is the duty of the Governments of the Federal States to see that the proceeds of loans really go to the purposes for which they were intended. In the few cases, in which information has reached the Office that its opinion has not been observed or that attempts have been made to evade its authority, it has immediately drawn the attention of the Governments to the matter. During the one and three quarter years of its existence criticism has frequently been levelled at the activities of the Advisory Office. Thile those who described its work as beneficial and approved even the details of its conduct have never been lacking, unfavourable judgments have been much more numerous; some have taken the line that the Advisory Office should have been much more restrictive than was the case, and others the opposite view that the Office has gone too far in its disapproval of loan schemes and has not taken the justifiable demands more particularly of the communes sufficiently into account. Criticism was keenest in connection with the so-called uSammelanleihen" or joint loans of groups of communes borrowing in combination, which the Advisory Office had to consider. Seven joint loans were submitted to the Advisory Office, one each from the communes a - DOC. 231 41 - of Wurtemberg, Baden, Hesse, and Thuringia in 1925, and in the first half of 1926 the loan of the Deutscher Sparkassen and Giroverband, in which communes, circles (Kreise) and communal utility associations in almost all German States wished to take part and which finally covered the loan of the Thuringian towns as well as the loans of the towns, communes and circles of the Rhineland and Westphalia. In this way loan schemes were submitted to the Advisory Office of altogether more than 600 communes, including small and insignificant communes, which in some cases demanded sums quite out of proportion to their population. The Advisory Office was forced to cut down the amounts very strictly although in spite of this very considerable loans went through. The Advisory Office admits that in spite of every restriction the total of foreign loans has become very considerable. It must not however be forgotten - and this should be borne in mind by those who look on the work of the Advisory Office as a hindrance - that the very existence of an Office examining the necessity and desirability of loans has increased the inclination of foreign countries to lend to the German communes and States. It must be remembered that foreign lenders have attached great importance to the opinion given on the lines of the Regulations of the Advisory Office and that in this way it has been easier for the towns a - DOC. 231 42 - to borrow abroad. Against its will the Advisory Office has encouraged and promoted the readiness of the foreign capital market to take up German loans, and it is impossible to tell what influence any cessation of the work of the Office might have on the inclination of foreign countries to produce money. Two factors of importance for the policy to be followed in the matter of foreign loans have in the meantime come to the fore viz. the re-opening of the home capital market and the Government programme for the provision of work. In the course of 1926 it was possible to place in Germany a relatively large sum in loans of the States and cities. It must however be remembered that the money requirements of the public authorities are still large and probably exceed the capacity of the home market, so that the regulating influence of the Advisory Office is still needed. We cannot yet permanently renounce the influx of foreign capital, but under all circumstances vie must prevent the accumulation in return of a hasty and disproportionate indebtedness to foreign countries. http://fraser.stlouisfed.org/ Annex I. Federal Reserve Bank of St. Louis a - DOC. 231 43 - a - DOC. 231 - 44 - § 3 With the approval of the Reichsrat the Finance Minister of the Reich may issue provisions in execution of the present Decree. § 4 The present Decree will come into force on the date of its promulgation. It will cease to apply on January 31 1925. DECREE ON THE CONTRACTING OF FOREIGN LOANS BY COMMUNES AND ASSOCIATIONS OF COMMUNES ISSUED BY THE PRESIDENT OP THE REICH ON JANUARY 29 1925. (Reichsgesetzblatt Part I, page 7). In virtue of Article 48 paragraph 2 of the Constitution of the German Reich I hereby decree as follows: § 1 In order legally to contract credits abroad or legally to issue loans abroad the communes and associations a - DOC. 231 - 45 - 4i of communes require the consent of the Finance Minister of the Reich, in so far as under the provisions of the legislation of the Federal States the contracting of credits or the issue of loans is not already subject to approval by supervising authorities. § 2 The Finance Minister of the Reich may transfer his right of consent under § 1 above to the supreme authority in the Federal State. § 3 With the approval of the Reichsrat the Finance Minister of the Reich may issue provisions in execution of the present Decree. § 4 The present Decree will come into force on February 1 1925. It will cease to apply on February 28 1925. a - DOC. 231 - 46 - Annex LAW OF MARCH 21 1925 ON THE CONTRACTING OF FOREIGN LOANS BY THE COMMUNES AND ASSOCIATIONS OF COMMUNES. (Reichsgesetzblatt Part I, page 27). The Reichstag has passed the following law which is hereby promulgated with the consent of the Reicharat, the requirements for legislation in amendment of the Constitution being found to be duly fulfilled: § 1 In order directly or indirectly to contract foreign credits or directly or indirectly to issue loans abroad, and in order to assume guarantees or assign security for such credits or loans, the communes and associations of communes require the consent of the Finance Minister of the Reich, in so far as under the provisions of the legislation of the Federal States the contracting of credits or the issue of loans and the assumption of guarantees or the assigning of security for such credits and loans is not already subject to approval by supervising authorities. The provisions for associations of communes within the meaning of paragraph 1 above