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August 14 , I947

The Postwar Foreign Lending Program of the United States

It must be a familiar fact that today America is the economic giant of
the world. We emerged from the war with tremendous productive power far surpassing
anything in our previous peacetime history. At the same time, large parts of the
rest of the world, as a result of the destruction and disruption wrought by the war,
found themselves economically crippled. Fundamentally we are a healthy giant and
much of the rest of the world is sick. Whereas before the war our physical produc­
tion amounted to around 25 per cent of the world total, today our factories, mines,
and farms are probably turning out more physical production than all the rest of
the world combined.
To a lesser degree, this same situation prevailed during the war,
American productive power, shared with our Allies through the Lend-Lease program,
was the decisive factor in the defeat of the Axis powers. Our Allies in Europe and
in the Far East came to rely heavily upon the supply line to America in carrying
out their war effort.
But the war ended suddenly, and with it the pipeline of Lend-Lease
supplies was stopped. Now the demand in the Allied countries was for relief and
reconstruction, but as a result of the war they were in no position to produce for
export an amount sufficient to pay for their urgent import requirements. The
enemy countries themselves, shattered by the effects of war and defeat, became
public charges of the occupying powers. We have had to feed them and now find it
necessary to supply them with raw materials and equipment to reactivate their in­
dustrial machines so that they may again produce to meet the needs of a distressed
world. Even the countries in this Hemisphere which had largely escaped the physcial
destruction of the war had great deferred demands for consumer goods and capital
goods which were available only from the United States.
It should come as no surprise, therefore, that there have been immense
and pressing foreign demands upon our economy from abroad during the postwar period.
Since at the same time foreign countries have been physically unable to produce
even a normal volume of exports to the United States, these demands could not have
been met unless dollar financing had been provided on a very large scale. Since
private sources of capital could not be expected to carry the burden of this fi­
nancing, the task has fallen to the United States Government, and in the period
since the end of the war we have seen a tremendous out-pouring of Federal funds
for grants and loans to foreign countries.
Before giving you a brief review of what has been done to date and of
where we now stand, let me say a word as to the objectives of the foreign landing
program. Obviously this is not a business venture in the usual sense. We are not
lending money abroad for the sake of the interest which we may earn on the loans.
We are not lending money abroad in order to develop markets and create employment
in our export industries* We have simply faced the fact that unless credit was

provided on a selective basis to permit the flow of American production to the dis­
tressed areas of the world, large portions of Europe and Asia would have been re­
duced to starvation, unemployment, and widespread social unrest. We have had to
recognize that such conditions would have constituted a major threat to the attain­
ment of the objectives for which we fought the war.
Our war aims can be simply stated. We seek a stable peaceful commu­
nity of nations in which the peoples of the world can devote their talents and re­
sources to their common welfare. We have been seeking through the United Nations
to establish a political framework for such a world community, and our foreign
economic policy has been directed to the same end. But political, economic, and
social stability are all one, and none can be achieved without some measure of
economic recovery in the war-stricken areas to which we have been directing the
bulk of our foreign aid program.
I want to emphasize our stake in world stability because of some very
mistaken notions held by some people in this country and widely exploited in Rus­
sian propaganda. One of these notions is that the capitalist economic system in
the United States depends for its successful operation upon the constant stimulus
of a huge export surplus. Accordingly, the view is expressed that we are the real
beneficiaries of our foreign lending program, and that we should be pleased that
foreign countries are prepared to borrow money from us and spend it here. It fol­
lows, of course, from this argument that if there is a let up in our foreign lending
program our economic system will be condemned to unemployment and collapse.
So far as the development of our economy since the war is concerned,
nothing could be further from the truth. We have been engaged in a constant strug­
gle with domestic inflationary pressures arising out of the shortage of goods in
comparison with the tremendous current and accumulated purchasing power of the
American people. The shipment of vast supplies to foreign countries, while it can­
not be said to have imposed any serious deprivations upon our people, has nonethe­
less added markedly to the inflationary pressure. There have been times, and there
may again be times, when the problem of our economic system is to find markets for
our production. This has not been true in recent years, nor is it tr*ue today. And
when and if this situation again develops, it can be dealt with just as effectively
through the extension'of credit at home or by reducing the taxes which bear upon
our people or by both. No, the case for foreign lending must rest upon our foreign
policy objectives and our long-term interests in developing a healthy and prosper­
ous world'economy rather than upon any specious argument of short-term economic
Altogether since the end of the war the United States Government has
authorized foreign grants and credits of about 16-1/2 billion dollars. The princi­
pal instruments in the postwar foreign loan program have been the Export-Import
Bank, the lending power of which was increased from 700 million to 3-1/2 billion
dollars in July 1945 J the special loan to Britain of 3-3/4 billion dollars granted
in December 1945J the delivery on credit terms of certain categories of Lend-Lease
goods amounting to 1-1/2 billion dollars; sales of military surplus on credit terms,
amounting to 1 billion dollars} and the special 350 million dollar appropriation
for Greece and Turkey which is being advanced this year. In addition to these
credits the United States Government has contributed over 3 billion dollars of