also apply to communal Giro associations including their banking institutions in so far as they contract foreign credits or issue loans abroad which a - DOC. 231 - 47 1rare to be passed on to the Federal States, communes or associations of communes. § 2 The Finance Minister of the Reich may transfer his right of consent under § 1 above to the supreme authority of the Federal State. § 3 With the approval of the Reichsrat the Finance Minister of the Reich may issue executory provisions. § 4 The present Law will come into force on the day following its promulgation. It will apply to all agreements of the kind described in § 1 above concluded after February 1 1925. The Government of the Reich is empowered to abrogate this law with the consent of the Reichstag. Annqx IV. REGULATIONS FOR THE CONTRACTING OF FOREIGN LOANS BY THE STATES, COMMUNES AND ASSOCIATIONS OP COMMUNES. A. The Federal States agree that, in order to maintain the stability of the currency and on general political grounds, a - DOC. 231 -48 the contracting of foreign loans by public bodies should be strictly restricted. The States therefore mutually under- take, when contracting such foreign loans as are urgently required, to observe the following regulations or to see that they are observed. These regulations shall apply to any foreign loans which are directly contracted by States, Communes or associations of communes, or indirectly on their behalf by public or private banking institutions, or are In so far as the foreign loans obtained in any other way. are to be given to States, Communes or associations of communes, they shall apply in particular to the foreign loans of communal Giro clearing associations, communal banking establishments or other communal credit institutions, whose function it is to satisfy communal credit requirements or to administer mortgage loans. Similarly they shall apply to any guarantee or security for foreign loans assigned for the benefit of third parties by the States, Communes or associations of communes. B. The contracting of foreign loans which conform with the following conditions (B III paragraphs 2 and 3 do not apply to short dated loans of the States under B I, 2) shall be considered as relatively unobjectionable and therefore not subject to the procedure indicated under C: a - DOC. 231 49 I. Form of loan. 1. long dated loans, that is to say, loans which are contracted for at least ten years, but may be called in by the debtor after not more than five years; 2. Short dated foreign loans contracted by the States for not more than 1 year, and solely for the provisional swelling of working funds (Betriebsmittel), provided the States in a formal declaration to the Advisory Office (Beratungsstelle) - see under D - guarantee that repayment will be made without fail on maturity and that there will be no question of conversion into a long dated loan. The nominal amount, the conditions and the creditor's name shall be notified to the Advisory Office not later than eight days after the loan has been contracted. If from the notifications the Advisory Office finds that the frequency of the dates of payment, the accumulation of the amounts contracted or any other circumstance is likely seriously to endanger the currency, it is entitled upon notifying the States to apply temporarily, but not for longer than three months, the procedure provided for under C to the above short dated foreign loans, notwithstanding anything hereinabove provided. a - DOC. 231 - 50 II. NAXAMMEIChaEgt. The annual maximum charge to be fixed by the Advisory Office in accordance with D, paragraph 2, calculated on the basis of the net proceeds after allowing for discount upon issue and having regard to the sinking fund conditions, commissions to intermediary parties and any other expenditure, shall not be exceeded. III. Utilisation of the foreign loans. Any foreign loans contracted by the State, Communes or associations of communes must be used for the contracting party's own purposes, or for those of one of the public bodies indicated under A. In particular they shall not be passed on to physical persons or bodies corporate under private law. The foreign loans must be used for directly productive ends, that is to say only for such profit-earning investments as by the direct production of values guarantee out of their own income the interest and sinking fund payments on the capital invested, without having recourse to the general income of the public body. It is important that the investments, either by increasing exports or by restricting imports or in some other way, should directly or indirectly serve to promote the economic interests of the Reich as a a - DOC. 231 51 - whole; local interests in themselves are not sufficient justification. The investments must be necessary in the sense that the projected expenditure cannot be postponed until such time as German capital is available for the purpose. IV. Guaranteeing of the foreign loans. The conditions shall not provide for specific pledges of any kind, nor shall they involve any other businesses, such as for example the sale of products of Government enterprises. C. Before contracting the foreign loans which come under A, but which do not conform with the conditions under B, as well as before offering guarantees for security for foreign loans, the Government of the State concerned shall, on its own behalf or on behalf of its Communes or associations of communes, Giro clearing houses and other credit institutions indicated under A, consult an Advisory Office, which shall examine whether the loan in question is undesirable for the reasons explained under A, or for the purposes to which it is to be put. When examining the purpose of the loan the Advisory Office shall in principle observe the a - DOC. 231 52 - 40 regulations laid down in B, III. When examining the question of urgency, it shall bear in kind whether the total amount of foreign loans approved or the number of applications submitted has reached a figure which, in the interests of the currency or of the loan terms which it is desirable to obtain, should not in the meantime be exceeded. The States are entitled to make verbal representations to the Advisory Office in regard to the proposed loan. The Advisory Office shall express its opinion promptly and shall notify the Finance Ministry of the Reich and the Government of the State concerned accordingly. If a State does not agree with such opinion, an effort shall first be made to come to an agreement with the Advisory Office, which shall reconsider the loan scheme in another meeting, which shall if possible be attended by a special expert (without the right to vote). If no agreement can be reached, the State, before coming to a final decision regarding the contracting of the loan, must consult a Committee, whose members shall be appointed by the Governments of the States and on which the several States shall be represented by the number of votes corresponding to their representation in the Reichsrat. The simple majority vote of this Committee shall be decisive. The Governments of the Sates shall themselves decide whether and how far they wish a - DOC. 231 - 53 - 10 to conform with the opinion of the Committee. But at the same time the States agree that their own interest in the application of the principle set forth under A paragraph 1 makes it desirable to adhere to the opinion of the Committee. D. The Advisory Office, which shall be a confidential committee of the States, shall consist of experts. It shall be composed as follows: 1. an expert to be appointed by the Finance Ministry of the Reich who shall act as chairman, 2. an expert to be appointed by the Ministry of the Reich for Economic Affairs, 3. an expert to be appointed by the Reichsbank-Direktorium: as experts appointed by the States: 4. Dr. Schroeder, President of the Preussische Staatsbank, 5. Arnold, President of the Bayerische Staatsbank, 6. from time to time a Government representative of the State applying for an expression of opinion. Deputies may be appointed for the experts indicated under 1-3. In the event of the experts named under 4 and 5 being prevented from taking part, deputies shall be appointed by the Advisory Office. The Advisory Office shall draw up a - DOC. 231 - ves 54 - standing orders which shall be communicated to the Reichsrat. The management shall be in the hands of the Finance Ministry of the Reich. To keep pace with developments, the Advisory Office shall constantly examine the conditions indicated under B, consider any objection to their application which may have arisen, and, if necessary, propose amendments to the States. The maximum rates for the charges in respect of the loan (B II) shall be independently fixed by the permanent members of the Advisory Office according to circumstances. In addition it is one of the functions of the Advisory Office to watch the foreign money markets and, where possible, to supply information, for example regarding favourable opportunities and the reliability of persons acting as intermediaries for the negotiation of loans. The States are under obliga- tion to keep the Advisory Office informed as to their experiences and to communicate to it the nominal amount, the conditions, the object and the name of the creditor in the case of any foreign loans contracted by them or by their public bodies, Giro clearing houses or other credit institutions indicated under A, in so far as these do not otherwise require to be notified to the Advisory Office. The Advisory Office shall give the States the benefit of its experiences. a - DOC. 231 55 - E. The States shall see that the above regulations are observed by their communes, associations of communes, Giro clearing houses and other credit institutions indicated under A. F. The above agreement shall be valid until June 30 1925, and is automatically renewed as from that date for periods of three months, unless notice of withdrawal is given by one of the States four weeks before the expiration of such periods. Annex V. FINAL PROTOCOL. 1. At the meeting held in the Finance Ministry of the Reich on December 23, 1924, the authorised representatives of the Federal States agreed to observe the Regulations when foreign loans are contracted which are intended for the Federal States, communes or associations of communes. 2. The representatives of the States refused to agree to the application of the Regulations for the contracting of foreign loans to the State banks of the various Federal a - DOC. 231 - 56 411IrStates. On the other hand it was understood that the State banks may not contract unlimited foreign loans, that is to say, without regard to their endowment capital, and that the Federal States may not use their State banks in order to evade the Regulations. 3. The representatives of the States declared that the States will comply with decisions of the Committee of the Federal States mentioned under C, paragraph 2 of the Regulations, except in cases of absolute urgency. 4. Should the decisions of the Committee of the Federal States not be adequately observed, the Government of the Reich proposes to make the intervention of the Committee The representatives of all the Federal States, decisive. with the exception of Bavaria and Wurtemburg, declared that in this they support the Government of the Reich. 5. The representative of the Reich declared that, in the event of recourse to foreign borrowing, the Reich would proceed in accordance with the principles laid down in the above Regulations. - 57 - a - DOC. 231 ANNEX VI (1) COMMUNAL LOAN. I. A2Pligqtions 1. Wurtemberg towns $ 270 000 Kommunale Landesbank Darmstadt Issues $ 8 400 000 $ 8 400 000 10 000 000 Durlach 3. Recommendations included in the loan of the Baden Girozentrale under 10 81 000 $ 000 000 3 600 000 $ 1 500 000 $ 1 500 000 $ 1 500 000 Swiss frs. 1 500 000 GM. 1 200 000 GM. 1 200 000 2 000 $ 4 000 4. Heidelberg 5. Lindau 6. Berlin $ 15 000 000 $ 15 000 $ 15 000 000 000 7. Cologne $ 15 000 $ 10 000 000 000 000 000 $ 10 8. Munich $ 10 000 000 $ 8 760 000 $ 8 700 000 9. Dusseldorf $ 000 000 $ 1 775 000 $ 1 750 000 Baden Girozentrale $ 500 000 $ 4 300 000 $ 7 4 500 000 Frankfort-on-Main $ 8 000 000 $ 4 000 000 $ 4 000 000 Duisburg $ 4 300 $ 3000 000 $ 3 000 000 000 Dresden $ 15 000 $ 5 000 000 $ 14. Association of Thuringian towns ) 