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relief supplies to UNRRA and in connection with the post-UNRRA program being car­
ried out this year; we have promised large grants to the Philippines, although
these have not yet been usedj and we have been supplying some three-quarters of a
billion dollars worth of goods annually to Germany, Japan, and other areas occupied
by our armed forced#
Drafts upon these grants and credits, plus substantial liquidation of
foreign gold and dollar reserves, have provided the means for financing a great ex­
port surplus from the United States. In 1946 our total exports of goods and ser­
vices amounted to 15 billion dollars and total imports to 7 billion, leaving 8 bil­
lion as the net export surplus which had to be financed. Of this amount, 3 billion
was covered by donations, 3 billion by credits, and 2 billion by the liquidation
of foreign gold and dollar resources. The credits were made available almost en­
tirely by the United States Government, and so were the donations (mostly through
UNRRA and the occupied areas programs), except for 700 million dollars of private
relief shipments and remittances in 1946.
In the first half of 1947, total exports were running at the annual rate
of over 20 billion dollars, and imports at the rate of less than 8 billion dollars,
with the result that the net export surplus was running at the annual rate of over
12 billion dollars, or over half again as much as in 1946, when it was 8 billion
dollars. This has put a heavy strain upon available financial facilities, especial­
ly since the amount of Government donations declined somewhat with the wind-up of
UNRRA activities. During the first half of the year foreign countries speeded up
the use of their credits with the United States Government to a rate of 5 billion
dollars a year, while drafts upon their'existing gold and dollar resources reached
an annual rate of 4-1/2 billion dollars.
It is perfectly apparent that unless new programs of foreign financial
aid are launched on a large scale, foreign countries cannot much longer maintain
this rate of deficit financing in their trade with the United States. Furthermore,
there is little prospect that United States imports will expand greatly during the
next year or so. As a result, the 20 billion dollar rate of American exports is
going to have to decline unless new measures are taken to finance their purchases.
U nder present programs, foreign countries will have available only about
6-1/2 billion dollars of grants and credits for expenditure in the United States
during the coming fiscal year July 1947 to July 1948. Grants may again amount to
well over 2 billion dollars, made up principally of the supplies to occupied areas,
and private relief shipments and remittances. However, drafts on existing U. S.
Government credits and on those which may be provided by the International Fund and"
Bank, plus some small private investment abroad, are not likely to provide more
than 4 billion dollars as compared with the annual rate of 5 billion reached in the
first half of this year. While the International Fund and Bank, to which the
United States has subscribed nearly 6 billion dollars, are now coming into active
operation, they are not set up'in such a way as to provide really large-scale
assistance at the present time. The function of the Fund is to provide short-term
credits, while the present demand is for long-term assistance* The Bank, on the
other hand, is limited in the scope of its immediate operations since the bulk of
its funds must be borrowed in the private market and it must proceed with caution
in order to retain the confidence of the investing public.

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There remain available to fill the “dollar gap" the gold and dollar
reserves of foreign countries, which under existing programs would have to provide
some 5 billion dollars during the coming year if the 20 billion dollar rate of ex­
ports were to be maintained. Clearly this is not feasible. It is true that these
reserves amounted to over 15 billion dollars at the middle of this year, and that
in addition private citizens in foreign countries held some 3 billion dollars of
dollar balances plus several billion dollars of long-term investments in the United
Jtates« But a large part of these assets is either not available to foreign govern­
ments (many of which still retain respect for private property rights) or must be
conserved as reserves against currency in circulation in foreign countries or as
'•last ditch” reserves against international contingencies. More importantly, how­
ever, the aggregate figures are misleading, since the so-called "dollar shortage",
while widespread, is nonetheless heavily concentrated in a few countries. Even
though the total figures for available dollar assets in foreign hands may seem
large, certain countries will still find themselves badly squeezed. Any extension
of our foreign lending program must therefore be thought of in terms of meeting the
acute situations of particular countries.
Similarly, on the export side, it is not very meaningful to talk in
terms of aggregates, and to discuss whether or not from the point of view of foreign
countries it is necessary to maintain the 20 billion dollar annual rate of exports
•eached in the first half of this year. It may well be essentail to the attainment
of our foreign policy objectives to maintain the flow of our trade to some areas,
but it is equally clear that some countries have been purchasing more goods in the
United States than were required to meet their essential requirements. The same
can be said with respect to different commodities. On the whole, our exports of
food, fuel, and raw materials have been meeting truly essential requirements. On
the other hand, we have been exporting great quantities of non-essential manufac­
tures, especially to countries in this Hemisphere.
The countries to which we have been lending on a large scale have, for
the most part, confined their expenditures to essential goods, but our markets
have also been open to countries which could afford to spend accumulated gold and
dollar reserves upon non-essential goods. We have been unable to check this ten­
dency since our direct controls over exported commodities have been largely dismanteled. In the first quarter of this year, for example, we exported 63,000 pas­
senger cars, 49,000 electric refrigerators, and 430,000 radio receiving sets, rep­
resenting around 8 to 10 per cent of our output in these lines. While possibly
some of these items were used to meet essential requirements, most of them must be
regarded as needless frills# We need not become too concerned if such exports de­
cline when foreign countries use up their freely available purchasing power.
As you know, a series of studies is n< * being prepared for the United
States Government on the subject of our foreign aid program, both with respect to
foreign requirements and’with respect to the capacity of the American economy to
produce goods for export# In particular the United States Government has indicated
its readiness to consider further aid for reconstruction in Europe if the foreign
countries themselves present a plan which includes a maximum degree of European
self-help and which promises to put them on their feet again within a reasonable
period of time» We all recognize in the words of the President's Midyear Economic
Report to Congress that "the cost of effective foreign aid programs will be only a
very small fraction of the cost of winning the war, and they are vital to the wianing of the peace".