15. Konigsberg in Prussia ) 6 $ 000 000 000 5 Originally submitted as an independent loan, but subsequently merged into the loan of the German Giro Association (No. 21) 16. Community of German GM. 15 130 000 mortgage banks GM. 10 800 000 GM. 10 800 000 1.7. Various towns in the Palatinate $ 5 000 000 $ 3 800 000 $ 3 800 000 (1) The loans are shown in the order in which they were approved. a - DOC. 231 -58 6 000 000 6 000 000 5 000 000 $ 18. Leipzig $ .q. Nuremberg Originally submitted as an independent loan, but subsequently merged into the loan of the German Giro Association (No. 21) O. Kissingen n. Association of German Savings $ 63 760 500 Dutch guilders 38 000 000 and Giro banks 22. . Landesbank der Rheinprovinz Rm. Chemnitz Dutch guilders Cloppenburg 6 $ 23 000 000 D.G.12 300 000 D.G.12 300 000 780 000 1 500 D.G. 1 000 000 D.G. 1 000 00 Ji 000 25. Province of 848 300 835 000 891 178 420 Westphalia E 461 365 200 2 Total in RM. $ 23 000 000 II. 835 000 459 828 000 STATE LOANS 15 000 000 $ 15 000 000 $ 15 000 000 15 000 000 $ 15 000 000 $ 15 000 000 1. Bremen 2. Bavaria $ 3. Oldenburg $ 6 4. Anhalt $ 4 000 000 5. Baden 6. Hamburg $ 7. Bavaria $ 10 000 000 $ 10 000 $ 10 000 000 8. Prussia $ 20 000 000 $ 20 000 ( $ ). Hamburg ( E 12 500 000 2 500 000 $ 10 000 000 2 000 $ 20 000 000 $ 10 000 000 Total in RU, a 56 800 000 Swiss frs. 5 464 000 000 $ 000 000 000 000 3 000 000 000 $ 3 $ 2 000 000 $ 2 000 000 S.F.40 000 000 zp40 000 000 $ 5 000 000 508 200 000 409 $ E 5 000 000 2 000 000 000 200 000. a - DOC. 231 -59III. AGRICULTURAL LOANS Egcaraa.w cationEt 1. Bavarian agricultural cooperative societies with the guarantee of the Bavarian GM. 10 000 000 Government 2. Rentenbank-Kreditanstalt $ 25 000 000 GM. 10 000 000 $ 115 000 000 Total in RM. 25 000 000 $ 000 000 000 $ 5 000 000 $ $ 4 000 000 $ Sw. frs. 30 000 000 Sw. frs. 15 000 000 $ 2. Rhein-MainDonau A.G. 000 $ 6 3. Sdchsische Landespfandbriefanstalt 000 000 5 000 000 6. Sdchsische Werke Total in RM. Sw. frs. 30 000 000 $ 15 000 000 238 500 000 15 000 000 $ $ 5. Berliner Elektrizitdts A.G. 25 000 000 115 000 000 15 000 000 000 000 $ $ ERTAKINGS 1. SAchsische Werke 4. Bezirksverband Oberschwdbischer Elektrizitatswerke Q GM. 10 000 000 115 000 000 IV. LOANS I £3 $ 213 000 6 000 000 5 000 000 (1st tranche) 4 000 00C 30 000 00 15 000 000 300 300 000 Translation 4040 (including 3843 - Annex IV m ) from the German: translated BWS: checked RB and NL. BPD The Dawes Plan in Operation 7-" "We recommend that a limit of five milliards be placed upon all funds accumulating in the hands of the reparation creditors in Germany. If this limit is reached, the contributions from the budget are to be reduced below the standards set out in our plan, so that they are not in excess of the withdrawals from the account and the accumulation is not further increased. In this contingency, the payments by Germany out of the Budget and the transport tax would be reduced until such time as the transfers to the Allies can be increased and the accumulation be reduced below the limit named. We do not deny that this part of our proposal will present difficulties of a novel character which can only be solved by experience." (Dawes Report, Part I, Section XIII) The present wave of speculation as to the ultimate success or failure of the Dawes Plan largely centers about these words in the report of the Committee of Experts. The optimists and pessimists have kept the discussion alive for the past year or more in European centers, and recently our own hannels of public opinion have taken up the subject from a somewhat alarmist viewpoint. Holders f dollar bonds issued by German states, municipalities and corporations have begun to wonder what it is all about, and, in some instances, have preferred to liquidate their holdings rather than investigate of German securities show a rather general decline ( r (as compared with prices ruling a month ago, and will unquestionably go to lower levels unless the already large body of holders familiarize themselves with the facts. , ;During the year beginning September first, 1928, the German Government will be called upon to make the first maximum annual payment under the sliding scale adopted in the Dawes Plan. This (-payment amounts to two and one-half billion reichsmarks ($595,000,000) plus whatever sum may be added by the Index of Prosperity. The government satisfies its obligation by depositing this sum, in reichsmarks, in the Bank of Issue in Berlin to the account of the Agent for Reparations. How this sum is to be withdrawn from Germany for division among the nations interested is left to the discretion t of allied representatives who form component parts of the elaborate machinery set up for that purpose, ;with the reservation, however, that the sum must be withdrawn without endangering the prosperity of Germany, and the stability of the reichsmark. Should either or both of these requisite con (ditions be threatened, the machinery of the Plan allows the Transfer Committee to hold or reinvest eparation payments in Germany, and, should such accumulation reach a total of five billion reichsmarks, the Transfer Committee may reduce the annual payments derived from the budget and trans(port tax until the accumulation has been worked off by exchange transfers abroad. "The success of our proposals to attain financial stabilisation depends essentially upon the return of confidence. Without this the return of German capital invested abroad, the a traction of foreign capital for the purposes mentioned in the scheme and of foreign credits for the current conduct of business, and even the proper collection of taxes, will alike be impossible." (Dawes Report, Part I, Section VIII) The architects of the Dawes Plan were set an unprecedented task in modern economic history. They were asked to restore to a devastated continent complete and immediate confidence. The success of their work was almost immediate, and the general prosperity of Europe today is a signal tribute to the personal confidence in which the members of the Experts Committee were held, and the wisdom and foresight of the Plan they evolved. It is not within the bounds of common sense, however, to expect of the Plan more than it was intended or permitted to give. The Committee of Experts was not instructed to decide what total sum of reparations Germany must pay, what technical methods the Transfer Committee should adopt to obtain the necessary exchange, or what volume of private German ., c borrowing abroad could be permitted without seriously complicating the transfer of reparations. These questions were all beyond their province, and it would seem unfortunate to prematurely condemn the structure they erected, more especially as the machinery they set up is sufficiently elastic to obtain complete and final success, given the requisite amount of good faith on the part of all interested parties. The duty of the Committee was to determine the maximum annual sum of reparations which the Allied Powers could take from Germany without endangering her financial and economic prosperity. They decided the sum was a maximum of two and a half billion reichsmarks, plus a prosperity increment, and that sum will be payable annually after the present fiscal year of the Plan. It should be noted that the framers of the Plan fully realized that cash reparations could only be obtained from a prosperous and solvent nation. An essential part of their proposals was designed to restore to Germans confidence in themselves, and to strengthen the confidence of the world outside in Germany. German funds which had been surreptitiously carried over the border during the months of panic must be brought back, and sufficient assurance must be created to attract the investment of foreign capital in Germany by those who would expect to receive interest on their holdings at regular intervals and without the interference of any political sanctions. The response of foreign capital was wholehearted, and showed the spontaneous acceptance of the spirit of the Dawes Plan. "Without undue optimism, it may be anticipated that Germany's production will enable her to satisfy her own requirements and raise the amounts contemplated in this plan for reparation obligations. The restoration of her financial situation and of her currency, as well as the world's return to a sound economic position, seem to us essential but adequate conditions for obtaining this result." (Dawes Plan, Part I, Section V) While there have been occasional dissenting voices, the best opinion within Germany and abroad indicates that no serious difficulty will be experienced by the German Government in fulfilling its part of the Plan by making the necessary deposits in the Bank of Issue. Thanks to the Plan itself, the amazing industry of the German people, and the volume of American capital which has been made available to their needs, business prosperity has been restored in a much greater degree than the world anticipated. The Agent General for Reparations has reported that during the first three years of the life of the Plan all payments of reparations have been promptly made when due. Statistics indicate that the payment of interest and amortization on the five billion reichsmarks of Industrial Debentures has placed no perceptible burden on German industry, and the railways have earned substantially more than the amount needed to cover annual charges on the eleven billion reichsmarks of bonds created for reparations. The remainder of the annual payments under the Plan is derived from controlled revenues under the budget and the railroad transportation tax. Controlled revenues last year produced two billion four hundred million reichsmarks, or a surplus of one billion, one hundred and fifty million reichsmarks over and above the amount earmarked for reparations in the standard year under the Plan. In fact the controlled revenues, alone, produced only one hundred million reichsmarks less than the maximum annual payment of two and a half billion called for in 1929 under the Plan. Certainly the calculations of the Dawes Committee as to what Germany can safely pay have to date been fully justified, and there would appear to be no cause for alarm as to the future, provided general budget expenditures are kept within reason. "We estimate the amount which we think Germany can pay in gold marks by consideration of her budget possibilities; but we propose safeguards against such transfers of these mark payments into foreign exchange as would destroy stabilisation and thereby endanger future reparation." (Dawes Report, Part I, Sect. VIII, d) The situation with regard to the actual transfer of reparations out of Germany shows an equally satisfactory position for the first three years of the Plan. The Agent General has been able to transfer all amounts desired, either in the form of cash or goods, without calling for any emergency measures on the part of the German Government or the Transfer Committee, and without disturbing the normal exchange market position of Germany. The method of employment of reparation payments to June 30, 1927, is shown in the following table in million reichsmarks: Total Year .... Payments in kind Used in Germany (1) Interest on payments made prior to maturity Cash transfers to the creditor nations (2) and interest on Dawes Loan Movements in the cash holdings of the Agent General for Reparations 284 122 82 3 71 +6 1925 1,061 507 162 3 311 1926 1,197 624 91 7 446 +78 +29 727 304 39 3 340 3,269 1,557 374 16 1,168 1924 1927, January 1 until June 30th Total (1) (2) +41 +154 Costs of army of occupation and j of costs for commissions. Including Yi of costs for commissions. Taken by itself, there should be no question as to the continuing ability of the Agent General to transfer the annual sum of reparations to the designated foreign recipients. This annual sum reduces itself to a daily requirement of only $1,700,000 of exchange which is indeed a small amount for a country of the size and international importance of Germany. The problem, therefore, is one not appertaining to the transfer of reparations, but relating to the sound management of the German finances and economy. In this connection it is necessary to remove a general misunderstanding as to the powers and duties of the Agent General and the Transfer Committee. These officials are not appointed to manage and supervise the daily conduct of German Government finances and the German exchange market. They are charged with the duty of collecting, investing and transferring of reparations. The principal duty of the Transfer Committee is to advise when the annual payment under the Dawes Plan should be reduced on account of unmanageable accumulations in Germany. The Agent General has greater responsibility as observer and manager of reparations, and, by reason of his daily contact with the officials of the Government, is in a position to offer advice on budget policies and any matter which may affect the continuing soundness of the German fiscal position. His communication to the Government under date of October 20th was in this spirit, and warned the authorities against the growing expenditure and borrowing on the part of the Reich, the states and municipalities for nonproductive purposes. Obviously loans to German industry which, by their nature, promote employment of labor, the production of goods, and the increase of exports, are sound and desirable. The granting of such credit to German industry in the form of American loans has been an important factor in the quick return of healthy business conditions and has materially lightened the burden of reparation payments during the first and most difficult years of recuperation. Mr. Gilbert's note is a timely warning to the Reich that it has a distinct obligation to check the issue of loans for any other purposes. The Government of the Reich has so far demonstrated its willingness to carry out the spirit of the Dawes Plan, and the proper control of the budgets of the Reich and its subdivisions is a matter which it can be expected to handle in a satisfactory manner. "We repudiate, of course, the view that Germany's full domestic demands constitute a first charge on her resources and that what is available for her Treaty obligations is merely the surplus revenue that she may be willing to realise. But at the same time, if the prior obligation for reparation that is fixed for Germany to pay, together with an irreducible minimum for her own domestic expenditure, make up in a given year a sum beyond her taxable capacity, then budget instability at once ensues and currency stability is also probably involved. In that event, an adjustment of Treaty obligations of the year is obviously the only course possible." (Dawes Plan, Part I, Sect. VIII) Any argument at the present moment that reparations have priority in the exchange market over the interest on German loans placed abroad, or the opposite contention that private obligations enjoy priority, is beside the mark and confusing. It is difficult to conceive of a situation arising in which all available foreign exchange would be monopolized by German borrowers who were desirous of meeting interest payments on their foreign loans, with none left over to satisfy the interest of France and other powers in reparation payments. Nor is it possible to picture a Germany forced into general default in the payment of interest on private foreign obligations while the allied nations paid themselves in full out of the assets of the bankrupt nation. The first alternative would be an injustice to the creditor nations while the second would be lacking in common sense and against the best interests of all concerned. Any agitation, either in Germany or abroad, which has for its end an immediate revision of the Dawes Plan is unwise until it has been demonstrated that such revision is necessary. Up to the present time no evidence establishing that condition has been produced. An excellent caution was recently sounded by a German writer in a leading Berlin daily who said, "The real dangers which the Dawes Plan contains for Germany's future cannot be averted by exhorting Germans to insist on its revision. They can only be met by harmonizing financial and commercial policies and by facilitating in every way possible the smooth adjustment of the Plan to what the country can really pay." Dillon, Read & Co. November 23, 1927. Alm THE AGENT GENERAL FOR REPARATION PAYKENTS BERLIN, February 24, 1928. FROM: The Agent General for Reparation Payments, TO : The Secretary General, The Reparation Commission, Paris. Sir: I have the honour to transmit herewith, for the information of the Reparation Commission, a Memorandum of this date which I have prepared for the purpose of confirming the views which I expressed at our informal meeting on January 14, 1926. I shall appreciate it if you will bring the enclosed Memorandum to the attention of the Reparation Commission in regular course. Respectfully, (signed) S. PARKER GILBERT Agent General for Reparation Payments. 1 enc. - 3 - attempt to fix the amounts that could be transferred from year to year, believing, as they said, that "experience, and experience alone, can show what transfer into foreign currencies can in practice be made". The Experts' Plan, in other words, avoided any definitive settlement of this question, and left the amount of actual transfers to the creditor Powers to be determined year by year under the auspices of the Transfer Committee, in the light of practical experience. As the Conclusions have pointed out, it was, in fact, impossible, in the state of confusion and disorder which existed at the time, to reach any final decision as to the amount of Germany's reparation liabilities, without, as the Experts said, running the danger of fixing it at "so low a figure as to be quite unacceptable to her creditors and unwarrantedly favorable to Germany", or, on the other hand, of fixing it arbitrarily without reference to Germany's economic surplus, and leaving the discharge of the liability "to uncontrolled events without any possible regard to exchange difficulties", in such a way as to invite "future instability and disaster". Under these conditions, entirely apart from the question of the competence of the Experts to re-examine the total of the reparation debt, the necessary basis was lacking for any consideration of the total of the reparation debt, or for any determination of the number of the successive Annuities to be paid by Germany in discharge of her reparation debt. In- deed, it was provided that even the Annuities to be paid internally by Germany under the Plan were to be transferred to the Creditor Powers only subject to the transfer clauses which the Experts introduced into the Plan for the protection of the German exchange. ti p -4 4. It is necessary, in considering the operation of the Experts' Plan, to make allowances for the inherent weaknesses of any protected system. The Conclusions have pointed out that "the very existence of transfer protection, for example, tends to save the German public authorities from some of the consequences of their own actions, while, on the other hand, the uncertainty as to the total amount of the reparation liabilities inevitably tends everywhere in Germany to diminish the normal incentive to do the things and carry through the reforms that would clearly be in the country's own interests." Without multiplying examples, I may cite one such reform which is of the first importance, namely, the settlement of the financial relations between the Reich and the States and communes. This is a question which received special notice in the Experts' Report, and has been the subject of almost constant attention ever since its presentation. The need for reform has been emphasized in all of my published Reports, and in my letter of March 17, 1927, to the Finance Minister of the Reich, and is generally admitted in all informed circles with. in Germany. The probabilities are, however, that no final solution of the problem will be reached until there has been a definitive settlement of the reparation obligations of Germany, - partly because the Reich, which is primarily responsible for the reparation obligations, wants to know its definitive liabilities in this regard before making any definitive engagements with the States, and perhaps even more because of the lack of the natural incentive to introduce economies and effect budgetary reforms so long as the total of the reparation debt remains uncertain. This last consideration has a broader influence, which touches the whole problem of the expenditures and borrowings of the public authorities - 5 - in Germany, not only of the Reich but of the States and communes. It is ordinarily characteristic of a debt, whether public or private, that the debtor should know what he has to pay, and the debtor normally has a corresponding incentive to limit his expenditure in such a way as to allow for the ultimate discharge of his obligations. ever, Germany lacks the normal incentive to economize. Unde On the contrary, as was pointed out in my Memorandum of October 20, 1927, the tendency of recent years has been toward the growth of public expenditures and of public borrowings, both domestic and foreign. In the long ru cies if continued cannot fail to affect the foreign exchanges, with consequences for the transfer of reparation payments which cannot now be foreseen. Moreover, the borrowings of the German public authorities in foreign markets have already made heavy drafts on German credit abroad, and cannot continue indefinitely on such a scale without impairing the ability of foreign countries to absorb the reparation bonds when the time for selling them arrives. Still more broadly, the present status of Germany's repara- tion liabilities, since it leaves uncertain the extent and duration of the responsibilities which the various elements of the German economy must directly or indirectly assume, acts constantly as a disturbing influence in the process of German reconstruction. Up to the present time these various difficulties, which may be said to be inherent in the present system, have interfered relatively little with the current operation of the Plan, But they have already shown them- selves as powerful factors, and I feel sure that as time goes on, and the Annuities rise to the standard level, they will exert an ever-increasing practical influence. 6 I believe that in this sense the existing state of uncertainty as to the limits of Germany's reparation liabilities will tend, sooner or later, to interfere not merely with the capacity of the German economy to make reparation transfers but perhaps even with Germany's ability to make the internal payments called for by the Plan. In other words, there will surely come a time, and in the not too distant future, when the system of protection established by the Plan will be less productive of reparations for the creditor Powers themselves than a system which gives Germany a definite task to perform on her own responsibility, without foreign supervision and without transfer protection. 5. The Experts themselves recognized that the Plan was not a final solution of the reparation problem, and they expressed their views in so many words, in the final paragraph of Part I of the Report, as follows: "We would point out finally that while our plan does not, as it could not properly, attempt a solution of the whole reparation problem, it foreshadows a settlement extending in its application for a sufficient time to restore confidence, and at the same time is so framed as to facilitate a final and comprehensive agreement as to all the problems of reparation and connected questions as soon as circumstances make this possible." In effect, the Experts looked upon the protected system established by the Plan as a means to meet an urgent problem and to accomplish practical results. The Experts did not pretend that the Plan was an end in itself. The alternative to the protected system, as pointed out in the Conclusions to my last Report, is "the final determination of Germany's liabilities, on an absolute basis that contemplates no measure of transfer protection. The Experts did not indicate when in their opinion such a settlement would become possible in fairness to the interests of all concerned. That would indeed have been beyond their power to foresee." V - 7 - 6. It is doubtless true, as I understand from the declaration made by the President of the Commission, that the total indebtedness of Germany on account of reparation was fixed by the Reparation Commission in 1921 at the figure of 132 milliards of gold marks. This is a legal fact, which still exists as such, notwithstanding the adoption of the Experts' Plan. But in practice it is qualified, as I have already pointed out in the preceding paragraphs, by the provisions of the Experts' Plan for determining the amounts of the Annuities to be paid each year within Germany, and more particularly by the transfer clauses of the Plan. The Commission will recognize, moreover, that both the Agent General for Reparation Payments and the Transfer Committee are concerned only with the collection and transfer of the Annuities which Germany has agreed to pay under the terms of the Experts' Plan. the Transfer Committee have no responsibility under previous decisions which may have been taken by the Reparation Commission or by the Allied Governments as to the payments required of Germany, and are concerned in any such decisions only if and to the extent that they affect the collection and transfer of the Annuities contemplated by the Plan, or the settlement of practical questions arising from time to time in the course of operations under the Plan. I have on this ground, in the Conclusions to the last Report, drawn attention to the ultimate necessity of a final determination of Germany's obligations, for I feel sure, in the light of our practical experience up to this time, that the present uncertainty as to the final terms of the reparation liabilities will operate as an increasingly powerful factor of uncertainty in the execution of the Plan. a the system of transfer protection established by the Plan. 8. It is clear, as a corollary to the foregoing proposition, that the Experts' Plan continues in operation automatically, within its own provisions and limitations, unless and until something else is substituted for it by international agreement. It remains for experience to show to what extent full transfers under it will be possible, and it may not yield as much in effective transfers to the creditor Powers if the final determination of Germany's liabilities is delayed too long. But the Plan itself continues, according to its terms, within the framework and with the machinery that has been provided, until the time when the final solution Which it foreshadows has been reached by an international agreement of equal force. The Conclusions to my last Report have indicated that "we are still in the testing period, and further experience is needed before it will be possible to form the necessary judgments". But in due time the question is bound to present itself whether it will not be more productive from the standpoint of the reparation creditors, and better for the interests of all concerned, to give Germany a definite task to perform on her own responsibility. This is a question which will have to b3 considered at the proper time on its own merits, and by all the Governments primarily interested in reparations. 9. It would be a mistake, I believe, to suppose that the final deter- mination of Germany's reparation liabilities, when it comes, would involve a sudden abandonment of the Experts' Plan, or of the machinery which it has established. The final settlement of the problem, it seems to me, should be regarded rather as the completion of the Plan, and it would moat naturally be worked out within the framework of the Plan itself, as gradually and V German Railway Company or of the German Industrial Debentures until there has been a final determination of Germany's reparation liabilities. I could even go one step further and emphasize that there will be no substantial possibility of selling Railway or Industrial bonds on the investment markets until the public opinion of the world is satisfied not only that there has been a final settlement but that the settlement has been made on terms which are generally regarded as falling within Germany's probable capacity to pay and transfer. This is not a question of good or bad faith, or of politics, foreign or domestic, or of the policy of one Government or another toward the sale of these securities. It is simply a question of fact, and as such it will be recognized sooner or later as setting the limitations to policy. The fact is that investors the world over are not going to put their savings into reparation securities that may be issued by Germany until they are satisfied that Germany's reparation liabilities have been definitely fixed, and within the limits that offer a reasonable probability of payment. It will also be of vital importance from the stand- point of investors that the service of the reparation bonds which they are asked to buy should not be subject to interruption under the transfer clauses of the Plan. I have indicated in the Conclusions that any final settlement should provide for putting Germany on her own responsibility and for the withdrawal of the transfer protection, and this, I believe, may be taken to be a necessary condition of the mobilization of the Railway and Industrial bonds, as of any other reparation bonds that might be issued by Germany in pursuance of the settlement. Another question of the first importance which hinges upon the final settlement of Germany's liabilities is the so-called question of 111 -Liar UPI - 13 extend additional loans or credits. 11. In the last paragraph of the Conclusions, I took occasion to quote the final paragraph of Part I of the Experts' Plan, in which the Experts described the Plan as providing "a settlement extending in its application for a sufficient time to restore confidence", and as being "so framed as to facilitate a final and comprehensive agreement as to all the problems of reparation and connected questions as soon as circumstances make this possible." The words "connected questions" are, of course, those of the First Committee of Experts appointed by the Reparation Commission, and I should not presume to say what meaning the Experts intended to give them. For my part, I believe that the settlement of the reparation problem on its own merits is the fundamental condition of progress on other important problems which concern the reconstruction of Europe. Respectfully, (signed) S. PARKER GILBERT Agent General for Reparation Payments. di